registrations approved, markets change, and it causes a great many problems for the securities industry.

Senator JAVITS. Is this really a major problem now?

Mr. FUNSTON. Yes; I think it is.

Senator JAVITS. So you agree that something must be done about it? Mr. FUNSTON. Yes, sir.

Senator JAVITS. The two alternatives-what I assume would be the two alternatives-would be, first, to change the Commission organically, which is the proposal now before us, and second, to try to get the Commission more money so that it can hire more personnel and be able to do its job faster; because the job is bigger. What would you say about the use of that latter alternative?

Mr. FUNSTON. I would think that would be the way to attack this particular problem. There is no doubt, and this has been underlined by an investigation that was made by an industrial management concern, that the SEC needs more personnel in this area, and I believe also in other areas, particularly in the area of policing.

Of course, I would just like to add we believe that is the best way to attack this. On the other hand, this amendment to tax reorganization plans that we are suggesting here, would not deprive the Commission of the authority to delegate the approval of some of these registrations by other than the full Commission. We think that such a delegation is probably a perfectly logical delegation of authority from the Commission itself to other segments of the Commission.

Senator JAVITS. By this do you mean that, so far as registration statements are concerned, a large volume of work would still go to the Commission itself? This work couldn't be dealt with even if you gave the SEC more money or more personnel; that is correct, is it not? Mr. FUNSTON. Yes, sir.

Senator JAVITS. There you would have to have some kind of right to delegate.

Mr. FUNSTON. Yes, sir.

Senator JAVITS. So fundamentally I gather you don't disagree with the need for some revision in the Commission's basic authority of operation?

Mr. FUNSTON. No, sir.

Senator JAVITS. Do these problems of delay, which are now created, affect investors adversely?

Mr. FUNSTON. Yes, sir; I think they do. A company might be in registration for a particular security and the public delayed unduly in being able to purchase that security. In between, when the time of the delay in a fast-moving economy is extensive, there may be changes which would make the purchase less desirable than it would have been if it had been consummated earlier.

Senator JAVITS. So it would interfere with the financing of ventures too, would it not?

Mr. FUNSTON. Yes, sir.

Senator JAVITS. You may have a market one time and not another? Mr. FUNSTON. Yes, sir.

Senator JAVITS. Do you have any time estimate of how far behind the Commission is? Don't give it to us unless you have come to some conclusion.

Mr. FUNSTON. I don't. Nor do either of my colleagues have any information on this point, Senator Javits. This is mainly in the area of the new issues, the primary markets. We are mainly concerned with the secondary markets, and we don't have that information.

Senator JAVITS. You said something about their needing more personnel for policing. I assume that is policing violations of the act, policing fraud; is that correct?

Mr. FUNSTON. Yes, sir.

Senator JAVITS. Is that hurting the investor, in your opinion, right

now?

Mr. FUNSTON. Yes. I think that in the securities markets there are areas that probably could be policed more carefully if there were people to do it. I think the SEC is probably doing the best job that can be done with the limited resources that they have. I think that the investing public would be well served by having a police force, with many cops on the beat. I think the way to take hold of these problems is by enforcing the law and catching the people who are doing what they shouldn't, rather than to contemplate putting everybody into a straitjacket to prevent these things happening.

Senator JAVITS. Mr. Funston, does the securities business pay any fees for its filings, registrations, and so on?

Mr. FUNSTON. Do you mean fees for filings and registrations? Senator JAVITS. For the various things that you take up with the Commission, do you pay fees?

Mr. FUNSTON. Yes. We pay in a number of different ways. There is a fee that is paid on all transactions which brings the Commission, I believe, about $4 million a year. Then there are fees that are paid by industry for particular services that are provided by the Commission.

Senator JAVITS. As to the fees which are paid by people in your business community-that is, brokers, dealers, and underwriters-do you think they would mind the fees being raised in order to enable the Commission to expand its services and to increase its personnel?

Mr. FUNSTON. It all depends on the area which you are talking about. If you are talking about performing services for which individual application is made, I mean for material that is supplied, that you don't have to pay for unless you ask for it, or paying a certain amount for having a registration approved, something like that, I believe there would not be too much objection to people paying whatever is necessary to obtain the services which they have requested.

