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CONTENTS

PART 3

Hearings held on-

Page

October 18.

1315

October 19

1413

October 20

1489

October 26

1537

October 27.

1613

November 16.

1639

November 17.

1711

Statements of —

Bevis, Herman W., Executive Director, Banking and Securities In-
dustry Committee..

1318, 1413, 1490

Casey, Hon. William J., Chairman, Securities and Exchange

Commission..

1712

Celler, Hon. Emanuel, a Representative in Congress from the State of

New York.

1639

Delahunty, Christopher J., President, Pacific Coast Stock Exchange

Clearing Corporation.--

1352, 1413, 1490

Du Pont, Henry W., Chairman of the Board and President, SCI-TEK,

Incorporated-

1380, 1413, 1490

Haack, Robert W., President, New York Stock Exchange, Inc., ac-

companied by Donald L. Calvin, Vice President..

1728

Howland, Richard B., President, Stock Clearing Corporation, New

York Stock Exchange, Inc.--

1325, 1413, 1490

Kaestner, Frank W., Senior Vice President, Manufacturers Hanover

Trust Company -

1368, 1413, 1490

Loeffler, Robert M., Senior Vice President-Law, Investors Diversified

Services, Inc.; accompanied by Richard M. Phillips, Esq., of Hill,

Christopher & Phillips, Special Counsel to IDS.

1669

Loomis, Hon. Philip A., Jr., Commissioner, Securities and Exchange

Commission.

1712

Macklin, Gordon S., President, National Association of Securities

Dealers, Inc., accompanied by Lloyd J. Derrickson, Vice President

and General Counsel..

1739

Maller, Robert R., Senior Vice President, United States Trust

Company of New York.

1555, 1613

Montross, Phillips M., President, Midwest Stock Exchange Clearing

Corporation.

1343, 1413, 1490

Morgan, David H., President, National Clearing Corporation,

NĂNG..

1362, 1413, 1490

Needham, James J., Commissioner, Securities and Exchange

Commission..

1316

Noyes, Clifford H., Regional Vice President, North American Rockwell

Information Systems Company --

1548, 1613

O'Connor, Bernard, Vice President and General Manager, United

States Banknote Corporation.-

1561, 1613

Peake, Junius W., General Partner, Shields & Company --- 1373, 1413, 1490

Pollack, Irving M., Director, Division of Trading and Markets,

Securities and Exchange Commission.

1712

Reinisch, Hans Randolph, President, National Shareholders Asso-

ciation, New York..

1685

Schapiro, Morris A., President, M. A. Schapiro & Co., Inc.; accom-

panied by George D. Reycraft, Esq., and Thomas A. Russo, Esq.,

of Cadwalder, Wickersham & Taft-

1652

Sporkin,

Stanley, Associate Director, Division of Trading and Markets,

Securities and Exchange Commission.-

1413, 1490, 1538, 1613

Weinberg, Eli, Partner, Lybrand, Ross Bros. & Montgomery Co.--' 1540, 1613

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Prepared statement submitted by

Page Bevis, Herman W.

1321 Delahunty, Christopher J

1354 Du Pont, Henry W., with exhibits and charts.

1382 Haack, Robert W.

1732 Howland, Richard B., with exhibits

1328 Kaestner, Frank W.

1369 Loeffler, Robert M.

1669 Macklin, Gordon S.

1739 Maller, Robert R..

1555 Montross, Phillips M.

1346 Morgan, David H.

1364 Needham, James J.

1317 Noyes, Clifford H..

1549 O'Connor, Bernard, to include an article; illustrations; a speech by

Fred R. Esty, Chairman of the Board, United States Banknote
Corporation; and releases...

1561 Peake, Junius W.

1377 Reinisch, Hans Randolph, to include article and attachments with illustrations.

1696 Securities and Exchange Commission, with extracts.

1713 Sporkin, Stanley

1539 Weinberg, Eli.

1542 Additional material submitted for the record byAmerican Stock Exchange:

List of all members and top staff, including their places of residence
and business addresses...

1496 Banking and Securities Industry Committee (BASIC):

List of all members and top staff, including their places of residence
and business addresses

1494 Notes submitted by Herman W. Bevis on his study of the German,

French, and of Morgan Guaranty's Euro-Clear depository --- 1509 Calvert, Gordon L., Investment Bankers Association of America:

Letter dated October 6, 1971, urging prompt enactment of legis

lation abolishing stock certificate for use in interstate commerce.. 1580 Celler, Hon! Emanuel: Letter dated November 12, 1971, to Richard

W. McLaren, re concern of antitrust implications of the New York
Stock Exchange

1646 Ernst, Martin L., Vice President, Arthur D. Little, Inc.: Letter dated

October 15, 1971, elaborating on industry's automation problems.- 1577 Federal Bar Journal: Article entitled “The Status of Regulatory Independence,” by A. Everette MacIntyre--

1811 McLaren, Richard W.: Letter dated November 19, 1971, in reply to letter of November 12, 1971, from Hon. Emanuel Celler..

