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commencing very active discussions with other parts of the country with regard to interrelating depositories.
Specifically having already had discussions with representatives of i the Midwest and Pacific Coast Exchanges we are now setting up con
ferences with bankers in California and in Chicago. Of course, the i' reason for that is that it is essential that banks' securities be under the ; same roof as brokers' securities.
I believe that we are convinced in BASIC that New York's best interest will be served by at least two more regional depositories and probably others.
I think, therefore, that there is not a move toward further concentration in New York by our attempting to solve New York's problem first but the foundation for a national effecting of securities transactions by book entry.
Mr. Moss. Mr. McCollister?
Mr. McCOLLISTER. Mr. Montross, I have scanned your testimony on 2 pages 11 to 15 again quickly.
How would you propose that the partnership of the other regional stock exchanges be implemented in BASIC?
Do you propose that the number of seven be expanded to include representatives from Pacific Coast and Midwest Stock Exchange, or what proposals would you have?
Mr. MONTROSS. Mr. McCollister, I am not terribly oriented to the numbers involved except to the extent that I think the other regions of
the country, specifically the Midwestern region and Far West region, · should have appropriate and hopefully equal representation in the policymaking and directive functions of BASIC.
BASIC, which has been essentially a New York enterprise, I believe, up to the present time, could be expanded meaningfully to allow participation on an equal basis from the Midwestern sector of the country, from the far western sector of the country, and from the NASD.
I don't think it is just a question of involving two additional exchanges. I think bankers as well as exchanges as well as the National Association of Securities Dealers are involved.
Mr. McCOLLISTER. Has the Midwest Stock Exchange had any conversations along these lines with BASIC?
Mr. MONTROSS. Recommending an opening of that specific membership?
Nr. McCOLLISTER. Or merely discussing the problem that you see existing in the concentration of New York interests to the exclusion of Midwest and Pacific coast interests.
Mr. MONTROSS. On a number of occasions, yes, we have had such discussions.
Mr. McCOLLISTER. Mr. Howland.
Mr. HOWLAND. I think the record should show that Mr. Bevis and BASIC have had monthly meetings with representatives of the Boston, Midwest, and Pacific Stock Exchange communities now for about a year, and Mr. Bevis may wish to speak on that.
Mr. McCOLLISTER. If it is the ultimate goal of BASIC to have this serve as a model for a number of regional depositories, might it not be more agreeable to get their participation in the initial development of BASIČ in order that when we get to the point that its principles are
extended to other regional areas, that they would have felt a part of the regional concept?
Mr. BEVIS. We don't conceive this national network of securities depository as being monolithic in the sense that any one area would impose its plan on everyone else. I think it is well to consider the essential features of any regional depository.
First, it must have facilities available to house physical certificates, either vaults of its own or use other local facilities. That physical certificates problem should become a minimal problem with a depository because the certificates can be made into huge jumbo certificates with fewer pieces of paper to handle than is required now.
A depository must have machinery to keep records of securities ownership and of changes in ownership; something that is done right now, of course, by any bank or broker not only for their own direct customers but for correspondents and so forth. This is all internal to a regional depository so far.
It must then establish a communication link with other depositories and a legal relationship probably being depositors in the other depositories, so that it may deliver in the other region by book entry out of its security ownership. That communication link is essentially a verv simple link.
It is the same kind of a link that would exist between banks in the United States and banks abroad, where they deliver for one another securities by book entry.
Any one of the regional depositories—there may be three, there may be seven, there may be 12-any one of these will, I think for an effective interrelationshin, have to establish its financial responsibility before the other depositories would deposit securities and leave them with it to the credit of that other depository, and it would have to establish competence in processing transactions on an accurate and on a timely basis.
This, therefore, does not suggest and we don't believe that we can get where we want to go quickly by establishing a national monolithitic enterprise with uniform internal procedures, uniform computers, and all of that, but rather that each region can shape the structure of its depository to meet its local needs. So we don't feel that BASIC in setting out the guidelines for the New York depository is imposing anything on any other region.
Our approach is to urge these other regions to get together and form theirs.
Mr. McCOLLISTER. Mr. Montross, that seems like a very reasonable statement to me. Would you have any comment or response to it?
Mr. MONTROSS. Well, before doing that, I would like to make one comment addressed to the statement Mr. Howland made a moment ago.
I think in response to your question about meaningful participation br the other regions of the country, our involvement is liaison from the Chicago financial community and Boston and Philadelphia and Pacific coast financial communities in the task force meetings on a once-a-month basis. I don't think it is meaningful participation in the policy or direction of depository development.
