marily because of the lag that occurs as a result of having to physically move that paper back and forth, and if we can design and install a system that will reduce settlement period to same day or next day and reduce that period of uncertainty concerning transfer, we will thereby reduce and perhaps eliminate problems of dividend and proxy. Mr. PAINTER. I gather, Mr. Weinberg, that you consider that this young lady here is an inappropriate symbol for the United States Banknote Corporation. I understand that this is largely up to the corporation to select the proper vignette. Sometimes they have a muscular man holding symbols of industry-cogs or wheels. Isn't this largely something for the company to determine what its particular corporate image will be? In this particular case, the United States Banknote Company has fixed upon this young lady holding some kind of document saying "United States" on it. Isn't this something for the company to determine what its image is going to be?

Mr. WEINBERG. Yes, I think the stock exchange set some broad guidelines for the minimum requirement, and within those limits I think the corporation does choose; yes.

Mr. PAINTER. I would like to move on, and I have only one further point that I would like to look into, and possibly it is not as important as some of the other ones that we have been considering. I know, Mr. Weinberg, that you, in your statement, discussed the topic of dividend reinvestment programs, and on page 8 you indicate that dividend reinvestment programs would or might virtually eliminate certificates, at least in particular cases. Could you explain for the record a little bit more clearly just how this works?

Mr. WEINBERG. Yes, I would like to perhaps preface it by saying that we have, through these discussions and others, identified and recognized that there are many different aspects to the security business and particularly many different kinds of traders, and we generally categorize them for this purpose as active traders and inactive traders.

In that regard, we have tried to answer the question of: How will the small investor who is probably also the inactive investor react to the concept of not getting stock certificates? And so we have looked for close analogies. One we have mentioned has been the mutual fund area; another one, which perhaps comes closer to home in terms of identification of programs such as dividend reinvestment; and the particular one we referred to is that of the American Telephone & Telegraph Company.

Again that is a good example because their stockholder list certainly is an excellent cross section of the stockholders in our country. Under this program, individual stockholders have an option. They can elect to have their dividends, as they are paid, instead of being paid physically in terms of a check, credited to their account, and reinvested in stock of the telephone company.

The telephone company has designated a bank, the First National City Bank of New York, as a depository and transfer agent for this purpose. As a result of this, each time the telephone company declares a dividend, the money for those stockholders that so desire is invested in shares of the company.

Because of the amount of the dividends, it is usually fractiona shares, and the shareholder will receive from the bank a statement.

and this statement will say that, "You have received a dollars of dividends, which have been reinvested into a certain amount of stock, and at this time you now hold 3.5 shares of A.T. & T. stock." And then, at the end of the year, each shareholder receives a statement from the bank saying that, "You are now the owner of 3.8, 3.9," the amount of shares that you own. The shareholders do not receive stock certificates. They receive only the statement from the bank. The bank does not purchase certificates for each individual shareholder, but rather combines all of the accounts and just, if you will, purchases in total the number of shares covered, perhaps 1,000 or 10,000 shares, which may well be in one unit or two pieces of stock.

So, in this case, the point we bring out is that it is a typical small shareholder, he does not receive any stock certificates, he receives only a statement, periodically, from the bank, and the acceptance on the part of the shareholder has been overwhelmingly favorable. The bank reports they have received requests from shareholders to send in remaining certificates and ask the bank to hold it for them and send a

statement out.

So we find in this system no adverse reaction to the concept of not having a stock certificate.

Mr. PAINTER. If this becomes widespread, however, is there any risk that the banks will, in effect, take over the brokerage industry? Do you see a widespread risk of this?

Mr. WEINBERG. There is a question whether the bank has to purchase that 1,000 shares and pay brokerage. These are issues, but I think generally this is a good prototype. This also illustrates, for example, our disagreement with the depository concept. This, in a sense, is a type of transfer agent depository where the bank itself is a depository, and we think that is a desirable direction.

That is different from a central certificate service, which is another entity created just to hold the stock certificate, and also it brings up our point that that we think the way this problem is likely to be resolved, will be along the line of banking-type solutions rather than a broker-dependent solution.

I don't know how the broker's commissions will come out, but it is more likely the banks will play a larger role in this certificateless system than they do today.

Mr. PAINTER. Mr. Chairman, I have no further questions to ask of the panel. Possibly the panelists have questions to ask of each other, or you have questions to ask of them.

Mr. Moss. Mr. Broyhill, do you have further questions?

Mr. BROYHILL. No further questions.

Mr. Moss. Mr. O'Connor.

Mr. O'CONNOR. Mr. Chairman, in the reinvestment, is there not a fee for that that the stockholder pays?

Mr. WEINBERG. Mr. O'Connor, I don't know that. We can find out. Mr. O'CONNOR. I think on A.T. & T. it is 75 cents for each transacfion; and second, the option, as I recall it, to take the full share is at any time that you want it.

The second comment I wanted to make, since Mr. Weinberg doesn't like our esthetics on our stock certificate

Mr. WEINBERG. I said I did like it.

Mr. O'CONNOR. What I wanted to say seriously is that over the years the stock certificates have been developed by large corporations with definite public imagery in mind. I would be glad to send you samples, the latest of which are some of the brokers who have gone public. There has been a lot of time, effort, and money spent in that direction. Mr. Moss. I have some samples. I have a few I would be happy to give you.

