Mr. DOMINICK. On my right is Mr. George J. Otto, of Irving Lundborg & Co., San Francisco, chairman of the Pacific Coast Stock Exchange. On my left is Mr. G. Shelby Friedrichs, of Howard, Weil, Labouisse, Friedrichs & Co., New Orleans, a current governor of the National Association of Securities Dealers, Inc. On his left is Mr. James Crane Kellogg III, of Spear, Leeds & Kellogg, New York, former chairman of the New York Stock Exchange. On his left is Mr. Francis J. Hughes of New York, general counsel of the Association of Stock Exchange Firms.

Senator WILLIAMS. Fine. Thank you. Proceed, please.

Mr. DOMINICK. Chairman Williams and members of the Securities Subcommittee, my name is Bayard Dominick. I am president of the Association of Stock Exchange Firms, 120 Broadway, New York, N.Y., and a general partner of Dominick & Dominick, 14 Wall Street, New York, N.Y., a member firm of the New York Stock Exchange. I welcome the opportunity to appear before you to testify in behalf of the pending legislation.

With me today, as noted a moment ago, are three of my fellow governors of our association and our general counsel. They are here to assist me during my testimony and to answer your questions as required.

The Association of Stock Exchange Firms is a voluntary association representing member organizations of the New York Stock Exchange and was created 50 years ago to aid members in dealing with individual and industry problems. We have 600 members ranging from individuals to the largest member firms in the United States. Our members have offices in every State of the Union with the exception of Alaska.

The association is governed by a board of 38 leaders of the securities industry, at least half of whom represent areas outside of New York, in metropolitan financial centers across the country. Our members have approximately 70,000 employees and are responsible for the vast majority of securities transactions, not only on the New York Stock Exchange but also in the over-the-counter markets, the regional exchanges, and the markets for foreign securities. In fact, the customers of our members truly represent the investing public of America. Inasmuch as the association is a voluntary organization, we perform no regulatory functions. With this in mind, my statement today deals broadly with the principles involved in the proposed legislation, rather than with the technical aspects of these amendments to the various Securities Acts. A year and a half and an impressive array of industry and legal talent have been involved in ironing out technical problems always present in an undertaking of this scope.

As our members' business operations cut across all segments of the securities industry, we really speak for a broad cross-section of the industry. To elaborate on this statement, I would like to point out that currently our board of governors has 10 members who were or are governors of the New York Stock Exchange, 4 members who are or were governors of the National Association of Securities Dealers, Inc., 1 who is a governor of the American Stock Exchange, and 7 who are or were governors of the Investment Bankers Association of America.

In order to provide the subcommittee with some idea of our deep interest in the special study report and our practical participation in the present legislative program, the following background will be helpful.

With the delivery of the first segment of the report of the Special Study of Securities Markets to Congress, and at Chairman Cary's suggestion, a Securities Industry Liaison Group was formed to represent the industry in discussions with the Commission on these legislative proposals. I represented our association board on this liaison group at a number of the industry-Commission sessions and have been aided in this area by my fellow governors, Mr. William D. Kerr, of Wertheim & Co., New York, and Mr. George J. Leness, president of Merrill Lynch, Pierce, Fenner & Smith, Inc., New York.

All during the discussions of the special study report and the followup legislative recommendations, we have been in constant touch with our board of governors and our members, keeping them advised of developments as they occurred. During the current year we have had two board meetings, one in Houston, Tex., and the other in Richmond, Va. Commissioner Jack M. Whitney II participated in the meeting at Houston, and Chairman William L. Cary met with our board in Richmond to discuss the special study report and the initial legislative proposals. Our regional governors were urged before and after each board meeting to hold discussion meetings in their areas with regional members.

As a result of all this, I am confident that I am reporting the true opinion of our board and membership.

It

The association membership strongly favors the principles implicit in the legislative proposals before your subcommittee. The Securities Acts of 1933 and 1934 were written almost 30 years ago. is only natural that they should be brought up to date at this time and that the public who are our clients should be protected from abuses which have been generated by fringe elements of the industry. Our first thought is for the protection of the investing public.