Moving on to Mr. Bevis comments, it seems to me there are two points Mr. Bevis has raised. One, that it is not BASIC's intention o
the intention of CSDS to impose its New York system on the rest of the country.
As we mentioned in our testimony, the impact of a New York development is so pervasive because of the mere size of the securities activity in New York, that effectively it does become an imposition or imposing of a system on the rest of the country, unless the rest of the country is to go its own independent route and perhaps engage in continued redundancy of cost investment, which would really be coming from the same people.
So like it or not, it seems to me that it has to be recognized that New York by its mere size or the New York financial community's mere size effectively is dictating to the rest of the country, whether it is intentional or unintentional.
The second point Mr. Bevis spoke to was the development of regional depositories and encouragement being given by BASIC to other financial centers to develop regional depositories. That, too, is commented on in our testimony because it really does raise or pose a dilemma for other financial centers.
Yes, we can develop a regional depository in the Midwest, hoping that it will interface effectively with a regional depository on the west coast that will be developed independently or has been developed independently, or with one in New York or wherever.
Mr. McCOLLISTER. But, Mr. Montross, Mr. Bevis says that is a simple matter of communication only, the interfacing. Do you agree?
Mr. MONTROSS. Well, I can't agree and I can't disagree, Mr. McCollister, because I think Mr. Bevis would agree that there are a great many unknowns in this so-called depository field. There are many questions about which we don't have answers.
Mr. Moss. Would the gentleman yield ?
Mr. Moss. The Chair would observe at this point that he would disagree that it is quite that simple. He thinks it is far more complicated, as you have indicated, and it is going to require the utmost cooperation and participation to effectuate interfacing in order to develop a totally compatible system.
So I want to ask that we have for the record a list of all members of the BASIC committee and their places of residence, and also the top staff of BASIC and their places of residence, and staff will be instructed to take steps to develop the same information for NASD, for the American Stock Exchange, and for the New York Stock Exchangein the latter instances, as to the Board of Governors of the American and New York Exchanges.
It would be foolish and imprudent for the committee not to look at geographic distribution, because whatever is said here, the fact is that there is considerable feeling within the industry over the centering of too much policymaking, too much control, in New York, and I am not going to make the mistake, and I don't think the members of the committee are going to make the mistake, of not looking at this most realistically to determine the extent of it and whether or not it is desirable.
We are not going to brush it under the rug, in other words. We are going to look at it very carefully.
I thank the gentleman for yielding.
I would like to ask unanimous consent at this point that the record be held to receive the material which I have requested, and which I have also instructed the staff to develop. That relates to the governors or directors and to the top staff of the organizations I have specified. I think we can generally agree that staff at that level has a degree of policymaking authority, and when I have that pattern of distribution. I think we will have much more information of value. (The information referred to follows:)
NEW YORK STOCK EXCHANGE, INC.,
New York, N.Y., October 22, 1971. Hon. JOHN E. Moss, Chairman, Subcommittee on Commerce and Finance, House of Representatives, Washington, D.C.
DEAR CHAIRMAN Moss: During the hearings earlier this week you asked that we submit, for the record, a listing of the name, business address and home address of the Governors of the Exchange, the President, and certain other senior officers of the Exchange. This letter responds to your request.
The enclosed memorandum supplies the required information for members of the Board and the President. Mr. Ralph Saul was elected Governor on October 21 to replace Mr. Dan Lufkin who resigned before the expiration of his term. To the enclosed list should be added the following information : Ralph S. Saul. Vice Chairman and Director, First Boston Corporation, 20 Exchange Place, New York, N.Y. 10005 (344–1515 Extension 645), 275 Manor Road Ridgewood, NJ. 07450 (201) (652-8877).
The other officers of the Exchange about whom you requested information are listed below with appropriate home addresses. All of these have their only busi: ness address at 11 Wall Street: Richard B. Howland, Executive Vice President, 1001 Wyandotte Trail, Westfield.
N.J. 07090. John J. Alexander, Senior Vice President, Electronic Systems Center, 26 Tangle
wood Lane, Chatham Township, N.J. 07928. Lee Arning, Senior Vice President, Operations, 116 Buckingham Road, Upper
Montclair, N.J. 07043. Samuel A. Gay, Senior Vice President, Administration and Finance, 54 Colons
Road, Westport, Conn. 06880. Eugene Miller, Senior Vice President, Public Relations and Investor Services,
2861 Bay Drive, Merrick, N.Y. 11566. Donald L. Calvin, Vice President, Civic and Governmental Affairs, Four Knolls
Lane, Flower Hill, Manhasset, N.Y. 11030. William C. Freund, Vice President and Economist, 64 Circle Drive, Millington. N.J. 07946. Sincerely,
RICHARD B. HOWLAND. Enclosure.
