NATIONAL SECURITIES MARKET SYSTEM ACT OF 1973 HEARINGS BEFORE THE SUBCOMMITTEE ON SECURITIES OF THE COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS NINETY-THIRD CONGRESS FIRST SESSION ON S. 2519 TO AMEND THE SECURITIES EXCHANGE ACT OF 1934 TO COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS JOHN SPARKMAN, Alabama, Chairman WILLIAM PROXMIRE, Wisconsin ADLAI E. STEVENSON III, Illinois JOHN TOWER, Texas WALLACE F. BENNETT, Utah EDWARD W. BROOKE, Massachusetts BILL BROCK, Tennessee LOWELL P. WEICKER, JR., Connecticut DUDLEY L. O'NEAL, Jr., Staff Director and General Counsel SUBCOMMITTEE ON SECURITIES HARRISON A. WILLIAMS, JR., New Jersey, Chairman WILLIAM PROXMIRE, Wisconsin THOMAS J. MCINTYRE, New Hampshire JOSEPH R. BIDEN, JR., Delaware EDWARD W. BROOKE, Massachusetts WALLACE F. BENNETT, Utah LOWELL P. WEICKER, JR., Connecticut ALTON B. HARRIS, Counsel H. HOLTON WOOD, Jr., Professional Staff Member Ray Garrett, Jr., Chairman, Securities and Exchange Commission; accompanied by: Lee A. Pickard, Driector, Division of Market Regula- tion; and Harvey L. Pitt, Executive Assistant.. Gordon S. Macklin, president, National Association of Securities Dealers, Inc.; accompanied by: Lloyd J. Derrickson, senior vice president and Jerome M. Pustilnik, president, Institutional Networks Corp.; accompanied by: David Collin and R. Bartlett Renfrew, Institutional Networks Co.; and Richard H. Paul and Wade H. Nichols, Paul, Weiss, Rifkind, Whar- James J. Needham, chairman, Board of Directors, New York Stock Ex- change; accompanied by Donald L. Calvin, vice president, and Dr. William C. Freund, vice president and chief economist.. Paul Kolton, chairman of the board, American Stock Exchange; accom- panied by Norman Poser, senior vice president in charge of policy plan- ning, and Gordon Nash, counsel. John C. Whitehead, chairman of the board, Securities Industry Association; accompanied by H. Virgil Sherrill, president, Shields & Co., Inc., and Leon T. Kendall, president, Securities Industry Association.. T. Lawrence Jones, president, American Insurance Association; accom- Donald Weeden, chairman of the board, Weeden & Co.--. Michael E. Tobin, president, Midwest Stock Exchange; accompanied by: George R. Becker, chairman, John G. Weithers, executive vice president, Elkins Wetherill, president, Philadelphia-Washington-Baltimore Stock Exchange; accompanied by: George S. Hender, vice president.. Alan F. Kay, president, AutEx, Inc.; accompanied by: William A. Truslow, Senator Williams__ 629 GTE Information Systems, letter received from Jay M. Rosen, vice presi- 736 Institution Networks Corp., subsequent letter received for the record_- 162 (III) Justice Department: Letter containing views on certain important competitive issues raised by the NYSE and SEC, from Thomas E. Kauper, Assistant Attorney General, Antitrust Division__ 194 Post trial brief, Thill Securities Corp., et al. v. New York Stock 207 New York Stock Exchange: Letter to Senator Williams from James J. Needham, chairman, 512 Research report on incentives to exchange membership in a central market system___. 456 Securities and Exchange Commission: Comments on S. 2519___ 76 Comments at the request of Senator Williams on NYSE proposals put forward during testimony 175 December 10 letter from Chairman Garrett, commentary on NYSE's proposed revisions to S. 2519_. 644 107 Letter to Subcommittee on Commerce and Finance, Committee on In- Letter dated July 17, 1973, from former Commissioner Owens to James 115 119 120 121 733 U.S. SENATE, COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS, SUBCOMMITTEE ON SECURITIES, Washington, D.C. The subcommittee met at 2:07 a.m. in room 5302, Dirksen Senate Office Building, Senator Harrison A. Williams, Jr., chairman of the subcommittee, presiding. Present: Senators Williams and Biden. Senator WILLIAMS. The subcommittee will come to order. We will begin hearings on S. 2519, the National Securities Market System Act. This bill is the third in a series of bills growing out of the 18-month study of the securities industry conducted by this subcommittee. The Senate has already passed S. 470, dealing with institutional membership and commission rates, and S. 2058, which regulates clearing agencies and securities depositories. S. 2519, the bill we are taking up today, is perhaps the most important and far-reaching of the three. When enacted, it would accomplish much-needed reforms over the basic regulatory processes for the securities industry. At the same time, it would establish the foundation for a true national market system. Not since 1938 when the Maloney Act established the NASD, has the Congress undertaken such an extensive reevaluation of self-regulation and the SEC's general regulatory powers. S. 2519 has two basic purposes. Its first purpose is to provide for the creation of a national market system and to give jurisdiction over the system to the SEC. The application of the computer and modern communications systems to the securities markets is revolutionizing securities trading. These changes, by and large, appear to be beneficial and we should strive to remove any unnecessary competitive obstacle to their realization. At the same time, however, we must be sure that our regulatory apparatus keeps pace with the mechanisms of the markets and the methods. by which securities are traded. This bill is intended to achieve such a result. There is an active and ongoing debate within the securities industry as to the precise characteristics that a national market system should have. I do not believe that the Congress can or should step into this debate and spell out in detail what the national market's characteristics. should be. In my opinion the proper legislative approach is one which establishes broad nublic policy objectives for that market and which vests in the SEC clear power to control the development of the market in accordance with the needs of investors. (1) |