opportunity for an agency hearing." None of the Commission's general rulemaking powers has such a requirement. However, I should like to point out that rulemaking by the Commission is subject to the general requirements of section 4 of the Administrative Procedure Act. Sections 4(a) and 4(b) provide that, with certain exceptions, the Commission shall publish a general notice of proposed rulemaking in the Federal Register and also that the agency shall afford interested persons an opportunity to participate in rulemaking through submission of written data, views or arguments. It has been the Commission's policy in the past, and I may state it will continue to be its policy in the future, to provide opportunity for comment on proposed rules beyond the requirements of the Administrative Procedure Act. Such comments have been found to be most helpful. It should also be noted that section 4(d) of the Administrative Procedure Act provides another form of public participation in rulemaking by requiring that every agency shall accord any interested person the right to petition for the issuance, amendment, or repeal of a rule. Thus, assuming that the Commission delegated its rulemaking functions with respect to a particular area, the promulgation of rules in this area would undoubtedly be preceded by granting to interested parties an opportunity to comment on them. In the event that any party had objections to a rule, it seems clear to me that these objections would be brought to the attenion of the Commission which would then reconsider the rule. Thus, should the plan become effective, a form of review by the Commission would exist with respect to rulemaking. As I have stated, it is not the Commission's intention to delegate its general rulemaking powers. In some cases, however, it may be appropriate to delegate to a commissioner or a staff member the authority to issue rules in limited areas which do not deal with the basic policies of the acts. I might cite as an example the mechanical requirements dealing with registration statements, e.g., the number of copies to be filed. Examples of existing rules which might have been delegated include the following: (a) Rule 14a-6 (h), Securities Exchange Act of 1934, and rule 472(d), Securities Act of 1933, requiring marked copies of amendments to proxy material and registration statements. (b) Rules 402 and 403, Securities Act of 1933, dealing with the number of copies, binding, paper, and printing of registration statements. (c) Rules 12b-11 through 12b-14, Securities Exchange Act of 1934, dealing generally with the mechanical requirements for forms filed under the Securities Exchange Act. (d) Rules 8b-11 and 8b-12, Investment Company Act of 1940, concerning the formal requirements of registration statements or reports filed with the Investment Company Act. In summary, I do not believe that Reorganization Plan No. 1 presents any problems in allowing delegation of the Commission's rulemaking functions. In the first place, as stated, this Commission does not intend to delegate its rulemaking relative to policy matters. Moreover, the Administrative Procedure Act contemplates opportunity for public participation in rulemaking and the right to petition the Commission for amendment or repeal of a rule. Even in minor matters where rulemaking might be delegated, it is reasonable to assume that the Commission will be sensitive to public objections to a proposed rule and, accordingly, will reexamine the rule on its own motion. 2. Proposals for legislation which are deemed necessary or advisable from time to time in the public interest or in the interest of investors. Certainly the Commission alone, on behalf of the agency, should urge the adoption of legislation in the field of securities laws. 3. Referral of criminal reference reports to the Department of Justice and to the appropriate U.S. attorney for prosecution for criminal violation of the securities laws. We referred over 100 criminal cases in the 2-year period which ended June 30, 1960, but our Office of General Counsel screened these referrals with considerable care. The time which the Commission itself is required to devote to them is by no means out of proportion to the importance of making certain that this agency does not ask the Department of Justice to pursue an unwarranted criminal prosecution and conversely that we do not withhold reference in a case which does involve criminal culpability.. 4. The institution of disciplinary proceedings wherein this Commission seeks to bar attorney or accountants from professional practice before it. Fortunately proceedings of this character are not instituted very often and, accordingly, a minimum of Commission time is devoted to considering whether they should be instituted. These proceedings are conducted privately unless and until it is determined that a respondent should be barred from practice before the Commission. However, the consequences of disbarment are so far-reaching with respect to the person involved that I feel we should authorize such proceedings only upon the basis of the judgment of the entire Commission. The foregoing are suggestive rather than exhaustive of the matters for which the Commission should retain to itself full responsibility. IV-B. Likewise the following list of areas in which we might delegate either wholly or partially is not complete as against other areas which may suggest themselves as we continue our study of the possibilities under Reorganization Plan No. 1. 