determination would be made that we go toward elimination of the certificate or complete immobilization and that the Commission's efforts would be determining how best to accomplish it, and how best to accomplish it within a very short period of time.

Mr. Moss. And by a very short period of time, what period of time would you envisage?

Mr. SPORKIN. I would go back to the 2- to 3-year period of time for it to get started.

Mr. Moss. The Commissioner was speaking, you indicate, a year or 18 months ago.

Mr. SPORKIN. Well, what I have in mind is that the Commission that we are talking about would not preempt the other developments which are already taking place.

In other words, we would not stop what is being done. The key thing that you have here, one of the real difficult things right now is in the legal requirements of going to a certificateless society. If you go the route of having 50 States amend their rules to accomplish this objective, I think it is going to be difficult to do.

Mr. Moss. That would probably be unrealistic. It is very much a national problem affecting a national industry. We have a Securities and Exchange Commission created back in the 1930's to regulate the industry. It would appear to be the responsibility of the Congress if legislation is required to move in this area and preempt in order to bring about the uniformity required.

Mr. SPORKIN. I agree with that but that is why I am saying you need a group to get this legislation going. You talk about the Commission handling a lot of these additional problems. I think we could do it.

Mr. Moss. But during this period of design and determination, what would the authority be to prevent the buildup of competing systems which might be in conflict with the one finally selected by this new entity, commission or a committee or whatever you wish to call it? Mr. SPORKIN. Well, I think the greatest deterrent to that would be the fact that there would be such a commission. I doubt very much if people would want to be spending elaborate sums of money if they felt there was no realistic chance of it getting into being. However, there are systems which will be, it seems to me, consonant with any ultimate system. For example, the National Clearing Corporation. It seems to me that would be almost a necessity. You won't want to re-do that. You need a national clearing system for over-the-counter transactions, so that could go on. I don't think there would be any problem in that regard. Similarly, the effort being made to immobilize the certificate, I don't think that would any way interfere with what the Commission or what perhaps this committee would come up with as to how it should go. So I think that there is just so many things that can take place and they ought to take place.

As I mentioned last time I testified, if this thing were cut off some period of time ago we would not have known about the Pacific Coast Stock Exchange's clearing system. Similarly, 3 years ago all we were talking about at that time was a punchcard system. Suppose a decision had been made that would be the system to the exclusion of all others? We would not be where we are today, where we can almost leap-frog that step. So I don't want to see important contributions to be passed

by somebody making a determination that this is the way we are going to go until that organization has all of the input that is necessary to

make such a determination.

Mr. Moss. Do they ever have?

Mr. SPORKIN. Well, I think the fact

Mr. Moss. There is a change of technology that evolves so rapidly today that it almost has a multiplier effect built into it. At what point do they have all the information? I have sat in this Congress seeking all the answers for the last 19 years and I would say in almost any field starting today, we would be seeking as many answers, if not more, than we were back at the beginning of my service here.

Is there a time when a decision must be made, and a direction be given if problems are to be resolved?

Mr. SPORKIN. I clearly think there is such a time but I think that it is a difficult determination to make to determine when that time is with you, but if you recall 3 years ago, you only had one issue, whether you have a machine readable certificate or you have no certificate or you have the existing system. But at this point in time we are getting to the time where a decision can be made and very shortly because you do have three, four, or five alternatives at this point, and I think it is knowing that point in time where you have that kind of input where you can make a decision that you feel comfortable with and I think we are at that point.

Mr. Moss. I think my concern goes to the characterizing of this as a study commission. Just a little earlier I made a reservation in the record for the inclusion of a great many prior studies if the committee determines. These aren't all of them. You are familiar with them. It is characteristic of many of the facets of this business that it has been studied endlessly but decisions have not been made, and I wonder if we shouldn't direct the creation of an entity and instruct it to develop and implement a system within a fixed period of time and charge it with the responsibility of keeping the system adequate to meet the needs of the industry, all aspects of the industry.

