Mr. PAINTER. The second document is a resolution adopted by the Investment Bankers Association of America, and sent to you with a letter, dated October 6, by Mr. Gordon Calvert, with a request that this be entered into the record. The resolution states that the Investment Bankers Association of America warmly applauds and strongly endorses the position of SEC Chairman Casey looking toward the early elimination of the securities certificate as a major step in strengthening and improving the functioning of the national securities market. The Investment Bankers Association respect fully calls upon President Nixon and the Congress to introduce and promptly enact legislation abolishing the stock certificate for use in interstate commerce no later than January 1, 1975. Third, the Investment Bankers Association of America pledges its full cooperation and that of its members to achieve effective implementation of such legislation as soon as enacted. Mr. Moss. Is there objection to inclusion of the resolution and cover letter in the record at this point? Hearing none, it will be so included. (The letter and resolution follows:) INVESTMENT BANKERS ASSOCIATION OF AMERICA, 425 THIRTEENTH STREET NW., Washington, D.C., October 6, 1971. Hon. JOHN E. Moss, DEAR MR. Moss: In connection with the study of the securities industry by your Committee, we respectfully request that the attached resolution be included in the record of the hearings. This resolution adopted by the IBA Board of Governors on September 17, 1971 urges the prompt enactment of legislation abolishing the stock certificate for use in interstate commerce no later than January 1, 1975 and pledges the full cooperation of the Association and its members to achieve effective implementation of such legislation. With best personal regards, GORDON L. CALVERT. RESOLUTION REGARDING ELIMINATION OF STOCK CERTIFICATES ADOPTED BY THE BOARD OF GOVERNORS OF THE INVESTMENT BANKERS ASSOCIATION OF AMERICA, SEPTEMBER 17, 1971 Resolved, That (1) The Investment Bankers Association of America warmly applauds and strongly endorses the position of SEC Chairman Casey looking towards the early elimination of the securities certificate as a major step in strengthening and improving the functioning of the nation's securities markets. (2) The IBA respectfully calls upon President Nixon and the Congress to introduce and promptly enact legislation abolishing the stock certificate for use in interstate commerce no later than January 1, 1975. (3) The Investment Bankers Association of America pledges its full cooperation and that of its members to achieve effective implementation of such legislation as soon as enacted. Mr. PAINTER. Mr. Chairman, the third document is an article published in the Bank Administration Institute magazine for May 1971 entitled "A System of Certificateless Stock Transfers," written by Mr. Eli Weinberg, whom we have here with us this morning. This article I believe is referred to in the statement which he presented to the subcommittee. Mr. Moss. Without objection, the article will be included in the record at this point. (The article referred to follows:) munity. The solution was somewhat obvious: Eliminate a substantial portion of the paper and thereby speed-up and control the handling and flow of transactions. The need for a comprehensive study of the brokerage industry from an operational systems viewpoint with particular emphasis on back office problems was envisioned by Lybrand. The result was Paper Crisis in the Securities Industry: Causes and Cures*, prepared under the guidance of Sidney Robbins of the Graduate School of Business of Columbia University and Walter Werner of the Columbia Law School. Realistically, none of us involved in the study expected the findings, conclusions and recommendations to be totally palatable. We were aware that the question, “Is the stock certificate necessary?", posed in the body of the study and answered in the negative would not meet with universal acceptance. Further, although we anticipated that the study would serve as a catalyst in prompting changes over the long term, we were cognizant of the many legal ramifications that might impede actual implementation of the recommendations. Our ultimate goal, therefore, was to evolve a workable approach that would strengthen the brokerage community over the long haul, facilitate progress and prevent a recurrence of existing problems. Study Recommendations Basically, the Lybrand study supported the following recommendations: Develop a central certificate system (along the lines of the Central Certificate Service established by the New York Stock Exchange) to immobilize the certificate and effect transfers by bookkeeping entry without certificate movement. ● Implement an electronic share transfer system to eliminate the stock certificate and, in turn, eliminate the numerous operations involved in the storage, handling and movement of securities. Form a strong representative industry committee to work with the banking community and other interested industry groups for planning and action to meet total operating needs. (Since publication of the Lybrand study, the financial community has established the BASIC committee to direct and coordinate inter-industry programs designed to improve security handling operations. In addition, this committee has given the highest priority to the development and expansion of the Central Certificate Service depository system. See the article on page 22 of this issue.) The recommendations of this study not only had an impact on the brokerage community, but on the banking industry and numerous corporations as well. As a matter of fact, the largest number of requests received emanated from the banking industry. Obviously our scope had been somewhat limited. We saw the wire houses as the major benefactors of a certificateless environment and anticipated that many brokerage firms could save substantial sums of money annually by freezing or eliminating movement of stock certificates. However, we failed to identify other specific industry groups that would also benefit directly from such action, namely banks and large corporations. And these two groups-the banks, acting as transfer agents, and the corporations, which actually issue the stock-are in a position to determine the methods to be employed, and to exert the greatest influence on stock transfer procedures. The benefits that would *Copies of the study may be obtained for $5. by circling reader service number 150 or writing Mr. Weinberg at 2 Broadway, N.Y., N.Y. 10004. accrue to these groups as a result of As a result of the interest gener- nity, three seminars that dealt with The Proposed System The basic procedures for placing orders to buy and sell securities would not change. A visual recap of these procedures as they are organized within the proposed system is presented in the accompanying chart. As a by-product of the trade, the broker would notify the transfer agent of the transaction and identify the affected stockholder's account. Street name and nominee name would also be accepted. A copy of the confirmation, which would replace the present transfer instruction, could be used for this purpose. A uniform, machine-readable confirmation format would be designed for use by all brokers. Initially, each confirmation copy would be individually signature guaranteed by the broker. In time, however, this requirement could be changed to cover confirmations in toto, and each instruction would be automated and controlled along the lines of check-signing procedures for automated payroll systems. Mr. PAINTER. The final document, Mr. Chairman, is a letter from Prof. John M. Steadman, Visiting Professor of Law, University of Pennsylvania, to former Commissioner Richard B. Smith, dated April 5, 1971, which, in my opinion, is extremely helpful in setting forth a number of the legal problems, as well as case citations and other appropriate references, involved in the elimination of the stock certificate. Mr. Moss. Is there objection to inclusion of the letter in the record at this point? |