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REORGANIZATION PLAN NO. 1 OF 1961 (SEC)

FRIDAY, JUNE 2, 1961

U.S. SENATE,

COMMITTEE ON BANKING AND CURRENCY,

SUBCOMMITTEE ON SECURITIES,

Washington, D.C.

The subcommittee met, pursuant to notice, in room 5302, New Senate Office Building, at 9:40 a.m., Senator Harrison A. Williams (chairman of the subcommittee) presiding.

Present: Senators Williams, Neuberger, Javits, and Beall.

Senator WILLIAMS. Our Subcommittee on Securities will come to order.

On April 27, 1961, the President transmitted to the Congress Reorganization Plan No. 1 of 1961 providing for reorganization in the Securities and Exchange Commission. This plan was referred to the Committee on Government Operations.

On May 2, Senator McClellan, chairman of the Committee on Government Operations, wrote to the chairman of the Banking and Currency Committee stating that it would be helpful if the Banking and Currency Committee would submit any comments and recommendations with respect to the plan. In accordance with Senator McClellan's request, the Banking and Currency Committee decided that the Securities Subcommittee should hold hearings on the reorganization plan, to which the Commission and Dean Landis would be invited. In addition, it was agreed that the public would be given an opportunity to present its views to the subcommittee.

The hearings were announced for May 22, but, unfortunately, conflicting engagements made it necessary to postpone the hearings until this morning.

On May 16, a resolution of disapproval was introduced, Senate Resolution 148, which was referred to the Committee on Government Operations. The Government Operations Committee has announced that it will hold hearings on the reorganization plan and the disapproval resolution on June 6. The hearing this morning is a preliminary hearing to give this committee a basis for making comments to the Committee on Government Operations. The members of the full Banking and Currency Committee and the members of the full Government Operations Committee have been invited to attend this hearing.

In order to give the full background of this plan, I should like to insert in the record, as an appendix to the testimony, the President's message on regulatory agencies, transmitted April 13; a copy of Reorganization Plan No. 1 of 1961 and the accompanying message; a copy of Senator McClellan's letter of May 2 to the chairman of this

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committee; a copy of a memorandum, dated May 12, prepared by the staff of the Committee on Government Operations; a copy of the Administrative Procedure Act; section 4 of the Securities Exchange Act of 1934; Reorganizatiton Plan No. 10 of 1950, with the President's accompanying message; excerpts from the report of the committee on Expenditures in the Executive Departments on Reorganization Plan No. 10 of 1950; and an excerpt from the Reorganization Act of 1949.

Our first witness is Mr. G. Kaith Funston, president of the New York Stock Exchange, who has requested an opportunity to express the views of that exchange.

Mr. Funston, we welcome you before the subcommittee this morning. If you would introduce your colleagues, I would appreciate it. STATEMENT OF G. KEITH FUNSTON, PRESIDENT, ACCOMPANIED BY EDWARD C. GRAY, EXECUTIVE VICE PRESIDENT, AND SAMUEL L. ROSENBERRY, COUNSEL, NEW YORK STOCK EXCHANGE

Mr. FUNSTON. I am Keith Funston. I am president of the New York Stock Exchange, and with me today is Mr. Edward C. Gray, executive vice president of the exchange, and Samuel L. Rosenberry, of Milbank, Tweed, Hope & Hadley, counsel to the exchange.

We would like to thank you for this opportunity to present the exchange's views on Reorganization Plan No. 1 of 1961.

At the outset, I want to assure you that we recognize the need of the SEC for greater authority to delegate to the staff routine functions now performed by the Commission.

The exchange has appeared before congressional committees many times to support legislation where it was demonstrable that a change was necessary to serve better the investing public. However, we have consistently opposed the "blunderbuss" approach in legislation affecting the securities industry. This type of legislation may be necessary in the case of other agencies, but we do not believe the broad brush should be used in dealing with the laws administered by the Securities and Exchange Commission.

The Securities Exchange Act of 1934 gives the Securities and Exchange Commission very broad rulemaking power. Rulemaking power is, in the eyes of the laymen, the power to legislate. As we read Reorganization Plan No. 1, the Securities and Exchange Commission could delegate its rulemaking power to a commissioner, to an employee, or to an employee board. Under its rulemaking authority, the Securities and Exchange Commission has adopted sound and reasonable minimum capital requirements which apply to more than 6,000 broker-dealers. A revision of these requirements could seriously restrict the ability of broker-dealers and even the entire securities industry-to continue to serve the investing public effectively.

The Commission has other vast powers. Under section 19 of the 1934 act the Commission has power to suspend or withdraw the registration of an exchange, to suspend trading in securities, and to revise the rules of exchanges in many important areas. Furthermore, section 15 (b) of the 1934 act gives the Commission power to put a brokerdealer out of business by revoking his registration.

In our view the Commission should not be permitted to delegate to anyone its legislative powers or its life-and-death authority over so important a segment of our economy.

We are not in any way suggesting that the present Commission, for whom we have the highest respect, would abuse the extremely broad authority that would be granted under the reorganization plan. The Chairman of the Securities and Exchange Commission stated to the House Committee on Government Operations that the Securities and Exchange Commission had no intention of delegating general rulemaking power. There is, however, no guarantee that future commissions under the same or different circumstances might not go far beyond the stated intention of the present Commission.

In view of the important questions we have raised, we hope that the executive department will amend its Reorganization Plan No. 1 of 1961 to limit the Commission's power to delegate. In the alternative, we urge the adoption of Senate Resolution 148 disapproving Reorganization Plan No. 1 of 1961, and the enactment of legislation authorizing the Commission to delegate its powers in specific areas which deal, to use the words of the President, "with matters of lesser importance."

It would appear proper for the Commission to delegate its authority under the 1934 act in such matters as 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.

We do not want to create roadblocks to the commendable objectives of Reorganization Plan No. 1, but in closing I want to repeat that we do not believe rulemaking authority and the power to put people out of business should be subject to delegation. Even with these suggested changes, we believe that the power to delegate granted under Reorganization Plan No. 1 would provide the Commission with the flexibility necessary to perform its functions more efficiently by relieving the Commission of the burden of processing matters of lesser importance.

Thank you, sir.

Senator WILLIAMS. Thank you, Mr. Funston.

Senator Neuberger.

Senator NEUBERGER. No questions.

Senator WILLIAMS. Senator Javits.

Senator JAVITS. Mr. Funston, right now is there a real problem with delays in the activities of the Commission, such as to affect the securities markets or the investor?

Mr. FUNSTON. Yes, sir; I think that there is. The Commission has a serious problem in processing the tremendous mass of applications that it has for security registrations.

Senator JAVITS. What has happened actually? How is this working out now?

Mr. FUNSTON. The burden in this particular area-there may be other areas that my colleagues would wish to speak about-the burden of requests from the industry for new financing has grown so tremendously that the SEC is unable to process them as fast as the Commission has been able to do in years past or as fast as it would be good for the industry to have them processed. In the delay in having

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