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Asia Ltd. all at the same address and telephone number. Southern, and China Airlines-thought to be another CIA operation-have offices in the same building, at 1725 K St. NW. Civil Air Transport is the old name for Air America, which was founded after World War II by Gen. Claire Chennault, commander of the famed Flying Tigers.

More serious, they contended, Southern and its officials may have violated federal law by transferring control of the airline on several occasions without CAB approval, and by creating at least one interlocking relationship with a second corporation engaged in aeronautics, also without CAB approval.

They pointed out that in January 1957, one Frederick C. Moor, Southern's founder, owned 98 of Southern's 100 shares of outstanding stock, according to CAB records.

But by August 1962, Moor had been joined by Williams, Brundage, and McGuire. As of Sept. 8, 1964, 84 shares were registered in the name of Suydam & Co., which turned out to be a "street name" for Moor, Williams, McGuire, and Brundage.

There was no explanation of how Suydam1 had come about-but by 1972 it had disappeared along with Moor's name (he died recently) and the only stockholders were Williams, Brundage, and McGuire. [Emphasis added.]

It was just after Brundage and McGuire had come to the firm around 1960 that massive amounts of money began to flow into the company from Air America, widely known as an arm of the CIA. About the same time Southern was given a contract for government inter-island business in the South Pacific under what one individual called strange

circumstances.

CAB records indicate that Southern's largest single source of revenue each year starting in 1963 has been something identified as "Logistical Support Group contract revenue." From 1963 through 1972 revenue from this source totaled nearly $6.9 million. Southern's annual revenues total about $9 to $10 million a year, and its profits for the most recent 12 months is about $382,000.

Southern's competitors in the air charter business contend the government money means "there is a strong presumption... that a substantial part of this sum represents a direct or indirect subsidy paid to Southern by the Government."

THE ROLE OF DEPOSITORY TRUST CO., AND CEDE & CO.

AUGUST 23, 1973.

Mr. WILLIAM DENTZER,
Depository Trust Co., New York Stock Exchange, 44 Broad
St., New York, N.Y.

DEAR MR. DENTZER: To assist us in completing a study relating to information filed with government agencies regarding stockholders of major corporations, Chairman Metcalf would appreciate receiving from you information on the following matters:

(1) The current place of the Depository Trust Company and Cede and Company within the structure of the New York Stock Exchange, their authority and responsibility and how they differ from those of the Central Certificate Service. Details of this change and what it portends for the future will be appreciated. As documentation we would like to receive the articles of incorporation and the by-laws of the Depository Trust Company.

1 For previous references to Suydam & Co., see p. 188 and p. 302.

(2) The authority of the Depository Trust Company and Cede and Company to vote shares of stock held either in the name of Cede and Company or in the name of the Depository Trust Company and their practice in this regard. Is there any legal restriction against Cede and Company or the Depository Trust Company voting shares held by them in the absence of instruction from participants (e.g. brokers and banks)?

(3) Who are, and who are eligible to be, participants in the Depository Trust Company and Cede and Company? (4) What, if any, is the policing mechanism to insure that voting instructions by such participants are actually followed by Depository Trust Company or Cede and Company personnel? Who are the officials responsible for executing these voting instructions?

We should appreciate your response as soon as possible; a reply no later than September 5 would be most helpful. Sincerely yours,

VIC REINEMER,

Staff Director, Subcommittee on Budgeting, Management and Expenditures.

THE DEPOSITORY TRUST CO.,
New York, N.Y., September 10, 1973.

Mr. VIC REINEMER,
Staff Director, Subcommittee on Budgeting, Management and
Expenditures, Committee on Government Operations,

U.S. Senate, Washington, D.C.

DEAR MR. REINEMER: We are pleased to respond to your letter of August 23, 1973 requesting information with Trust") and Cede & Co. in connection with the Subcomrespect to The Depository Trust Company ("Depository mittee's study relating to information filed with government agencies regarding stockholders of major corporafollowing information (answers are numbered in accordtions. In response to your inquiry we are providing the ance with the numbers of the questions in your letter of August 23):

(1) We are enclosing copies of the by-laws and the organization certificate and, although not requested in your letter, the current (interim) and proposed rules of Depository Trust.' We are enclosing both the rules as now in effect and the proposed rules, which have been substantially approved by the Securities and Exchange Commission, because the proposed rules reflect our new course of action and are expected to become effective before the end of the year.

WHOLLY OWNED BY NYSE

Depository Trust is a limited purpose trust company chartered under the Banking Law of the State of New York and is a member of the Federal Reserve System. Depository Trust is presently a wholly-owned subsidiary of the New York Stock Exchange, Inc. ("NYSE") and is a "clearing corporation" as that term is defined in Section 8-102(3) of the Uniform Commercial Code ("UCC"). Depository Trust is engaged in the business of effecting the transfer and pledge of securities deposited with it by its participants through entries on its books, as permitted by UCC §§ 8-320(1) and (2). Depository Trust accepts deposits of eligible securities listed on the NYSE, the American Stock Exchange, the National Stock Exchange or traded over-the-counter from its participants which are then credited to the participants' accounts. After being so

1 Retained in committee files.

credited, the securities may be pledged, released from pledge, transferred and retransferred pursuant to the foregoing provisions within the system by computerized book-entry without movement of the certificates representing such securities, which remain in the custody of Depository Trust or its custodian banks.

