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Yesterday Mr. Howland gave us his views on the ability of the industry to handle an increase in volume. You received, Mr. Chairman, from Chairman Casey of the SEC on April 16, 1971, a letter setting forth the Commission's views in this area. I would like to read one paragraph of that letter and then submit the letter for the record.

The paragraph is: In summary our monitoring indices have all shown significant rises. Volume of trading both in terms of number of shares traded and number of transactions has increased considerably in the past few months. The comparison rate, particularly the rate of items not compared by settlement today, indicates an increasing trend. Fails have risen to the levels of 1969. Some transactions appear to be seriously bogged down. As indicated by complaints to the Commission, the public is still dissatisfied with the quality of the service offered by the securities industry.

Mr. Chairman, I ask that this letter be received for the record at this time.

Mr. Moss. Is there objection?

Hearing none, the letter is received and will be included in the record at this point.

(The letter referred to appears in appendix Y, p. 2012.) Mr. Rowen. Yesterday there was some discussion about duplication of services if NCC moved into the New York area.

I understand Mr. Morgan wants to make a statement on that point. Mr. Moss. Mr. Morgan is recognized.

Mr. MORGAN. Mr. Chairman we can either make our recommendation or discussion in the form of a supplemental written letter that outlines our position or if you wish I can state it at this time.

Mr. Moss. If you prefer to supply it in the form of a letter, I will ask unanimous consent that the record be held at this point to receive it. (The letter referred to follows:)


November 18, 1971. Mr. WILLIAM H. PAINTER, Special Counsel, Securities Markets Study, Subcommittee on Commerce and

Finance, Committee on Interstate and Foreign Commerce, Washington, D.C. DEAR MR PAINTER: At the panel hearing on October 19, 1971 you introduced into the record an article in the October 12 Wall Street Journal, and then questioned Mr. Howland, Executive Vice President, New York Stock Exchange, as to reference attributable to him in that article relating to duplication by NCC in planning a clearing facility in New York. Since I was unable to complete my response at that time, I now submit it for the record.

The National Association of Securities Dealers undertook the project of deFeloping a national clearing system in 1969. This course of action was well known to the industry and the Securities and Exchange Commission since it was discussed at a series of industry meetings called by the Securities and Exchange Commission. At one of those meetings, Mr. R. John Cunningham, then Executive Vice President of New York Stock Exchange, indicated that a contiauous Det system was desirable for clearing OTC transactions, that it was within the National Association of Securities Dealers' province to see to the establishment of such a nationwide system, and that the New York Stock Exchange, mindful of its own projects, favored the National Association of Securities Dealers' undertaking this task. As late as last year, the exchange showed Li esidence of concern that our efforts would in any way result in duplication. The American Stock Exchange actually supplied a man for our study team during 1970. to see how it could help introduce the system to New York, or otherwise merre National Clearing Corporation's needs.


It was concluded in this effort that American Stock Exchange did not hare the available resources to service National Clearing Corporation's needs, and rather than burden the membership with what would amount to a fee or override to manage the clearing facility, suggested that National Clearing Corporation should undertake the service itself. It was not until Mr. Haack, President, New York Stock Exchange, wrote to Mr. Macklin, President, National Association of Securities Dealers on July 8, 1971, that formal concern over duplication was expressed, and since Chairman Moss requested that Mr. Haack's letter, together with Mr. Macklin's response be added to the record of this meeting's proceeding, it is important to have the record include our comments on this matter.

So far as we can determine, the panel of industry experts called to testify at these hearings, is virtually unanimous in its opinion that Continuous Net Settlement is a better clearing system than the Daily Balance Order System. It is our view that there is no duplication as a result of implementing such a system in New York. More specifically because :

1. No facility now exists to clear trades between New York and other citiessuch a facility is necessary in New York.

2. No facility exists to clear trades between dealers in New York who are solely members of National Association of Securities Dealers, those which could not qualify for or did not wish NOTC clearance-trading of these firms approximates 15 to 20% of all New York only OTC trading.

3. No facility exists to clear OTC trades in the Eastern region (Boston, Phila. delphia, Pittsburgh, Baltimore, etc.)—it would be uneconomic to establish full facilities in each locale, and New York is clearly the location best suited for this facility. Thus, location need not be assumed, in and of itself, to constitute duplication for the purpose at hand.

4. The Continuous Net Settlement has been adopted for nationwide clearing by National Clearing Corporation. All OTC clearing by National Clearing Corporation in New York will be converted to this system shortly, so that New York and national trading can be interfaced on a standard basis.

5. National Clearing Corporation must clear for all members, large and smallall securities which can be handled in the system. No other clearing facility in New York or elsewhere is available to all National Association of Securities Dealers members. It is therefore imperative that the New York facility be implemented. Far from duplicating other facilities, National Clearing Corporation is for the first time implementing a national OTC system-not adding to an eschange system limited only to certain dealers and securities.

