as a stay of such action, unless such agency otherwise orders, after notice and opportunity for hearing on the question of a stay (which hearing may consist solely of affidavits and oral arguments).

“(j) (1) In a proceeding to review disciplinary action taken by a registered clearing agency against a participant, after notice and opportunity for hearing and upon consideration of the record before the clearing agency and such other evidence as it may deem relevant—

"(A) if the appropriate regulatory agency finds that such participant has engaged in such acts or practices, or has omitted such acts, as the clearing agency has found him to have engaged in or to have omitted, and that such acts or practices, or omissions to act, are in violation of such rules of the clearing agency as have been designated in the determination of the clearing agency, it shall by order so declare and affirm the action taken by the clearing agency or, if appropriate, modify the sanctions or penalties in accordance with paragraph (2) of this subsection, or

"(B) if the appropriate regulatory agency finds that the evidence does not warrant the finding required in clause (A), or if such agency determines that such acts or practices as are found to have been engaged in are not prohibited by the designated rule or rules of the clearing agency or that such act as is found to have been omitted is not required by such designated rule or rules, the appropriate regulatory agency shall by order set aside the action of the clearing agency.

"(2) The appropriate regulatory agency may, having due regard to the public interest, if it finds that any penalty imposed by a registered clearing agency upon a participant is excessive or oppressive, cancel, reduce, or require the remission of such penalty.

"(k) In any proceeding to review the denial of participation in a registered clearing agency, if the appropriate regulatory agency, after notice and opportunity for hearing and upon consideration of the record before the clearing agency, determines that the specific grounds on which such

denial or bar is based exist in fact and are valid under this section, it shall by order dismiss the proceeding. In the absence of such a determination, the appropriate regulatory agency shall by order set aside the action of the clearing agency and require it to admit the applicant to participation therein.

“(1) The appropriate regulatory agency, after appropriate notice and opportunity for hearing, is authorized, by order, if such action appears to be necessary or appropriate in the public interest or for the protection of investors or to carry out the purposes of this section—

“(1) to suspend for a period not exceeding twelve months or revoke the registration of a registered clearing agency or impose limitations upon the activities, functions, or operations of such clearing agency, if the appropriate regulatory agency finds that such clearing agency has violated any provision of this title, or any rule or regulation thereunder, or has failed to enforce compliance with its own rules, or has engaged in any other activity tending to defeat the purposes of this section;

"(2) to suspend for a period not exceeding twelve months or expel from a registered clearing agency any participant therein, if the appropriate regulatory agency finds that such participant has violated any provision of this title or any rule or regulation thereunder or any rule of the clearing agency; and

"(3) to remove from office any officer or director of a registered clearing agency who, the appropriate regulatory agency finds, has willfully failed to enforce the rules of the clearing agency, or has willfully abused his authority.

"(m) If a proceeding under subsection (1) (1) of this section results in the suspension or revocation of the registration of a clearing agency, the appropriate regulatory agency may, upon notice to such clearing agency, apply to any court of competent jurisdiction specified in section 21(e) or 27 of this title for the appointment of a trustee. In such event, the court may, to the extent it deems necessary or appropriate, take exclusive jurisdic

tion of the clearing agency involved, and the books, records, and assets: thereof, wherever located; and the court shall appoint the appropriate regulatory agency or a person designated by the appropriate regulatory agency as the trustee with the power to take possession and to continue to operate or to terminate the facilities of such clearing agency in an orderly manner, for the protection of participants and public investors, subject to such terms and conditions as the court may prescribe.

"(o) Each registered clearing agency shall make, keep, and preserve for such periods such accounts, correspondence, memorandums, papers, books, and other records, and furnish such copies thereof and make such reports and supply such information and documents as the Commission by its rules and regulations may prescribe as necessary or appropriate to keep current or to supplement the registration statement and documents filed pursuant to subsection (b), to facilitate cooperation among clearing agencies and the prompt and accurate settlement of securities transactions, [to assure the safekeeping of funds and securities held for the accounts of participants,] or for the protection of investors, or the public interest[.], and as the appropriate regulatory agency by its rules and regulations may prescribe as necessary or appropriate to assure the safekeeping of funds and securities held for the accounts of participants. The Commission shall promptly furnish to the appropriate regulatory agencies all reports which it receives from registered clearing agencies pursuant to this section. All accounts, correspondence, memorandums, papers, books, and other records of a clearing agency shall be subject at any time to such reasonable periodic, special, or other examinations by examiners or other representatives of the appropriate regulatory agency as such agency may deem necessary or appropriate in the public interest, for the protection of investors or to carry out the purposes of this section. The appropriate regulatory agency shall make a full and detailed report of any examination made of a registered clearing agency and shall promptly furnish to the Commission a copy of any such report. The Commission shall promptly furnish to each of the appropriate regulatory agencies specified in clauses A through C of section 3(a)(25), a copy of its full and detailed report on any examination of a clearing agency for which

it is the appropriate regulatory agency having banks as participants, and to the appropriate regulatory agency for any clearing agency examined by it under section 21 of this title.