In order to facilitate subsequent transfers, all securities deposited by a participant with Depository Trust are immediately registered in the name of Cede & Co., a name well known in the financial community as the nominee of Depository Trust and the former nominee of Central Certificate Service, Inc. and of Stock Clearing Corporation when Central Certificate Service was a division of Stock Clearing Corporation. (The name Cede and Co. was drawn from "certificate depository".)

NEED TO REDUCE PAPERWORK

Cede & Co. and the Central Certificate Service division of Stock Clearing Corporation (a predecessor to Depository Trust) were created by Stock Clearing Corporation, a wholly-owned subsidiary of the NYSE, in response to a felt need to reduce the enormous paper work burden upon the securities industry created by the necessity of delivering paper stock certificates and bonds and, perhaps, putting them through a transfer agent each time a transaction was effected. [See, Subcommittee on Securities of the Senate Committee on Banking, Housing and Urban Affairs, 92d Cong., 2d Sess., Securities Industry Study 14 (Comm. Print 1972) and generally Hearings on Clearance and Settlement of Securities Transactions Before the Subcommittee on Securities of the Senate Committee on Banking, Housing and Urban Affairs, 92d Cong., 2d Sess. (1972).] As an interim step toward the ultimate creation of Depository Trust the Central Certificate Service division of Stock Clearing Corporation transferred its business to Central Certificate Service, Inc. ("CCS"), a New York corporation wholly-owned by the Exchange and created for that purpose. Cede & Co. thereupon became the nominee of CCS. On May 11, 1973 the business of CCS was transferred to Depository Trust and upon that transfer Cede & Co. became the nominee of Depository Trust and CCS ceased to exist as an operating entity.

The basic operations of Depository Trust do not sig nificantly differ from the operations formerly conducted by the Central Certificate Service division of Stock Clearing Corporation and by CCS. The variety and extent of those services and the people served, however, have been and are in a continual process of evolution so that Depository Trust participants, the securities and banking industries in general and the public interest may be better and more efficiently served. While the Central Certificate Service was a division of Stock Clearing Corporation it was, of course, wholly-owned by the NYSE and there were no outside directors on the board of Stock Clearing Corporation. Pursuant, however, to decisions to convert Central Certificate Service into a mutualized service corporation owned by and for its users, a board of directors of CCS was elected by the NYSE (as sole shareholder) so as to provide representation not only of the NYSE but also of the American Stock Exchange, the National Association of Securities Dealers and banks. The same principle of representation of other than NYSE interests now prevails with respect to Depository Trust and the depository's board has been broadened further.

At such time as UCC § 8-102(3) is amended in substantially all of the jurisdictions where it is now in force

in a manner similar to its recent amendment in the State of New York so as to permit ownership of the stock of a "clearing corporation" by others thah a national securities exchange or national securities association, it is contemplated that shares of the capital stock of Depository Trust will be available for purchase by or for users of the Depository Trust system. Share ownership would be in accordance with a formula allocating the number of shares which might be purchased by a participant on the basis of his use of the system. At such time, of course, the NYSE would cease to be the sole stockholder of Depository Trust.

CORPORATE FORM OF LIMITED PURPOSE TRUST CO.

The corporate form of a limited purpose trust company was chosen primarily because of: (1) the desire of potential bank participants in the system to have thorough bank regulatory agency examination of the operations of the depository holding their securities; (2) the reduction, if not elimination, of possible legal obstacles which the utilization by fiduciaries of a non-banking entity might pose; and (3) the fact that Depository Trust's status as a "bank" would permit it to act as custodian for other "clearing corporations" pursuant to the provisions of UCC § 8-320 (1) (a), thus facilitating the ultimate development of a nationwide system for the clearance and settlement of securities transactions.

(2) As noted above, securities deposited within the Depository Trust system are held only in the name of its nominee Cede & Co. As record holder, Cede & Co. is under the applicable law of most jurisdictions the only entity actually entitled to vote such securities. Cede & Co. never votes such securities except on the instructions of the Depository Trust participant (received by Cede & Co. through Depository Trust) to whose account such securities are credited on the relevant record date. It is the consistent and careful practice of Cede & Co. (via Depository Trust) to obtain instructions from Depository Trust participants as to the voting of securities credited to the Depository Trust account of such participants and to vote such securities only as and to the extent that instructions are received. Cede & Co. is specifically forbidden to vote such securities without instructions. Depository Trust also, to a limited extent and as a pilot project, transmits to participants proxies executed by Cede & Co. covering the participant's deposited shares so that the participant may complete the proxy and forward it to the

Issuer.

