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we found it to be sound. We do not object to concentration of rule-making authority in the Securities and Exchange Commission, nor do we object to concentration of enforcement and supervisory authority with respect to nonbank transfer agents in the Commission.
We have already voiced our concern, both before your Subcommittee and the Senate Subcommittee on Securities, about any specific grant to the Securities and Exchange Commission of authority to prescribe rules and regulations relating to the form or format of the stock certificate. We re-express our concern now. Requirements of this nature could very easily impose undue burdens on issuers as well as transfer agents and result in the elimination of all but a few organizations able to perform the stock transfer function.
In conclusion, we would like to state that, while the Stock Transfer Association does not now believe that Federal regulation of transfer agents is necessary, we respectfully request an opportunity to appear before your Subcommittee when legislative hearings commence and to offer further comments into the several aspects of the proposed bill. The Association would also like to re-pledge its full cooperation should legislation be enacted and re-state its desire to participate to the fullest possible extent in the development of measures implementing such legislation. Very truly yours,
THOMAS W. STANLEY,
WESTERN STOCK TRANSFER ASSOCIATION, INC.,
October 2, 1973. Hon. JOHN E. Moss, Chairman, Subcommittee on Commerce and Finance, Committee on Interstate and
Foreign Commerce, Rayburn House Office Building, Washington, D.C. Subject: H.R. 5050.
DEAR CONGRESSMAN Moss : The Board of Directors and members of the Western Stock Transfer Association, Inc. wish to express our appreciation for the invitation of the Subcommittee on Securities, to submit a written statement concerning HR 5050.
WSTA represents the major Transfer Agents, west of the Rocky Mountains including Hawaii. Between Bank, non-Bank and issuer Agents, we represent more than 1,000 publicly traded corporations with over 10,000,000 shareholders.
In our statement last year, we raised some serious questions as to the actual need for registration and regulation of Transfer Agents and Registrars. We are now convinced that such is not necessary as ample and maybe excessive regulation already exists. Duplicate regulation is not only undesirable, but wasteful. Currently, effective regulation of Transfer Agents occurs from the following sources :
1. An agent for a listed corporation must be approved by and comply with all rules of the Stock Exchange.
2. The Transfer Agent and Registrar are probably one of the most effective policing parts of the securities industry that exists today. They require documentation and legal opinions, etc. that the issuance of securities and their subsequent transfer are validly issued and that they are registered or exempt under Federal and State securities laws.
3. The Transfer Agent must satisfy itself that the issuer is in compliance with all such regulations as they pertain to the issuer.
4. Bank Transfer Agents are already regulated by regulatory agencies and are subject to at least annual on premises inspection and examinations of not only their financial but operational procedures.
The only possible need for regulation of Transfer Agents would be if this bill were amended to provide for Transfer Agent Depositories as recommended by SEC Commissioner, John R. Evans before your committee and the Senate Subcommittee hearings on S 2058. In the statement by Mr. Thomas Stanley, President of the Stock Transfer Association of New York, to you on May 4, 1973, he referred to the growth, use and effectiveness of the use of depositories and their effect on the Transfer Agent. It is obvious that this concept, even though opposed by some of our members, has shown that it should be developed and expanded nationally so that all of the securities industry can benefit. The creation and development of the Transfer Agent Depository (as in progress by the First National Bank of Boston) would not only be a great step toward eliminating the stock certificate, but could be one of the best common denominators to implement an integrated national system for the prompt and accurate processing and settlement of securities transactions.
Should Congress nevertheless determine that regulation of Transfer Agents is necessary, either allowing Transfer Agent Depositories or not, we would recommend that careful consideration be given to the following items:
A. The stock certificate provides one of the best and most effective audit trails ever devised, not only to identify ownership but to establish a cost for purposes of determining appropriate Federal and State income taxes. Any effort to eliminate and to change the form or format of the stock certificate should provide for the retention of the ability to trail ownership as the present certificate number has provided for many years.
B. Our members and customers are greatly concerned with the study of “Street Name" registration. Interjecting expanded or additional levels of nominees and depositorees between the issuer and the investor, hides the shareholder's identity from the corporation.