Further, after studying the legislation which has been presented to you by the Securities and Exchange Commission, we believe that this is enlightened legislation. We expect that the Comimssion will use the same enlightened judgment in preparing rules and regulations not subject to legislative action and that the remaining chapters of the report, which have not yet been made public, will show the same desire to protect the American public by constructive regulation, not by unwarranted punitive action which might impair our capital markets.

If, Mr. Chairman, I may digress for a moment, I would like to emphasize Senator Javits statement yesterday. He referred to Chairman Cary's April 3 letter which noted that:

The functions of the [special study] report and of any changes proposed are to strengthen the mechanisms facilitating the free flow of capital into the markets and to raise the standards of investor protection.

I feel that this is a most important philosophy.

Certain of the proposals contained in this legislation now before your subcommittee have been espoused by industry leaders for many years. We feel that the proposed reforms are long overdue. Senator Williams, in your remarks to the Senate on June 4th, in connection

with the introduction of this legislation, you indicated that the proposals to extend reporting requirements, proxy rules, and insidertrading provisions to those securities traded in the over-the-counter market had been submitted to the Senate on numerous occasions over the past 15 years.

Former Senator J. Allen Frear, now an SEC Commissioner, and Senator J. William Fulbright, at a later date, were instrumental in introducing legislation similar to the bill with which we are now concerned.

Full disclosure for all companies above a certain size is a concept which has been sought by leaders in our industry since the middle 1920's. We can see no reason why domestic corporations which have actively traded securities should be exempted from full disclosure simply because they are not listed on a national exchange. We do not believe in double standards.

It should be pointed out, however, that the present legislation recommends that this full disclosure should extend to all corporations having at least 750 stockholders and $1 million in total assets. There is considerable question as to whether this would not impose a burden on the SEC, which will increase the cost of that agency beyond the benefits derived, if they insist on full disclosure by companies as small as this.

Our association would prefer a higher minimum as to stockholders, preferably not less than 1,000. But, because we believe in full disclosure, we see no reason why all corporations having less than 1.000 stockholders and down to those with 300, which is recommended in the special report, should not be required by law to make interim reports to their stockholders, and to send their stockholders an audited statement at least once a year. However, this would not seem to require formal policing by any Government agency.

We fully approve the proposals in S. 1642 which are designed to raise the standards of entry into the securities business. The New York Stock Exchange has long been a leader in upgrading the qualifications of salesmen in our industry and has continually strengthened the examinations which prospective salesmen are required to take before being qualified to work with member firms. We feel that a program of raising the standards and qualifications is an integral part of self-regulation and should be constantly implemented by all segments. of the industry.

For many years our members have urged that minimum capital requirements for entry into the securities business were a necessary safeguard for the protection of the public. If such power had been given to the National Association of Securities Dealers at the time it was formed, some of the regrettable incidents of the past would not have occurred.

The Association of Stock Exchange Firms wholeheartedly recommends the passage of this legislation and respectfully urges your subcommittee to lend its weight for enactment of the program this year.

I would like to thank the members of this subcommittee for permitting me to appear in support of the legislation. If there are any questions you would like to ask me or my fellow governors, we are at your service. With your permission, Mr. Friedrichs, Mr. Kellogg or Mr. Otto may have some further brief statements to make.

Senator WILLIAMS. Reading from right to left, Mr. Otto?

Mr. OTTO. Mr. Chairman, I would like to add for the record that as Chairman of the Pacific Coast Stock Exchange, which is made up of the Los Angeles and San Francisco Divisions, I polled the board of governors with regard to the proposed legislation.

I am happy to report that the board gave their unanimous approval to the legislative program which you are considering.

With your permission I would like to forward an official letter to the Securities Subcommittee for the record.

Senator WILLIAMS. Thank you. We will include that and will appreciate it.

(The letter referred to follows:)

PACIFIC COAST STOCK EXCHANGE,

June 18, 1963.

Subject Senate bill 1642.

Senator HARRISON A. WILLIAMS, Jr.,

Chairman Subcommittee for Securities, Committee on Banking and Currency, U.S. Senate, Washington, D.C.

SIR: The Pacific Coast Stock Exchange desires to go on record as supporting Senate bill 1642 as proposed by the Securities and Exchange Commission.

