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In our two previous transmittal letters, we have made some general comments about the nature of the study and of our findings. These were intended to apply to the entire report and we find no reason to modify them at this time. The following paragraphs from our letter of April 3 should have reemphasis as we complete the report:

The enormous growth of the securities markets experienced since the original enactment of the Federal securities laws, reflecting both the vigor of the industry's own activities and the general expansion of the country's economy and population in the intervening years, has been accompanied by many qualitative changes in methods, practices, controls, and standards. A basic objective of the Special Study was an evaluation, in the light of both quantitative and qualitative changes, of the theories and mechanics of direct governmental regulation and industry self-regulation originally envisaged by those laws. The study and report indicate that under the stresses of its expanded role the framework of regulation needs considerable adjusting and strengthening, but its basic design appears to have stood the test of time and to have worked effectively in most areas.

Since the Federal securities laws have been in force for a full generation. it is hardly surprising that the Special Study has not disclosed the prevalence of gross abuses such as were characteristic of the era which preceded their enactment. Nevertheless, as will be evident from the entire report, many serious problems do exist and important improvements are needed. It is inevitable that in reflecting the results of any investigation, a final report will give greatest attention to the problems uncovered and the areas in which the need for improvement is most pressing. Nevertheless, the emphasis in this report on present shortcomings should neither obscure nor detract from the many aspects of the securities business and its regulation and self-regulation which afford reason for pride and satisfaction. The strength of the American economy and its free-enterprise system both reflect and are dependent upon an investment banking system and market institutions that are basically strong and sound, but this makes it all the more, rather than less, necessary to expose and correct the weaknesses and abuses that still exist. Many of the substantive recommendations in the report can, indeed, be regarded as attempts to raise the entire securities industry to the best standards which the industry itself proclaims and to the highest levels of attainment which some of its participants have in some sectors achieved.

The chapters first transmitted (I to IV and IX) called for certain legislative solutions and these have been substantially embodied in S. 1642, recently passed by the Senate, and in the pending bills H.R. 6789 and 6793. The second group of chapters (V to VIII) essentially called for only one item of legislation--authority to regulate overthe-counter quotations systems. As to the present group of chapters: Chapter X, dealing with security credit, would require statutory changes if the Federal Reserve Board and the Commission subscribe to certain of our substantive recommendations. Chapter XI, relating to mutual funds, would call for a legislative solution in respect of so-called contractual plans, but in this instance we have assumed that the formulation of a legislative program will await completion of the Commission's other pending studies regarding structural aspects of mutual funds. With regard to chapter XII, dealing with the self-regulatory and regulatory pattern, various statutory, changes would unquestionably contribute to a more complete and logical pattern of relationships between the Commission and the various self-regulatory agencies and at the same time might be the most direct means of resolving issues presented by the case of Silver v. New York Stock Exchange. On the other hand, we are not prepared to say, in the absence of a more detailed legal analysis than we have been able to make, that the Commission's present broad statutory powers would not be adequate for all purposes indicated in the chapter, and accordingly we make no specific legislative recommendation in this area. Chapter XIII, relating to the 1962 market break, likewise does not contain any recommendation for legislation,

It should be emphasized, in any event, that any questions of legislation arising out of the present group of chapters are quite separate from the matters covered in our prior legislative recommendations as embodied in the bills now pending, i.e., qualifications for entry into the securities business and disclosures for over-the-counter securities. Nothing in our later studies or analyses has in the slightest degree shaken our conviction that the latter subjects of legislation are basic and urgent, both in their own right and as foundations for other improvements in rules and practices in the securities markets.

The legislative recommendations of the total report are relatively few, not because there is little to be done, but because most of what we recommend can in all likelihood be accomplished under existing powers of the Commission and the self-regulatory agencies. The total report constitutes not only a comprehensive factual presentation but also a major agenda for action by the Commission and the industry groups to correct the shortcomings in the market and regulatory mechanisms that have been disclosed.

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In our prior transmittal letters we expressed appreciation for the contributions of the groups and individuals, within and outside the Special Study staff, who have importantly contributed to the work of the Special Study. Without repeating their names, we again express appreciation for the loyal and devoted efforts of the very competent group who served directly on the study staff and for the indispensable assistance and cooperation received from others, including the members of the Commission, members of the staff of other divisions, other governmental and private agencies, and, by no means least, individuals and firms in the securities business and their self-regulatory institutions. Our previous letter neglected to mention the valuable assistance received from Joseph A. Keenan, Jr., of the Division of Trading and Exchanges.

Our previous letter incorrectly listed Bernard H. Garil as a member of the clerical staff rather than as a financial analyst, and omitted mention of Gerald L. Feigen, who served on the study's staff as a financial analyst.

Having been stationed at the Commission's office facilities at its headquarters in Washington, we cannot refrain from commenting on these facilities. The Commission is a permanent, important agency of the U.S. Government, in existence since 1934, yet it still has its headquarters in a “temporary” building and annexes whose many inadequacies, inconveniences, and discomforts cannot but impair the efficiency of its operation and even hamper its efforts to recruit and retain needed personnel. In the name of good government, the Commission urgently needs a more businesslike office where its personnel may do their work efficiently, comfortably, and pridefully.


As the Special Study leaves the scene, others must assume the large responsibility of converting recommendations into programs of action. In the long run we are confident that the information, analyses, and recommendations that have been produced by the Special Study will improve the operation of the securities markets, produce a healthier securities business, and provide stronger safeguards for the investors of the Nation. Respectfully submitted.



Associate Director,

Chief Counsel,

Chief Economist,

Assistant Director,
Special Study of Securities Markets.



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