Mr. ROSENBERRY. I fear it might be possible. I would not admit that it was possible, but I wouldn't want to guarantee that it was not. Senator JAVITS. The next question is: Suppose a review were denied by the Commission in a controverted proceeding, which had been delegated to some subordinate official. Then what would be the right of the party in interest to go to the courts?

Mr. ROSENBERRY. As I read the plan, if the Commission adopted a rule which provided that within a stated period the decision of a subordinate would become final unless the Commission accepted it for review, then I think it is the intention in what you and I would call a quasijudicial proceeding, to permit an appeal to the courts from this final order of the subordinate.

Senator JAVITS. If you did appeal directly and the court sent it back for further proceedings, would the reorganization plan then permit or require the Commission to take those further proceedings or would it again go directly from the remanding court to a subordinate official?

Mr. ROSENBERRY. I could not answer that.

Senator JAVITS. Does the plan deal with it in your opinion?
Mr. ROSENBERRY. Not in any detail.

Senator JAVITS. In other words, there would have to be rulemaking power that would determine that question?

Mr. ROSENBERRY. I would think so.

Senator JAVITS. Are these some of the difficult problems which affect your view in respect to this plan?

Mr. ROSENBERRY. Yes, very much.

Senator JAVITS. I might say, Mr. Chairman, in conclusion, that I believe some reorganization is necessary. I believe that this reorganization before us is not a proper one, and I am very hopeful that we will be able by direct legislation or an amended plan to work out. the problems of the SEC. I couldn't agree more, because I know it not only from the testimony, but from experience in the greatest securities market in the world, which is located in the State I have the honor to represent in the Senate, that we do have a problem. There is delay. I wouldn't say that there is inadequate policing, but we certainly could do with more policing. I think that I would like to state to the Chair my deep respect for the Chair and my appreciation and pleasure in cooperating with the Chair. We have cooperated in other committees, and I am rather hopeful that we can serve on this in a very constructive function and really help them to work out this problem. I hope, Mr. Chairman, and I note the SEC people are here and so is our very distinguished colleague in the Government, Commissioner Landis, that they won't take this as in any sense an adversary position. We will together try to work out the problem. I certainly pledge myself to cooperate fully in trying to work out what I know to be a problem, even if we can't see eye to eye over details of the specifics, which we have not before us.

Is that pretty much the way you people feel, Mr. Funston?

Mr. FUNSTON. Very much.

Senator JAVITS. Your people and I may disagree on what ought to be done, but certainly we all agree that something has to be done. Mr. FUNSTON. Yes, sir.

Senator JAVITS. Thank you.

Senator WILLIAMS. Senator Beall.

Senator BEALL. No questions.

Senator WILLIAMS. It seems obvious from your statement, Mr. Funston, you are most concerned with the possibility that the rulemaking authority under the plan could be delegated by the Commission to others; is that your major concern?

Mr. FUNSTON. Yes, sir. The rulemaking authority and then its life-and-death authority over putting people out of business. Senator WILLIAMS. That was my next question.

Mr. FUNSTON. Yes, sir.

Senator WILLIAMS. You also mentioned the life-and-death authority in other areas, and your concern that they might be delegated. Mr. FUNSTON. That is our sole concern and the reason, sir, that we feel the way we do is not that the present Commission has any intention to do it, because the Chairman has stated that they do not intend to do so, but we just dislike in legislation that is going to last a hundred years, giving such immense authority to delegate.

Senator WILLIAMS. Yes. You do recognize the desirability of a reorganization that will allow delegation, as Senator Javits said, of some of the burdensome work that shouldn't come to the Commission?

Mr. FUNSTON. That is right, sir. We believe that this reorganization plan, amended as we suggest, would still enable the Commission to do all of the things that they want to do and need to do to improve the situation.

Senator WILLIAMS. That leads me to my final question. Do you have any language that describes a reorganization plan that you feel you could live with?

Mr. FUNSTON. We don't. We thought it would be presumptuous to get it in advance. We should certainly try to work up something. Senator WILLIAMS. I think it would be most desirable.

