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MAR 23 1973

LETTER OF TRANSMITTAL

February 1973.

Hon. JOHN SPARKMAN,

Chairman, Committee on Banking, Housing and Urban Affairs,
U.S. Senate, Washington, D.C.

DEAR MR. CHAIRMAN: Transmitted herewith is the final report of the Subcommittee on Securities in connection with its study of the securities industry.

Senate Resolution 109, agreed to June 21, 1971, authorized expenditures and employment of personnel by the Committee on Banking, Housing and Urban Affairs "to examine, investigate and make a complete study of any and all matters pertaining to the securities industry and securities markets of the United States." Senate Resolution 244, agreed to March 6, 1972, authorized additional expenditures for this purpose and directed the Committee to "report its findings, together with such recommendations for legislation as it deems advisable to the Senate at the earliest practicable date, but not later than February 28, 1973."

Pursuant to this authorization, the Subcommittee on Securities has obtained information by means of letters, interviews, questionnaires, and public hearings. The Subcommittee's analysis of this information, together with recommendations for legislation, is set forth in this report.

The Chairman of the Subcommittee wishes to thank the members and staff of the Securities and Exchange Commission, the officers and staff of the national securities exchanges and the National Association of Securities Dealers, and representatives of industry groups and individual firms for their cooperation and assistance in making information available to the Subcommittee.

Sincerely,

HARRISON A. WILLIAMS, Jr., Chairman, Subcommittee on Securities.

(III)

A

CONTENTS

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i. Institutional Acquisition of Brokerage Affiliates__

ii. Brokers' Expansion into Money Management_-_

d. Exchange Reaction to Institutional Membership.
i. New York and American Stock Exchanges.

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c. Regulation of the Activities of Market Makers.

i 116

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Agencies

B. The Operations of the Self-Regulatory Agencies.

1. Procedural Standards for Self-Regulatory Action...

a. Actions Directed Against Particular Persons..
i. Disciplinary Actions..

ii. Denial of Membership.

iii. Actions Affecting Non-Members

b. Policy Formulation___

2. Jurisdiction of the Self-Regulatory Agencies_

a. Relation to the SEC Jurisdiction.

b. Allocation of Jurisdiction Among Self-Regulatory

C. The Authority and Procedures of the SEC..

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1. The SEC's Request for Additional Authority to Oversee the
Self-Regulatory Agencies.

170

a. The SEC's Authority over the Content of Self-Regula-
tory Rules.__

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i. Power to Disapprove Proposed Rules

172

ii. Power to Alter Existing Rules..

iii. Procedures Employed in Disapproving or Alter-
ing Rules

b. The SEC's Authority to Enforce Self-Regulatory Rules
c. The SEC's Authority to Review Disciplinary Proceed-
ings Conducted by Self-Regulatory Agencies--

2. The SEC's Use of Its Existing Oversight Powers....

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a. The SEC's Implementation of Its Regulatory Recom-
mendations..

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b. The SEC's Reliance on Its Staff for the Performance of
Oversight Functions_ .

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iv. Conclusions and Recommendations..

c. Performance of Continuing Oversight Responsibilities--
i. Inspections of Stock Exchanges.

ii. Surveillance of the Allocation of Securities to

Specialists_

iii. Conclusions and Recommendations..

3. Procedures for Reviewing Proposed Self-Regulatory Rules.
a. Notice and Opportunity to Participate in the Rule Re-
view Process_

b. Approval of Self-Regulatory Rules.

4. Private Contact Between the SEC and the Self-Regulatory

1. Judicial Review of Commission and Self-Regulatory Action_.
a. Present Law; Availability of Judicial Review..
i. Commission Action_..

ii. NASD Action.......

iii. Action of National Securities Exchanges.
iv. Summary: Availability of Direct Judicial Re-
view_

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v. Collateral Attack on Self-Regulatory Action... --b. Conclusions and Recommendations; Availability of Judicial Review___

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c. The Importance of Reasons, Findings and Conclusions__

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