wholesalers only to the extent of $20.2 million. The remainder they handled on their own, acting as both wholesaler and retailer of the same stock."

4. ISSUES IN THE OVER-THE-COUNTER MARKETS

a. Value and number of issues

30

The over-the-counter market encompasses all securities not traded on national securities exchanges. Most of the trading in Government and municipal bonds, corporate bonds, bank and insurance company stocks, and preferred stocks takes place in the over-the-counter markets. As of December 31, 1961, it was estimated that $556.1 billion out of a total of $1,092.5 billion in securities outstanding in this country were not listed on any national securities exchange.

The following table shows a breakdown of dollar value of outstanding securities available for trading on exchanges and in the over-the-counter markets. APPENDIX VII-A: TABLE a.-Estimated value of securities outstanding in the United States (Dec. 31, 1961)

! Includes over-the-counter securities and privately held stocks and bonds. * Par value.

* Includes $47.8 billion U.S. savings bonds.

4 Rough estimates of market value.

Includes $1.2 billion International Bank bonds.

Includes approximately $24.4 billion open-end investment company shares.

During a 10-month period in 1961-62, broker-dealers quoted markets in approximately 14,000 domestic stocks traded exclusively over the counter." To these issues should be added at least another 3,340 Federal, State, and municipal securities and corporate bond issues which were quoted during a shorter period in 1961.2

b. Price of stock issues in the over-the-counter market

Certain characteristics of stock issues and issuers in the over-the-counter market are presented here and in the following sections. The data are based on the results of Questionnaire OTC-4 which was sent to approximately 2,000 companies having issues traded exclusively in the over-the-counter markets. A total of 1,618 of these issuers responded, comprising 1,164 industrial, utility and other companies, 358 banks, and 96 insurance companies.

The price of the principal stock issue of each issuer sent Questionnaire OTC 4 was obtained from the National Quotation Bureau National Monthly Stock

30 For a further discussion of the relationships between retail and wholesale activities see pts. C and D.

31 On the basis of a count of stocks with bids, offers or both in the National Quotation Bureau Monthly Stock Summary of Jan. 1, 1962, it was found that 12,800 stocks were quoted in the preceding 3 months. This includes about 1,500 stocks which are also available for trading on exchanges in this country or are stocks of foreign issuers. For 3 months, there were, therefore, approximately 11,000 domestic over-the-counter issues quoted. The monthly summaries for the 7 following months were checked on a sample basis and from this it was estimated that in the 10-month period, the number of issues quoted was 25 percent greater than appeared in the Jan. 1, 1962, summary, resulting in a total estimate of approximately 14,000 over-the-counter stocks. It should be noted that for purposes of OTC-4, issuers, not issues, were counted and all issuers listed in the summary were counted regardless of whether or not there was a dealer quotation for any of the stocks of the issuer. (See ch. IX.B.3.)

On the basis of a count of bonds with bids, offers or both in the National Quotation Bureau Bond Summary of Jan. 1, 1962, it was found that 100 U.S. Government bonds, 335 State and municipal bonds, 209 foreign government bonds, and 2,699 corporate bonds were quoted by broker-dealers in the preceding 3 months.

83 See pt. B.3 of ch. IX for a further analysis of the results of Questionnaire OTC-4.

Summary for January 1, 1962. The high bid in the last trading day of December in which the stock was quoted was selected (table 21).

It was found that 7 percent (106) of the stocks for which prices were obtained sold for less than $1 per share and 24 percent (373) sold for less than $5 a share. A total of 355 stocks, or 23 percent, sold for $50 and over but 217 of these were issues of banks and insurance companies." The median price of all issues was $19. Excluding stocks of banks and insurance companies, over-the-counter stocks are relatively low priced in comparison with exchange stocks. Only 12 percent of the over-the-counter stocks of industrial and other issuers were above $50, while almost half of the stocks sold for less than $10.* c. Activity of stock issues in the over-the-counter market

As an indication of trading activity, issuers sent Questionnaire OTC-4 were asked to furnish the total number of transfers for each class of stock during 1961 (table 22). Excluded were transactions which did not involve changes of ownership such as mergers, consolidations, recapitalizations, stock dividends and stock splits. It should be noted that the issuer has no knowledge of transfers which are made as the result of gifts and bequests. Moreover, the issuer has no record of transfers which take place in securities held in street name of a broker or in the name of a bank as nominee. For these reasons, the reported record transfers yield only an approximation of actual trading volume.

Despite the limitations, the number of stock transfers are related to activity. This was tested and generally found to be true for the sample of 200 stocks for which trading data were obtained for 1 day by means of Questionnaire OTC-3 (tables 23 and 24).

Another measure of activity is the number of dealers who advertise that they have an interest in buying and selling the security by entering quotations (table 25). As indicated above there is a close relationship between the activity and the number of quotations for a security.

5. ISSUERS OF OVER-THE-COUNTER STOCKS

This section describes some of the characteristics of issuers of over-the-counter stocks, on the basis of the results of Questionnaire OTC-4.

a. Assets

A significant percentage of the issuers replying to Questionnaire OTC-4 had substantial assets (table 26). Thirty-one percent (504) of the companies had assets of $10 million and over at the end of 1961. The asset standard for listing a security on the New York Stock Exchange is $10 million of net tangible assets. Forty-seven percent (749) of the issuers had assets of $5 million or over and 77 percent (1,232) had $1 million or over. Only 13 percent of the issuers had less than $500,000.

