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To my way of thinking, where most of us in the investment industry fail is in our sympathies. Unless our interest in our fellow man is as great as our knowledge, then our knowledge is not only worthless, it is dangerous. Our regulations in the public interests and our advice to the public must be addressed to the needs of the public. Instead, it is directed to their hopes, not only because it is easier but because it is so much more profitable to tell the public what it wants to hear rather than what it should hear.

I want to thank you for your courtesy.

The CHAIRMAN. We appreciate your appearance, and we thank you for your testimony.

The committee will stand in recess until 10 o'clock tomorrow.

(Whereupon, at 11:37 a.m., the hearing was recessed, to reconvene at 10 a.m., Friday, June 21, 1963.)

SEC LEGISLATION, 1963

FRIDAY, JUNE 21, 1963

U.S. SENATE,

COMMITTEE ON BANKING AND CURRENCY,

SUBCOMMITTEE ON SECURITIES, Washington, D.C. The subcommittee met, pursuant to recess, at 10:07 a.m., Senator Harrison A. Williams, Jr. (chairman of the subcommittee) presiding. Present: Senators Williams and Javits.

Senator WILLIAMS. The subcommittee will come to order and continue its deliberations on S. 1642. We have had remarkable cooperation from the witnesses thus far, and I know that today will be no exception in that respect. Mr. G. Keith Funston, president of the New York Stock Exchange, is our first witness. Mr. Funston has been a highly respected figure in the securities industry for many years, and he has been of significant help to this committee on many

occasions.

Mr. Funston, we welcome you. You may proceed in any way you

want.

STATEMENT OF G. KEITH FUNSTON, PRESIDENT, NEW YORK STOCK EXCHANGE; ACCOMPANIED BY EDWARD C. GRAY, EXECUTIVE VICE PRESIDENT, AND SAMUEL L. ROSENBERRY, COUNSEL, NEW YORK STOCK EXCHANGE

Mr. FUNSTON. Thank you, Senator. My name is G. Keith Funston. I am president of the New York Stock Exchange, and my home is in Greenwich, Conn. With me today are Edward C. Gray, executive vice president of the exchange, and Samuel L. Rosenberry, of Milbank, Tweed, Hadley & McCloy, counsel to the exchange.

I appreciate the privilege of appearing before you to present the exchange's view on the Senate bill 1642.

The bill before you would substantially reinforce two of the principal instruments of the Securities Exchange Act of 1934 disclosure and self-regulation. In addition, it would provide the SEC with new enforcement tools similar to those which the exchange, in areas of our enforcement jurisdiction, has found to be essential.

ADEQUATE DISCLOSURE

The Federal securities acts presume that the public interest can best be served if adequate information is made available to investors, information on which they can base their own investment decisions in accordance with their own personal situation and objectives. While

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To my way of thinking, where most of us in the investment industry fail is in our sympathies. Unless our interest in our fellow man is as great as our knowledge, then our knowledge is not only worthless, it is dangerous. Our regulations in the public interests and our advice to the public must be addressed to the needs of the public. Instead, it is directed to their hopes, not only because it is easier but because it is so much more profitable to tell the public what it wants to hear rather than what it should hear.

I want to thank you for your courtesy.

The CHAIRMAN. We appreciate your appearance, and we thank you for your testimony.

The committee will stand in recess until 10 o'clock tomorrow. (Whereupon, at 11:37 a.m., the hearing was recessed, to reconvene at 10 a.m., Friday, June 21, 1963.)

SEC LEGISLATION, 1963

FRIDAY, JUNE 21, 1963

U.S. SENATE,

COMMITTEE ON BANKING AND CURRENCY,

SUBCOMMITTEE ON SECURITIES,
Washington, D.C.

The subcommittee met, pursuant to recess, at 10:07 a.m., Senator Harrison A. Williams, Jr. (chairman of the subcommittee) presiding. Present: Senators Williams and Javits.