"(p) The agencies enumerated in section 3(a) (25) of this title shall consult and cooperate with each other and shall advise one another promptly of the pendency or determination of any proceedings, of the promulgation of any rules, and of the entry of any order relating to a clearing agency, participant, class of clearing agencies, or class of participants. At least fifteen days prior to the issuance for public comment or adoption of any proposed rule or regulation regarding clearing agencies, whether pursuant to this title or otherwise, the agency contemplating issuance or adoption of any such rule or regulation shall first consult with and request the views of each of the other agencies enumerated in section 3 (a) (25) toward the end that rules and regulations applicable to banks registered as clearing agencies may be, to the maximum extent practicable, in accord with both sound banking practices and a sound system for the prompt and accurate processing and settlement of securities transactions. Nothing in this section shall impair the authority of any State banking authority or other State or Federal regulatory authority having jurisdiction over a person registered as a clearing agency from making or enforcing rules governing such person which are not inconsistent with this section or any rules or regulations promulgated hereunder.

"(q) The Commission shall, on or before December 31, 1976, take such steps as are within its power to bring about elimination of the stock certificate as a means of settlement among brokers or dealers of transactions consummated on national securities exchanges or by means of the mails or other means or instrumentalities of interstate commerce. Commencing in 1973 and ending in 1976, the Commission shall report annually to the Congress (1) the steps it has taken and progress it has made toward elimination of the stock certificate as a means of settlement, and (2) its recommendations, if any, for further legislation to eliminate the stock certificate.". (Sections 6 to 10, inclusive, of S.2058 deal with subjects on which BASIC does not comment, and have not been reproduced here.)

Senator WILLIAMS. Now, Mr. Leon Kendall, president, Securities Industry Association. We welcome you and your associate again to our committee, Mr. Kendall, and look forward to your statement. STATEMENT OF LEON KENDALL, PRESIDENT, SECURITIES INDUSTRY ASSOCIATION, ACCOMPANIED BY ROGER E. BIRK, VICE PRESIDENT AND DIRECTOR OF OPERATIONS, AND JAY L. CHALMERS, SENIOR VICE PRESIDENT, LEGG, MASON, BALTIMORE, MD.

Mr. KENDALL. Mr. Chairman, our statement will be read by my associate, Roger Birk, who is a member of our operations committee, as well as the director of the Securities Industry Automation Corp. and the National Clearing Corp. Also accompanying us is the chairman of our operations committee, Mr. Jay Chalmers, of Legg, Mason & Co. in Baltimore.

Mr. BIRK. Thank you.

My name is Roger E. Birk. I appear before this committee on behalf of the Securities Industry Association. I am also a director of the Securities Industry Automation Corp., and the National Clearing Corp. In my professional affiliation I am vice president and director of operations of Merrill Lynch, Pierce, Fenner & Smith, Inc. Accompanying me today are Jay Chalmers, senior vice president of Legg, Mason & Co., Inc. in Baltimore and chairman of the SIA's operations committee, and Leon T. Kendall, SIA's president.

Senator, the SIA appreciates this opportunity to address itself on behalf of its brokerage firm members to the proposals now before your subcommittee on clearance and settlement of securities transactions. In introducing S. 2058, Senator Williams said:

The first purpose of the bill is to create a system of regulation and decisionmaking which extends to every facet of the securities handling process corporate issuers, transfer agents, clearing agencies and depositories. Only by the creation of a central unifying authority in operational matters can paper handling problems be squarely addressed.

We support S. 2058. We strongly urge Congress to act on the legislation in this session, for its implementation can enhance materially the ability of our industry to make sound decisions on operational issues. It can serve to strengthen the performance of public securities markets.

The nature of the operational problems which were visited upon the securities business during the late 1960's has been well documented during previous hearings before this subcommittee. Our purpose today is not to add to that already extensive record. However, our testimony would be incomplete if we did not set before you our judgments as to the extent to which our industry has been successful in overcoming these difficulties. We also wish to point out why further progress and resolution of the operational challenge requires a coordinated and modern regulatory apparatus capable of overseeing a fully integrated, lower cost national securities processing network.

As SIA noted in May 1972 when it appeared before this committee, the causes of the securities transaction processing problem were twofold: paper and the segmentation of the securities processing industry itself.