their separate accounts, employee benefit plan trust funds, organizations exempt from taxation under Section 501(c) of the Internal Revenue Code of 1954, organizations operated for the benefit of Federal, State, or municipal employees and any other collective investment vehicle.

The disclosure provisions apply to any institutional investment manager with investment discretion or authority over accounts aggregating $10 million and any dealer or exchange member with a trading or investment account of $5 million. A definition of investment authority is provided in the bill, and the SEC is given broad power to exempt certain institutional investment managers, their reports, or any class of transactions.

On October 5, 1973, the SEC transmitted to Congress its proposed legislation requiring institutional disclosure. Like S. 2234, the SEC bill is an amendment to section 13 of the Securities Exchange Act of 1934, but it differs from S. 2234 in several significant respects.

First, the holdings cutoff test for jurisdiction is set at $100 million of equity securities in accounts over which the investment manager has investment discretion or authority. Use of an equity security measure would appear more appropriate, as distinguished from debt and equity securities, where the principal focus of the legislation is on the equity securities markets.

Second, the SEC bill sets the transactions to be reported by an investment manager at $500,000. Fewer transactions would be reported under this limit than under the S. 2234 cutoffs of 2,000 shares or 1 percent of the outstanding securities.

Third, the SEC bill would require that reports be submitted with aggregated information by type of account, and specifically provides for confidential treatment where the information submitted would identify the securities holdings of any natural person.

Finally, on April 4, 1974, Representative Moss introduced H.R. 13986, the Institutional Disclosure Act. Like S. 2234 and S. 2683, H.R. 13986 would also amend section 13 of the Securities Exchange Act, but it differs only in relatively minor and nonsubstantive ways from S. 2683, the Commission's bill.

The "other" response to the call for institutional disclosure came, surprisingly, from the Comptroller of the Currency, who recently adopted disclosure amendments to regulation 9. The disclosure amendments would require national banks to disclose certain of their securities holdings and transactions. Specifically, the Comptroller's amendments would require any national bank holding equity securities in its trust department with an aggregate fair market value of $75 million or more to file with his Office: (1) An annual report setting forth certain specified information concerning holdings of equity securities for which it acts as trustee, executor, administrator or guardian-whether or not it has investment authority-and any other accounts over which it has investment authority either alone or with others; and

(2) Quarterly reports setting forth certain specified information. with respect to the purchase or sale during the quarter of any equity security having a fair market value of $500,000 or more; or involving 10,000 shares or more. The required annual reports would not include information with respect to any equity security, the aggregate holding

of which was 10,000 shares or less, or the assets of any investment company to which the reporting bank provides investment advice or counsel. The Comptroller would have discretion, upon written request, to keep confidential any information which would identify the holdings of assets of any natural person, trust, or estate, and to keep confidential temporarily any transactional data which would reveal an investment strategy.

To evaluate the merits of the various responses, one must again return to the underlying justification for requiring institutions to disclose holdings and transactions. Thus, if one is primarily concerned. with the potential abuse of economic power by institutions, which is essentially an antitrust or antifraud-enforcement or investigatory approach, then one could criticize all three bills and the Comptroller's amendments on the grounds that they do not include all institutions within the reporting mechanism, and, even as to those institutions which would be subject to the reporting requirements, those institutions would report too little information.

For example, the Comptroller's amendments would provide useful information only about holdings over 10,000 shares and transactions over 10,000 shares in equity securities for managed accounts. Similarly all the disclosure programs would require reporting only of equity security transactions. Although other investment areas-such as bonds, money market instruments, or real estate-may be highly institutional and thus perhaps not raise investor protection problems as to individual investors, is that distinction compelling if one is concerned with the potential abuse by institutions of their economic power?

Wouldn't it be just as important to have an institutional disclosure system containing transaction and holding information regarding all investment areas, rather than just equity securities, to provide a centrally located data base for governmental and private sector analysis of the power generated by all such economic relationships?