1650 McNeill, Charles R.: Letter dated November 16, 1971, clarifying misunderstanding of testimony of October 18, 19, and 20.

1524 National Association of Securities Dealers, Inc. (NASD):

Letter dated July 22, 1971, from Gordon S. Macklin, in reply
to the NYSE letter of July 8, 1971.-

1426
List of all members and top staff including their places of residence
and business addresses

1498 Letter dated November 18, 1971, submitting views in planning a clearing facility in New York.

1531 National Clearing Corporation: List of all members and top staff, including their places of residence and business addresses..

1499 New York Stock Exchange:

Letter dated July 8, 1971, setting forth N YSE thoughts on the

forthcoming introduction of a continuous net settlement system
in New York..

1424 Letter dated October 22, 1971, setting forth a listing of the names,

business addresses, home addresses of the governors, president,
etc. of the exchange-

1494 Material relating to the incorporation of the New York Stock Exchange

1755 V

Page 1534 1632

1440

1534

1415

1757

1800

1395 1709

1458 1450

Additional material submitted for the record by-Continued

Nicholson, Clayton M., Vice President of the Stock Transfer Associa

tion, Inc.: Letter dated November 19, 1971, explaining action taken by his organization in the problems of the securities industryO'Connor, Bernard, article entitled “Optical Speed Reading Peat, Marwick, Mitchell & Co.: Letter dated June 21, 1971, re material

submitted pertaining to various proposals for dealing with security

certificate
Perkins, John H., Chairman of the National Coordinating Group for
Comprehensive Depositories: Letter dated December 23, 1971, to
Chairman Moss advising him of their interest in the subject of

immobilizing certificate in depositories Securities and Exchange Commission:

Letter dated December 15, 1971, setting forth SEC opinion re

garding statutory authority of SEC to compel NASD to adopt
uniform rules for clearance and settlement procedures by all
NASD members for both O-T-C and listed stocks, with

attachment-
Material relating to the incorporation of the New York Stock

Exchange
Reply to letter of October 4, 1971, to Hon. John E. Moss, with

attachments.
Report of the SEC regarding comments on pending legislation,

submitted to the Office of Management and Budget for clearance
Securities Exchange Act of 1934, Release No. 9426..
SEC data showing number of firms which went out of business

from late 1968 to 1970, where data processing was a significant

factor in failure, with attachments...

Securities Exchange Act release 8543 and other sundry releases-Steadman, John M., The Law School, University of Pennsylvania:

Letter dated April 5, 1971, to Commissioner Smith, SEC, regarding

views to eliminate all stock certificates. Subcommittee on Commerce and Finance:

Article entitled "Securities Struggle—Battle for Influence Over

Stock Trading Looms on Wall Street”
Correspondence between staff of Subcommittee on Commerce and

Finance and the SEC, re policy of placing rule 17a-8 proposals

in a public file-
Letter dated October 4, 1971, from Hon. John E. Moss to Hon.

William J. Casey, to inform him as to the statutory basis for
clearing its budgetary requests with the Office of Management

and Budget..
Letter dated October 20, 1971, from Hon. John E. Moss, to George

P. Shultz, Director, Office of Management and Budget, re-
questing to be informed why SEC has to submit to the OMB
proposed legislation, legislative comments, etc., prior to or

simultaneously with submitting such material to Congress----
Letter dated October 20, 1971, from Hon. John E. Moss to the

Chief Justice of the United States, asking his views re what
effect there would be if SEC were empowered to conduct its
Supreme Court litigation independently of the Solicitor Gen-

eral's Office
Shultz, George P.: Letter dated November 10, 1971, in reply to

letter from Hon. John E. Moss, dated October 20, 1971.
Supreme Court of the United States: Letter dated November 9,

1971, replying to letter of October 20, 1971, from Hon. John E.

Moss...
Van Dam, Henry, Corporate Transfer Agents Association: Letter

dated October 19, 1971, submitting position papers to Subcommittee
on Commerce and Finance...
Weinberg, Eli, article from Bank Administration, May 1971, en-

titled “A System of Certificateless Stock Transfers'

1585

1419

1666

1800

1808

1809

1808

1809

1533

1581 PARTS 4 AND 5

APPENDIXES M. Answers to Questions, by Herman W. Bevis, Executor Director, Page BASIC..

