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Do you have any views on that, first of all, as to the need for speeding up processing and, secondly, will the central depository do it, and thirdly, can we eliminate that second step, which I think is only an intermediate step, and go directly, or more directly, or more quickly, to the elimination of the stock certificate, except for those customers who demand one or need one?

Mr. VINCENT. First I would say that I agree with those who have indicated that bank transfer agents are slow. Some are better than others.

But in many cases, they are not only slow, but they are quite arrogant about the speed with which they transfer securities.

Areas of high interest rates, and this type of thing, can be extremely expensive to a securities firm.

There is a great need for some transfer agents to take their responsibilities more seriously and speed it up, no question about that.

The central depository system, of course, should lead to lower costs, which the industry desperately needs, something along that line.

A society in which we have no stock certificates, I am sure everybody in the business is looking forward to that. I understand that we have a conflict about who is going to do it for us, whether or not we have the know-how and the hardware to do it, et cetera.

I can't believe anyone in our business is not looking forward to that day.

Mr. Young. Well, there is no question about it, there is a great amount of foot-dragging in this area; and I would have to say that in my opinion the bank and the transfer agent interests have delayed and impeded the speeding up of stock processing.

I was advocating this ten years ago, that we ought to get rid of the stock certificate, and it is only in the last two or three years that anybody else has taken up that point.

One thing I would like to identify for the record is: Is your firm headquartered in Chicago?

Mr. VINCENT. Yes.
Mr. Young. Do you have any offices in any other states?
Mr. VINCENT. No, just in Chicago.

Mr. YOUNG. And is your business primarily brokerage, or investment banking, or both ?

Mr. VINCENT. It is a pretty good cross section, I think, of most of the functions performed by a firm in the securities business. We do brokerage; we handle margin accounts; we do quite a bit of underwriting and institutional business. It is very important to us.

Mr. YOUNG. What has been your profit experience this year?

Mr. VINCENT. Our fiscal year ends in May. Burton J. Vincent and Company has been in business nineteen years. We have never had a year that we didn't make money.

We had a very modest loss for the year ending May, 1973, but this was due to a non-recurring charge because we went on the Midwest Service Corporation. Without that non-recurring charge, we would be profitable, but not very profitable, a small amount of money.

Mr. Young. Are you a member of the Midwest Stock Exchange?
Mr. VINCENT. Yes.
Mr. YOUNG. And are you a member of the New York Stock Exchange?
Mr. VINCENT. No.

Mr. Young. Do you feel that if the negotiated conditions are put in that the small investor will be in about the same position he is in now, or in worse or better position with respect to the commissions you will be paying?

Mr. VINCENT. Well, it comes back to the fact that it costs money to run a firm ; and if negotiated commission rates went into effect today I am certain the small investor would pay not only a higher rate than he is paying now, he would pay a considerably higher rate.

As I am sure you know, it is the official position of the SIA that we are opposed to negotiated rates, but it is also well known there are a number of large firms in our industry who are all for them, and they are all for them by virtue of the fact they would like to charge more for their services, they need the money, they need the additional revenue and to be able to charge higher rates without going through the painful experience of submitting it to the SEC and all the hearings, and so on, and to be able to simply say it isn't what we charge, knowing full well that the industry would follow.

So that the individual investor, at least immediately, would pay substantially higher rates than he is paying now.

To me, again, the way to offset that is to let the institutions have a minimum flexible rate that takes into account volume discounts that institutions will pay without having to negotiate over three hundred thousand.

Then the individual investor would not pay the commission rates he would otherwise pay.

Mr. YOUNG. To do that, of course, there would have to be some price setting mechanism, and that would either have to be through the SEC or through the exchanges, wouldn't that be true?

Mr. VINCENT. Well, I think that you could use the same method we have now, as long as the SEC approves the commission rate structure.

Again, as a practical matter, our rates are set by the SEC, because the SEC has the power to veto any change we want to make.

Mr. Young. Now, do you think that, then, if there is no change in negotiated rates that there is any need for any other changes with respect to the market, or is it better to-do you think there is enough competition between the third market and the various stock exchanges who offer somewhat different approaches to businesses such as PBW does compared to the New York and American?

Mr. VINCENT. I am very much in favor of the central market that we are talking about with the composite tape where every individual, every institution is able to see every trade that takes place in the country.