Beyond concern with potential abuse by institutions of their economic power, there would be another important benefit of expanded coverage of institutions and expanded coverage of other types of investment choices.

As Jack Wheeler, the author of a note in the current issue of the Yale Law Journal, persuasively argues: institutional disclosure would help the consumer of investment management services identify those portfolio managers who could best meet the consumer's individual specifications of risk and return. The note further states that the incremental cost to institutions of providing such expanded data should not be significant because virtually all institutions presently have such data stored in their computers for their own use. However there would be the one-shot costs for the institutions of creating computer programs to retrieve the data to be reported in a processable form that is consistent and uniform among all institutions; these costs, I believe, should be also borne by the institutions because they are in the best position to pass such costs through most effectively to the persons who will be most advantaged by publication of the investment data.

On the other hand, if one's concern were with impact of institutions on the equity securities markets, S. 2683, of the three institutional disclosure bills, would appear to offer a disclosure program best

geared to extract pertinent data from the larger institutions. One might question why there is a need to study and analyze matter which were studied and analyzed exhaustively by the IIS report. There are two principal answers to that question.

First, the data collected by the study group started becoming stale on the day the report was published, providing a still photograph of the securities markets and the financial institutions as of the late sixties. However, the securities markets and the behavior of institutions are dynamic, not static. The IIS report, therefore, has become less and less useful as a source of information and analysis for current decisionmaking. Continuing study and analysis is required, and, to be useful, such work must be performed with reasonably current data. A second reason is the interest of others in studying and analyzing this type of data. Increasingly, events which occur in the equity securities markets are blamed on institutions.

If, as happened quite recently with Polaroid, the stock's price drops dramatically one day, it is frequently charged that large institutions have concurrently sold the stock, have monopolized trading opportunities, and have generally manipulated the market for their benefit.

Without continuous institutional disclosure data, such charges can neither be proved nor disproved; proposed restrictions on the holding or trading restrictions on large institutions presently must be considered in an atmosphere devoid of hard facts.

As representatives of First National City Bank have recently suggested, secrecy, even where there is nothing malevolent to hide, breeds distrust, while full disclosure of the facts could dispel fears and tend to resolve allegations of abuse.

Both for the purposes of Commission study and analysis by members of the private sector, it is imperative that there be a central repository for the institutional disclosure data. A central location is necessary to collect, process, review, and disseminate the data in an efficient manner. While it might be argued that several different locations could serve the purpose, assuming each were equally efficient, that argument ignores the practical fact that diverse groups would be interpreting the same rules or regulations, and would probably give inconsistent or contradictory advice. The SEC has by far the greatest interest in institutional disclosure data, and has the expertise and experience with disclosure matters to design and administer an efficient, centralized repository of institutional disclosure data.

A comprehensive, uniformly prepared data base is clearly in the national interest, the interests of the public investor, institutions, other Federal regulatory agencies, and analysts from the private sector.

Moreover, S. 2683 would provide the SEC with rulemaking authority to raise or lower the jurisdictional test from $100 million, but in no event lower than $10 million. Thus, one would expect the Commission over time to expand or contract the jurisdictional test to subject that number of large institutions to the reporting requirements which would provide a sufficiently broad picture of the equity securities markets through their disclosure reports to permit the Commission to consider more effectively the public policy implications of equity securities trading and securities holdings of institutions.

For example, the extent of the so-called two-tier market, or the purported desertion of individual investors from the equity securities markets, might have been discernible much earlier in time; institutional disclosure data could have improved discussions of the problem and consideration of the public policy implications. Similarly, institutional disclosure data would permit the Commission to study and monitor the specific effects of institutional holdings and trading on the securities markets, such as the depth and frequency of block trading, the depth of the so-called fourth market, and the share acquisition or disposition techniques of different investment managers. Such studies would be of great benefit to the Commission as it develops the future structure of the securities markets.

Furthermore, beyond studies of the effect of institutional investors. on the securities markets, the disclosure data would permit the Commission to study coslely the characteristics of different institutional investors.