Senator WILLIAMS. The subcommittee will come to order and continue its deliberations on S. 1642. We have had remarkable cooperation from the witnesses thus far, and I know that today will be no exception in that respect. Mr. G. Keith Funston, president of the New York Stock Exchange, is our first witness. Mr. Funston has been a highly respected figure in the securities industry for many years, and he has been of significant help to this committee on many

occasions.

Mr. Funston, we welcome you. You may proceed in any way you

want.

STATEMENT OF G. KEITH FUNSTON, PRESIDENT, NEW YORK STOCK EXCHANGE; ACCOMPANIED BY EDWARD C. GRAY, EXECUTIVE VICE PRESIDENT, AND SAMUEL L. ROSENBERRY, COUNSEL, NEW YORK STOCK EXCHANGE

Mr. FUNSTON. Thank you, Senator. My name is G. Keith Funston. I am president of the New York Stock Exchange, and my home is in Greenwich, Conn. With me today are Edward C. Gray, executive vice president of the exchange, and Samuel L. Rosenberry, of Milbank, Tweed, Hadley & McCloy, counsel to the exchange.

I appreciate the privilege of appearing before you to present the exchange's view on the Senate bill 1642.

The bill before you would substantially reinforce two of the principal instruments of the Securities Exchange Act of 1934-disclosure and self-regulation. In addition, it would provide the SEC with new enforcement tools similar to those which the exchange, in areas of our enforcement jurisdiction, has found to be essential.

ADEQUATE DISCLOSURE

The Federal securities acts presume that the public interest can best be served if adequate information is made available to investors, information on which they can base their own investment decisions in accordance with their own personal situation and objectives. While

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this has proved to be a very sound philosophy over the years, unfortunately it has not been applied universally. Companies which are listed on an exchange are required to furnish such information, but those whose securities are not listed on an exchange have no such obligation. As the SEC study group found, a significant number of publicly held unlisted companies furnished no financial statements to their shareowners, and many which did provide them had no certification by an independent accountant.

In the matter of proxy solicitation the shortcomings are equally serious. Twenty-nine percent of the industrial companies surveyed did not even solicit proxies. A sizable majority of the remainder failed to state the names of the nominees for election of directors and omitted to explain the effect on security holders of proposed mergers, consolidations, acquisitions, and similar matters. Based upon long experience in the area of its jurisdiction, the exchange does not believe that such lack of information should be permitted to continue with respect to publicly owned companies. This experience of ours goes back to 1900. Since then the exchange has required listed companies to furnish prompt annual reports to stockholders and, since 1933, the financial statements in industrial companies' reports have had to be certified by independent public accountants. Beginning in 1955, companies applying for listing have agreed to solicit proxies for stockholders' meetings, a requirement extended to all listed companies in May 1959.

As regards publicly held banks, the exchange believes their shareowners should have much of the information which is presently made available to the shareowners of listed companies. The exchange agrees that the administration of the act as it pertains to banks should rest in the hands of the Federal banking authorities. But it is absolutely esssential that requirements affecting the banks should be the same whether the bank stocks are listed or unlisted.

Through the years the exchange has believed, and still maintains, that the investing public is entitled to adequate information concerning the affairs of publicly held corporations. Since 1941, it has advocated legislation to eliminate the illogical double standard under which the shareholders of unlisted companies do not receive the benefits of disclosure that listed companies are required to accord to their shareholders.

S. 1642 would extend to publicly held unlisted companies those provisions of the 1934 act relating to financial reporting, the solicitation of proxies, and the disclosure by corporate insiders of their transactions in the equity securities of their companies. In the exchange's opinion, such a measure would go a long way toward the solution of the problem of inadequate disclosure.

GAPS IN SELF-REGULATION

A second basic principle of the 1934 act is that under Government oversight the securities industry should regulate and police itself to the maximum extent feasible. In general, the implementation of this policy has accomplished a great deal. While neither self-regulation, nor Government regulation, can be expected to achieve perfection as long a human beings are involved, the approach has proved to be

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