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1955

delighted not to have to work with a piece of paper as we have in the past. There is no question about that. If we could create a better system that those people who want evidence of ownership would only have as an account number or passbook it would save us millions and millions of dollars in processing costs.

So when I say I am concerned about the little investor who wants this particular evidence of ownership, I am not speaking of the brokerdealers who would be delighted not to have to worry about any kind of a piece of paper and have it all done by book entry and have it all done, if necessary, by a passbook. Do you agree with that, Jay?

Mr. CHALMERS. One hundred percent.

Mr. Moss. What I am really suggesting is perhaps we should agree that we could not devise a worse system than we have.

Mr. GARDINER. That is right.

Mr. Moss. If you are in agreement on that, then we certainly have the ability collectively to devise a better system.

Mr. GARDINER. Yes.

Mr. Moss. There is nothing that brings about clear evidence of the almost limitless ability of American business to innovate than the pressure of time. So maybe we ought to move along the line of getting rid of that certificate, not just arbitrarily plucking a date out of the air, but discussing what is reasonably feasible, and if it is feasible then move toward it and try to get rid of the certificate.

Mr. GARDINER. We would support that effort 100 percent, sir.

Mr. Moss. I want to add on this matter of agreement we recognize as we look at these various regulatory agencies that at least our experience legislatively shows we can never legislate agreement, we can direct agreement; that we cannot legislate administrative confidence, we can maintain oversight and hope to achieve it through pointing out error; and we can never legislate judgment, that is, the process of selection of personnel. It just is not possible.

You can write an excellent law, have it poorly administered and it is a bad law. You can write a relatively bad law and have someone of good judgment and sound ability turn it into a pretty workable piece of legislation. Those are the hazards inherent in writing any kind of a law or a regulation.

Mr. GARDINER. Yes.
Mr. Moss. Mr. Curtis.
Mr. CURTIS. Thank you, Mr. Chairman.

Mr. Gardiner, I would like to pick up some loose ends for record purposes.

On page 2 of your statement you cite for the committee data showing the comparison of the growth in the operations capacity as compared to the growth in sales capacity of the membership. The figure terminal date is 1971. I wonder if it would be possible for you to supply more recent figures and also your analysis of the industry's experience during the profit squeeze that has been occcurring throughout 1973 and whether this lack of profitability has resulted in a sharp curtailment or cutback in the operations of not only personnel, but capacity as had been the historical pattern in this industry.

Mr. GARDINER. We will be very glad to make that study and to send you a letter with its results. As a businessman, my opinion would be that the cost reductions at our firm have not impaired the basic structure of the capability that I outline here. I feel that the improvements in technology and in automation have offset the reduction in staff. Basically what has happened in our industry since 1973 began has been the elimination of people, it has not really been the elimination of machines or facilities.

Would you agree with that, Jay?

Mr. CHALMERS. I agree. I think our actual processing capacity has not been impaired through this. I think the improvement in automation has at least offset the reduction in the number of employees.

Mr. Moss. Without objection, we will hold a reservation in the record to receive the material. See letter dated Sept. 28, 1973, p. 1957.]

Mr. CURTIS. In your testimony before the subcommittee in the last Congress we discussed the current status of the transfer agent's ability to turn around nonlegal transfers within 48 hours and the association, using Central Certificate Service as a source, supplied for the record information which demonstrated the experience in the week of August 25, 1972, the stock transfers of New York Clearing House banks. At that time the figures showed that no member of the New York Clearing House was able to turn around its transfers within 2 days. Substantial numbers of transfers were occurring in 4 days and perhaps beyond that. Can you tell the subcommittee what the current situation is from your experience ?

Mr. GARDINER. That record was compiled by Mr. Chalmers' predecessor, Mr. Lynch. Do you have any thoughts on that, Jay?

Mr. CHALMERS. Just from day to day experience, I don't have any actual figures or studies that we performed. We are now able to get transfers in sometimes as quick as a 24-hour period. I would not say that all of our transfers come back in 24 hours, but the experience last year has improved tremendously.

Mr. GARDINER. We could do that for August of 1973, if you would like, and put it in the record.

Mr. Moss. It would be helpful.

Mr. GARDINER. Mr. Scribner points out, it will show quite a difference because our volumes are so much lower, but we would be glad to do that, but have it as an addendum so you can have a comparison of what it looked like a year ago and what it looks like now.

Mr. CURTIS. Perhaps if you could select a week in which there was comparable volume as the week of August 25, 1972, perhaps it being a summer month in 1972 may be a comparable volume week in 1973 winter.

Mr. GARDINER. We will try. I cannot promise that. That may take a little looking, but we will try. I would that we could find it for last week, I assure you of that.

Mr. Moss. I think in order to avoid the need for specific requests the Chair will ask unanimous consent that the record be held to receive such additional information as may be requested during the interrogation by counsel.

Mr. ĞARDINER. Very good, sir. Mr. Moss. Without objection, so ordered. [The following letter and attachment were received for the record :]

SECURITIES INDUSTRY ASSOCIATION,

New York, N.Y., September 28, 1973. Hon. JOHN E. Moss, Chairman, Subcommittee on Commerce and Finance, Committee on Interstate

and Foreign Commerce, House of Representatives, Washington, D.C. DEAR MB. CHAIRMAN: During SIA's testimony before the Subcommittee on Title IV of H.R. 5050 you asked us to supply for the record more current data with respect to the level of the operations workfor in he securities industry. Based on published data of the New York Stock Exchange, the number of operations and administrative-support personnel employed by its member organizations declined from 100,365 at year-end 1971 to 96,023 at year-end 1972, a reduction of 4.3%. Over the same period, those members' sales forces also declined by 3.15%.