6. The National Clearing Corporation Board, composed of Exchange as well as National Association of Securities Dealers-only members, has unanimously determined the absolute necessity for national OTC clearing and initial implementation in New York. Total National Clearing Corporation expenditures to date are less than two million dollars. Approximately $300,000 is related to startup, whether in New York or elsewhere.

Thus, we cannot agree with statements of certain exchange staff members that our efforts are duplicative in cost or in fact. Our efforts are directed at institution, not duplication. Very truly yours,

DAVID H. MORGAN. Mr. Moss. Mr. Delahunty?

Mr. DELAHUNTY. I would like to request that our record be kept open for the inclusion of a booklet "Joint Systems Approach” which is explained in a small way in the presentation today, but it is explained in more detail in that booklet.

Mr. Moss. Without objection, the request is agreed to.
Mr. DELAHUNTY. Thank you, Mr. Chairman.
(The booklet referred to appears in appendix Z, p. 2039.)
Mr. Moss. Mr. Howland ?

Mr. HOWLAND. Mr. Chairman, I would trust that the material being submitted by any panelist to this hearing would be distributed to other panelists so we might have an opportunity to comment on them if we feel the need to.

Mr. Moss. Mr. Painter, will you take steps to insure that this request is honored !


Mr. Moss. It would be helpful, Mr. Delahunty, if in supplying the publication you supply us with enough copies. That is not mandatory but helpful.

If there are no further comments, I would like to express the appreciation of the committee for your appearance here. You have been very helpful. I know that the record we have built up the past 3 days here before the committee will be of extreme value in the further studies of the committee.

With that, thank you, gentlemen. The committee stands adjourned. (The following material was submitted for the record :) CORPORATE TRANSFER AGENTS ASSOCIATION,

October 19, 1971. Hon. JOHN E. Moss, Chairman, Subcommittee on Commerce and Finance, House of Representatives,

Washington, D.C. DEAR MR. Moss: We have learned that you are presently holding hearings dealing with various parts of the Securities Industry. Our organization has previously submitted position papers to the U.S. Senate Committee on Banking, Housing and Urban Affairs and the S.E.C. At this time we would like to submit the same position paper to your Committee in the belief that these positions might be of help to the entire securities industry and, more important, to the individual sockholders who, after all, are the owners of the corporations. 1. Elimination of Stock Certificates

The association feels that limiting the number of stock certificates that are issued will be an economic benefit and we will cooperate in all respects to obtain this goal, provided however that small stockholders who insist on receiving such a document of ownership will be able to do so. 2. Extended Use of Depositories

The association feels that more extended use of depositories may eliminate some of the certificate flow, but it brings with it the danger that a layer is interposed between a corporation and its stockholders. Some of the members feel that the transfer office of the corporation could be used as a depository. But it is the general opinion that no matter what the final conclusion is, corporations must have at all times access to the list of beneficial shareholders; as a matter of fact, corporations should have access to name and address of all beneficial holders, regardless of how the shares are held of record. 3. Methods To Improve the flow of Stock Certificates

(a) Elimination of Registrars. (b) One type of stock certificate for all denominations. (c) Machine guarantee of signatures, backed up by proper insurance. (d) Extension of present-day forgery insurance by N.Y. Stock Exchange firms, either by the security dealers themselves or insurance coverage by the N.Y. Stock Exchange, similar to that provided by the Midwest and Pacific Coast Exchanges.

le) Mandatory use of uniform tanfold which is being developed by BASIC. (1) Mandatory requirement that security dealers furnish tax identification numbers and zip codes of stockholders. This information is on file with the security dealers, but only sparsely furnished. The association has been informed by the N.Y. Stock Exchange that all of the above proposals are under consideration, but no positive action on the same has been taken as of this date, despite the fact that some of these proposals are several years old. May I add that pursuant to existing legislation stockholders are required to furnish tax identification numbers and that corporations must solicit the same,

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but there is no requirement that security dealers furnish the same to corporations. An amendment of existing iaws and reguiations could rectify this specific situation.

I enclose herewith a copy of the roster which shows the scope of the organization. Respectfully yours,

HENRY VAN DAM, Chairman.


November 19, 1971. Hon. John E. Moss, Chairman, Commerce and Finance Subcommittee, Interstate and Foreign Com

merce Committee, House of Representatives, Washington, D.C. MY DEAR MR. CHAIRMAN: In view of the work of your subcommittee, as well as your personal involvement in the problems of the securities industry, I thought you would be interested in a recent action taken by this organization.