1. Orders for private investigations and in connection with them the use of the general subpena power. This delegation appears to be appropriate only in more routine cases. 2. Ruling on applications under the Public Utility Holding Company Act of 1935 and the Investment Company Act of 1940 for exemptions from certain provisions of these acts. Delegation would be appropriate in uncontested cases involving routine matters. 3. Institution of private broker-dealer proceedings. Delegation would be particularly proper where the violation alleged in the proceeding pertains to the Commission's net capital rule or bookkeeping requirements. 4. The qualification of trust indentures under the Trust Indenture Act of 1939 where the case is routine and uncontested. 5. Acceleration of effective date of listing of securities on an exchange pursuant to section 12(d) of the Securities Exchange Act of 1934; applications for unlisted trading privileges on an exchange under section 12(f) of the Securities Exchange Act of 1934; and applications for delisting of a security from an exchange pursuant to section 12(d) of the Securities Exchange Act of 1934. 6. Acceleration of the effective date of some registration statements under section 8(a) of the Securities Act of 1933 upon examinations by two Commissioners selected on a rotating basis. This burden is becoming so heavy that I doubt whether we can continue to meet it otherwise. V. In connection with this discussion of appropriate areas of delegation, I should like to mention one aspect of Reorganization Plan No. 1 which I believe requires clarification. I refer to the interpretation of those parts of sections 1(b) and 1 (c) which read: "(b) With respect to the delegation of any of its functions, as provided in subsection (a) of this section, the Commission shall retain a discretionary right to review the action * ** upon its own initiative or upon petition of a party to or an intervenor in such actions, within such time and in such manner as the Commission shall by rule prescribe *** [Italic added.] "(c) Should the right to exercise such discretionary review be declined, or should no such review be sought within the time stated in the rules promulgated by the Commission, then the action of any such division * * * shall, for all purposes, including appeal or review thereof, be deemed the action of the Commission." I believe proper interpretation of those clauses to be that our rules, promulgated pursuant to the plan, may impose limitations on the right of parties to secure review of particular delegated actions. If such limitations are not imposed in appropriate cases, the absolute right to review on the part of the person affected by a delegated action would make the delegation virtually meaningless. By way of example, let us assume that the Commission should decide to delegate the power to institute certain minor administrative proceedings. If the subject of the delegated power could, upon petition to the Commission requesting review of the propriety of the institution of the proceeding, have the action stayed pending the outcome of the Commission decision whether to accept review, the value to the Commission of the power to delegate in these areas would at once be destroyed. Our only protection against such tactics would be to revert to our present practice of having all such matters authorized by the full Commission before any action is taken. Needless to say, the imposition of any limitations on appeal from delegated actions will be studied as carefully as the fact of delegation itself in order to insure that a right to immediate review will be available without limitation where appropriate. It is my view that the language quoted above from sections 1(b) and 1(c) of the proposed plan is intended to give the Commission discretion to limit the right of review by such rules as are required to prevent the whole concept of delegation from being rendered meaningless. I hope that at some time during the course of this hearing your committee may see fit to clarify any doubt which might exist as to the intent of this part of the proposed reorganization plan. VI. In summary, I believe that the plan, if effective, will serve, as the President stated in his message to Congress accompanying the plan, to relieve the Commission from the necessity of dealing with many matters of lesser importance and thus conserve its time for the consideration of major matters of policy and planning. The rights