ATTACHMENT B ALTA PROPOSED AMENDMENT TO H.R. 5050-TITLE IV Exclusion from the Terms "Clearing Agency", "Securities Depository" and "Transfer Agent"-Section 402 "SEC. 402. *** (22) (D) The terms 'clearing agency' and 'securities depository' shall not include (i) any person who performs such functions solely with respect to variable contracts or policies issued by insurance companies; (25) *** The term 'transfer agent' shall not include any person who performs such functions solely with respect to variable contracts or policies issued by insurance companies." ALIA PROPOSED AMENDMENT TO H.R. 5050-TITLE IV Participation of life companies in securities depositories or clearing agencies— Section 404 "SEC. 17A. *** (d) An applicant shall not be registered as a clearing agency or a securities depository unless the Commission finds that- * * * (2) the rules of the clearing agency or securities depository provide that (A) all registered brokers or dealers are members of a national securities exchange, (B) other registered clearing agencies or securities depositories, (C) registered investment companies, (D) insurance companies, (E) banks (as defined in section 2(a) (5) of the Investment Company Act of 1940), and (F) such other persons or classes of persons as the Commission may from time to time designate by rule as appropriate to the development of an integrated national system for the prompt and accurate processing and settlement of securities transactions are eligible to become participants in such clearing agency or securities depository, subject only to such other rules of the clearing agency or securities depository as are expressly permitted under this paragraph." ALIA PROPOSED AMENDMENT TO H.R. 5050-TITLE IV Form of certificate-Section 403 SEC. 406. Section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 781) is amended by inserting after subsection (i) the following new subsections: "(j) It shall be unlawful for an issuer, any class of whose securities is registered under this section or which would be required to be so registered except for the exemption from registration provided by paragraph (2) (B) or (2) (G) of subsection (g), by the use of any means or instrumentality of interstate commerce, or of the mails, to issue, either originally or upon transfer, such securities whose form or format contravenes such rules and regulations as the Commission may prescribe as necessary or appropriate for the prompt and accurate processing of transactions in securities. The provisions of this subsection shall not apply to variable annuity contracts issued by insurance companies." CONFERENCE OF STATE BANK SUPERVISORS, Re: H.R. 5050-The Securities Exchange Act Amendments of 1973 Hon. JOHN E. Moss, U.S. House of Representatives, DEAR CONGRESSMAN MOSs: The Conference of State Bank Supervisors (CSBS) is pleased to present its views regarding Title IV of H.R. 5050 which is now being considered by the House Subcommittee on Commerce and Finance. As the primary regulatory and chartering source for the country's nearly 9000 state-chartered banks, our supervisors are vitally interested in those provisions of Title IV as they affect the transfer agent functions of banks, and the operations of financial institutions recently organized to serve as securities depositories. For many years banks have served as transfer agents for corporations. These banks, where state chartered, have been subject to regular examination both by federal and state bank regulatory agencies and their transfer operations scrutinized in connection with these examinations. Of more recent origin are the depositories organized for the purpose of collecting and immobilizing stock certificates. There are today three of these regional depositories. The Depository Trust Company, a limited purpose trust company operating under New York State law is regulated primarily by the New York State Banking Department. It has chosen to become a member of the Federal Reserve System. Depository is now fully operational. The Midwest Securities Trust Company is also functioning as a depository under state charter and the Pacific Securities Depository, a state-chartered institution, is moving forward in its operational status. Based upon an examination of pertinent provisions of Title IV of H.R. 5050 as well as the provisions of S. 2058-The Securities Processing Act of 1973— which latter bill was passed by the Senate during August 1973, it is the opinion of CSBS that the provisions of S. 2058 are preferable as they relate to the regulatory jurisdiction to be imposed on banks in their transfer agent functions, and also regarding securities depositories which are organized as financial institutions under state law. Under H.R. 5050 the Securities and Exchange Commission (SEC) would register all transfer agents (bank and non-bank), and securities depositories. It would establish all rules that are necessary and appropriate in the public interest or for the protection of the public. And, under H.R. 5050, the SEC would also have responsibility for enforcing its rules, including the right to conduct examinations of the transfer functions of banks and of depositories organized as banks under state charters. In