On the other hand, I do believe that the industry would object violently to having the general charges increased substantially. As of this moment, the securities industry already pays for a larger percentage of the total expenses of the Commission than do those regulated by other regulatory bodies. Our position, in the main, is that the SEC is in existence for the benefit of the public welfare of all of the people and not for the securities industry alone.

Therefore the securities industry should not be expected to pay the charges for the whole operation.

Senator JAVITS. Nonetheless, isn't it true that if a charge is paid in connection with the registration, that charge is passed on to the investors? Is that not true?

Mr. FUNSTON. In the long run, I suppose it is.

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Senator JAVITS. It just adds to the cost, the overhead cost, of that particular issue.

Mr. FUNSTON. Right.

Senator JAVITS. So that it would be passed on to the investor?
Mr. FUNSTON. Yes.

Senator JAVITS. I might say to you that I am very sympathetic to expanding the operations of the Commission in terms of personnel, but I am also very sympathetic to having it paid for mutually by investor and public. I think that with the care we have here about money, this may be the only way in which we are going to enable the Commission to do its work more adequately.

I asked you that because I know it is a question which always is received by people who want to see a reform brought about with a little less enthusiasm than their advocacy of the reform. In your particular case, this raising of fees is a way in which reform can be accomplished. I would, in fact, hazard the guess that it may be the only way. So I think your views as expressed to us are very important. I would appreciate it if you would, Mr. Funston, furnish for the record, with the permission of the chair, a memorandum of the areas in which you feel the industry and the investor might properly take care of the increased cost mutually. Your answer may be that there are none. You are a perfectly free agent. We wonder, if we go the other route, increasing the personnel, how much help we are going to get from the industry itself and how much the individual investor, who will benefit from this increase, can be expected to help maintain it.

Senator WILLIAMS. I will say that it is important for us to have this record printed as soon as possible, Senator Javits, so that it can be sent to the Government Operations Committee by next Tuesday, when they have a meeting scheduled on this subject. I should be sorry to hold the record open for this reply.

Senator JAVITS. Perhaps Mr. Funston could by just conferring with his colleagues give us an answer before we are through with the hearing.

Mr. FUNSTON. I can give you the answer with respect to it right now. This is the position we have always taken.

Our position is that regarding laws and agencies that are in being for the protection of the general public, the securities industry should not be expected to bear any higher percentage of the total cost of running that agency than the Congress decides is going to be the general policy with respect to the regulation of all Government agencies in all the different areas for the protection of the public. We say that we pay now a higher percentage through fees and other charges than any other agency. We don't think such fees ought to be increased until all agencies are treated alike.

Senator JAVITS. All right, sir. We take that as your answer.
Mr. FUNSTON. Yes, sir.

Senator JAVITS. You specified that you thought such matters as the following might be effectively delegated: The acceleration of the effective date of applications for the registration of securities, the acceleration of applications for the registration of broker-dealers, and the delisting of securities in routine cases. Are these the things that you thought might be delegated?

Mr. FUNSTON. Yes.

Senator JAVITS. Is that the total of what you think can be feasibly delegated by the Commission?

Mr. FUNSTON. No, sir. These were just examples that we picked out which related to the 1934 act and, of course, the Commission has many other acts that it is concerned with. This was not intended to be a complete catalog. It was just illustrative. There are undoubtedly many other matters that could be delegated also.

Senator JAVITS. Let's see if we can add a few to that. A great many of the proceedings before the Commission are not controverted; is that not so? There is no adversary proceeding in respect to them. Mr. FUNSTON. Yes, sir.

Senator JAVITS. Isn't it true that a great deal of that could be delegated, or are there any dangers in delegating noncontroverted matters?

Mr. FUNSTON. I don't see any dangers, no.

Senator JAVITS. What about the question of initiating an investigation, such as the one initiated with respect to the American Stock Exchange? Would you think that any such power ought to be delegated?

Mr. FUNSTON. No, sir.