BANKING AND SECURITIES INDUSTRY COMMITTEE
John M. Meyer, Jr., Chairman, Spur Lane, Greenwich, Conn. 06830.
Peter C. Campbell, 19 Wyncote Road, Ho-Ho-Kus, N.J. 07423.
CSDS TASK FORCE
JUNE 1971, BOARD OF GOVERNORS--NEW YORK STOCK EXCHANGE, INC. (CONFIDENTIAL)
(Extra copies available from Secretary's office)
De Nunzio, Ralph D.,
Kidder, Peabody & Co., Inc., Bridle Path Lane, Riverside,
Conn. 06878 (203)
(770-7335). Peck, Stephen M.,
Weiss, Peck & Greer, 120 50 East 79th St., New
Broadway, New York, N.Y. York, N.Y. 10021
(349-6660). Barnes, Frederic P.
H. 0. Peet & Co., Inc., 23 3109 West 69th St., Shaw- Pershing & Co., 120
Broadway, New York, Mo. 64105 (816) (471-8200). 65208 (913) (362-5650). N.Y. 10005 (964-4300). Billings, Benjamin E.. Thomson & McKinnon Tempe Wick Rd., Morris
Auchincloss Inc., 2
town, NJ. 07960 Broadway, New York, N.Y. (201)(538-2331).
10004 (422-5100). Brown, Joseph H.
Reynolds & Co., 2 Broadway, 50 Oxford Rd., Rockville
Centre, L.l. 11570
(516)(766-7321). Burkenfeld, M. Ronald. Burkenfeld, Mitchell & Co., 3 East 69th St., New York,
90 Broad Si.. New York, N.Y. 10021 (RE 7-3881).
N.Y. 10004 (422-8200).
Weber, Hall, Cobb &
Caudle, Inc., 29 BroadDallas, Tex. 75201 (214) (214X278–5335).
way, New York, N.Y. (747-0321).
10004 (422-4078). Claflin, 111, William H....... Tucker, Anthony & R. L. Day, 283 Prospect St., Beimont, Tucker, Anthony & R. L.
74 State St., Boston, Mass. Mass. 02178 (617)(484-' Day, 120 Broadway, New 02107 (617X523-2000). 5651).
York, N.Y. 10005 (732
8300). Coleman, Thomas A. Adler, Coleman & Co., 20 812 Park Ave., New York,
Broad St., New York, N.Y. N.Y. 10021 (988-1144).
10005 (422-9790) De Groot, Willard G. Bateman Eichler, Hill
No. 3 Oak Knoll Ter., Pershing & Co., 120 BroadRichards, Inc., 460 South Pasadena, Calif. 91106 way, New York, N.Y. Spring St., Los Angeles, (213X681 2038).
10005 (964-4300). Calif. 90013 (213) (625
3445). Ehrman, Frederick L........ Lehman Bros. Inc., 1
480 Park Ave., New York, William St., New York, N.Y.(EL 5-0962).
N.Y. 10004 (269-3700).
Shearson, Hammill & Co. 26 Broadmoor Rd.,
Scarsdale, N.Y. 10583
(558-1527). Gallagher, John J., Jr....... Merrill Lynch, Pierce, 267 Circle Dr., Plandome
Fenner & Smith, Inc.,
Manor, N.Y. (516) 70 Pine St., New York,
N.Y. 10005 (944-1212).
President, NYSE, 11 Wall 10845 Pleasant Hill Dr., (City home) 993 5th
Ave., New York, N.Y. (623-2201).
(737-6364). Harvey, F. Barton, Ji........ Alex. Brown & Sons, 135 Brightside Rd. and Lindsay Alex. Brown & Sons, 66
East Baltimore St., Balti- Lane, Baltimore, Md. Beaver Street, New York more, Md. 21202 (301) 21212 (301)(377-8144). N.Y. 10004 (233-5700)
Mutual Life Insurance Co. Rd., Darien, Conn.
06820 (203) (655-9864).
to office address. Jacobs, Harry A., Jr.. Bache & Co., Inc., 100 Gold Matthiessen Park, Irving
St., New York, N.Y, 10038 ton on Hudson, N.Y.
10533 (914X591-6941). Litt, Solomon..
Asiel & Co., 20 Broad St., 870 United Nations Plaza,
New York, N.Y. 10017