contrast to the foregoing, under S. 2058 while the SEC would still retain responsibility for and authority over the proposed securities clearing and settlement system, the federal banking agencies would carry out the enforcement responsibilities for regulations which would be set primarily by the SEC. The CSBS is in agreement with the provisions of both bills that give the SEC responsibility for assuring there is compatability in operations between banks serving as transfer agents, and other facilities in the securities handling procedures. However, it is the position of CSBS that responsibility for enforcing such compatibility standards, for establishing procedures regarding the safekeeping of securities and funds, and similar internal operations should be retained by the appropriate federal bank regulatory agencies, and by the respective state banking department where state-chartered banks are concerned. The provisions of Title IV of H.R. 5050 which would give to the SEC authority to enforce its rules affecting banks serving as transfer agents, including the right of examination of these institutions, would not relieve the bank regulatory agencies, federal or state, of the responsibility for ascertaining the safety and soundness of these banks, or whether they are conducting their transfer operations in accordance with applicable regulations. The provisions of H.R. 5050, therefore, would result in duplicatory examination and supervision which would cause an unnecessary burden and cost to banks carrying out transfer agent functions. These costs ultimately would be borne by bank customers. We believe, therefore, that the regulatory design of S. 2058 pertaining to the enforcement of regulations affecting bank transfer agent operations is preferable to those of H.R. 5050. CSBS believes that for the same reason the provisions of S. 2058 affecting securities depositories are more appropriate than those of Title IV of H.R. 5050. The three securities depositories which are now in various stages of operation are all state-chartered institutions, and in all likelihood each will become a member of the Federal Reserve System. The banking agencies, both federal and state, already have the experience and expertise to perform the necessary examination and inspection functions related to the operation of these special purpose financial institutions. State banking departments, by state law, will have to inspect these institutions to assure that they are operating in accordance with applicable laws, including those that might result from the present legislative proposals. As a consequence, if the provisions of Title IV of H.R. 5050 were to become effective, they would lead to an unnecessary duplication of supervisory oversight. In addition to the foregoing, it would appear that if the securities depositories are to achieve the objective of immobilizing stock certificates in securities transactions, there must be significant participation by banks that place in such depositories securities held by banks in a fiduciary or other capacity. It is believed that banks, particularly those located outside the areas where depositories are situated, would more readily participate if the depositories were supervised and regulated by the existing banking agencies at the federal and state levels. In conclusion CSBS desires to point out that S. 2058 contains provisions requiring that the federal bank agencies "shall consult and cooperate with each 20-306-74-pt. 5-15 other and, as may be appropriate, with State banking authorities having supervision over banks operating as clearing agencies. . . ." Similar provisions are enunciated for consultation and cooperation between federal and State banking departments where banks acting as transfer agents are involved. CSBS believes these are highly desirable provisions. It is recommended, however, that in line with the objectives of avoiding needless duplication in the regulation and examination of these institutions, where they are state chartered, that statutory language of any legislative proposal clearly provide that the appropriate federal bank agency shall take into consideration any program of examination and enforcement carried out by a state banking department. This could prevent needless expense to individual customers that might ultimately ensue from such duplication. The Conference of State Bank Supervisors congratulates the Subcommittee for its efforts to provide for the development of a highly efficient, coordinated system to permit the prompt and accurate processing and settlement of securities transactions. The Conference believes that banking regulatory agencies must play a major role in the development and implementation of such a system. Because the provisions of S. 2058 permit federal and state banking departments to exercise greater responsibilities in the securities handling procedures than does Title IV of H.R. 5050 CSBS supports the supervisory approach of S. 2058. Cordially, LAWRENCE E. KREIDER, Executive Vice President-Economist. CORPORATE TRANSFER AGENTS ASSOCIATION, INC., April 25, 1973. . Hon. JOHN E. Moss, Chairman, Subcommittee on Commerce and Finance, Washington, D.C. DEAR CONGRESSMAN MOSS: In