Mr. SPORKIN. I think clearly the first part of it is in order. In other words, to determine what that system is. As to who

Mr. Moss. Well, I think the key is whether we direct it only to study or both to study and to "implement."

Mr. SPORKIN. Right.

Mr. Moss. And I think there is a great difference, really as to the course of action determined upon by the Congress or any recommendations to be made by the Commission to the Congress on whether we just continue to study it. I am very impatient with studies.

Mr. SPORKIN. Mr. Chairman. I think that while it is an impressive list of studies, I have been in this thing since the beginning of these problems. When they first developed, you would not believe it but there was hardly any information at all. All of these studies that vou are talking about here have been studies that have taken place within the last 2 or 3 years.

One of the people who had tremendous foresight was Mr. Saul of the American Stock Exchange, and he commissioned three studies immediately: The North American Rockwell study that was a tremendous study; the Rand study and also a study on the plumbing of the indus

try, which was carried on by Ernst & Ernst. The Lybrand people, on their own also made a study at that time performed by Columbia University professors. Prior to that time there was very little.

I wasn't using the term study meaning to study the thing to death. I was referring to coming up with the kind of recommendations necessary to get this thing going.

Mr. Moss. Does anyone feel that the problems of the back office can be solved without some form of Federal action to standardize?

Mr. WEINBERG. No, I think that we are at the point where we have to implement, and that raises a different kind of problem. I think historically in this country we have done many things to separate the functions of banking and brokerage. We have legislated to physically separate them. What is becoming clear now is that this is a problem which bridges both of these industries but there is no single entity that regulates both of them.

We have the Federal Reserve to control and regulate the banking industry and the SEC and a host of self-regulatory agencies that are concerned with brokers. This problem covers both industries, and we need an entity that is able to look at both sides and develop and implement a program.

Our concern is that when we say implement, we don't believe this should be synonymous with any new entity that ends up running a huge computer complex.

We think that is undesirable. This new commission should have responsibility for developing the system design and being sure it actually happens within a reasonable time frame, but actual implementation should be built into the present structure of transfer agents and registrar operations.

There is no question in our minds there is a need for a new entity to bridge these two industries.

Mr. Moss. Would you charge that entity with the continuing responsibility of monitoring or policing and promulgating such rules and regulations as might be necessary to continue to maintain a system that would be totally compatible?

Mr. WEINBERG. Again in our mind there is no question but that there will be a need for continuing function to monitor this, to adapt to change, to be able to continually meet challenges of new technology, and so on.

It may well be that at a certain stage this becomes a function of the SEC, the Federal Reserve, or some other appropriate body or it could continue on like FDIC, a continuing body with this rather limited but very important responsibility.

Mr. Moss. Of course, there we get into the problems of governmental structure. We start talking about different agencies, and I don't see an easy answer to that if we merely leave it to each of them to continue to function independently while trying to achieve coordination, unless threre is some new entity that achieves the coordination.

Mr. Noves?

Mr. NOYES. As a comment, I think we should establish a policy at least in our own minds of who, specifically, the securities industry supports. It may be right and proper to consider the interests of the registrars and banknote companies and the specialists and the exchange.

On the other hand, it may be better to back off and stop and look at what the public really needs, perhaps what the corporations really need, and look at the whole question from that point of view rather than continuing the interest of each group that is currently active within the industry.

Mr. Moss. I think the committee is very conscious of its obligation, in examining all of these questions, to examine the public interest aspects of them, not to impose unreasonable or onerous requirements upon an industry, but to impose such requirements as will meet the public interest and try to keep the impact on the industry within all bounds of reason, but the problem comes here because of the very adverse impact upon the public during a period of about 24 months or 22 months, namely during 1968-70.

Are there further comments from the panel?

Mr. NOYES. I would like to draw a quick analogy. When we made our study for the industry, for the AMEX in 1968, at that time the SIP recommendation for the punchcard system was before the industry, and we recommended at that time that they stop and study the problem again. Maybe it would be easy to put OCR readable strip on the certificate.

