timely information of his total positions throughout the system in response to one inquiry. The communications system may be used as well for other operating matters. This system will also enable a participant to move positions on a nationwide scale by dealing with any single regional depository.

It is further intended by the National Coordinating Group that this regional concept, through the interdepository communications system, would provide the means for obtaining detailed information regardless of the location.

II. The initial major depositories, those in New York, California, and Chicago, would have interdepository accounts with each other as needed to facilitate movement of securities in the system. Any regional depositories which might be subsequently formed could have accounts with one or more of the major depositories.

It is intended that regional depositories will receive and deliver securities by book-entry. It is also intended that regional depositories will receive securities for each other and adjust interdepository accounts as necessary. To facilitate the clearance and settlement process, the National Coordinating Group will promote transfer capability within the regions.

III. The National Coordinating Group will coordinate the efforts of the various regional depositories so as to permit the maximum possible participation within the depository system by banks, security dealers, and financial institutions, commensurate with necessary security and control.

The National Group will take an active leadership role in the establishment of uniform national standards for membership, thereby permitting the above-described maximum participation.

IV. Depositors would be encouraged, but not required, to become owners of a depository (ies).

V. The National Group will coordinate the efforts of the regional depositories to maximize the number of security issues to be included in the nationwide book-entry system.

VI. The National Group endorses the proposed amendments to existing State laws-specifically, Uniform Commercial Code and fiduciary holdings laws-which would extend ownership of and participation in a depository. Toward this end, legislation has already been enacted in some States and introduced in other States.

There are a number of other legal issues which while not insurmountable, must be adressed and are in fact being addressed, such as: (a) The application of the Uniform Commercial Code to allow for valid, efficient, and unencumbered interdepository relationship.

(b) Applicability of State personal property taxes and State transfer taxes as to the development of regional depositories.

(c) Does depositing, holding, and transferring stock in another State's depository constitute "doing business in a foreign state," with the implications of that in other areas?

Thus, as outlined, we endorse the concept of a nationwide system of interrelated regional depositories. This approach provides the opportunity to develop the depository concept more quickly utilizing many existing facilities, than would be the case in establishing a single corporation operating a national system as proposed in your bill. In ad

dition, we feel strongly that the regional concept provides an approach which will be more responsive to local needs and capabilities.

As to title II of your bill, a commission to encourage and support our efforts to pass legislation at the State level is most welcome. We are not in total agreement with the proposed composition of the commission but do, as stated in our position statement, support any group which will help expedite the passing of required State legislative changes to achieve our ultimate goal of a nationwide interrelated regional depository system.

Insofar as these bills relate to depositories, we as a group, support the concept that regional depositories should be organized as special purpose trust companies to be regulated by one of the existing Federal bank regulatory agencies.

The proposed function of a depository, in connection with securities transactions, most clearly parallels the check processing and bookkeeping function of the banking industry.

The Federal bank regulatory agencies, by reason of their expertise and accumulated experience in this area, would seem to offer the most logical source for uniform supervision and examination of the depository function.

I might add that I think it is important to distinguish between the broker-dealer trading questions and the depository function which we feel, while related, is quite different.

However, the authority to review and approve the rules adopted by the depositories, and to promulgate any additional rules or regulations which may be necessary concerning depositories, would rest with the Securities and Exchange Commission, as it presently does in connection with securities exchanges.

We see a close parallel between Chairman Casey's bill and Senator Williams' bill. Our recommendation relative to Senator Williams' bill, as it relates to depositories, is that the above-described regional approach be incorporated in a composite bill which will result in an effectively controlled, efficient securities environment of the kind sought by Chairman Casey, Senator Williams, yourselves and the rest of us. Thank you, very much.

Senator WILLIAMS. Thank you, Mr. Perkins.

At this time, Mr. Bevis, we are happy to have you back with us. Will you proceed as you desire.