accordance with your notice of March 9, 1973, The Corporate Transfer Agents Association, Inc. would like to make known its position regarding H.R. 5050. Before commenting, however, we would like to call attention to our position taken at the September 1972 hearings with respect to bill H.R. 14826. We did not oppose its adoption on the grounds that H.R. 14826 called for a well regulated National Depository and clearing corporation, provided for equitable control of depositories, clearing corporations, banks and brokers through a uniform single agency control and provided for the elimination of the negotiable certificate in settlements between broker dealers and depositories. In reviewing the committee working copy of H.R. 5050, it appears your committee has agreed that some of our views which were last expressed at the September 1972 hearings had merit and we are appreciative of the fact that consideration was given to our views. However, we do have some comments to make and since Title IV-Securities Processing deals with our phase of the securities industry, we shall address ourselves to this section of the bill. Our first comment has reference to that portion of Sec. 17A (3) (b), page 99, which deals with the registration of transfer agents. We feel that the details necessary for registration should be spelled out rather than attempting to cover the situation by the following remark ***“and such other information in such detail as the Commission may by rule require as necessary or appropriate in the public interest," ***. Then, on page 105 starting on line 19, the bill speaks of denying registration of a transfer agent where the applicant does not have procedures or the means to be able to comply with the provisions of this section and the rules and regulations promulgated under those provisions, etc. Here again, we feel the procedures or the means should be detailed. Page 115 beginning with line 19, the bill speaks of the treatment given requests for confidential treatment. We feel a positive approach should be taken here, i-e., the Commission should advise one way or the other, since the company may wish to withdraw its application if the furnished information is to be made public. It also appears possible that the Commission might just fail to even review the matter and under this set-up, the information would be made public after 30 days. With respect to Sec. 405, Section 12 (j), page 116, line 21, in which the Securities and Exchange Commission is given the authority to regulate the form and format of the stock certificate, our organization feels this regulation is unnecessary for the following reasons: (a) The introduction of a single denomination certificate, which will reduce the number and the work involved in the issuance of certificates. (b) The increased usage of depositories will immobilize the certificates. (c) The increased usage of broker/dealer settlements through bookkeeping entries within the depository set-ups will greatly reduce the certificate processing operations. This incidentally relates to one of your proposed features of H.R. 5050. (d) Most corporations have many thousands of dollars of certificate supplies on hand or with their bank transfer agents. A drastic change in the form or format could cost American business millions of dollars. Our last comment has to do with the consolidation of the functions of the transfer agent and the registrar. Section 406 of the Bill (page 117) would amend Section 12 of the Securities Exchange Act to provide that every issuer whose securities are registered on a national securities exchange shall consolidate in a single person the functions of transfer agent and registrar. Presently, the New York Stock Exchange requires that a registrar be a bank or trust company, but permits a transfer agent to be an employee of the issuer where the issuer transfers its own securities. Since a corporate issuer would not be permitted to be its own registrar under Stock Exchange rules, the effect of Section 406 would be to prevent issuers in the future from doing their own transfer work. It appears that Section 406 should provide for setting aside Stock Exchange rules that would prevent issuer companies from acting as their own transfer agents; as many of our members have always transferred their own shares and have handled such transfers promptly and efficiently. Very truly yours, HENRY VAN DAM, President. ILLINOIS STOCK TRANSFER CO., Hon. JOHN E. Moss, DEAR MR. CHAIRMAN: Thank you for arranging to send me a copy of the report of the Subcommittee on Commerce and Finance. As I indicated in my original letter to you, we are a small, independent stock transfer company that has been in business for more than sixty years. We represent 16 corporations with a total of about 200,000 shareholder records. I am very much concerned about two specific areas being discussed by the Subcommittee: 1. That one common system be used to keep shareholder records on magnetic tape, etc. If this were to be enacted, the cost-or capital expense could be so great as to wipe out a profit from our kind of operation or any of the others like ourselves. 