Senator JAVITS. In other words, there should be no delegation of the power to start a major investigation?

Mr. FUNSTON. That is right, sir.

Senator JAVITS. What about the rulemaking power?

Mr. FUNSTON. I believe all rulemaking powers should be kept in the Commission and not delegated.

Senator JAVITS. I am very interested in a field in which this and other plans apply; namely, the right of review by the whole Commission. The SEC plan requires the votes of two Commissioners in order to get a Commission review. You have considered that very carefully. What do you think about it?

Mr. FUNSTON. We don't like it.

Senator JAVITS. Tell us why.

Mr. FUNSTON. I might say, first, if our suggestion here were adopted, this objection would be withdrawn because it would be de minimis. But the reason we don't like it is we think that under the present law the industry has the right to expect that the whole Commission will act on these matters; and we don't think that the burden of proof ought to be shifted to us, with very fuzzy language as to time limits and who an intervenor is or is not, and so on, and so forth, before we get the right of review. We think in these important rulemaking and life-and-death matters that the burdens shouldn't be thrown on the industry to get a right to review. They ought to have it in the first place.

Senator JAVITS. So you wouldn't think that this would be cured by requiring only one vote for review, as for example, on petitions for stays in appellate courts, which can be granted by one judge.

Mr. FUNSTON. It would help, but we still wouldn't like it because then the burden is still changed from the Commission to the individual and we don't think that is proper in these very important cases. Senator JAVITS. I didn't understand that.

Mr. FUNSTON. I say this change would help, but not eliminate our objection, because the burden of proof would still be thrown on the industry rather than being, as it is now, in the Commission. One of

the things that we worry about, sir, is that from the industry standpoint regulatory bodies have a tremendous amount of authority. They act as the people who search out the charges, who bring the charges, who act as the judge, and then act as the jury. In these important matters we don't think that such tremendous power ought to be given to anybody other than the Commission itself.

Senator JAVITS. As a practical matter, assuming that you cannot get what you want-that is, a delegation of authority limited to these noncontroversial matters, things which it seems clear that the Commission ought to be able to delegate-do I understand that you take the position that because of this method of getting a review by the whole Commission, which you just mentioned, you would be against the plan? In other words, even if the plan were changed so that there was no delegation of rulemaking power, and the Commission retained the rulemaking power themselves and got only the power to delegate noncontroversial matters, would you still oppose the plan if this right of review is limited to cases where two Commissioners concur in granting the right of review?

Mr. FUNSTON. In other words, you are asking me, sir, if the recommendation which we have made is carried out; namely, that this plan be amended by withdrawing the rulemaking power and the life-anddeath matters, then under those circumstances we would not mind having the right of appeal left as it is now, with two Commissioners having the power to bring the matter before the full Commission.

Senator JAVITS. The converse of that proposition is this. If you did it that way, would the Commission still be burdened so that you would still have delays which you considered to be adverse to the interests of the investors themselves?

Mr. FUNSTON. No, sir. We believe that if this exception were adopted, it wouldn't impede the Commission at all in accomplishing their objective. As a matter of fact, we don't understand exactly why this is in the law anyway, why this is in the recommendation, because the Commission does not, as the Chairman of the Commission has stated over in the House, intend to exercise the authority to delegate rulemaking power. Therefore I don't see why we just do not take it out and make everybody happy.

Senator JAVITS. Now I have two legal questions which perhaps your lawyers will answer. Then I will be through.

On the question of rulemaking, would there be a party in interest entitled to seek a review from the full Commission?

Mr. ROSENBERRY. That is a question you will have to address to Mr. Landis or to Mr. Cary.

Senator JAVITS. What is your legal opinion?

Mr. ROSENBERRY. I can't answer it. I don't know.

Senator JAVITS. You are in doubt whether it would be possible for any party to seek a review as a right?

Mr. ROSENBERRY. It might depend on the particular form which the rulemaking procedure took to initiate a particular rulemaking procedure.

Senator JAVITS. So that you think if a particular form was used, they might shut out anybody from being a party in interest; is that right?