I am also very much in favor of specialists competing with one another as they do now in the case of regional exchanges.

I see nothing wrong with the third market competing with a specialist on exchanges, as long as they are subject to the same regulations and rules as the others are.

The whole concept of the third market I think is—excuse me, I mean of the central market, I think, is a wholesome forward-looking concept that I think will benefit the investing public and the securities industry as well.

Mr. YOUNG. Well, thank you very much, Mr. Vincent, I appreciate your taking the time to come here, and your testimony has been very enlightening and very helpful.

Mr. VINCENT. Thank you.

Mr. YOUNG. Any other gentlemen here who would like to speak? Yes, sir. Would you like to come up here?

STATEMENT OF WALLACE D. JOHNSON

Mr. Johnson. I would like to testify here on something that I think is very germane at this point.

My name is Wallace D. Johnson, I am President of Howe Barnes and Johnson, 208 South La Salle Street, 60604.

There has been much talk about a central market. There has been very little said about who is going to reimburse the New York Stock Exchange members, the Midwest Stock Exchange members, and others for the irreparable financial damage that has been caused to them by the centralized market.

I went into court under the name of Howe Barnes and Johnson to sue the New York Stock Exchange when they were going to permit institutional access and they were going to do these other things, and I was told by the judge at that time that when I could show irreparable harm I could come back to the courts.

Unfortunately, the judge has died since then, but I believe the opinion still stands.

My seats were worth $440,000 at that time on the big board, and today they are worthy eighty-two thousand.

I would strongly suggest that the committee take some overview of this to figure out how they are going to reimburse the members of the various exchanges for their loss, which is very real. It is no philosophy, it is not looking down the road, it is here and it is now. And I would suggest that there ought to be some means for us to not consider this as a capital asset, where it should have to be sold to be offset against another capital asset, but rather it be charged against earnings if we should have earnings.

Of course, some of the firms, as they suggest now, have no earnings to write it off against, but if there should be earnings in the future I believe this is a very meat and potatoes type issue with the industry, rather than the philosophical things.

Mr. Young. All right, thank you very much. Do you have any other phases of the

Mr. JOHNSON. I just have other things that have been hashed and rehashed here, Congressman, and that is, I favor the fixed commission rates, and I think they are very good for the regional firms.

I do not believe that in the truest sense of the word there is such a thing as negotiated rates. They are dictated rates, and it is a misnomer to call them negotiated, on the large orders as we now have it.

As far as the composite tape is concerned, it may be like government, we may be getting more than we are paying for.

So far as I am concerned, the SEC mandated many of the problems that are with the industry today when they told everyone to gear up for twenty or twenty-five million share days out of the paper crunch of the 1968–70 era.

While mandating that they increase their costs in the fixed hardware and the like, they went about taking away the give-ups that we were getting from the mutual funds industry, and they went about taking away various other things, initiating the large volume order discounts, and all of these things.

So they worked two things in inverse proportion : Increasing the cost by mandate, and decreasing the income.

The inevitable conclusions here, and it should be as plain as the nose on anybody's face, is that it hasn't worked in the last five years, and now they would like to do it worse.

Mr. YOUNG. Thank you.

Mr. Johnson. Thank you, Congressman, and I should also say for the record that we in the investment community of Chicago are very grateful to you, Congressman, for taking the time to hear our story in Chicago, rather than taking days and days and days away from us at our offices and causing us additional expense to come to Washington to tell our story, when these things ought to be out on the road and be told where the people are.

I am only sorry that the public—this gentleman here looks like he is from the public. I wish there would be more people here from the public who could hear these stories; and we thank you.

Mr. Young. Are there any other persons here who would like to add anything for the record for consideration by the subcommittee?

I would like to make one correction which Mr. Leon Herbert, who testified earlier here today, stated that in his testimony he would like to correct it where he stated that as a member firm they could only sell short on an uptick, but the third market can accept orders on a downtick.

I think he has stated the reverse. He had said that the institutions can sell short on the downtick, rather than on the uptick, and he wanted to point out that as a member firm they could only sell short on an uptick, but the third market can accept orders on a downtick. He wished to have that noted in the record.

Well, there being no further witnesses here today, I will call this meeting adjourned, and I would like to have the reporter write up the record on this.

Thank you all.
[Whereupon the hearing was adjourned.]

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