STATEMENT OF HERMAN W. BEVIS, EXECUTIVE DIRECTOR AND MEMBER, BANKING AND SECURITIES INDUSTRY COMMITTEE (BASIC), ACCOMPANIED BY JOHN M. MYER, JR., CHAIRMAN OF BASIC, AND HAMILTON F. POTTER, JR., SULLIVAN AND CROMWELL

Mr. BEVIS. Thank you.

My name is Herman W. Bevis, and I am executive director and a member of the Banking and Securities Industry Committee. "BASIC," we call it. I am also a member of the National Coordinating Group for Comprehensive Securities Depositories, which Mr. Perkins has just described.

My comments on the three bills being considered by the subcommittee are confined solely to those provisions having to do with deposito

ries. This means that I offer no comments, pro or con, with regard to the provisions in those bills having to do with clearing systems, transfer agents and registrars, form and format of certificates, et cetera.

I think that we can agree that in discussing depositories we are all looking for the means of bringing the processing of securities transactions not only up to 20th century standards, but up to those that should obtain in its last quarter.

In our search, we could concentrate too much on recent unhappy experiences call them unsafe and unsound practices-try to correct them, and still leave ourselves inadequately equipped for new developments in the future.

In particular, if we concentrate on transaction processing solely within the securities industry, we shall have missed the boat. Certain of the steps from the beginning to the end of most securities transactions are solely within the broker-dealer community and their clearing corporations; namely, taking the order, executing the trade, comparing trades among broker-dealers, netting those trades, issuing instructions. to broker-dealers to deliver or receive securities from one another and receive or pay cash.

I should have added there if the clearing system so provides, delivering to or receiving from the clearing corporation.

It is at the point when the instruction to deliver securities is reached, whether against payment or "free," that we must broaden our vision beyond the securities industry.

Broker-dealers now deliver securities to one another, and an impressive and growing number of these deliveries are made, by book entry in depositories. But if all the deliveries of securities among brokerdealers were made by book entry in securities industry depositories, as great as that would be, that achievement would not equip the securities industry to meet the problems of the next 25 years.

Depositories are going to have to be technologically advanced mutual service adjuncts of the entire financial community if the securities handling mechanism in this country is going to be really updated. Considering the depositories of the future as solely or even primarily a segment of the securities industry would be terribly shortsighted. Setting up regulation of them on such a basis would be equally lacking in vision.

The future depository system must make securities deliveries by book entry, in lieu of delivery of physical certificates, among brokerdealers, banks, mutual funds, insurance companies, pension funds, foundations, corporations, trusts, estates, and most of the larger as well as many of the smaller individual owners.

Where are most of the securities owned by the aforementioned groups, outside of the broker-dealer group now? They are in bank vaults-whether held in a fidiciary capacity or in custody. A study in New York City indicated that, for every $2 in value of securities held by brokers, banks held $3. But New York is unusual in that multistate brokerage firms tend to keep all their securities holdings in New York. Elsewhere, be it Boston, Philadelphia, Chicago, or California, banks probably hold upward of, if not more than. 90 percent of the securities housed in the financial community. and in most smaller financial communities the ratio would probably be near 100 percent.

This being the case, it seems to me essential that, to have much hope of getting the balance of the financial community's securities into a

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book entry system, the banking authorities must regulate the depositories. The reason is that the other sections of the financial community want the safety and stability inherent in bank-chartered organizations and banking authority regulation. For any alternative that I can think of to become effective might take decades, and then only after a massive educational campaign plus, perhaps, some Government compulsion. All of that, I firmly believe, would be completely avoided if depositories were user owned and regulated by banking authorities. I have heard it said that the SEC bill allows banking authorities to regulate depositories while giving the SEC "general oversight." I counted 19 references to SEC's relationships with depositories in the SEC bill, and two mentioning banking authorities. The SEC bill in essence treats the depositories of the future as a part of the securities industry and, as such, will not meet the challenge ahead of us.