of any party appearing before the Commission will continue to be protected by those procedural standards Congress established in the Administrative Procedure Act. Furthermore, the Commission will retain a right to review the correctness of any delegated action. The plan also will operate to expand and clarify the Commission's already existing powers of delegation. I do not want to create the impression that the plan will resolve all the problems facing this Commission. A great burden of work falls upon the staff, and the agency backlog is due in large part of lack of personnel. Thus, for example, the processing of registration statements is performed at the staff level and the plan will not expedite the execution of this responsibility. It will, however, lift some of the load off the Commission itself, free it from absorption with detail, and permit greater flexibility and opportunity to concentrate upon essentials. I thank all of you for this opportunity to give you my views and for the careful consideration you are giving to the reorganization plan which the President has proposed for our agency. The CHAIRMAN. What about this analysis of Commission actions, May 15, 1961? Is that part of your statement? Mr. CARY. It was also part of the statement before the Committee on Banking and Currency. The CHAIRMAN. It may be printed as part of your statement. (The document entitled "Analysis of Commission Actions, May 15, 1961, Securities and Exchange Commission, Washington, D.C., A.M. Meeting," is as follows:) SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C.-ANALYSIS OF COMMISSION ACTIONS, MAY 15, 1961 A. M. MEETING From Division of Corporation Finance By employee A: Registration statement of Burgmaster Corp., proposing public offering of 190,000 common shares at $12 per share (of which 90,000 shares were to be offered by selling stockholder). Total: $2,280,000. By employee B: Registration statement of Stein, Hall & Co. Inc., proposing public offering of 257,000 common shares (13,000 to officers and employees) at $17.50 per share. Total: $4,479,000. By employee C: Registration statement of Volkswagenwerk A. G., proposing public offering of 50,000 American Depositary Receipts for common capital stock of issuer (no offering price). By employee D: Registration statement of Greschner Investment Corp., proposing public offering of 90,000 common shares at $10 per share. Total: $900,000. By employee E: Registration statement of Tennessee Gas Transmission Co., proposing public offering of $75 million of debentures at 100 percent of principal amount. Total: $75 million. Registration statement of International Business Machines Corp., proposing offering of 150,000 shares pursuant to IBM 1961 Stock Option Plan. By employee F: Registration statement of Leader-Durst Center Co., proposing public offering of $569,500 of partnership interests. Total: $569,500. By employee G: Registration statement of Aerojet-General Corp., proposing public offering of $15 million of debentures at 100 percent of principal amount. Total: $15 million. Registration statement of the M. Blatt Co., proposing public offering of 115,000 common shares at $6 per share. Total: $690,000. By employee H: Registration statement of Work Wear Corp., proposing public offering of 310,604 common shares (168,679 by selling stockholders) at $15 per share. Total: $4,800,000. By employee I: Registration statement of Potter Instrument Co. Inc., proposing public offering of 210,000 common shares at $10 per share (20,000 by selling stockholder). Total: $2.100.000. Also discussed with "I" and representatives of the Division of Corporate Regulation, question whether sale of certain of the shares to an affiliate of an investment company was prohibited by Investment Company Act and this question was resolved in the negative. By employee H: Granted request of Duplex Vending Corp. for confidential treatment of contracts filed in connection with its registration statement, it appearing that disclosure thereof might impair their value and is not necessary for the protection of investors. From Division of Corporate Regulation By employee A: Granted relief of Carl M. Loeb, Rhoades & Co. from statutory disabilities under Investment Company Act arising from a Federal court injunction issued against that company in an action instituted by the Commission. Similar relief granted under Securities Act rules to remove ineligibility from participation in regulation A offerings. Considered request of Centennial Fund II, Inc., for an exemption order under Investment Company Act which would permit election of directors to await first annual meeting of shareholders. By employees A and B: Considered application of VALIC for exemption order under Investment Company Act with respect to bank borrowings. Action deferred. From Division of Trading and Exchanges On written submissions, (1) renewed 10-day suspension of trading in United Industrial Corp. stock; (2) deferred effective dates of two applications for