VOTING OF SECURITIES

Moreover, Depository Trust itself exercises no more discretion with respect to the voting of securities held in Cede & Co.'s name than does Cede & Co. itself. Depository Trust instructs Cede & Co. to vote the securities registered in Cede & Co.'s name only to the extent and as Depository Trust is instructed by the participants who have such securities credited to their account with Depository Trust. At no time does Depository Trust direct Cede & Co. to vote such securities without such instructions. In the event that no such instructions are received such securities are not voted by Cede & Co.

Moreover, any lack of fidelity to the explicit voting instructions of its participants by Depository Trust or Cede & Co. would result in a complete lack of faith in Depository Trust and in its operations (including use of Cede & Co.) on the part of Depository Trust participants and would, of course, in turn place such participants in an

untenable position with respect to those of their customers for whom they hold securities in Depository Trust and upon whose direction those participants instruct Cede & Co. to vote such securities. Depository Trust participants would in such event probably have no alternative but to withdraw such securities from Depository Trust so that they could fulfill their own responsibilities to their customers; and they might even feel compelled to terminate their Depository Trust membership-consequences completely at odds with Depository Trust's aim of attracting more and more participants to a depository system for the purpose of safely immobilizing the stock certificate. Thus, wholly aside from any legal restrictions upon Depository Trust's and Cede & Co.'s voting of securities within the Depository Trust system without instructions, practical considerations clearly militate against such action.

RULES OF DEPOSITORY TRUST

(3) We are enclosing a list of the participants of Depository Trust as of July, 1973.2 The requirements for eligibility for participation in Depository Trust are set forth in Rules 2 and 3 of the current Rules of Depository Trust (which are interim Rules drawn from Stock Clearing Corporation's former rules as they affected depository operations) and in Rules 2 and 3 of our proposed Rules, copies of which are enclosed, as noted above. Depository Trust has proposed to the Securities and Exchange Commission that eligibility for membership be broadened to include broker-dealers, clearing corporations-depositories, banks, insurance companies, investment companies and other financial institutions. Cede & Co., of course, has no participants in the sense of participation in the operations of a "clearing corporation".

(4) On the return by the participant to Depository Trust of the filled-in voting instruction form sent by Depository Trust in advance of meeting dates or other dates by which shareholder action must be taken, the form is recorded by Depository Trust personnel for computer processing by key-punch and then filed. As voting instructions come in, proxies are sent to the issuer and summaries are prepared (on a daily or every-other-day basis) which are verified by other Depository Trust personnel on a line-by-line basis against the voting instruction forms received up to that time. Any discrepancies appearing are then corrected.

FINAL SUMMARY PREPARED

On the day before the meeting a final summary is pre

2 Retained in committee files.

pared and verified and a proxy covering votes for instructions not previously received is issued; the summary and the proxy are mailed to the issuer, the shares of which are to be voted, and in addition a voting authorization containing all information received up to that date is TWX'ed, telexed or telegramed to the corporation. The voting authorization can serve as complete voting instructions to the issuer in the event the summary and current proxy, and/or previously mailed proxies, are delayed in the mail. Shortly after the meeting date the issuer is provided with a final voting summary of the votes.

The person responsible for assuring the accurate execution of Depository Trust's processing of voting instructions from participants is the Manager of Depository Trust's Proxy Department.

Microfilm copies are kept of all records relating to voting instructions.

Now that the depository has transferred its operations to a trust company and is subject to examination by the Federal Reserve Bank of New York and the New York State Banking Department, we anticipate that bank examiners of both institutions will make regular examinations of the Proxy Department's operations to assure their integrity. One of the reasons for transferring our operations to a trust company was to assure potential participants and others concerned that an independent, external review of our operations was made by public authorities.

Let me add one important point in closing.

OBLIGATION TO INFORM

While Depository Trust recognizes its obligation to fully inform any issuer of a security of the participants in the depository which hold that security, and the amount of their holdings, we also recognize that governmental bodies can have a legitimate interest in such information as well. We therefore have made it clear in our proposed Rules (sub-section (f) on page 12) that Depository Trust is authorized and obligated to provide "to any appropriate governmental authority" information on the amount of securities credited to the account of any participant.

I would be happy to answer any further questions on this important subject, and I would welcome any comments or suggestions you may have growing out of your study.

Sincerely yours,

W. T. DENTZER, Jr.

Appendix D

TABLES TO PART II: THE NEED FOR DISCLOSURE REGARDING CONCENTRATION OF VOTING RIGHTS AMONG INSTITUTIONAL INVESTORS

APPENDIX TABLE 1-A.-CONCENTRATION OF STOCK HOLDINGS DATA FOR A SAMPLE OF 50 STOCKS HELD IN HIGH CONCENTRATIONS PRIMARILY BY 50 BANK TRUST DEPARTMENTS (FULL VOTING RIGHTS ONLY),2 SEPTEMBER 30, 1969

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