It is felt that the proposed legislation is in the public interest in those areas set forth by William L. Cary, Chairman of the Securities and Exchange Commission, in submitting the legislative proposals. It would tend to eliminate the dual standard presently existing in the securities industry.

Chairman Cary and the Commission should be commended for the excellent work performed by the special study group and the proposed legislation as suggested by them.

The Governing Board of the Pacific Coast Stock Exchange has directed me to submit this endorsement on their behalf.

Respectfully yours,

Mr. FRIEDRICHS. I have nothing to add.

THOMAS P. PHELAN, President.

Mr. KELLOGG. I am just very gratified that the whole industry is back of these legislative proposals. I think that this is probably one of the first times the industry has gotten back of anything of this type, and it is very gratifying to me.

Senator WILLIAMS. This is gratifying. For example, members of your association and, as Mr. Otto suggests, the Pacific Coast Exchange have considered these proposals and have conferred with the commission.

Frequently national associations who have never left their offices in downtown Washington present their proposals for the consideraton of Congress.

But in your case it is remarkable how thoroughly you have undertaken national discussion; it gives great weight to your viewpoints expressed this morning.

Senator McIntyre?

Senator MCINTYRE. No questions, Mr. Chairman.

Senator WILLIAMS. Senator Dominick?

Senator DOMINICK. Off the record.

(Remarks off the record.)

Senator DOMINICK. I would like to ask Mr. Otto just one question. I was not quite sure from the statement he made whether he was recommending the change to 1,000 stockholders on the reporting requirements or not.

Mr. OTTO. No, Senator Dominick, our feeling about the proposal that is made is that we would like to go along as the thing is being submitted. If there was any area of alteration I think that the statement that was made here today very adequately covers it.

Senator DOMINICK. Thank you.

Senator WILLIAMS. Anything further?

Mr. Lowe. Just one point, Mr. Dominick, if you will. The 1,000shareholder level would include 2,500 companies, would it not? These are the figures which the SEC special study has submitted.

Mr. DOMINICK. The 750?

Mr. Lowe. No, sir, the 1,000-shareholder level and the $1 million in assets test would include 2,500 companies. The 750-shareholder test, according to Mr. Cary, would include 3,100 companies. So we are talking about a difference of 600 companies, are we not-as between the 750- and the 1,000-shareholder tests?

Mr. DOMINICK. This is according to their records. There is considerable doubt in the industry whether these are absolutely correct as to the size and number.

Mr. Lowe. Would you care to submit any additional figures?
Mr. DOMINICK. No, sir. We have not made a study of it.
Mr. LowE. Thank you very much.

Senator WILLIAMS. Thank you all. We are very grateful for your testimony.

Our apologies to Mr. Amyas Ames, president of the Investment Bankers Association of America, who was scheduled to be our second witness. I altered the schedule with the consideration that Mr. Dominick might prefer to testify while his brother, Senator Dominick, was with us.

You are properly titled, Mr. Ames, as the president of the Investment Bankers Association of America?

STATEMENT OF AMYAS AMES, PRESIDENT, INVESTMENT BANKERS ASSOCIATION OF AMERICA; ACCOMPANIED BY MURRAY HANSON, MANAGING DIRECTOR AND GENERAL COUNSEL; AND WILLIAM WARD FOSHAY, PARTNER, SULLIVAN & CROMWELL, NEW YORK, N.Y., SPECIAL COUNSEL

us.

Mr. AMES. That is correct, Mr. Chairman.

Senator WILLIAMS. We are honored and pleased to have you with

Mr. AMES. It is very nice to be here. For the record, my name is Amyas Ames. I am a senior partner of the firm of Kidder, Peabody & Co., 20 Exchange Place, New York City. I am also president of the Investment Bankers Association of America.

I have on my left Mr. Murray Hanson, managing director and general counsel of the Investment Bankers Association, and I have on my right Mr. William Ward Foshay, who is a partner of Sullivan & Cromwell and special counsel to the Investment Bankers Association.

First, I would like to thank you for the opportunity to present our views. We appreciate that very much.

I would also like to preface what I have to say by telling you how impressed the securities industry is with the thorough and thoughtful way in which this matter has been handled. Many pressures and dif