PROBLEMS IN THE SECURITIES INDUSTRY THURSDAY, MARCH 6, 1969 U.S. SENATE, COMMITTEE ON BANKING AND CURRENCY, SUBCOMMITTEE ON SECURITIES, Washington, D.C. The subcommittee met at 10:15 a.m., in room 5302, New Senate Office Building, Senator Harrison A. Williams, Jr., presiding. Present: Senators Sparkman, Williams, McIntyre, Cranston, Bennett, Brooke, and Packwood. Senator WILLIAMS. We certainly welcome the new Chairman of the Securities and Exchange Commission to this meeting of the Subcommittee on Securities of the Senate Banking and Currency Committee. This is not a confirmation hearing but a hearing which will allow the members of this committee to meet and become acquainted with the new Chairman of the SEC. Mr. Budge-the new Chairman of the SEC has been kind enough to voluntarily appear before our subcommittee and talk over some of the aspects of his new responsibilities. Over the past 5 years, the Securities and Exchange Commission has initiated new and innovative steps designed to provide improved investor protection. Mutual fund reform legislation, the regulation of insider trading, full disclosure in corporate takeover bids, volume discounts and elimination of customer directed giveups are but a few of the Commission's constructive actions. Regretfully, however, as soon as tentative solutions to one set of problems are found, new and more serious problems arise. This is due in great measure to the rapid growth and trading activity which is now taking place in our Nation's securities markets. The back office paperwork logjam has resulted in hardships to many small investors-some of whom are unable to find brokers willing to execute their orders. Surely such a situation cannot and should not be tolerated. The recent rapid growth of conglomerate corporations makes it imperative for the SEC to implement regulations requiring divisionby-division financial reporting. Such measures will go a long way toward providing full and complete financial disclosure for all investors. If we can get a man to the moon by 1969, we can certainly devise methods to provide for full disclosure in conglomerate reporting. The growth of institutional investors such as mutual funds and insurance companies is to a point where they now account for 50 percent of the New York Stock Exchange's total volume. (1) This makes stock exchange access and volume discounts issues which must be resolved. In solving these problems, the economies of size must be passed on to the many millions of small institutional shareholders. Recent comments by the Department of Justice also raise questions as to the implied antitrust exemptions currently enjoyed by the New York Stock Exchange. Within the near future, this problem must also be dealt with in a realistic and equitable manner. This rapid growth in institutional investors has also caused unprecedented delays of up to 6 months in the processing of mutual fund registration statements a situation which should and must be eliminated-if new capital is to continue to flow into our securities markets. Our witness today is the Honorable Hamer H. Budge, Chairman of the Securities and Exchange Commission. Chairman Budge brings with him 5 years of experience as an SEC Commissioner as well as extensive judicial experience and 10 years of service in the House of Representatives. Mr. Chairman, we trust that your personal opinions and observations concerning these pressing problems will do much to guide our committee's actions in the years to come. The chairman of our Banking and Currency Committee is Senator Sparkman. Senator Sparkman. Senator SPARKMAN. Mr. Chairman, just let me say this. I am not a member of this subcommittee, except, I suppose, in an ex officio capacity. But I was pleased when you invited Judge Budge to come up here, and I was pleased when he consented to do so. As you pointed out, he has had a long, distinguished, and able career. I am most happy to have him here to talk about the problems in the securities industry. We do have some real problems, as you have pointed out, in the securities field. Thank you very much. Senator WILLIAMS. Thank you, Mr. Chairman. Senator BENNETT. Mr. Chairman. Senator WILLIAMS. The Senator from Utah. Senator BENNETT. As a member of the minority and citizen of the State which borders on the State of Idaho from which Judge Budge comes, I want to express my great satisfaction at his appointment to the chairmanship. I have known him all the years since he has been in Congress. His family is one of the pioneer families of Idaho that has supplied many members particularly to the legal profession and the judicial bench in Idaho and slopped over a little into Utah, provided us with some prominent members of the Budge family. I know he is going to do an excellent job in his new assignment, as he has done as a member of the Commission, and I am sure he is prepared to supply the committee with very wise, intelligent answers to the questions we have today. Senator WILLIAMS. Thank you very much. Are there any other words of welcome? I am sure all members of the committee welcome you, Mr. Chairman. Will you proceed? We all have copies of your statement. Mr. BUDGE. Thank you, Mr. Chairman. STATEMENT OF HAMER H. BUDGE, CHAIRMAN OF THE SECURITIES AND EXCHANGE COMMISSION Mr. BUDGE. I am, of course, most grateful for the comments which have been made here this morning. I wish to thank the chairman and Chairman Sparkman and Senator Bennett for the comments, for which I am most grateful. I consider this to be a most important undertaking into which I am entering, and I assure you that I shall attempt to discharge it to the best of my ability. Sitting with me at the table this morning, Mr. Chairman, is Mr. Philip Loomis, who is the General Counsel of the Commission and has been for some years. I would like to say that the statement might appear to be quite lengthy, because I have attempted to cover the subjects which have been expressed to me as matters in which the committee is interested. There are some portions, rather major portions, which I will submit for the record. Senator WILLIAMS. It will all be in the record. Mr. BUDGE. Mr. Chairman and members of the subcommittee, I am happy to be here for the purpose of reporting to you with respect to certain matters which have arisen under the securities laws, particularly the Securities Exchange Act of 1934 and the Investment Company Act of 1940. The staff of your subcommittee has indicated to me certain areas which they wish me to discuss, and I propose to proceed with those matters. As the subcommittee is aware, I was called to testify on certain pressing problems confronting the Commission before a subcommittee of the House Committee on Interstate and Foreign Commerce last week. I have with me copies of my statement on that occasion, if the members of the subcommittee are interested in having them. Insofar as practicable, I propose to avoid duplicating today the matters covered in my statement of last week, although some overlap is inevitable. Senator BENNETT. Mr. Chairman, I suggest that the statement he made before the committee in the House be included in our record here without his reading it. Senator WILLIAMS. Is there objection to that? It will eliminate duplication, is that the point? Mr. BUDGE. That is the point, Senator. (The statement is reproduced as the appendix, see p. 127.) Mr. BUDGE. The subjects I propose to touch upon today include the administration of Public Law 90–439, commonly known as the Williams bill; complaints from small investors about brokers being unwilling to execute their transactions; certain aspects of our investigation of the minimum commission rate structure on the stock exchanges and certain related problems; our position with respect to S. 34 and S. 296-I perhaps should say my position with regard to those bills, which are the mutual fund bills which have been introduced by Senator Sparkman and Senator McIntyre; recent developments with respect to insider trading and certain accounting questions, particularly product-line reporting by so-called conglomerates; and the backlog in the securities business, and so forth. |