At its annual meeting last week in Boca Raton, Florida, the Board of Directors of The Stock Transfer Association, Inc., adopted resolutions which in brief:

1. Support the proposals of the Banking and Securities Industry Committee (BASIC) in its aim to effect a substantial reduction in the issuance and flow of stock certificates through the use of a series of locally owned and locally operated securities depositories.

2. Oppose the elimination of the stock certificate at this time.

3. Oppose further governmental regulation in the field of issuing and transferring stock certificates.

We are ready to furnish any additional information you may need in this area, in person if you so desire.

A roster of our membership, comprised of almost 400 banks and corporations, is enclosed for your information. Sincerely yours,


Vice President.


December 23, 1971.
Hon. JOHN E. Moss,
Chairman, Subcommittee on Commerce and Finance of the Committee on Inter.

state and Foreign Commerce, House of Representatives, Washington, D.C. DEAR MR. CHAIRMAN: We take pleasure in informing you of the formation of the National Coordinating Group for Comprehensive Securities Depositories, whose membership, concepts, action and goals are described in the attached news release.

As you can see, we represent inter-industry banking and security groups from California, Chicago, New York, and the National Association of Securities Dealers, all of whom are concerned with securities transactions. The composition of these three inter-industry groups is shown as an appendix to this letter.

We know of your interest in the subject of immobilizing certificates in de positories so that transfers of ownership can be made by book-entry as distinct from physical delivery of each certificate. There seems to be a general agreement on the desirability of this objective. There arose during the hearings of your Subcommittee the question of whether it might be desirable to enact legislation instructing the federal government to develop and operate a national depository system.

On behalf of the inter-industry groups represented in the National Coordinating Group, we would like to express to you our views on this question. We believe that the private sector fully recognizes the need for the expeditious further development of a system of regional depositories, interconnected with each other, and will proceed to achieve this objective so that transfers of securities will be effected by book-entry regardless of the geographical locations of the transacting parties. We believe this will be achieved most expeditiously and most effectively by action of the private sector-acting, if you will, both in the public interest and in its own self-interest.

We would be not only willing, but pleased, to have our comments made a part of the record of your hearings, if that is appropriate. Respectfully submitted,

John H. PERKINS, Chairman.



Pacific Securities Depository Committee.

Thomas P. Phelan-President, Pacific Coast Stock Exchange; Samuel B. Stewart?-Senior Vice Chairman of the Board Bank of America.


"Chicago Comprehensive Securities Depository Committee" : George BeckerChairman of the Board of the Mid-West Stock Exchange, Partner, Wayne Hummer & Co.; John Perkins ?–Vice Chairman of the Board—Continental Bank.


“New York Banking and Securities Industry Committee” which includes: John M. Meyer, Jr.,_Director and Retired Chairman, Morgan Guaranty Trust Company; Herman W. Bevis—Retired Senior Partner, Price Waterhouse & Co.; Gordon S. Macklin-National Association of Security Dealers, New York Stock Exchange, American Stock Exchange.


SECURITIES DEPOSITORIES The drive to reduce securities paperwork by creating a system of regional depositories gained a new dimension today with the announcement that groups in California, New York and Chicago have joined to speed application of the depository concept.

John H. Perkins, Vice Chairman of the Continental Illinois National Bank, Chicago, announced formation of the National Coordinating Group for Comprehensive Securities Depositories; it represents stock exchanges, the over-thecounter market, and the Clearing House banks of all three areas.

Mr. Perkins, who is chairman of the newly formed group, said its aims are to spor the use of book-entry transfers in securities depositories for settlement of transactions without the movement of certificates in each of the three financial centers, to link the three depositories, and to encourage the development of other regional depositories and to tie in the country's financial institutions to make a national system.

Securities depositories, in which financial institutions—banks, brokers, insurance companies and mutual funds—place certificates, permit a large percentage of transactions to be settled by simple entries on the depository's books without physical handling of stock certificates or bonds.

Members of the National Coordinating Group in addition to Mr. Perkins are:

George Becker, Chairman of the Midwest Stock Exchange, Chicago, and Partner of Wayne Hummer & Co.;

Herman W. Bevis, Executive Director of the Banking and Securities Industry Committee, New York ;

1 Representing the California State Wide Banks which, in addition to the Bank of America, include: Bank of California, Crocker National, Security Pacific National Bank, Cnited California Bank, Wells Fargo.

Representing the Chicago Clearing House Committee which, in addition to Continental, tpeludes: American National, First National, Harris Trust, La Salle National, Northern

Representing the New York Clearing House banks consisting of: Bank of New York, Bankers Trust Company, Chase Manhattan, Chemical Bank, First National City Bank, Franklin National Bank,' Irving Trust Company, Manufacturers Hanover Trust Company, Marine Midland, Morgan Guaranty, United States Trust Company.


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