Mr. BROYHILL. I have some that I will let you put on the wall of your house, too. [Laughter.]

Mr. Moss. Gentlemen, are there further comments you would like to address to any member of the panel? Mr. Noyes.

Mr. NOYES. I would like to make a comment about the New York Stock Exchange central certificate service. That service is two things. It is, in fact, a depository for certificates. It is also a settlement mechanism, and it is a computerized settlement mechanism; and because we may be viewing a system where we are going to eliminate the paper, doesn't mean that isn't basically a good starting point for a settlement mechanism. So I think we should keep those two points together, and I know Mr. Bevis and the BASIC committee have suggested that the new settlement process be based upon that, and I think it is well worthy of consideration.

Mr. Moss. Certainly, thank you.

Gentlemen, there being no further questions or no further comments, I do want to express the appreciation of the committee to each of you for your participation in the panel these past 2 days. I know that the information you have given us and the comments and the judgments you have made will be very helpful to us.

With that, the subcommittee will now stand adjourned.

(Whereupon, at 11:55 a.m. the subcommittee adjourned, to reconvene at 10 a.m., Tuesday, November 16, 1971.)

STUDY OF THE SECURITIES INDUSTRY

TUESDAY, NOVEMBER 16, 1971

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON COMMERCE AND FINANCE,

COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D.C. The subcommittee met at 10 a.m., pursuant to adjournment in room 2318, 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 continues the sixth in its series of hearings on the problems of the securities industry. The subcommittee is privileged to have as its first witness the Honorable Emanuel Celler of New York, chairman of the House Committee on the Judiciary, who will testify on certain portions of William McChesney Martin, Jr.'s report to the New York Stock Exchange.

At the conclusion of Chairman Celler's testimony, the subcommittee will turn its attention to the topic of self-regulation and the securities industry, and will hear from Mr. Morris A. Schapiro, president, M. A. Schapiro & Co., Inc., Mr. Robert M. Loeffler, senior vice president, Investors Diversified Services, Inc., and Mr. Hans Reinisch, president of the National Shareholders Association.

We will inquire as to whether self-regulation has worked and whether it should be continued, modified, or abandoned.

Tomorrow, the subcommittee will continue its study of self-regulation and will hear from a panel composed of representatives of the Securities and Exchange Commission, the New York Stock Exchange, and the National Association of Securities Dealers.

I am very pleased to recognize our first witness, the dean of the House of Representatives, and the chairman of its Committee on the Judiciary, the Honorable Emanuel Celler.

Mr. Chairman, it is a pleasure to have you here with us.

STATEMENT OF HON. EMANUEL CELLER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW YORK

Mr. CELLER. Mr. Chairman and members of this subcommittee, there are those who tell us that it has taken years of strain on Wall Street, resulting in the near collapse of the securities industry 2 years ago, to stimulate congressional interest in Wall Street reform.

Wall Street itself would like us to believe it can come here simply as the sick patient seeking new remedies. I suggest, however, that before prescribing any new elixers, Congress has a responsibility to make sure the patient has been following doctor's orders.

That, it seems to me, is precisely what this energetic subcommittee is doing, and it is why I welcome this opportunity to contribute to its study of the securities industry.

For many years, I have been concerned with the antitrust implications of many activities of the national stock exchanges, and with those of the New York Stock Exchange in particular.

Not surprisingly, spokesmen for the industry have been masters of the doubletalk with regard to these issues. On the one hand, the exchange tells us it is insulated from the antitrust laws, therefore it is not violating them. On the other hand, realizing those laws' applicability, it is continually seeking special congressional permission to continue violating them.

My own positions are clear: First, I am convinced, as are the courts, that, the national stock exchanges are afforded no pervasive immunity from antitrust liability by existing law.

Second, I will strongly oppose any legislation that seeks to grant immunity from the antitrust laws to the activities of the national exchanges, including the New York Stock Exchange.

And at this point, I cherish the hope that this committee will fully recognize the jurisdiction of the House Judiciary Committee concerning any provisions amendatory of our antitrust laws.

The securities market is governed most consistently with the public interest by competitive principles, not by exchange rules such as those that restrict trading and fix commission rates.

For too long, anticompetitive practices have been allowed to continue under a guise of necessary self-regulation, which, in reality, is designed to preserve Wall Street for the Wall Streeters.

Although these are not new issues, it is most appropriate that they are being examined by the subcommittee at this time, Mr. Chairman. Both the recent William McChesney Martin report and statements by William J. Casey, Chairman of the Securities and Exchange Commission, have urged Congress and the courts to provide the exchange with antitrust immunity.

Chairman Casey, noting in a September 8 speech, for example, that courts are being asked to apply antitrust principles to the regulation of the securities markets in such matters as membership and rates, inaccurately asserted that this was "contrary to the intentions of Congress in enacting the Exchange Act as the primary source of regulation of the securities markets." Mr. Casey reiterated this position in testimony before a Senate committee last September 21.

The Martin report, meanwhile, unwisely suggests that a scope of antitrust immunity be granted coexistent with the scope of SEC control of the exchanges under the 1934 Securities Exchange Act, so that no action or omission by a registered national securities exchange in performing any-and I emphasize "any"-of its duties of self-regulation under the act which are subject to SEC review could give rise to any claim under the antitrust laws.