Delaware Bar Association: Interim report of the subcommittee on stock certificates.. Letters from Rodman Ward, Jr. Page 811 814 811, 819, 822 Letter from Eugene M. Tangney, senior vice president---- Paper on the modernization of the securities transfer process_- First Pennsylvavnia Banking and Trust Co., statement of Clement J. New York Clearing House Association, statement of Walter F. Thomas, vice chairman of the board, Manufacturers Hanover Trust Co. of New New York Times, reprint of article_. 833 Pacific Coast Stock Exchange, statement of Thomas P. Phelan, president__ Permanent Editorial Board for the Uniform Commercial Code, letters 115 881 Phillips Montross & Co., statement submitted for the record_ 372 Project on Corporate Responsibility, letter from Philip W. Moore, execu- 391 Rand Corp., reprint of excerpts from "Reducing Costs of Stock Transac- 156 Additional answers to questions submitted later---. Letters from Chairman Casey to State legislatures.... Memorandum on BASIC proposal--- Letter from Robert M. Gardiner, to Congressman Moss__ 819 168 Reprint of excerpt from Rand Corporation Study--- 156 Statement of Robert M. Gardiner, chairman of the board of directors__ Securities Investor Protection Corp., letter from Byron D. Woodside, 137 Stock Clearing Corp. of Philadelphia: Current plan to attain goals over the next two years-- Stock Transfer Association, Inc.: Certificate of incorporation.... Directory of members.. Statement of Thomas W. Stanley, president---- Page 838 835 335 327 321 822 Sullivan & Cromwell, letters received___ Treasury Department, letters from Samuel R. Pierce, General Counsel___ 55, 802 Young, Conaway, Stargatt and Taylor, letters received for the record____. 819 CHARTS Example of an originator's retained copy of the uniform transfer instruction 879 Securities transfer procedures under a system featuring a transfer agent Estimated reduction in clerical costs under postulated CSDS on-line communications network_. 556 Summary of cost of fails and input changes for alternative trade completion systems__. 167 CLEARANCE AND SETTLEMENT OF SECURITIES TRANSACTIONS TUESDAY, MAY 9, 1972 U.S. SENATE, COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS, SUBCOMMITTEE ON SECURITIES, Washington, D.C. The subcommittee met at 10:05 a.m., pursuant to call, in room 5302, New Senate Office Building, Senator Harrison A. Williams, Jr., chairman of the subcommittee, presiding. Present: Senators Williams and Roth. Senator WILLIAMS. The Subcommittee on Securities will come to order. Today the Subcommittee on Securities will begin hearings on three bills concerning the clearance and settlement of securities transactions. Each of these three bills is designed to avoid a recurrence of the paperwork log jam and recordkeeping problems which plagued the securities industry and its customers from 1968 through 1970. The "paperwork crisis" resulted from the securities industry's inability to process the tremendous volume of transactions which occurred during the late 1960's. All too often deliveries to customers were late and stock certificates were lost in the rising tide of paper. Firms lost control of their records and over 100 broker-dealers were forced into liquidation-largely as a result of faulty recordkeeping and the backlog of uncompleted transactions. These liquidations caused financial hardships to many investors who had left their securities with brokerage houses for safekeeping. This was the sorry state of affairs which the Congress faced when it enacted the Securities Investors Protection Act of 1970, legislation which now protects investors' funds and securities from the consequences of financial mismanagement. But we in the Congress were not satisfied with merely insuring the public against brokerage house failures. We began to exercise a closer and continuing scrutiny of the securities industry. For example, the SIPC legislation instructed the Securities and Exchange Commission to report to the Congress on Unsafe and Unsound Practices of Broker-Dealers. And, in June of 1971, the Senate authorized this subcommittee to conduct a far-reaching study of the securities industry. Two of the bills which we are considering today are a direct result of these studies. And all three bills demonstrate the Congress' determination to avoid another "paperwork crisis." In September, Senator Roth introduced S. 2551, the National Securities Corporation Act, which would establish a quasi-public corpo ration to design and operate an automated national securities transfer system. The other two bills rely primarily upon the private sector to provide the technical know-how to streamline the handling of securities transactions. My bill, S. 3297, follows the recommendations of this Subcommittee's Securities Industry Study. S. 3412 was introduced at the request of the Securities and Exchange Commission and is based on the legislative recommendations contained in the Commission's Unsafe and Unsound Practices Report. Although my bill and that of the Commission are similar in many respects, there are some basic differences. My bill would give the Commission authority to play a more aggressive role in regulating the clearance and settlement process. It specifically defines the class of persons entitled to use a "clearing agency" and requires fair representation of participants in the decisionmaking process within such an agency. My bill would also instruct the Commission to move toward elimination of stock certificates in interdealer transactions by a fixed date and to study and report to the Congress regarding full disclosure of beneficial ownership of "street name" securities. The Commission's bill contains provisions in which the subcommittee has a great interest. This is especially true of the sections which empower the Commission to regulate registrars and transfer agents and the form of stock certificates issued by publicly held corporations. A majority of the members of this subcommittee have indicated their concern with the handling of securities transactions by sponsoring one or more of the pending bills. As evidenced by the large number of persons testifying and submitting written statements for the record on this legislation, there is also great interest among those directly involved in processing securities. It is my hope that out of these hearings will come legislation which will provide the securities industry with needed leadership in operational matters while at the same time assuring the investing public that it will not have to endure a future paperwork crisis. We must not forget the chaotic conditions which prevailed in the industry at the time the Congress considered the Securities Investors Protection Act of 1970. The SIPC legislation was only the first step in protecting investors from the consequences of securities paperwork log jams. Legislative action which will alleviate the basic recordkeeping problems-the real cause of the crisis-is of the utmost necessity. (The bills and a comparative summary of their provisions are reprinted as follows:) 92D CONGRESS 2D SESSION S. 3412 IN THE SENATE OF THE UNITED STATES MARCH 23, 1972 Mr. WILLIAMS (for himself, Mr. BENNETT, and Mr. TOWER) (by request) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing and Urban Affairs A BILL To foster the development and implementation of an integrated system, to be privately owned and operated, for the prompt and accurate processing and settlement of securities transactions effected on national securities exchanges and in the over-the-counter markets, which will assist in assuring the proper functioning of the securities markets and which will be responsive on a nondiscriminatory basis to the needs of issuer companies, brokers, dealers, banks, and other members of the securities industry and the public investors. 1 Be it enacted by the Senate and House of Representa 2 tives of the United States of America in Congress assembled, 3 SECTION 1. This Act may be cited as the "Securities 4 Transaction Processing Act of 1972". |