independent surveillance system and will act similarly for CCS, Inc. The department will report weekly on the overall controls and operating status based upon established controls of CCS, Inc. The weekly report will show the number of out-of-balance conditions and timeliness of resolution, vault count differences and timeliness of resolution, a summary of aged transfer items, and lost certificate activity. The report will inform all relevant management personnel of compliance with established controls. In addition to the above, the Internal Auditing Department will count certificates in CCS, Inc. vaults daily, and perform examinations, and internal control reviews of specific aspects of the system. The Internal Auditing Division will report to the Audit Committee and the Board of Directors of CCS, Inc. Service Area Private individuals and industrial concerns probably will not be members of CCS, Inc.; rather, the clearing corporations of national securities exchanges and associations, securities brokers and dealers and financial institutions such as banks, insurance companies, municipalities, private pension funds and mutual funds will be eligible to be members of CCS, Inc. At present there are only two depositories in operation, CCS in New York City and a depository in San Francisco sponsored by the Pacific Coast Stock Exchange. Active consideration is being given to the establishment of a third in Chicago. The incomplete nature of the system of interconnecting regional depositories makes physical delineation of a service area very difficult. In general the members will be the present members of CCS (broker/dealers), banks and other financial institutions located in Manhattan which deal in securities traded on the New York and American stock exchanges and in the over-the-counter market. CCS, Inc. will be prepared to accept members from the entire country. The depository in San Francisco can be expected to handle transactions on the Pacific Coast Stock Exchange and over-the-counter transactions on the West Coast. The Chicago depository, when and if established, will handle transactions on the Midwest Stock Exchange and over-thecounter transactions in the midwest. [Statistical Material on Banks Omitted.] Need for CCS, Inc. The statistic which is most relevant in determining the need for CCS, Inc. and the probability of its successful operation is the number of transactions on the stock exchanges. The New York Stock Exchange is used here as an example. Beginning in the early 1960's, share volume on the New York Stock Exchange--as measured by both daily average volume and total reported volume--increased at a reasonably steady and manageable rate. The rate of increase began accelerating sharply, however, in early 1967. Reported volume for the first quarter of 1967 was 615 million shares--14% above the previous record total for any three-month period, and considerably more than the total reported volume for the full year 1957. New records were set during each of the succeeding quarters of 1967, and total reported volume for the year was 2.53 billion shares--a one-third increase over the preceding year. Although 1968 had 12% fewer trading hours than 1967--due to the elimination of 26 trading days and the shortening of 28 others--reported share volume reached a new record of 2:93 billion shares traded, an increase of 400 million shares--or 16%--over the preceding record year. (Significantly, on 25 days during the year, reported volume exceeded the 16.4-million-share record which had stood since October 29, 1929.) Total reported volume for the first quarter of 1971 was 1.11 billion. A record for a single day's trading was set on February 9, 1971 with volume of more than 28 million shares. Volume set another record of nearly 402 million shares in April-although the daily average of 19.1 million did not quite reach the March peak. (Daily average volume subsequently dipped to 15.2 million shares in May and further declined to 13.8 million in June.) The most recent statistics also indicate continual increase in the number of issues deposited. Since October 1, 1971 CCS has added, on a gross basis, 145 additional issues of securities to those previously eligible for deposit, thereby increasing the number of transactions which may be settled by book entry rather than by physical delivery of securities. Of these 145 additions: 7 were securities listed on the NYSE 44 were securities listed on the AMEX 94 were securities traded over-the-counter. Ten issues of the over-the-counter securities are being added each week and additional listed securities will be added as conditions warrant. Clearly, CCS is being utilized heavily and CCS, Inc. can expect to be utilized to an even greater extent as acceptance of depositories deepens and financial institutions are legally permitted |