Senator JAVITS. I join the Chair in that.

Mr. FUNSTON. Thank you.

Senator WILLIAMS. Are there any further questions?
Thank you.

Mr. FUNSTON. Thank you, sir.

Senator WILLIAMS. The next witness is Mr. Harry W. Besse, who is president of the Boston Stock Exchange. Mr. Besse, we have your prepared statement. You may read it or proceed in any way you desire.

STATEMENT OF HARRY W. BESSE, PRESIDENT, BOSTON STOCK EXCHANGE

Mr. BESSE. Thank you.

My name is Harry W. Besse. I am president of the Boston Stock Exchange.

I am grateful to you, Mr. Chairman, and to your committee for the privilege of appearing before the committee to comment on Reorganization Plan No. 1.

The plan is certainly commendable in its essence. However, certain proposals contained in it present hazards, especially so because the changes are so far reaching.

Here are three examples:

1. The Securities Act of 1934 gave the Securities and Exchange Commission broad powers to make rules relating to the industry. These powers, under section 23 of the act, have been admirably exercised over almost three decades. It is difficult to conceive that the Commission should or would delegate their rulemaking authority as is provided in this reorganization plan, without subsequently reviewing decisions on delegated matters. This right to review is provided under the proposed subdivision (b).

If it is impractical for the proposed provisions to spell out in what specific areas the Commission shall be permitted to delegate, then there should be designated areas in which it shall not be permitted to delegate, and making or revising its rules should be among these prohibitions.

2. The interests of "a party to or an intervenor in" any action taken under a delegated authority should not be left solely to the discretionary right of the Commission to review the action. If our democratic processes are to be preserved, any "party to", "intervenor in" and any person or group aggrieved by a proposed action under delegated authority must have the right in the law to a review by the body which delegated its authority. Anything less than such a provision would open the door for the Commission gradually to relinquish the duties and responsibilities for which the Congress created it and with which it is specifically charged under the law as it presently is in effect.

3. It is noted with interest that the President's message seems to contemplate delegation of matters "depending upon their importance and their complexity", while the proposed section 1(a) would give authority to delegate "any of its functions." Of course, it would be a reasonable expectation that the Commission would exercise its power to delegate in any area depending upon the importance of the matter. The great hazard is that what the Commission might honestly appraise as being a matter of relative unimportance might be a matter of survival for the party or parties concerned. The parties concerned must have the right of initial appeal to the Commission.

Such a right obviously would not impede the admirable objectives of the proposed reorganization in the areas where the work of the Commission and its staff have become routine, or where the pattern spun by experience shows that authority can be delegated without complexity or controversy.

Thank you, sir.

Senator WILLIAMS. Thank you, Mr. Besse.

Senator Neuberger.

Senator NEUBERGER. No questions.

Senator WILLIAMS. Senator Javits.

Senator JAVITS. Perhaps one question would suffice, Mr. Besse. Do you disagree anywhere with the views expressed by Mr. Funston on behalf of the New York Stock Exchange?

Mr. BESSE. There is nothing in Mr. Funston's presentation to you gentlemen with which I disagree.

Senator JAVITS. So that his presentation would substantially represent your position, too? I think it is carried out by your prepared

statement.

Mr. BESSE. Very clearly.

Senator JAVITS. Thank you very much.

Senator WILLIAMS. Does that include the need for more personnel in the SEC, Mr. Besse?

Mr. BESSE. I would approve of the expansion of SEC personnel to further inspect and police the activities of our industry. The increasing activity over the last several years has been such that the staff has been very obviously overburdened and does require additional personnel. I should like to add that I think that an increase in personnel of this kind would be very desirable in the public interest because I believe the soundness of the investment industry, and the confidence of our people in the industry, are very important factors contributing to the national stability. I would like to see the increase made.

Senator WILLIAMS. Senator Beall.

Senator BEALL. No questions.

Senator WILLIAMS. Thank you very much.

Mr. BESSE. Thank you.

Senator JAVITS. Thank you.