It is imperative that the shareholder and the company have the opportunity for direct communication. In the investment decision process, timing has been emphasized as the critical element and for this reason, investors and brokers have depended on the media for financial information. In practice, the media has the option of reporting as well as editing, company released information. The investor who is without direct communication from the issuing company is totally dependent on the judicious reporting of the media. This circumstance places an unreasonable burden on the investor to monitor all media available to him in expectation that information of value to him will be published on a timely and accurate basis.
The investor who seeks to be informed, is led to buy and hold investments which receive the best support from the media. The shareholder should be able to secure information and disclosure directly from the company, irrespective of selective reporting by the media. The communication responsibility remains with the company and its shareholders. Neither should be dependent on a third party who has an option for reporting.
Should the bill be amended to provide for Transfer Agent Depositories, we would support the proposal of C. V. Wood, Jr., Chairman of the Committee of Publicly Owned Companies, that it include a requirement that brokers, dealers and depositorees reveal beneficial owners so that the Transfer Agent could furnish such hidden owners direct communications at the same time the issuer furnishes communications to its record owners. Such procedures would require sufficient protection for the use and disclosure of nominee and street name holders.
C. As we indicated last session, we feel very strongly that the right of inspection and disclosure of our records should be very carefully constructed in such a way as to protect the right of privacy of our customers and shareownership records and not compromise any fiduciary responsibilities of a Transfer Agent. We feel that should protection of an owner's privacy not be fully provided for, there would be a decrease in interest and confidence of the small investor in the securities market, thereby adding to the reported retreat of the small investor from the market. In view of today's publicity of violations of privacy, this issue will remain a matter of great emotional concern to the majority of the public.
D. Our members are very concerned with the effect of registration and reporting requirements on costs that ultimately end up as an expense to the issuer. Some of our members are registered as broker-dealers and a review of the efforts and resources dedicated to compliance with these requirements is not only staggering but appears to be an example of bureaucratic expansion far above and beyond any reasonable need, use or necessity. We would strongly recommend that appropriate curbs be included to avoid unnecessary effort and duplication to an industry already burdened with excessive overhead.
E. In connection with the centralization of a stop file of missing or stolen securities, we feel that the stop file already maintained by all Transfer Agents and Registrars is sufficient without creating another duplicate set of records and files. It would seem appropriate that any lender be required to verify record ownership and the record of stops with the Transfer Agent before any loan is consummated. Such data could be required to be furnished for a reasonable fee to any exchange, association, broker, dealer, member, clearing agency or securities depository. This section could be expanded to include information on unregistered or restricted securities. The inquiry should be limited to specific shares to avoid unnecessary or unwarranted fishing expeditions.
F. The bill as proposed seems to fail to include related, but important, activities normally performed by Transfer Agents in the areas of interest payments, “Dividend Disbursing Agent”, “Paying Agent" and “Dividend Reinvestment Agent". This is a growing and controversial facet of our industry and if not appropriately covered, will only lead to future problems and abuses.
The Western Stock Transfer Association, Inc. appreciates this opportunity to make our position known to you and the subcommittee. This association is always ready to be of any assistance to you, the subcommittee or your respective staffs. We are always alert to explore, encourage or implement anything that we feel would be beneficial to us or the industry or to the "prompt and accurate processing and settlement of securities transactions". Respectfully submitted,
JAMES R. CLEAVELAND,
for the Legal and Legislative Committee. (Whereupon, at 11:33 a.m. the hearings were adjourned.]
The following material, submitted by the Honorable Samuel H. Young of Illinois, Member of the Subcommittee, represents testimony submitted in a hearing which he, as an individual Member of the House, conducted in the City of Chicago, on August 30, 1973. The material is included in this record as a courtesy to our colleague and, in effect, constitutes an extension of remarks with extraneous material. The hearing, under the Rules of the House, cannot be accorded the status of an official hearing because of (1) the lack of authorization by either the full committee chairman or the subcommittee chairman; (2) lack of appropriate notice over the signature of the chairman of the full committee, and (3) the absence of other Members of the Subcommittee being present for the purpose of hearing witnesses. Rule XI, clause 27 (h) of the House of Representatives states ::“Each committee
fix the number of its members to constitute a quorum for taking testimony and receiving evidence, which shall be not less than two." Rule 3 (a) of the Rules of the Committee on Interstate and Foreign Commerce requires two members of the committee to be present to constitute a quorum.
John E. Moss. Chairman, Subcommittee on Commerce and Finance.