2. That it would be mandatory for all transfer agents to function in the joint capacity of stock transfer agent and registrar. As you know, the New York Stock Exchange rules prevent someone like ourselves from acting as a registrar since we are not a bank or trust company. If both of the ideas outlined above are carried out and approved as a part of a bill, it would probably mean that a company like our own would be put into a position where we would necessarily have to raise our fees to a point where we no longer would be serious competition for the large banks in New York and Chicago, who now have the biggest share of the stock transfer and registrar business. I am also very much concerned about the future of our industry not only as the chief executive of a small corporation but as an individual shareholder. I think it would be a grave mistake to see those of us who are small in the securities transfer business be squeezed out and the large banks, mainly in New York City, be left with the total responsibility for handling transfers of stock. With the problems the securities industry has today in getting deliveries of transferred stock from these large banks, we could see another "paper crunch" that would make the last one look pale in comparison. I might add that my Company is still on a 24-hour basis for delivery of transfers and we intend to keep it that way. If it would be helpful for me to appear before your Subcommittee, I would be happy to come to Washington and present my views in greater detail before your committee members. Sincerely, G. D. PEARSON, JOHNSON, PARSONS & KRUSE, Salt Lake City, Utah, September 18, 1973. Re: Opinion on regulation of transfer agencies. Chairman, House Subcommittee on Commerce and Finance, Washington, D.C. DEAR CHAIRMAN Moss: Since the passage of the Securities Act of 1933 and the Securities Exchange Act of 1934, federal statutory and regulatory controls over almost all sectors of the securities industry have expanded in number and sophistication. Thus it seems anomalous that the registrar and transfer agent, although natural and legitimate parts of the industry, have not come under comparable regulation, despite a number of practices within this segment of the industry rich with potential for abuse. It is my belief that, while many transfer agencies throughout the country are reputable, efficient, sophisticated and knowledgeable in their operations, and sensitive to their responsibilities, problems do exist in the industry which should be considered by the Subcommittee for the purpose of enacting legislation designed to improve the quality of service rendered by transfer agencies. Of first importance in consideration of the role played by transfer agencies is enforcement of the registration requirements of the Securities Act of 1933. The provisions of the Act make it unlawful for any person to utilize means of interstate commerce to sell, or deliver before or after sale, any security unless a registration statement is in effect as to the security, or to offer for sale any security unless a registration statement has been filed. However, exemptions from registration allowed by Section 5, for example, transactions not involving any public offering, transactions by any person other than an issuer, underwriter or dealer, transactions by a broker upon an unsolicited customer order to buy, transactions involving certain corporate reorganizations, and transactions coming under the so-called "1% rule" or "leak out" provisions, all play a significant role in the securities market and must be rigorously supervised if the investing public is to be protected. The role played by transfer agents is significant since persons active in the securities industry-issuers, broker-dealers, individuals and their counsel-as a matter of practice rely on transfer agents for information which is crucial to the determination as to whether an exemption is available. There is substantial evidence to suggest, however, that many agents and, to some extent, the regulatory agencies are not fully aware of the reliance which the rest of the industry places on transfer agents. Transfer agents are in the best position to maintain a system of controls based on records such as stop-transfer instructions and restrictive legends utilized by issuers to prevent secondary distribution of shares subject to private placement or controlling person restrictions. In addition, records maintained by transfer agents are critical to brokers to determine if a distribution of securities is made by an underwriter on behalf of his principal. The transfer agent is thought to be the most logical source of this information because the issuer or selling customer is viewed by the Commission as being self-serving and of diminished reliability and because transfer agents are generally believed to maintain a file containing a list of persons in a control relationship with the issuer, shareholder agreements containing transfer restrictions, a "stop-transfer" list, a ledger of all transfers and a copy of basic corporate documents such as Articles of Incorporation and By-Laws. In short, it is believed that the transfer agent is or should be the best, although admittedly not the exclusive, relatively independent source of this information. |