14 1 2 3 4 5 6 5, United States Code, but at rates not to exceed $100 a day for individuals; and (3) hold such hearings and sit and act at such times and places as the Commission may deem advisable. COMPENSATION SEC. 205. (a) A member of the Commission who is 7 otherwise an officer or employee of the United States shall 8 serve without additional compensation, but shall be reim9 bursed for travel, subsistence, and other necessary expenses 10 incurred in the performance of duties of the Commission. (b) A member of the Commission from private life shall 12 receive $125 per diem when engaged in the actual performance of duties of the Commission, and shall receive reimburse14 ment for travel, subsistence, and other necessary expenses in 11 13 15 curred in the performance of such duties. 16 17 ASSISTANCE OF GOVERNMENT AGENCIES SEC. 206. Each department, agency, and instrumentality 18 of the United States and of any State, is urged to furnish to 19 the Commission, upon request made by the Chairman, such 20 information and services as the Commission deems necessary 21 to carry out its functions under this title. 22 AUTHORIZATION OF APPROPRIATIONS 23 SEC. 207. There are authorized to be appropriated such 24 sums as are necessary to carry out the provisions of this 25 title. FEDERAL DEPOSIT INSURANCE CORPORATION, Hon. JOHN SPARKMAN, DEAR MR. CHAIRMAN: This responds to your letter of March 27, 1972, requesting a report by the Corporation on S. 3412, 92d Congress, a bill to be cited as the "Securities Transaction Processing Act of 1972". The bill derives from certain recommendations in the Securities and Exchange Commission's recent report to Congress entitled "Study of Unsafe and Unsound Practices," which concluded- "... that there is need for increased regulation by the Federal government of the transaction handling process, particularly with a view to standardization, automation, and increased protection for industry participants and members of the investing public." The bill's purpose is to establish an automated, integrated securities transfer and clearance system in order to solve the so-called "back office" problems caused by the large volume of paperwork which nearly inundated the industry in 1969 and 1970. Under the bill's provisions any entity functioning as a depository, transfer agent or clearing agency, as those terms are defined in the bill, would be required to register with the SEC or, in the case of a federally insured bank acting as transfer agent, with the appropriate Federal bank regulatory agency. "Clearing agency" would be defined in such a way as to include entities performing securities clearing functions similar to those now performed by the clearing corporations of registered stock exchanges. "Depository" would include any entity performing a depository function directly related to the settlement of securities transactions. The term "transfer agent" would encompass any bank or other entity performing the function of transfer agent or registrar. The SEC would have broad authority to grant exemptions from the registration requirement. Registration would entail filing with the SEC or the appropriate Federal bank regulatory agency, among other things, such information as may be required relating to performance capability, measures and personnel standards for safe handling and custody of securities and funds, operational compatability with other segments of the securities processing system, and access to depository and clearing services. Registration could be denied if the appropriate agency should find that the denial is in the public interest and that the applicant does not have procedures or the means to be able to comply with the bill's provisions and rules and regulations thereunder. Registrants would have to comply with regulations issued by the SEC implementing the bill's substantive objectives and with such regulations relating to registration, reporting, and enforcement procedures as may be issued by the SEC with respect to depositories, clearing agencies, and non-bank transfer agents and by the appropriate Federal bank regulatory agencies with respect to bank transfer agents. Securities brokers and dealers would also be required to comply with similar regulations, and any issuer of securities registered under the Securities Exchange Act of 1934 would have to comply with SEC regulations relating to the form or format of such securities. Section 10 of the bill requires the SEC and the Federal bank regulatory agencies to cooperate with each other and with State banking authorities so that the requirements imposed by the bill upon banks shall be "in accord with sound banking practices and fulfill mutual regulatory needs to the extent practicable." Section 10 also provides that, insofar as the bill applies to banks acting as transfer agents, its provisions would be enforced by the appropriate Federal bank regulatory agency under section 8 of the Federal Deposit Insurance Act, as amended (12 U.S.C. 1818). As to any other entity acting as a transfer agent, or any depository or clearing agency (whether or not a bank), the SEC would be given enforcement jurisdiction. Section 11 provides that the bill's provisions would not