1833 N. Comprehensive Securities Depository System-Study of Canceled

Stock Certificates, with statistical tables, exhibits, and charts.. 1838 0. Making the Certificate Machine-Readable (Discussion Paper, September 9, 1970)

1869 P. Research Report on Making the Certificate Machine-Readable. 1888 Q. The Machine-Readable Certificate Project

1893 Ř. Four Proposed Uniform Forms—Transfer Instruction Delivery Ticket Comparison Reclamation Form..

1895 S. The Billion-Share Automated Securities Depository (Central Certificate Service)

1908 T. Memorandum of Understanding on a Comprehensive Securities De pository System..

1922 U. Chronology of the New York Stock Exchange, Stock Clearing Corpo ration.

1929 V. Operating Rules of the National Clearing Corporation.

1935 W. Report and Recommendations of the Security Imprinting and Process

ing Task Force of the Committee on Uniform Security Identifica-
tion Procedures.--

1960 X. OCR Equipment for Reading Stock Certificates (Report to BASICJuly 1970), with charts, tables, and exhibits..

1971 Y. Letter from Chairman Casey of SEC to Mr. Moss regarding fails, with charts, tables, and exhibits.

2012 Z. Suggest approach to the National Clearing Problem, with charts and exhibits

2039 AA. Securities Industry Overview Study

2055 BB. Paper Crisis in the Securities Industry: Causes and Cures..

2159 CC. The Role of Banking in Elimination of the Stock Certificate..-.. 2306 DD. Seminar—Is the Stock Certificate Necessary?--

2367 EE. The Multiple Causes of Fails in Stock Clearing in the United States (Volumes I and II)--

2413 FF. A Securities Handling System for the 1975 Era-Report to New York Stock Exchange

2560 GG. Reducing Costs of Stock Transactions: A Study of Alternative Trade Completion Systems—Vol. I: Summary of Results

2596 HH. Reducing Costs of Stock Transactions: A Study of Alternative Trade

Completion Systems—Vol. II: Evaluation of Selected Alternatives. 2616 II. Reducing Costs of Stock Transactions: A Study of Alternative Trade

Completion Systems—Vol. III: The Trade Completion Simulation
Model.

2676 JJ. Reducing Costs of Stock Transactions: A Study of Alternative Trade

Completion Systems—Supplement to Vol. III: The Computer
Program..

2768 KK. A Presentation for the Elimination of the Stock Certificate, by Compute-O-Gram Systems, Inc.-

2850

STUDY OF THE SECURITIES INDUSTRY

MONDAY, OCTOBER 18, 1971

HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON COMMERCE AND FINANCE,
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D.C. The subcommittee met at 10:15 a.m., pursuant to notice, in room 2321, Rayburn House Office Building, Hon. John E. Moss (chairman) presiding

Mr. Moss. The subcommittee will be in order. This morning the Subcommittee on Commerce and Finance of the House Committee on Interstate and Foreign Commerce opens the fourth in its series of hearings in its study of the securities industry.

In our last hearing we focused on problems of accounting, specifically the need for uniform accounting procedures and uniform and more extensive disclosure to customers of broker-dealers' financial condition, as well as the adequacy of audit procedures.

Now we shall turn to another important problem, namely, the pervasive effect of the stock certificate as a primary factor in back office difficulties and an obstacle to the rapid and efficient processing of transactions both on the exchanges and over the counter.

These hearings will focus on the feasibility and desirability of one or more depositories to immobilize stock certificates, the development of a machine-readable certificate and accompanying documents, and the development of a more efficient system for clearance, settlement, delivery, and transfer of securities.

A later hearing, scheduled for October 26 and 27, will consider the possibility of totally eliminating the stock certificate.

As in our prior hearings, we have determined that this hearing will take the form of a panel discussion rather than the usual formal presentation of statements. In this way, the subcommittee hopes, it will be possible to achieve an interchange of views, both between this subcommittee and the panelists and between the panelists themselves. At the outset, each panelist has been asked to present a brief summary of his views. The written statements will, of course, be made a part of the record and the Chair, at this point, requests unanimous consent to include such statements in the record as they are presented.

Is there objection! Hearing none, that will be the order of the committee.

I appreciate the difficulties inherent in the next request, but I ask that you keep your summaries as brief as possible. I hope that 10 minutes will suffice. If there are points left uncovered, you may pick them up at a later stage in our discussion.

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