All affected institutions offer comparable investment management services, yet the quality and depth of regulation of their advisory activities is dependent, in large part, upon historical accident in designating the appropriate regulating agency. Collection of disclosure data would make possible analysis of the investment operations of different institutions, perhaps leading to recommendations by the Commission to Congress and the other regulatory agencies regarding beefing up aspects of the investment advisory regulation of certain of the other regulatory agencies or legislative designation of the Commission as the common regulatory agency as to the investment management function.

One often hears the rallying cry that superior competitive ability emanates from inferior, or at least unequal, regulation. Investors have a right, in my opinion, to expect that all institutions offering investment management services will be subject to reasonably similar regulation of potential abuses which inevitably flow from externalized management of economic resources.

The common thread which links together the two subcommittees' disclosure report and these other legislative and regulatory efforts toward disclosure by institutions is the generally perceived and recognized need for greater disclosure of institutional holdings and transactions. Articles about the disclosure report, prior testimony at the hearings before these subcommittees by Congressmen and responsible Government officials, and other, external comments regarding the institutional disclosure legislation make plain that conclusion.

While the disclosure report was addressed in large part to the need to be able to look through nominee names to real ownership, individual or institutional, of the major industrial and financial corporations, there is also a compelling need to get additional disclosure from institutions about their holdings and transactions.

Accordingly, I would urge the members of the two subcommittees, in addition to the other recommendations and legislation emanating from the hearing which will receive their support and energies, to support the institutional disclosure legislation. While it is possible. in the abstract to consider the amendments to the Comptroller of the

Currency's Regulation 9 as being helpful insofar as they would require disclosure by national banks, the essential point is that in order for the studies mentioned above to be performed well, it is necessary to have a complete data base.

All of the information which should and would be collected must be gathered in a similar manner by one administrative agency if the information is to provide a uniform data base. Thus, I would also urge the members of the two subcommittees to resist all attempts to diffuse the data base by carving out specific groups of prospective respondents, thereby rendering the data base both nonuniform and incomplete.

Finally, sound investment decisions by individuals require consideration of all material facts relating to the merits of the investment. One fact generally available to institutions is intimate knowledge about the market-knowledge of which securities, and how much, are being held by other institutions.

Individuals are presently unable to get access to this kind of market information, creating an inherent trading disadvantage to the individual investor. Further, if an individual decides to invest indirectly through an institutional manager, he is often unable to obtain accurate information about the portfolio strategies and relative performance of different institutions; "comparison shopping" between different investment management intermediaries is exceedingly difficult, if not impossible. Institutional disclosure would go a long way toward removing these disadvantages and impediments to individual investors and ought to restore confidence in their ability to get a fair shake in the securities markets.

Senator METCALF. Your entire statement will be incorporated in the record at the end of your testimony.

Thank you very much for your statement. The footnotes in your prepared statement will give us a brief biography of Mr. Lybecker and the staff will have the complete list of your articles and journals and so forth.

Senator METCALF. Are you going to ask some questions of this witness about your chart? That is the chart entitled "Primary and Secondary Director Interlocks" and the related records of the First National Boston Corp.

Mr. TURNER. That is correct. The First National Boston Corp., which is a bank holding company, is the owner of the First National Bank of Boston. I call your attention to the interlocking directorate chart which is to your left. The Chairman would like to get some responses as to what you may see here with respect to what we have set forth in the chart.

First, do you have any general reaction to the chart with respect to primary and secondary interlocks?

Mr. LYBECKER. My initial reaction is that it only confirms what one would suspect: through the relationship at the board of directors level in a bank such as the First National Bank of Boston with many of its commercial side customers, there is an incredible opportunity for influencing trust department investment activities, even if there aren't abuses in fact. There certainly is a great deal of potential for abuse.

As you know, the board of directors sits on top of both the commercial side and the trust side of a bank. As a legitimate matter, there