Senator WILLIAMS. We now have a choice between members of the Commission or Dean Landis. What would be most convenient, Mr. Commissioner?

Mr. CARY. We leave this to Dean Landis. We know he has a commitment to make a speech at noontime. We will leave it up to him, whether he would like to speak first.

Senator WILLIAMS. Dean Landis, would you like to come forward? STATEMENT OF JAMES M. LANDIS, SPECIAL ASSISTANT TO THE PRESIDENT OF THE UNITED STATES

Mr. LANDIS. Mr. Chairman.

Senator WILLIAMS. It is an honor for our committee to have you with us this morning, Dean Landis.

Mr. LANDIS. Thank you.

Senator WILLIAMS. You may proceed.

Mr. LANDIS. Mr. Chairman, I am glad to have this opportunity to appear before the subcommittee. I was particularly interested in the remarks of Mr. Keith Funston, president of the New York Stock Exchange. As I interpreted his remarks, he indicated that a reorganization which enabled a certain degree of delegation on the part of the Commission of some of its functions was a desirable thing. When we attempt to classify the kinds of things which should be delegated, writing the law to permit such delegation becomes difficult. Mr. Funston mentions the delisting of securities in routine cases. is impossible to write a law that would permit delegation in routine cases, but not in nonroutine cases. Noncontroversial cases is another category. Many very important things that are decided by the Commission are noncontroversial, and should not be delegated.

It

I take another phrase: institution of major investigations should not be delegated. How can you define a major investigation or a minor investigation? Or to take another phrase, rulemaking. The Chairman of the SEC indicated in his testimony before the House Committee that the Commission had no intention of delegating its

general rulemaking powers. Notice the word "general." The rules of the Commission are about as voluminous as the rules of any agency in the Federal Government. Those rules govern the number of copies of a registration statement that has to be filed. They govern the size of the paper upon which that registration statement has to be filed. They govern the quality of the paper. They go into infinite detail. The delegation of rulemaking surely would not threaten the lifeblood of our securities markets if it merely dealt with trivia of that character.

In order to permit delegation I submit that we have to phrase this power in general terms. The Commission knows better than anyone else what can be effectively dealt with. And although we phrase delegation in general terms in this reorganization plan, the plan has built into it certain safeguards against untoward or unwise delegation. The first of these safeguards is that the delegation must take place by a published rule or order. This means that section 4 of the Administrative Procedure Act immediately comes into play. Notice and hearing will have to be held on any such rule.

The second important safeguard that is involved here is, of course, the fact that the delegation has to be granted by majority action on the part of the Commission.

A third safeguard that is very important is the right of review. The right to a discretionary review on the part of the Commission is permitted. Any individual affected by an action that has been delegated has a right to petition the Commission in full for a review of that action. If two members of this Commission, representing the minority, the so-called minority of the Commission, wish to have a review by the Commission en banc, the action must be reviewed. It can be reviewed on the initiative of the Commission without a petition on the part of the individual affected. The Commission may, if it chooses, review a case en banc merely because one Commissioner thinks that it is important enough to be reviewed.

There is considerable freedom of action.

Another area in which I think there has been some misunderstanding this morning is the idea of delegation of adjudicatory matters. The plan itself provides specifically for the continuance of the hearing examiner system as that system was established by the Administrative Procedure Act. It provides specifically that section 7(a) will govern in all adjudicatory cases. The revocation of a broker-dealer's license, the suspension of a security, and the delisting of a security are adjudicatory matters within the meaning of the Administrative Procedure Act. They are today regularly handled first by a hearing examiner. There exists a right of appeal from the hearing examiner's decision to the Commission en banc. This substitutes a discretionary right for the right of appeal that exists today under the law. Consequently, I cannot see the dangers that are envisioned.

With regard to delegation, all of us can conjure up theoretical possibilities of danger. I can conjure up, for example, the theoretical possibility that the Congress of the United States could bring the executive department to a halt constitutionally by simply refusing to appropriate any money. It could do the same thing with the courts. But these things don't happen in life.

70511 0-61- 3