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COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE

HARLEY 0. STAGGERS, West Virginia, Chairman TORBERT H. MACDONALD, Massachusetts WILLIAM L. SPRINGER, Illinois JOHN JARMAN, Oklahoma

SAMUEL L. DEVINE, Ohio JOHN E. MOSS, California

ANCHER NELSEN, Minnesota JOHN D. DINGELL, Michigan

HASTINGS KEITH, Massachusetts PAUL G. ROGERS, Florida

JAMES T. BROYHILL, North Carolina LIONEL VAN DEERLIN, California

JAMES HARVEY, Michigan J. J. PICKLE, Texas

TIM LEE CARTER, Kentucky FRED B. ROONEY, Pennsylvania

CLARENCE J. BROWN, Ohio
JOHN M. MURPHY, New York

DAN KUYKENDALL, Tennessee
DAVID E. SATTERFIELD III, Virginia JOE SKUBITZ, Kansas
BROCK ADAMS, Washington

FLETCHER THOMPSON, Georgia RAY BLANTON, Tennessee

JAMES F. HASTINGS, New York W. S. (BILL) STUCKEY, JR., Georgia JOHN G. SCHMITZ, California PETER N. KYROS, Maine

JAMES M. COLLINS, Texas BOB ECKHARDT, Texas

LOUIS FREY, JR., Florida ROBERT O. TIERNAN, Rhode Island

JOHN WARE, Pennsylvania RICHARDSON PREYER, North Carolina JOHN Y. MCCOLLISTER, Nebraska BERTRAM L, PODELL, New York

RICHARD G. SHOUP, Montana
HENRY HELSTOSKI, New Jersey
JAMES W. SYMINGTON, Missouri
CHARLES J. CARNEY, Ohio
RALPH H. METCALFE, Illinois
GOODLOE E. BYRON, Maryland
WILLIAM R. ROY, Kansas

W. E, WILLIAMSON, Clerk
KENNETH J. PAINTER, A88istant Clerk

Professional Staff
JAMES M. MENGER, Jr.
WILLIAM J. DIXON

CHARLES B. CURTIS

ROBERT F. GUTHRIE
KURT BORCHARDT

SUBCOMMITTEE ON COMMERCE AND FINANCE

JOHN E. MOSS, California, Chairman W. S. (BILL) STUCKEY, JR., Georgia JAMES T. BROYHILL, North Carolina BOB ECKHARDT, Texas

JOHN WARE, Pennsylvania CHARLES J. CARNEY, Ohio

JOHN Y. MCCOLLISTER, Nebraska Study of the Securities Industry

Staff

WILLIAM H. PAINTER, Special Counsel HARVEY A. Rowen, Counsel

JOHN N. BALAKOS, Professional Adviser ROBERT L. STERN, Special Consultant

ROBERT J. CANTER, Professional Adviser J. WILLIAM GADSBY, Professional Adviser

CONTENTS

(The same table of contents appears in parts 3, 4, and 5)

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 Industry 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., accompanied 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, NASD.

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 Association, 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

Bevis, Herman W.
Delahunty, Christopher J.
Du Pont, Henry W., with exhibits and charts.
Haack, Robert W.
Howland, Richard B., with exhibits.
Kaestner, Frank W.
Log Robert M.
Macklin, Gordon S.
Maller, Robert R.
Montross, Phillips M
Morgan, David H..
Needham, James J.
Noyes, Clifford H.
O'Connor, Bernard, to include an article; illustrations; a speech by

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

and releases...
Peake, Junius W.
Reinisch, Hans Randolph, to include article and attachments with

illustrations...
Securities and Exchange Commission, with extracts.
Sporkin, Stanley -

Weinberg, Eli..
Additional material submitted for the record by-
American Stock Exchange:

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

and business addresses Banking and Securities Industry Committee (BASIC):

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

and business addresses
Notes submitted by Herman W. Bevis on his study of the German,

French, and of Morgan Guaranty's Euro-Clear depository ----
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 Celler, Hon! Emanuel: Letter dated November 12, 1971, to Richard

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

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

October 15, 1971, elaborating on industry's automation problems..
Federal Bar Journal: Article entitled “The Status of Regulatory

Independence," by A. Everette MacIntyre---
McLaren, Richard W.: Letter dated November 19, 1971, in reply

to letter of November 12, 1971, from Hon. Emanuel Celler-
McNeill, Charles R.: Letter dated November 16, 1971, clarifying

misunderstanding of testimony of October 18, 19, and 20.
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.
List of all members and top staff including their places of residence

and business addresses
Letter dated November 18, 1971, submitting views in planning a

clearing facility in New York...
National Clearing Corporation: List of all members and top staff,

including their places of residence and business addresses. 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...
Letter dated October 22, 1971, setting forth a listing of the names,

business addresses, home addresses of the governors, president,

etc. of the exchange
Material relating to the incorporation of the New York Stock

Exchange

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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 industry,
O'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 0-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”

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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 Depository 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 BASIC July 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

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