I think subsequent developments, particularly the decreasing volume of stock transactions, made a situation where that recommendation didn't really matter. Perhaps 1968 was the time when we should have had action. I think I made a mistake. We should have recommended the punchcard at that time because if volume had gone up, we would have been in serious trouble without it. It is sort of an analogy to your question of do you study or do you implement.

Mr. Moss. Mr. O'Connor.

Mr. O'CONNOR. At the period of time Mr. Noyes is talking about, subsequently, and it is covered in the BASIC February report, the punchcard wouldn't work as a document, and this is why we stayed to the conventional type certificate.

Mr. Moss. Mr. Maller.

Mr. MALLER. I would like to go back to the question of additional study or direction.

I feel very strongly that a body must be created to move with the statement to it that its goal is a certificateless society, but the development of that, as the development of any system, requires a tremendous amount of study. We estimate roughly 250 man-years or 250 men 1 year investigating into the concept to come up with what is called a specific design of a system, and then this specific design has to be approved by someone.

It can't be approved just by the people who put it together. So that this Commission, or new institution, as I see it, would be the body that made the final determination that, yes, they had studied it completely and this was the way to do it. By moving to an institution to implement a certificateless society, the full studies that everybody worries about will be done. Any system must be designed in such a way that it is sufficiently flexible, and this is true in computer systems in any area of our society today.

They must be flexible so they can readily be changed where necessary, and for this reason most systems are done in modular fashion and in such a way as to be able to pull out a sector, change it and put

it back in without having to affect every program and every bit of work that is done throughout the entire system itself.

Mr. PAINTER. I have a few questions for Mr. Weinberg.

Mr. Weinberg, you refer on pages 1, 13, and 16 of your statement to the need for Congress to establish a new agency, and I think that we have already spoken this morning quite a bit about what kind of a new agency we might be having.

I was curious whether you were conversant with the proposal which was put before this subcommittee last week by Mr. Junius Peake, a partner of Shields & Company, where he suggested an agency similar to the one you described, and I wondered whether you had any comments to make with regard to Mr. Peake's proposal, if you care to discuss it at this time.

Mr. WEINBERG. Yes, Mr. Painter. I have read Mr. Peake's testimony, and I would like to say there are two, I tend to break it into two parts. One is the description of a structure to accomplish or to solve a problem, and the second one is the actual mechanism to solve it.

I agree very heartily with Mr. Peake's recommendation for a structure. I have some disagreements with some of the details, but the idea of that kind of entity I think is important.

I strongly disagree with the concept that such an entity would be an actual operating entity, that it would in fact, as I understand Mr. Peake's testimony, perform much of the clearing operations of the exchanges and much of the back-office work of the brokers and much of the transfer work of the banks.

I think that is the wrong direction to go in. I don't think we should have that, but I think

Mr. PAINTER. Could you elaborate a little bit more on that last point? I notice that on page 3 of your statement you observe that you would not want this subcommittee to support a bill which would create a national clearing system or depository. Does that tie in with the comment which you just made?

Mr. WEINBERG. Yes, the part regarding the national clearing system would tie in with that. We have many different clearing entities that already exist. The problem I see with them is that they all solve the same problem in different ways. That may not be a problem. That may just be one of the unique and perhaps strong features of our economic system.

I don't think we should try, and it is not necessary in my view, to bring all of those together in one particular system. I think they all have to accept the same kind of information, which is trading information. They all have to be able to come out with the same kind of information which is changing the name of who owns stock in what company, but the way they process it in the middle, I think, should be left up to their own initiative, and the analogy I used was with the banking system, bank deposit or checking account systems.

All banks accept the same kind of check with the same characters on it, but each bank has its own equipment and own handling technique, and that is what I view should happen here, that we have the same kind of input method and agreement on what has to come out, but each individual entity does its own internal processing.

To me it is incomprehensible that we could create an entity large enough to do the work of 5,000 transfer agents and 3,000, 4,000, or 5,000