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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. Žazove; 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; J. Arnold Pines, chief financial analyst; and Meyer Eisenberg, åssistant chief counsel; the Office of General Counsel, including Peter A. Dammann, General Counsel; David Ferber, Associate General Counsel; and Walter P. North, Associate General Counsel; the executive staff of the Commission and particularly Arthur Fleischer, Jr., executive assistant to the Chairman; Orval L. DuBois, secretary; William E. Becker, chief management analyst; and James F. Duffy; Ernest L. Dessecker, records and service officer, and the duplicating unit and the graphic arts section under his direction; and Frank J. Donaty, comptroller, and the machine tabulating unit under his direction. Assistance came also from each of the regional offices in suggestions and advice, and particular cooperation in investigations was extended by the administrators and staffs of the Boston regional office, the Chicago regional office, the Fort Worth regional office, the Los Angeles branch office, the New York regional office, the Seattle regional office, and the Washington regional office. Lastly, the Special Study is immeasurably indebted to the Commission itself for its suggestions,

96–746—63—pt. 5—3

encouragement, constructive criticism, and patience. The Special Study is indebted, also, to other agencies of the Federal Government for their cooperation. The Federal Reserve Board played a susbtantial role in the study's investigation of security credit and margin requirements, and particular advice and assistance were provided by Guy E. Noyes, Lewis N. Dembitz, J. Charles Partee, and Ann Þ. Ulrey of its officers and staff. The Bureau of the Census and the Federal Trade Commission each rendered important assistance in the processing and tabulating of statistical data appearing in the report, and the U.S. Tariff Commission made available its facilities for the public hearings conducted by the Special Study.

In closing it is most appropriate to express the gratitude of the Special Study for the cooperation of the industry itself, without which the study could never have accomplished what it has. It is perhaps the best measure of the success of self-regulation in the securities industry that both the self-regulatory agencies and the members of the industry itself continuously assisted rather than obstructed the inquiries of the Special Study, and bore with far less protest than might have been anticipated all of the extra burdens which the study unavoidably imposed. It is the hope of the Special Study that the patience with which the industry bore its investigation may be rewarded through conclusions and recommendations

of the Special Study which, if in some cases initially unwelcome, may ultimately prove beneficial to the industry itself, to the investing public, and to the country as a whole. Respectfully submitted.

MILTON H. COHEN,

Director,
RALPH S. Saul,

Associate Director, ,
RICHARD H. PAUL,

Chief Counsel,
SIDNEY M. ROBBINS,

Chief Economist,
HERBERT G. SCHICK,

Assistant Director,
Special Study of Securities Markets.

SECURITIES AND EXCHANGE COMMISSION,

Washington, D.C., July 16, 1963. T'o 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 questions discussed. Since the report does not "decide” any question, but only expresses conclusions and recommendations of the Special Study, adequate opportunity for pointing out errors of fact or analysis or for disputing conclusions and recommendations will be afforded in the legislative hearings or administrative proceedings that necessarily will precede adoption of any recommendations to which there might be opposition.

*

Since the publication of the first group of chapters, a few errors contained in them have been brought to our attention. We most sincerely regret these errors and any confusion or embarrassment they may have caused. These are listed in an attachment to this letter.

*

In our transmittal letter of April 3, 1963, we identified the members of the staff of the Special Study and also referred to the invaluable assistance received from individuals and groups outside of the formal study staff. While the acknowledgments in our earlier letter apply generally to all chapters of the report including the present ones, it should be pointed out that the study received particularly important assistance in connection with the present chapters from the following individuals on the Commission's staff outside the study staff: Walter Werner, Gordon Henderson, Charles R. McCutcheon, Vito Natrella, John Woodward and Joel Rabin.

In the list of those outside the study's own staff who have borne added burdens in connection with the study and have greatly facilitated its work, there should have been included the names of Harry Pollack, director of personnel, and Albert Fontes, assistant director of personnel, as well as the staff of the Commission's Miami branch office. To the list of outside organizations rendering important assistance in data processing should be added the Computation Laboratory of the National Bureau of Standards and the Columbia University Computer Center. Additional persons serving on the clerical and stenographic staffs of the study included: Bernard H. Garil, Leola B. Kelley, Larry L. McKown, John F. Morris, Jr., Margaret L. Olearnick, H. Janice Purschwitz, Yvonne D. Scott, David L. Shriver, and Barbara J. Yokemick. Finally, our previous letter incorrectly listed one member of the regular staff, Fred Siesel, as a financial analyst instead of among the economists and statisticians. Respectfully submitted.

MILTON H. COHEN,

Director,

,
RALPH S. SAUL,

Associate Director,
RICHARD H. PAUL,

Chief Counsel,
SIDNEY M. ROBBINS,

Chief Economist,
HERBERT G. SCHICK,

Assistant Director,
Special Study of Securities Markets.

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 V., 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,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 chapters X, XI, XII, and XIII–of the Report of the Special Study of Sécurities 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.

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