We have appended to my statement a revision of the SEC bill that would permit a banking authority to be the prime regulator of a depository and, at the same time, give SEC "oversight" in certain areas; namely, reasonable nondiscriminatory access; operational compatibility among depositories and other persons in the securities handling process; and minimum general standards of performance capability. This has been done as one way of reconciling the varying viewpoints but not out of any conviction that the depository book entry system needs or would profit from such oversight to solve the securities transaction processing problems of the future.

I would like to stop there, Senator, except to add a couple of notes. The appended marked up SEC bill refers to state banking authorities as the regulator. Mr. Perkins has just referred to a national banking authority as the regulator. We originally went the State route because it was our understanding that the States currently had the power to create a limited purpose trust company whereas it was doubtful if the Federal authorities did currently have that power.

I think the concern of all of us is that the regulating authority be a banking authority, and it is quite in order and consistent with that approach in the regulator is a single national banking authority.

With regard further to our suggested revision of the SEC bill, it does take the approach that is in Senator Williams' bill, that the depository would initiate the rules of procedure for review by the supervisory authorities.

Finally, I would like to update one statement in the report which has to do with the New York State transfer tax. It is stated in the written statement that that change in the transfer tax had been passed by the New York Assembly and was before the Senate. The purpose of the change was to maintain the nontaxable status of transactions performed by book entry within a depository in New York State if those transactions took place outside the State and were not otherwise taxable, and also to make nontaxable a deposit of out-of-State securities in a New York depository.

That bill passed the Senate this week, and we learned yesterday that it had been signed into law by Governor Rockefeller. So, that's now on the books and removes a tremendous hurdle to the quick development of our depository system.

Thank you, Senator. I will be glad to answer any questions.

(The complete statements of Mr. Perkins and Mr. Bevis and a letter from BASIC to Robert C. Holland may be found at pp. 418, 490, 495.) Senator ROTH. Thank you, Mr. Bevis.

I would like to go back and ask Mr. Perkins a number of questions, but you may all feel free to comment as you like. According to your statement, the National Coordinating Group will be working to develop interdepository standards.

Can your group accomplish this on a voluntary basis, or will it take some kind of regulatory intervention? Do you see any antitrust implications or problems in attempting to achieve this on a voluntary basis?

Mr. PERKINS. I think these days in business no matter what you do we see antitrust implications one way or other.

We think we can do this on a voluntary basis, Senator. We started on that path. I think we have got a lot of goodwill working on it. I think we are very conscious of the need to develop an acceptable system and standards that could meet the needs that we have.

So, I think we can. Time will have to tell on that, but we feel quite confident.

From an antitrust standpoint, I think this is an area that we are obviously going to be very concerned about and are and will be working closely with counsel on it. At this point, we don't see this as an obstacle to the development.

Senator ROTH. When could we reasonably expect such interdepository standards to be completed?

Mr. PERKINS. It is a little hard to get a specific timetable. I have a group working on specifications right now in many areas. We will be getting together later this month to go over that and decide where we go from there. I would think we could develop the standards fairly simply and fairly quickly. I think the problem is to develop the depositories and be able to do business.

Senator ROTH. In your statement, you give a number of reasons why you think the regional approach is preferable, but if we go back, one of the basic reasons for all this concern about processing of certificates is the need for simplification.

If we have regional depositories, are we really going to be able to have the uniformity that would be possible if there was a single national depository system?

Mr. PERKINS. I suppose you have to say if you set one set of regulations nationally, period, it is going to be perhaps simpler.

But I think the needs in New York in their depositories probably are different than the needs we have in Chicago and the needs elsewhere, and we see benefits from having regional depositories which could meet regional needs and set the standard or the uniformity that you are talking about only where it is really needed for national purposes.

Senator ROTH. I notice that in your testimony you mention a number of times the regional needs. I wonder if you could spell out a little more precisely what these different regional needs are?

Mr. PERKINS. I suppose the best answer to that would be to say let's take a look at what CCS has done in New York.