2/ Investment Services (the "Inquiry"). This memorandum summarizes the responses to the Inquiry as they relate to the Subcommittee's questions. Where available, more recent statistical information has also been provided by the Commission's staff. These written comments reflect the views of those responding to the Inquiry at the time they were made, and do not represent the views of the Commission or its staff with respect to the issues discussed. Question 1 What is the nature and extent of commercial bank activities The descriptions of certain of the bank-sponsored investment 2/ 4/ Securities Act Release No. 5491 (April 30, 1974) (copy attached). The Subcommittee's questions are closely related to the questions in the Inquiry with the exception of Subcommittee Question 2, which had no counterpart in the Inquiry. 3/ Senate Subcomm. on Securities, 94th Cong., 1st Sess., The Study Outline 4/ Very few submissions described in detail the operation of particular investment services. To the extent responses discussed the descriptions of the services in the Inquiry, cont'd on next page) (Footnote 4 65-699 - 767 securities services. Accordingly, additional information regarding the nature of commercial bank activities in the sécurities and investment company industries was not pro vided. The responses presented only limited information with respect to the extent of bank-sponsored investment services. Statistical information supplied was based primarily on informal surveys and the experience of individual banks with 5/ particular services and was used principally to project whether significant numbers of investors would utilize such services in the future. 6/ Subject to those (footnote cont'd) 4/ 5/ 6/ they merely provided details as to the operation of Response of Security Pacific National Bank 4 (Aug. 12, 1974) [hereinafter cited as Security Pacific]; Response of The First National Bank of Chicago 4-6 (June 27, 1974) [hereinafter cited as First National of Chicago]; ABA at 20, 22-24; Clearing House at 25. See question 1 of the attached release. limitations, the responses generally indicated that: (1) dividend reinvestment plans had obtained relatively (2) participation in automatic investment services was (3) there was only a limited market for individual (4) bank advisory services had not resulted in any Dividend Reinvestment Plans. At the time the responses were submitted, one commentator estimated that as many as 500 7/ issuers offered dividend reinvestment plans. A recent survey estimates that at least 435 companies currently offer dividend reinvestment plans, as opposed to 320 and 160 companies which 8/ offered such plans one and two years ago, respectively. An informal survey conducted by the First National Bank of Chicago the First National of Chicago") in 1974 found that 39 of the 100 largest corporations in the United States (based on the market value of outstanding shares) offered dividend reinvestment plans. 9/ 7/ Chatlos, William E., "Growth of Automatic Dividend Investment Plans," Financial Executive 38 (Oct., 1974). 8/ Standard and Poor, Outlook 462-63 (Nov. 17, 1975). The New York Clearing House Association (the "Clearing House") stated that its 12 member banks maintained over 850,000 individual accounts under dividend reinvestment plans, most of which had been in existence for less than four years, and that an average of from 6% to 20% of the shareholders of a company typically participated in a dividend reinvestment plan. 10/ The 39 companies included in the First National of Chicago survey had approximately 8,635,000 shareholders, of which approximately 785,000 shareholders (9.09%) participated in their plans. 11/ The American Bankers Association (the "ABA") stated that another bank reported shareholder participation ranging from 5 1/2% to 12% in plans which it serviced. 12/ The Clearing House concluded that the number of dividend reinvestment plan participants is high in relation to the number of participants in other bank-sponsored investment 10/ Clearing House at 25. 11/ First National of Chicago stated: 12/ One of the thirty-nine, American Telephone & somewhat. Excluding AT&T, the remaining thirty-eight ABA at 20. services, and that plan participants are geographically widespread. 13/ The Clearing House also stated that "the combination of convenience, safety and low costs makes [dividend reinvestment plans] an attractive form of investment, and there is no reason to anticipate that the growth of the plans will slow." 14/ The Commission's Office of Reports and Information Services estimates (based on information obtained from the Clearing House and Investment Data Corporation) that, as of June 30, 1975, over 1,000,000 individual shareholders were participating in dividend reinvestment plans maintained by banks. Automatic Investment Services. The responses indicated that at the time of the Inquiry there were between 16 and 18 commercial banks sponsoring automatic investment services, 15/ with between 17,000 and 20,000 accounts throughout the nation. 16/ Although market research conducted by Security Pacific National Bank ("Security Pacific") had projected 75,000 participants in its automatic investment service within the first 18 months of operation, the service had only approximately 1,500 participants after one 13/ Clearing House at 25. 14/ Id. 15/ Response of Merrill Lynch, Pierce, Fenner & Smith, Incorporated 16/ Merrill Lynch at 5 (17,000); Security Pacific at 4 (17,000); Clearing House at 25 (18,000); ICI at 3 (20,000). |