We have not been able to obtain any definitive information as to the extent of industry manpower reductions during 1973. However, a recent telephone survey of a small but representative sampling of national and regional firms did reveal that 9 out of 10 firms have reduced staffs in 1973, with the heaviest cuts taking place in the operations area. Notwithstanding these reductions and other cost cutting measures taken by firms to cope with the profits squeeze that has prevailed generally throughout this year, it remains our opinion, as expressed by Mr. Gardiner and Mr. Chalmers at the hearing, that the industry's overall securities processing capability has not been impaired.

You also asked us to update the information which we supplied to the Subcommittee last year with respect to turnaround times of major New York City transfer agents. Attached hereto is a table prepared by the American Stock Exchange showing the performance record of the nine largest agents by month from December 1972 through August 1973. (The turnaround period is calculated from the time stock is received from a broker by the American Stock Exchange Clearing Corp. to the time when it receives the certificate back from the transfer agent ready for retransmission to the broker.) It is interesting to note that in August 1972 for these same agents on an overall basis, the median number of days was 3.0, 93% of transfers were completed in 5 days, and all but one of these transfer agents were completing 90% or more of the transfer within the 5-day period.

I hope that this information responds adequately to your inquiries. If there is anything in addition that you feel we could supply, please do not hesitate to contact me. Very truly yours,

RICHARD O. SCRIBNER,
Vice President and General Counsel.

[blocks in formation]

Percent

in 5 days

Median

days

Percent

in 5 days

Median

days

Percent

in 5 days

Median

days

Percent

in 5 days

Latest Percent

change in 5-day transfers

Median

days

[blocks in formation]

3.5

3.1 3.4 2.6 3.5 3.3 2.5

83 91 92 97 92 96 97 95 98

3.5 3.4 3.6 3.3 3.7 2.6 3.5 3.7 2.5

87 88 95 96 90 100 95 96 98

3.4 3. 9 3.8 3.4. 3.8 2.8 3.5 3.5 2.8

95 73 76 94 85 97 96 94 96

3.7 5.0 3.7 3.8 3.6 2. 7 3.8 3.8 3.1

86 50 86 87 85 92 73 80 90

3.5 4.1 2.8 3.9 3.7 2.7 3.6 3.6 2.8

87 69 89 88 82 91 92 92 93

+1 +38 +3 +1 -4 +1 +26 +15 +3

[blocks in formation]

Name

3.3
3.0

3.8
3.6
4.3
2.2
1.9
3.3
4.3
2.0

81
85
76
92
98
90
76
92

4.5
3.8
3.7
3.5
2.1
3.1
3.9
1.8

59
80
83
92
94
92
80
97

3.3
3.3
2.4
3.6
2. 1
2.9
2.7
2.1

68
85
93
78
95
95
82
96

Overall..

Percent of New York Central

transfer agents through
which 90 percent or more of
transfers were completed
within 5 days

Note: February data not available.

Mr. CURTIS. The New York Stock Exchange now has a rule that says the American Exchange transfers are to be completed within 48 hours. What happens if that rule is not complied with? Do you report those circumstances to the exchange? Is it subject to criticism when they examine your books? How does that work!

Mr. GARDINER. I defer to my operations expert.

Mr. CHALMERS. I have not had an occasion to make a request to the exchange that has not been complied with. There has not been reason to complain about the transfer activity. I am not saying that all transfers are made within that period, but we have not analyzed them on a. daily basis.

Mr. CURTIS. I would like to explore one part of the question that Mr. Broyhill was discussing with you.

As I understand your statement the position of the Association is now that you would recognize and accept a delegation of rulemaking authority to the bank regulatory agencies to prescribe rules relating to the safety of the system for depositories which are organized as banks. Is that a correct summary of your position?

Mr. GARDINER. That is correct.

Mr. CURTIS. The testimony of the BASIC before the subcommittee suggested that the safety issue is so interrelated to other aspects of putting together a nationwide system of securities processing that the bank regulatory agency should and would have authority in the exercise of their safety rulemaking responsibility to prevent a compelled interface or other compelled expansion of listing or capacity that the SEC may have ordered under rulemaking authority granted to them,

In questioning I think we agreed this would give the bank regulatory agencies a veto over a forced interface between various segments of the securities processing system. In that context, does the association have any difficulty with the assignment to the Fed in this case or the bank regulatory agencies that that veto power on the basis of their discernment of what is needed to preserve the safety of the system?

Mr. GARDINER. I would object to that because I don't think that the regulatory authority should have a veto over-I am not quite sure where practically that comes out. I can, of course, see where a banking authority might not want the direct representation of, let us say, a broker-dealer whose financial position they were concerned about, but in the concept that we have outlined here under the national securities processing system our thought is that all of those brokerdealers would deal directly with the entity itself, and I cannot foresee where a banking regulatory authority would have any problem interfacing with the entity.

Mr. Curtis. To use an example, Mr. Gardiner, the Pacific Securities Depository is a segment of the nationwide system of processing securities.

Mr. GARDINER. Right. Mr. CURTIS. Should the SEC order Depository Trust to interface with the Pacific Securities Depository, the suggestion is that the Federal Reserve Board in this case would be able to veto or prevent that compelled interface upon its determination that there was some risk to the safety of the system involved in so doing.

Mr. GARDINER. Well, my answer would be that what you have just outlined is exactly what we are trying to achieve; namely, a coordi

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