impair the authority of State banking authorities and that the jurisdiction of such authorities be taken into account in administering the provisions of the bill so as to avoid "duplicate regulatory oversight and undue burden upon [State] banks." That section would also require, before a proposed rule regarding transfer agents is issued for public comment or adopted by the SEC or a Federal bank regulatory agency, that such agency consult with the other Federal regulatory agencies having jurisdiction over transfer agents. In Section 12 the bill would require that certain portions of the registration statement be made available for public inspection. In the case of depositories and clearing agencies, this would include any information regarding the registrant's constitution or charter, bylaws, rules, schedule of charges, and interpretative bulletins pertaining thereto. As to transfer agents, only their "rules and procedures" would be required to be made public. All other aspects of any registration statement or other report or information furnished to the appropriate regulatory agency would be exempt from disclosure, except that such agency could disclose any such information, upon a finding that such disclosure would be in the public interest. The registration and administrative provisions of the bill would become effective on August 1, 1972, with the bill's provisions otherwise becoming fully effective on December 29, 1972. Although the Corporation supports the bill's objective of fostering the development of an integrated nationwide system for clearing and transferring securities in the most efficient manner possible, we believe that the rationale underlying delegation to the Federal bank regulatory agencies of enforcement jurisdiction with respect to the transfer agency function of insured banks applies with equal force to the extent banks might become involved in "depository" or "clearing agency" functions related to the securities settlement process. Moreover, we feel strongly that the bill should grant to the Federal bank regulatory agencies the same enforcement tools as granted to the SEC under section 10(c) and (d) of the bill. Finally, since the Federal bank regulatory agencies presently have both regulatory and enforcement authority under the Securities Exchange Act of 1934 and are therefore in a position to determine whether the requirements of section 8 of the bill have been met as to the form and format of securities issued by banks, the bill should make clear that such agencies (rather than the SEC) have enforcement authority with respect to this question. These suggestions could be implemented by deleting references in the bill which limit the enforcement jurisdiction of the Federal bank regulatory agencies to the transfer agency function of insured banks and by revising section 10 of the bill to confer upon such agencies the same enforcement tools as are granted to the SEC by that section. Listed below are comments of a technical nature on various specific provisions of the bill: Section 3 (1).—The definition of "clearing agency" in this subsection includes, in effect, any person "providing facilities. . . in connection with the settlement of securities transactions." We believe the term "providing facilities" is unnecessarily broad and vague and could conceivably include, for example, a computer manufacturer providing a computer used in settling securities transactions, as. well as a telephone company providing communications facilities necessary to the settlement procedure. Similarly, the failure to define the term "securities" for purposes of the bill would apparently entail application of the definition of that term in Section 3(a) (10) of the Securities Exchange Act of 1934 (15 U.S.C. 78c (a) (10)). Applying this definition of "securities", the term "clearing agency" might be construed to cover certain of the functions performed by firms dealing in "exempted securities" not subject to the 1934 Act. For purposes of clarity and precision, therefore, we would suggest incorporating a definition of "securities" in the bill which would clearly delineate the types of instruments intended to be covered by the bill's provisions. Section 3(5).-The definition of "appropriate regulatory agency" in this subsection subjects the transfer agency function of national banks and their subsidiaries to the jurisdiction of the Comptroller of the Currency. In the case of State member banks of the Federal Reserve System and their subsidiaries, the transfer agency function would be regulated by the Board of Governors of the Federal Reserve System. As to State nonmember insured banks and their subsidiaries, the Federal Deposit Insurance Corporation would have jurisdiction. We believe that the same rationale which supports these allocations of responsibility to the Federal bank regulatory agencies would also support allocation to the Board of Governors of the Federal Reserve System of similar jurisdiction with respect to non-bank subsidiaries of registered bank holding companies which act as transfer agents. Section 3.