Section 19

Section 19 would amend Section 21(f) of the Act to give the U.S. district courts the power, upon application of the Commission, to issue injunctions commanding an exchange to enforce compliance by its members with the Act, rules and regulations thereunder, and the rules of such exchange. This provision is consistent with our position that exchanges should vigorously pursue a policy of self-regulation, but if they fail to pursue such policy, the Commission should have adequate authority to take appropriate action to require an exchange to meet its regulatory responsibilities. We therefore support this provision.

Section 20

Section 20 would amend Section 23 of the Act relating to the Commission's authority to adopt rules and regulations under the Act, and its responsibility to include certain information in its annual report to Congress. Section 23 (a) would prohibit the Commission from adopting any rule

or regulation which would impose a burden on competition not reasonably necessary for the achievement of the purposes of the Act. Section 23 (a) would also require that the Commission include in its notice of any proposed rule which would impose a burden on competition, a full explanation of the reasons why such burden is reasonably necessary to achieve the

purposes of the Act.

The legality of Commission rules should not depend solely on the effect they may have on competition. As long as the Commission

determines that a rule is necessary to foster one of the objects or purposes of the Act, an antitrust court should not overturn such rule on the basis of some anticompetitive effect it may have on a particular person, or class of persons, unless it finds that the Commission's original determination was arbitrary or capricious. For this reason, we support, as previously noted in our comments on Section 6(b)(4) at pp. 10 11 above, the Commission's view, expressed in its statement before the Subcommittee on November 13, that the proper standard to be applied in determining the validity of a Commission or exchange rule which may place a burden on competition is whether such rule is within the scope and purposes of the Act and not whether such rule is reasonably necessary to achieve the purposes of

the Act.

Section 23(b) would specify certain information which the Commission must include in its annual report to Congress. The Exchange has no comment with respect to these requirements.

Section 21

Section 21 would amend Section 25(b) to give the U.S. Court of Appeals jurisdiction to review a Commission rule promulgated under Section 19(b) of the Act upon written petition of any person adversely affected by such rule. The Exchange supports this provision.

Section 22

Section 22 would further amend Section 25 of the Act to make it

clear that the commencement of proceedings in a Court of Appeals to review a Commission rule promulgated under Section 19(b) will not, unless ordered

by the court, operate as a stay of the Commission's rule. The Exchange has no objection to this provision.

Section 23

Section 23 of S. 2519 would amend the Act by deleting paragraph (3)

of Section 28(b), which states that nothing in the Act is to be construed to modify existing law with regard to the binding effect of any disciplinary action taken by an exchange against any member as a result of a violation of an exchange rule insofar as the action taken is not inconsistent with the Act or the rules and regulations promulgated thereunder.

In view of the fact that proposed Sections 19 (d) and 19 (e) of S.2519 would give the Commission the authority to review and modify exchange disciplinary actions, we believe the deletion of Section 28(b)(3) is appro

priate.

Section 24

Section 24 would amend paragraphs (3) and (4) of Section 1(b) of the Act of August 20, 1962 (15 USC 78d-1(b)), which provides a person who is adversely affected by certain actions of the Commission's staff, acting pursuant to delegated authority from the Commission, the right to have such action reviewed by the Commission.

The proposed amendment to Section 1(b) would broaden the right

to have Commission review in instances where its staff takes action pursuant to any of the additional powers granted to the Commission by S.2519. The Exchange supports this provision.

Section 25

Section 25 of S.2519 provides that the National Securities Market System Act of 1973 will become effective on the date of its enactment, except that Sections 6(b)*, 11A, and 15A(b) of the 1934 Act will become effective 180 days after the date of enactment. The Exchange has no objection to this provision.

*As noted in our comments on proposed Section 6 on page 13 above, the Amex urges the Subcommittee to adopt a provision which would provide exchanges already registered with the Commission an exemption from the registration requirements of this new section, and which would give such exchanges six months after the effective date of S.2519, or such longer period as the Commission may determine, to conform to the specific requirements of Section 6.

Senator WILLIAMS. Now, Mr. John C. Whitehead, chairman of the board, Securities Industry Association.

Mr. Whitehead.

STATEMENT OF JOHN C. WHITEHEAD, CHAIRMAN OF THE BOARD, SECURITIES INDUSTRIES ASSOCIATION, ACCOMPANIED BY H. VIRGIL SHERRILL, PRESIDENT, SHIELDS & CO., INC., MEMBER OF THE BOARD OF DIRECTORS, AND LEON T. KENDALL, PRESIDENT, SECURITIES INDUSTRY ASSOCIATION

Senator WILLIAMS. We are pleased to have you and your association represented at these hearings on this important legislation.

Mr. WHITEHEAD. Thank you.

I am John C. Whitehead. I appear before you as chairman of the board of directors of the Securities Industry Association. In my professional capacity, I am a partner of Goldman Sachs & Co.

Accompanying me today to assist in answering your questions are H. Virgil Sherrill, president of Shields & Co., Inc., and a member of SIA's board of directors, on my right; and Leon T. Kendall, president of the SIA, on my left.

Senate bill 2519 is the fourth measure introduced this year to embody the conclusions and recommendations of your subcommittee's securities industry study. This bill is a sweeping grant of authority to the SEC to mold and oversee the development and operations of a national securities market system.

We share with you the belief that such a system, properly described, is necessary in order to improve the liquidity, efficiency, and competitiveness of securities markets for the benefit of all investors and, I might add, for the benefit of corporations and governments for whom the trading markets are a vital link to new capital.

In view of this overriding need, we are pleased to be able to support the broad outlines of S. 2519 and to offer a number of constructive suggestions aimed at more fully achieving this most desirable goal. This subcommittee has identified the two objectives which are paramount in the development of a central market system for listed securities:

First, the maintenance of stable and orderly markets with maximum capacity for absorbing trading imbalances without undue price movements.

And second, the centralization of all buying and selling interest and the protection of the priority of public orders so that each investor will receive the best possible execution of his order, regardless of where in the system it originates.

You have also recognized and through this legislation sought to preserve the values which the agency auction market contributes toward the accomplishment of those objectives.

If the agency auction market is in fact to survive and operate to the greatest advantage of investors, we believe that all transactions in listed securities must take place within that market.

We have examined the proposal offered by the New York Stock Exchange to amend the Securities Exchange Act to prohibit brokers and dealers from bypassing the auction process in any transaction in a listed security. We strongly support this proposal and urge you to