Page John G. Weithers (Midwest Stock Exchange)
1995 Francis R. Schank (Bacon Whipple & Co.).
1996 Robert A. Podesta (Chicago Corp.).
1998 Frank Farwell (William Blair & Co.)
2001 Clyde Keith (Illinois Co.)-
2003 Leon Herbert, Jr., (Clark Dodge & Co.).
2006 Paul McQuillen (Bache & Co.)
2008 George Barnes (Wayne Hummer & Co.)
2010 John Rose (Rose & Co.).
2011 Burton J. Vincent (Burton J Vincent & Co.)
2022 Wallace D. Johnson (Howe Barnes & Johnson)--
2026 The hearing on H.R. 5050 convened at 10 a.m., on Thursday, August 30, 1973, 12th floor, 29 South La Salle Street, Chicago, Ill., Hon. Samuel H. Young, presiding.
Present: Hon. Samuel H. Young.
Mr. YOUNG. This meeting is for the purpose of considering H.R. 5050 in the City of Chicago, 29 South La Salle Street, on August 30, 1973, at 10:00 o'clock a.m,
Gentlemen, I would like to welcome all of you here today. The purpose of this hearing is to afford the members of the investment community here in Chicago, which is the second largest financial center in the United States, an opportunity to present their views on some legislation which is now pending in the Congress, which has some rather far reaching implications with respect to the future of your business.
I felt that too oftentimes we in Washington, D.C., are in an atmosphere down there which does not always give us the broadest perspective, and it is desirable to have an opportunity to discuss with people in our own home communities their views on legislation which we are considering which will affect them.
It was in this context that this notice was sent out for this hearing here today. There was no one contacted or urged to come here to speak.
The purpose of this hearing is to give any of you who have a view on some of these important provisions of the bill to put your views on the record. We have a court reporter here present. This record will be transcribed. It will be presented to the subcommittee. I will request the chairman and members of the subcommittee to make it part of the hearings which will be in the legislative history of H.R. 5050.
So your views will be just as fully considered by the staff and by the members of the subcommittee as testimony which would take place in Washington, D.C.
I might say, also, that most of you are aware of this legislation, what it generally provides ; but I thought I would just briefly cover it so that we would start off on a common understanding of what the bill provides.
One, there are some provisions in title I which are generally designed to make the SEC as independent as possible with respect to particularly the Executive Branch of Government and requiring that the reports of the budget of the SEC and recommendations for legislation be transmitted to the Congress at the same time as the Office of Management and Budget.
Secondly, the bill proposes to establish a timetable to eliminate fixed commissions on the Exchange, particularly the New York Stock Exchange, American Stock Exchange, and the other excha ges which now provide for fixed con ission rates on trades of less than $300,000.
It also provides access to the Exchange to all qualified brokers and dealers who are registered with the SEC. It will abrogate Rule 394 of the New York Stock Exchange which requires members to transact their business on the floor of the Exchange.
It requires the rules of the national exchanges to provide a fair method of discipline and a fair method of passing on applications for membership with the right of appeal to the SEC.
It establishes authority of the SEC to pass on the rules of registered national securities exchanges and in effect by passing on them to change them or amend them, or to otherwise disapprove them.
It provides for a codification of the Martin Report, where the Martin Report recommended that the boards of the various exchanges have at least fifty percent public membership; and provides for the public members to re-elect or to provide for their succession on that board.
It requires the SEC to provide uniform capital rules and to classify dealers for the purpose of determining the capital requirements.
It requires the SEC with the cooperation of the NASD and the exchanges to provide uniform exams for salesmen and representatives.
It requires registered broker-dealers to file with the SEC and with their customers certified comparative financial statements of the status of the brokerdealer.
It also provides that the SEC will have the authority to require a composite tape of transactions occurring in the various markets and over-the-counter market and on the exchanges; and it could also require a similar composite system for bids and asks.
It would require the broker-dealer reports on lost or stolen securities to a central agency, or to the SEC, to better enable enforcement authorities to prevent the use of stolen securities as collateral or for other purposes of an illegal nature.
It also provides for the fingerprinting of broker-dealer employees. It provides for more uniform criminal penalties for the various acts that are defined as unlawful through the 1933 act and 1934 act. It authorizes the SEC to enforce action for violation of the exchanges' and the NASD rules, and the SEC is given