Other members of the professional staff, each of whom contributed importantly to the study and report, were: Special editorial assistant: Roy A. Schotland; attorneys, James E. Bacon, Robert J. Birnbaum, James Hallisey, William C. Mammarella, Richard M. Meyer, Allan S. Mostoff, Lawrence W. Newman, Stephen J. Paradise, Ira H. Pearce, Sheldon Rappaport, Stanley Sporkin, Gary J. Strum, and C. Howard Thomas, Jr.; economists and statisticians: Leslie P. Anderson, Rolf Kaltenborn, Jonathan V. Levin, Helen K. Steiner and Robert Tucker; financial analysts: Harry Krueger, Bruce J. Simpson, Stuart R. Allen, Fred Siesel, Charles C. Sharpe, and Lois E. Zazove; investigators: Carmine Asselta, John E. Connor, Frederick Richard, Daniel Schatz, and Harry Zimmerman.

The study and report also depended heavily on the cheerful and unflagging efforts of Juanita L. Ward, administrative assistant, and of the entire clerical and secretarial staff. The clerical staff included Charles M. Atwell, Ann Hebert, Ann R. Heymann, Fred Horowitz, Margaret C. Hull, M. Karen Patten, Toby Orenstein, Joan R. Oxman, J. Michael Schaefer, Richard G. Schwartz, Gerald C. Spencer, Irma L. Weidowke, and Susan G. Wendeburg. The secretarial staff included: Ivadel E. Scarborough, secretary to the Director; S. Marie Kemet, secretary to the Associate Director; Rhoda S. Pines, secretary to the chief counsel; and Leah Ann Hare, Rebecca S. Klein, Dolores J. Lella, Catherine M. McDaniel, W. Loretta McEnroy, Mildred L. Reid, Elsie M. Rule, Jeannine A. Replogle, Ethel L. Shiro, Betty J. Snead, Helen G. Wallick, Marie G. Waterman, and Pauline Zinkle. The filing staff included: Leslie D. Shelton and Willis T. Shepard.

The study has also benefited from the contributions of several special consultants, including Prof. Thomas G. Gies of the University of Michigan; Prof. Richard W. Jennings of the University of California School of Law; Prof. James E. Walter of the Wharton School of Finance and Commerce of the University of Pennsylvania; and Profs. Irwin Friend, Andrew Brimmer, and Arthur Freedman, who, as members of the Securities Research Unit of the Wharton School, were employed by the Special Study to conduct a special survey of mutual fund investors.

While the staff of the Special Study is responsible for the content of the report, it could never have completed its appointed task without the wholehearted cooperation of the regular staff of the Commission. It would be hopeless to attempt to name individually the members of that staff whose efforts have lightened the burdens of the Special Study or assisted in its endeavors. Nevertheless, special mention must be made of the help received from the staffs of: the Division of Trading and Exchanges, including Philip A. Loomis, Jr., Director; Irving M. Pollack, Associate Director; Robert Block, chief counsel; Charles R. McCutcheon, Assistant Director; Vito Natrella, Assistant Director; Thomas W. Rae, branch chief; and Robert J. Bretz, Charles A. Cole, Elaine Sameth, Judith Schoenberg, Warren S. Shantz, and John Woodward; the Division of Corporation Finance, including Edmund H. Worthy, Director; Walter Werner, Associate Director; Charles E. Shreve, Executive Assistant Director; Robert H. Bagley, Assistant Director; Ralph C. Hocker, Assistant Director; Patrick J. Griffin, Jr., branch chief; Murray B. Weiner, branch chief; Stuart F. Feldman, Peter D. Lowenstein and Joel J. Rabin; the Division of Corporate Regulation, including Allan F. Conwill, Director; Gordon Henderson, Associate Director;

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-al Trade Commission each rendered important ssing and tabulating of statistical data appearthe U.S. Tariff Commission made available its lic hearings conducted by the Special Study. st appropriate to express the gratitude of the e cooperation of the industry itself, without d never have accomplished what it has. It is sure of the success of self-regulation in the seboth the self-regulatory agencies and the memitself continuously assisted rather than obof the Special Study, and bore with far less ave been anticipated all of the extra burdens oidably imposed. It is the hope of the Special ce with which the industry bore its investigathrough conclusions and recommendations of ich, if in some cases initially unwelcome, may eficial to the industry itself, to the investing try as a whole.

SECURITIES AND EXCHANGE COMMISSION,

Washington, D.C., July 16, 1963. To the Chairman and Members of the Securities and Exchange Commission:

We have the honor to transmit herewith chapters V, VI, VII, and VIII of the Report of the Special Study of Securities Markets. These chapters deal with trading markets for securities and are to be printed as part 2 of the total report. Chapters I, II, III, IV, and IX have been previously submitted under our transmittal letter dated April 3, 1963. The remaining chapters of the report should be ready to be forwarded to you within the next few weeks.