broker-dealer registration; and (3) accelerated the effective date of applications for registration of one broker-dealer and one investment adviser. P.M. MEETING From Division of Trading and Exchanges By employee A: Authorized injunction action against Keller Bros. Securities in Boston, by reason of insolvency, and requested for appointment of receiver. Granted adjournment of oral argument on request of Colonial Investors, appellant from NASD action. Issued order authorizing private investigation of suspected violations of Securities Act registration and antifraud provisions by three individuals in the New England area. Authorized Denver regional office to move for dismissal of an injunction action against firm previously enjoined in New York. Authorized closing of files in two private investigations. From Office of General Counsel By employee A: Disapproved request of counsel for defendants in injunction action for conference on terms of settlement proposal. Considered and recommitted for staff revision, a draft of proposed Commission comments upon S. 1688, a bill to establish a Department of Consumers in the executive branch of the Government. From Division of Corporate Regulation By several employees: Approved letter to certain interests involved in chapter X proceedings for reorganization of debtor corporation with respect to the Commission's findings as to valuation of debtor's properties. Resolved questions posed by debenture indenture for Indiana & Michigan Electric Co., related particularly to company's debt-equity ratio. Approved final draft of Commission decision re Investment Company Act exemption application filed by Vornado. From Division of Corporation Finance On written submissions: (a) Ordered temporary suspension of a regulation A offering by Hanover-Signature Records Corp.; (b) ordered permanent suspension of a regulation A offering by Roulette Records Inc., upon its withdrawal of a request for a hearing thereon; and (c) ordered effective post-effective amendments to 10 registration statements. The CHAIRMAN. Do you have anything further, Mr. Cary? Mr. CARY. In view of the fact that that is a rather elaborate statement, I do not want to burden you with going through it in detail. However, I would like to set forth a few highlights. The CHAIRMAN. You favor the plan? Mr. CARY. That is right. The CHAIRMAN. Just tell us one, two, three, four, why. From the standpoint of advantages to our agency, I do think that this plan will relieve the Commission of certain types of routine work that we are doing which definitely are a burden upon us. I think it will give us time to concentrate on the major issues, which would include the writing of opinions, promulgation of new rules, and proposals for legislation-the more important matters of administration which we face. I would like to emphasize one point, namely, that this plan is not going to meet all of the problems that the Securities and Exchange Commission faces at the present time. The facts are that this will permit the Commission itself to delegate some of the less important work but a great burden of our work falls upon the staff, and, of course, that requires additional personnel. The CHAIRMAN. You feel, however, after being permitted to delegate and exercising that prerogative, that if the plan goes into effect you will still have enough work left for the Commissioners to earn their salaries? Mr. CARY. I think that we will very definitely have enough work. And I do think, as I said, it won't resolve all of the problems of the Commission by any means. The CHAIRMAN. How many members are there? Mr. CARY. There are five members of the Commission. The CHAIRMAN. Are they unanimously in support of the plan? Mr. CARY. They unanimously support this. Three out of five Commissioners appeared before the Subcommittee on Securities of the Banking and Currency Committee. After checking with the chief clerk of your committee, Mr. Reynolds, whether they should come along on this occasion, he said that it would not be necessary for them to come. But I do state quite clearly from that experience and otherwise, that this plan has the unanimous support of the full Commission. The CHAIRMAN. I see. Mr. CARY. As to the opposition that has been expressed in connection with Reorganization Plan No. 1, involving the Securities and Exchange Commission, I do want to say one general thing: In my opinion the opposite seems to assume that we will be unreasonable in our delegation, although we will be reasonable in our decisions generally. I believe that, even though we are given what might be deemed to be a fairly broad power of delegation, we are going to exercise discretion and reason. For example, I wish to point out the fact that we sent you earlier a letter indicating that it was our intention not to delegate any of our general rulemaking power under this reorganization plan. The CHAIRMAN. Do you have a copy of that letter? Mr. CARY. A copy of that letter is already in the record. |