urge that you adopt S. 2058. S. 2058 takes advantage of the fact that there is a Federal agency, the Federal Reserve Board, with commendable experience in safeguards and gives the Board jurisdiction in that area, with the SEC having the rest of the rulemaking functions. Although it may not provide the symmetry of a single regulator, it does, in my judgment, use the best features of both SEC and Federal Reserve Board experience and philosophy.

I appreciate the opportunity to comment, Mr. Chairman, and will be glad to answer any questions.

Thank you.

Mr. Moss. Thank you, Mr. Bevis.

At this point the Chair would ask unanimous consent that the additional items included in the package submitted by Mr. Bevis on behalf of BASIC be included in the record following his statement. Is there objection?

Hearing none, it is the order of the committee.

[Testimony resumes on p. 1913.]

[The attachments to Mr. Bevis' statement follow:]

MEMORANDUM OF COMMENT

H.R. 5050, Title IV

Securities Exchange Act Amendments of 1973

to the

Subcommittee on Commerce and Finance

of the

Committee on Interstate and Foreign Commerce

House of Representatives

submitted by

The Banking and Securities Industry Committee ("BASIC")*

The comments on H.R. 5050 herein are confined to provisions of Title IV concerning securities depositories. No comments, pro or con, are offered with regard to other titles or to provisions in Title IV having to do with clearing agencies, transfer agents and registrars, brokers or dealers, elimination of certificates, street name registration or other topics. Those members of BASIC who are also officers or directors of organizations concerned with other provisions of H.R. 5050 wish to have it made clear that the proposal herein of any provisions regarding possible regulation of depositories does not imply that similar proposals would necessarily be acceptable for regulation in other areas.

*The following are members of BASIC: Chairman: John M. Meyer, Jr., formerly Chairman, Morgan Guaranty Trust Company of New York; Herman W. Bevis, formerly Senior Partner, Price Waterhouse & Co.; Paul Kolton, Chairman, American Stock Exchange; Gordon S. Macklin, President, National Association of Securities Dealers, Inc.; William H. Moore, Chairman, Bankers Trust Company; James J. Needham, Chairman, New York Stock Exchange, Inc.; and Walter B. Wriston, Chairman, First National City Bank.

The regulation of depositories can, and we submit should, be considered as separate from the regulation of clearing corporations. Existing clearing agencies are integral parts of the trading mechanism of the Exchanges or the over-the-counter markets, with a primary function of balancing and settling trades, while depositories have a quite dissimilar function involving accepting custody of securities in a system which will promote the immobilization of the stock certificate. The fact that efficient operation of both clearing agencies and depositories will contribute significantly to the solution of back-office problems should not obscure the fact that the two kinds of entities will operate quite differently, will have different though overlapping clienteles and will have different problems in attracting participants in their use.

Summary of Comments

Additional legislation is not needed for regulation of depositories at this time. The existing regulatory structure for the banking and securities industries permits further and appropriate development of a comprehensive system for the immobilization of securities certificates and book-entry transfer of ownership. This is demonstrated by the substantial progress that has been made by existing depositories toward this goal.

H.R. 5050 would hinder—rather than help-creation of such a comprehensive securities depository system. If federal legislation regarding depositories is to be enacted, however, we believe it should follow the lines of the draft bill attached for your consideration.

Past and Prospective Development of Depositories

Evinces that Additional Regulatory Legislation is not now Needed

Since 1970, BASIC has been dealing on an inter-industry basis with the conditions which caused the paperwork crisis of the late 1960's. For three years it has proposed solutions, based on in-depth research, to various aspects of processing securities transactions and handling certificates. By far the most important of BASIC's recommendations is that securities certificates be immobilized in privately-owned regional securities depositories,

linked to form a nationwide system in which transactions are effected by book-entry rather than through physical delivery of certificates.*

**

The impressive growth of The Depository Trust Company (“DTC”)* in New York alone demonstrates the extent to which the immobilization and book-entry concepts can be applied under existing regulatory authority.

As the table below shows, during the year ended December 31, 1972 approximately 8,000,000 transactions were consummated by book-entry transfer-8,000,000 transactions for which the need to deliver certificates had been eliminated. At the end of February 1973 there were more than 1,500,000,000 shares representing more than 2,800 issues with a market value of approximately $55,000,000,000 on deposit at DTC.

* This is compatible with the view of the Subcommittee on Commerce and Finance, which stated in its August 23, 1972 Report to the Committee on Interstate and Foreign Commerce, on page 65, "The development and implementation of a national system of clearance and settlement integrated with a network of depositories is urgently needed to remedy the problems associated with the physical handling of stock certificates."

** DTC is the limited purpose trust company which will shortly be the successor to the business and operations of Central Certificate Service, Inc. which, in turn, was the successor to Central Certificate Service, a division of Stock Clearing Corporation, a subsidiary of the New York Stock Exchange. Historical references herein to DTC encompass CCS, Inc. and CCS.

Currently DTC has 294 participants (270 broker/dealers, 5 clearing corporations and, on an introductory basis, 19 banks). With the recent move to its new quarters DTC's capacities will be increased from 350 to 600 participants by mid-1973 and thereafter as needed.

Capacity also is being expanded initially to accommodate up to 9,000 issues; most of the additional issues to be included will be over-the-counter issues.

A feasibility study as to including state and municipal bearer bonds is in progress.

Since its inception in 1971, the brokers loan program has expanded continuously. On February 28, 1973 the market value of securities pledged by book-entry was more than $4.8 billion.

Operational refinements continue to improve efficiency. For example, a recently developed technique, pre-authorized automatic delivery (PDQ), has resulted in the elimination of 1.75 million individual documents per month. The evaluation of BASIC's proposal that magnetic tape replace the current paper forms used to transfer securities into customers' names is also

under way.

Immobilization of securities certificates is a national objective and progress has by no means been confined to DTC and New York.

Since its formation in 1971, the National Coordinating Group for Comprehensive Securities Depositories ("NCG")* has guided and encouraged an interface among DTC, and the Pacific and Chicago depositories to the end that participants in any one depository may be able to deliver to a participant in any other by book-entry.

* The members of NCG are: Chairman: John L. Perkins, President, Continental Illinois National Bank and Trust Company; Herman W. Bevis; George R. Becker, Chairman, Midwest Stock Exchange and Partner, Wayne Hummer & Co.; William T. Dentzer, Jr., Chairman, DTC; Gordon S. Macklin; John M. Meyer, Jr.; Thomas P. Phelan, President, Pacific Stock Exchange Inc.; and Samuel B. Stewart, Senior Vice Chairman, Bank of America.