-The last sentence of this section provides as follows: "The terms 'clearing agency' and 'depository' shall not include (1) Federal Reserve Banks, Federal Home Loan Banks, Federal Land Banks, or any person controlled or supervised by and acting as an instrumentality of the Government of the United States pursuant to authority granted by the Congress of the United States, and (2) banks, brokers, building and loan, savings and loan, and homestead associations and cooperative banks by reason of lending, fiduciary, correspondent, or safekeeping functions commonly performed by them.” It is not altogether clear whether clause (2) would exempt from the definition of "depository" a bank acting as a custodian for a "clearing agency". We would suggest that clause (2) be amended to make clear that a bank so acting would not be a "depository". Section 4 (c) (2).-This subsection provides that a transfer agent may register under the bill's provisions by filing a registration statement containing the required information with the appropriate regulatory agency. It is provided, however, that a bank registering with a Federal bank regulatory agency must, in effect, make a dual registration with the SEC. We would not think there should be any difficulty in effecting an appropriate exchange of information with the SEC regarding transfer agents registered with the Federal bank regulatory agencies. There would therefore appear to be no sound basis for imposing this additional "dual registration" requirement upon bank transfer agents. Section 10.-The second sentence of subsection (c) states that the SEC shall enforce the bill's provisions except to the extent enforcement is otherwise specifically committed to a Federal bank regulatory agency under Section 10(b). The first sentence of the subsection, however, seems to grant the SEC power to enforce compliance "by any person with the requirements imposed under this Act. . . We suggest that the breadth of the term "by any person" does not reflect the exception in the second sentence relating to banks and could be interpreted to give the SEC concurrent (non-mandatory) enforcement jurisdiction over banks acting as transfer agents. We would recommend that subsection (c) be amended to preclude such a construction and that section 10 be generally revised as suggested earlier in this letter. Section 11(b).—This subsection requires prior consultation among the SEC and the Federal bank regulatory agencies at least fifteen days before proposal or adoption of any regulations relating to transfer agents. Since any regulations issued under the bill might have an effect on banks, we would suggest this subsection not be limited to regulations relating to transfer agency functions. With appropriate revision along the lines suggested in this letter, the Corporation would favor enactment of the bill. Sincerely, FRANK WILLE, Chairman. Hon. JOHN SPARKMAN, THE GENERAL COUNSEL OF THE TREASURY, Chairman, Committee on Banking, Housing and Urban Affairs, DEAR MR. CHAIRMAN: Reference is made to your request for the views of this Department on S. 3412, the "Securities Transaction Processing Act of 1972." The bill is sponsored by the Securities and Exchange Commission and intended to enable that Agency to deal with the problems posed by delay in the transfer of stock certificates from seller to buyer, particularly in times of high market volume. Specifically, the bill would give the SEC authority to establish performance standards, business practices and rules for entities performing transfer, depository and clearing functions, and to require the registration of transfer agents. The bill provides for the enforcement of these standards and registration requirements by the federal bank regulatory agencies as to transfer agents which are banks and by the SEC as to other transfer agents and as to all clearing agencies. The formal registration which S. 3412 would require of bank transfer agents with the appropriate federal agency would be largely superfluous, because it would not add to or improve on the existing system of on-the-spot supervision of these activities. If it is deemed essential, however, that the bill treat all transfer agents evenhandedly, regardless of existing supervisory structure, this Department does not object. While this Department had been of the opinion that standards for transfer agents should be established jointly by the appropriate supervisory agencies, in view of the strongly held conviction of the SEC that such a system would be unworkable, we do not suggest an amendment of the bill in this regard. For the same reason, this Department has not suggested that the supervision of clearing agencies which are trust companies be conferred upon the appropriate federal banking agency. Further, we understand that the SEC has no wish to engage in such supervision of banks, as this bill would enable, any longer than is necessary to meet the current stock transfer problems and until a more comprehensive solution can be established. Accordingly, the Department has no objection to the enactment of S. 3412. The Department has been advised by the Office of Management and Budget that there is no objection from the standpoint of the Administration's program to the submission of this report to your Committee. Sincerely yours, SAMUEL R. PIERCE, Jr., |