The inclusion of banks and insurance companies influences these figures because they generally have large assets. Excluding these companies, 21 percent of the issuers had assets of $10 million or over, 35 percent had $5 million or over, and 69 percent had $1 million or over.

b. Number of shareholders

A tabulation of the number of stockholders of the principal stock issue of each of the companies replying to Questionnaire OTC-4 showed that approximately half had 500 or more (table 27). Sixteen percent (264) of the stock issuers had 2,000 or more shareholders. To be listed on the New York Stock Exchange an issue must have at least 1,500 shareholders after adjustments are made for small holdings. At the other end of the scale, 17 percent (279) of the issuers of over-the-counter stocks had less than 100 stockholders. Generally, banks had a smaller number of shareholders and insurance companies a larger number of shareholders than the group taken as a whole.

34 Percentages shown in the text which are based on tables 21-31 were computed by eliminating from the total number of issuers all respondents which did not report that particular item.

A comparison of price levels of over-the-counter stocks and exchange issues is shown in ch. V.

38 If the prices of all stocks of each issuer had been tabulated, rather than just the principal stock issue, the percentages might be slightly different. For the most part, the omitted stocks were preferred issues which generally sell at a higher price than the common stock of the same issuer.

It should be noted that the number of shareholders is somewhat understated because some shares of almost every issue were held in street names of brokerdealers or in names of banks as nominees. The number of beneficial owners represented by these holders of record in most cases are not known by the issuer (table 28).

c. Shares outstanding

Approximately one-half of the issuers of over-the-counter stocks replying to Questionnaire OTC-4 had fewer than 200,000 shares outstanding of their principal issue had almost three-quarters had fewer than 500,000 shares (table 29). The American Stock Exchange requires a minimum of 200,000 shares outstanding as a qualification for listing, while the New York Stock Exchange requires 500,000 shares.

The median number of shares of the principal stock issue outstanding for over-the-counter issuers, other than banks and insurance companies, was approximately 300,000 shares. For the most part, bank stocks were not large issues. Seventy percent of them (241) were under 100,000 shares. Insurance companies tended to have larger stock issues than other over-the-counter companies. There were a million or more shares outstanding in 26 percent (25) of their stock issues compared with 16 percent (183) for other issuers.

The number of shares outstanding is modified considerably, however, when one takes into account holdings of officers, directors, and persons with large blocks. In applying their listing standards the exchanges require that a certain minimum number of shares not be closely held.

Issuers sent Questionnaire OTC-4 were asked to give the number of shares of each stock which was held by the 10 largest stockholders." A tabulation of the percentage of shares of the principal stock issue of each company which was held by these "insiders" showed that in 54 percent (827) of all issues for which information was available, insiders held half or more of the stock (table 30). In 691, or 61 percent of the stocks other than those of banks and insurance companies, the 10 largest holders controlled half or more of the total share outstanding. There was a higher degree of control by insiders in small issues. Further indication of the high degree of concentration in overthe-counter stocks, excluding bank and insurance stocks, was the fact that in 84 percent (948) of the stocks, insiders held at least 30 percent of the outstanding shares.

d. Market value of outstanding stock

Another measure of the size of a company is the market value of its total outstanding shares. This figure was obtained for each company by multiplying the number of shares of each class of stock outstanding by its price in December 1961 (table 31).

Of the issuers in the sample (excluding those whose stocks could not be evaluated), 20 percent (308) had outstanding stock with a market value of $10 million or over and 60 percent (923) had outstanding stock with a market value of $1 million or over. At the other end of the scale, 15 percent (238) had outstanding stock with a market value of under $250,000 and 25 percent (391) with a market value of under $500,000. Banks were not significantly different from the group as a whole, while insurance companies had a much higher percentage of issuers in the $10 million or over category (39 percent) and a much lower percentage (3 percent) in the less than $500,000 class.

This included holdings in street name and in names of bank nominees. The figures in the text therefore are on overstatement of the amount of concentration of holdings.

APPENDIX VII-A: TABLE 1.-Estimated growth in over-the-counter volume (1961,

1 Sales by registered broker-dealers for their own account and for the account of others as estimated by the broker-dealers and reported in Questionnaire Form OTC-3. Includes sales of predecessor firms. * Estimate by the study of aggregate sales by broker-dealers who were in existence at the end of the year and indicated that they engaged in over-the-counter activities but could not estimate the value of their sales. Adjustment, estimated by study, to include sales by the public to dealers as principal (i.e., purchases by dealers from the public) and to eliminate sales by 1 broker-dealer as agent for another broker-dealer. The resulting volume of sales represents all sales by dealers for their own account and all sales by the public.

APPENDIX VII-A: TABLE 2.-Over-the-counter purchases and sales of stocks by the public and by registered broker-dealers (Jan. 18, 1962)

Aqua-Chem, Inc.

Armstrong Paint & Varnish Works..

See footnotes at end of table.