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THE STOCK TRANSFER ASSOCIATION, INC.,
May 4, 1973. Re: H.R. 5050, Hon. JOHN E. Moss, Chairman, Subcommittee on Commerce and Finance, Committee on Interstate
and Foreign Commerce, Rayburn House Office Building, Washington, D.C. DEAR CONGRESSMAN Moss: The Stock Transfer Association, Inc., wishes to acknowledge receipt of a copy of H.R. 5050 and to express its appreciation for the invitation of the Subcommittee on Commerce and Finance, under date of March 9, 1973, to make written comments on this bill at this time. The Association is hopeful that it will be asked to appear at the legislative hearings in respect of this bill and to express at that time fuller observations than may be set forth herein.
As you and your Subcommittee know, representatives of the Stock Transfer Association were invited to appear and testify at legislative hearings held on May 10, 1972, by the Subcommittee on Securities of the Senate Committee on Banking, Housing and Urban Affairs in respect of proposed bills S. 3412, S. 2551, and S. 3297 (92nd Cong., 2nd Sess.) and at legislative hearings held on September 8, 1972, by your Subcommittee in respect of proposed bills H.R. 14567, H.Ř. 14826 and s. 3876 (92nd Cong., 2nd Sess.). At both such appearances, we offered certain suggestions for improving the proposed legislation from the standpoint of the transfer agent, but our remarks were directed principally at the inclusion of transfer agents, and their functions, in such proposed legislation.
Before both the Senate Subcommittee and your Subcommittee during the last session, we expressed our view that the necessity of regulation of transfer agents by way of Federal legislation, as well as how much and what type of regulation, were debatable subjects. We pointed out that certain parallel develop.ments in the securities industry and stock transfer field-namely, the expansion of securities depositories such as Central Certificate Service, increased use of JUMBO certificates, revisions of rules of the New York Stock Exchange relating to deliveries of securities, improved technology and the adoption of uniform procedures through the efforts of the Banking and Securities Industry Com. mittee had very significantly reduced the possibility that the public and the securities industry would ever again witness the abnormal conditions and resulting delays in processing securities transfers which arose during the period 1968-1970.
In the last six months, further developments in the securities industry have compelled us, as transfer agents, to give renewed consideration to the question of the need, whether at this time or in the future, for Federal legislation regulating the activities of transfer agents. We no longer believe that regulation of transfer agents is a debatable subject but have concluded that regulation simply is not necessary.
Since our appearance on September 8, 1972, the securities industry has seen a most remarkable growth of the securities depository and much wider use of the JUMBO certificate. These alone have reduced the number of transfers to a staggering degree. In addition, the securities industry is now faced with the fact that the volume of sales on national exchanges is low and will very likely remain low as testimony to the diminishing interest in public securities markets of the non-institutional investor.
It appears to us obvious that the combination of efforts aimed at reducing the number of transfers with market conditions having such consequences will greatly affect the stock transfer function. The burdens of the transfer agent promise to be greatly reduced, and efficient performance should, therefore, always be within control. We believe that Federal legislation should not now supplant the very productive efforts of the securities industry itself or the natural adaptation of the stock transfer field to market conditions.
If it is determined that legislation regulating transfer agents is, nevertheless, necessary we firmly believe that enforcement of any promulgated regulatory measures affecting bank transfer agents and examination of compliance therewith by bank transfer agents must be left to bank regulatory agencies, which have prior experience in such areas and the capability of handling such matters effectively. This scheme was embodied in S. 3876 and H.R. 16946, and
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, activi-;!. ties 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 may 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.