As we stated in our letter of April 3 with respect to the study and report generally, the total picture emerging from our studies is one of basically strong institutions subject to many specific weaknesses and abuses. The balance is, of course, different for different market institutions. In particular, the over-the-counter markets have received less systematic and thorough attention than exchange markets under existing regulatory measures and mechanisms and the need and opportunities for improvements are correspondingly greater, even allowing for inherent differences in the natures of the two types of markets.

The faults and defects disclosed in the study do not call for public alarm as to the basic integrity of the securities markets but neither do they permit of complacency. The weaknesses that have been found in trading practices and regulatory controls are of various kinds and perhaps varying degrees of seriousness, but in the opinion of the Special Study all of them call for attention and action-if not following the specific recommendations of the report on each matter, then seeking an alternative way of meeting the disclosed need-if our market institutions are to achieve and maintain a quality commensurate with their importance to the American economy and the American public.

The chapters transmitted with this letter, perhaps even more than others in the total report, deal with numerous matters of great complexity and difficulty, some of which have neither been the subject of continuous regulatory attention nor the subject of intensive studies in many years, if ever. The Special Study has arrived at its conclusions and recommendations after thorough analysis and thoughtful review of massive quantities of data and presents them with confidence and conviction as to their essential soundness. Nevertheless, it is recognized that many of them may be quite controversial, and that in some instances alternative solutions may be preferred after further exploration. It is pertinent to repeat here what we said in chapter I.A.5 (at pp. 7-8, of pt. 1) of the report:

No part of the present report has been submitted in draft form, for comment or correction or any other purpose, to any of the private persons or groups referred to or potentially affected by the contents. Assuming that this would otherwise have been an appropriate course, it was an impossible one within the time limit of this study. Thus, such persons and groups have not had the opportunity to respond directly to any of the factual materials, analyses, or proposals contained in the report, as they undoubtedly would have been entitled to if the report amounted to a final disposition of any of the ques

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should have been included the names of Harry personnel, and Albert Fontes, assistant director as the staff of the Commission's Miami branch outside organizations rendering important asessing should be added the Computation LaboraBureau of Standards and the Columbia Uninter. Additional persons serving on the clerical ffs of the study included: Bernard H. Garil, ry L. McKown, John F. Morris, Jr., Margaret nice Purschwitz, Yvonne D. Scott, David L. a J. Yokemick. Finally, our previous letter inmember of the regular staff, Fred Siesel, as a tead of among the economists and statisticians. itted.

ERRATA IN Parts 1 and 3 OF REPORT

At page 87 of part 1 of the printed report (ch. II.B.3) the following statement appears:

The brokers blanket bond essentially covers losses resulting from dishonest or careless acts (theft, embezzlement, loss, or misplacement of property, etc.) but not from violations of Federal and State securities laws or from insolvency.

Since the report appeared, our attention has been drawn to two pertinent cases, one recently decided and the other still in litigation. In The Home Indemnity Company v. Reynolds & Co., 187 N.E. 2d 274 (Ill. App. Ct. 1st D., 1962, reh. den. Jan. 31, 1963), the court held that a sale of securities in violation of the Illinois Securities Act was a criminal or dishonest act for which recovery could be had under a brokers blanket bond. In the second, Atkin et al. v. Hill, Darlington & Grimm, et al., still pending in the New York courts, a broker-dealer takes the position that a bonding company is liable under a brokers blanket bond with respect to sales of insurance company securities in violation of section 51 of the New York Insurance Law.

At page 583 of part 1 of the printed report (ch. IV.E.3) a footnote lists Realty Equities Corp. of New York as one of five cash-flow real estate corporations having stocks listed on the American Stock Exchange. This company is not a cash-flow corporation and its name should be eliminated from the footnote. The text, accordingly, should refer to four rather than five such companies.

At page 54 of part 3 of the printed report (ch. IX.B.5.e) the following appears:

*** The broad conclusion of the study, which is in accord with the publicly expressed view of one of the most knowledgeable authorities covering over-the-counter markets, Wallace H. Fulton, the retiring executive director of the NASD,1 is that section 16(b) should apply generally to unlisted securities.

The Special Study has been subsequently advised by Mr. Fulton that the above does not correctly reflect his position, since his expression concerning extension of section 16(b) to over-the-counter markets was subject to the qualification that it would be necessary to have an exemption "for a securities firm making a market in a security which has a partner or an officer serving on the Board of the company issuing that security."

SECURITIES AND EXCHANGE COMMISSION,

Washington, D.C., August 6, 1963. To the Chairman and Members of the Securities and Exchange Commission:

We have the honor to transmit herewith the final four chaptersX, XI, XII, and XIII-of the Report of the Special Study of Securities Markets. (In our transmittal letter of April 3, 1963, we referred to a possible chapter XIV to cover topics that might not fit within the scope of any of the other chapters or within the limits. of later transmittal letters. It has not been found necessary to have a separate chapter XIV.)

1 New York Times, Feb. 27, 1962, p. 51.