Finally, regulatory agencies with responsibility for the securities markets and for examination of one or another category of institutional investors cannot, at present, compare the behavior and attitudes of their regulatees with that of other institutional investors and other regulatory agencies. For example, during the past several years, one of the SEC's chief concerns has been the future structure of the securities markets. Disclosure by institutional investors would provide continuous hard data, updating that collected by the institutional investor study report. Similarly, another area of conern has been the behavior of institutional investors as investment managers. Here again, disclosure by institutional investors would provide continuous information, updating both the IRS report and disclosure report.

There have been other persons who have been frustrated with the present state and who have also called for improved disclosure. With concern for the potential economic power of institutional investors as its touchstone, the Patman report first recommended for consideration annual disclosure by bank trust departments of aggregate holdings of securities and of all proxy voting of portfolio securities of corporations registered with the SEC. Section 12 of the Banking Reform Act of 1971, based on these recommendations, would have required all insured banks to report annually and publicly to the FDIC all securities held in a fiduciary capacity-aggregated without regard to investment responsibilities-and all voting authority, indicating the extent and manner exercised.

In addition, Representative Patman, in a recent address to the First Trust Management Conference, proposed giving the SEC power to regulate all aspects of institutional investing:

I would give the SEC original jurisdiction over all elements of the institutiona,[ investment community-foundations, pension funds, bank trust departments and all the others... the entire range. Obviously, such an approach to have meaning would have to go beyond the traditional SEC regulatory role. It is my intention to give them broad supervisory powers To accomplish this, SEC would have to establish a special Division with expertise-and a public interest character-going beyond the nuts and bolts of the securities business.

Concern with the impact of institutional trading on the securities markets and the lack of disclosure by institutions of their holdings and transactions caused Congress in July 1968 to authorize the SEC to

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make a study and investigation of the purchase, sale, and holding of securities by institutional investors of all types-including, but not limited to, banks, insurance companies, mutual funds, employee pension and welfare funds, and foundation and college endowments-in order to determine the effect of such purchases, sales, and holdings upon (A) the maintenance of fair and orderly securities markets, (B) the stability of such markets, both in general and for individual securities, (C) the interests of the issuers of such securities, and (D) the interests of the public, in order that the Congress may determine what measures, if any, may be necessary and appropriate in the public interest and for the protection of investors.

The study was directed and staffed largely by professional economists drawn from outside the Commission and had associated with it a statutory industry advisory committee. The institutional investor study report consists of four major parts. Part 1 sets forth basic background information about the analysis of institutional investors

From Public Law 90-438, enacted July 29, 1968.

through 1968. Part 2 reviews different institutions as investment managers, setting forth comparative information as to each type of institution regarding: the size distribution of firms within each category; the number, size, types, growth, and distribution of assets in accounts managed by each type of institution; and fees charged by and portfolio turnover for the various types of institutions.

This part also examines the effects on the institution's portfolio managers of affiliations between types of institutions and other firms.

In part 3 of the IIS report the study focuses on the impact of increases in the volume and character of institutional holdings and trading on price volatility, market structure, and the securities industry.

Finally, part 4 analyzes institutional participation in new issues, and the role of institutions as large and influential shareholders in portfolio companies. As one would expect, the IIS report is a massive study of eight volumes, requiring 9 inches on a government bookshelf. The SEC, in its letter of transmittal submitting the IIS report to Congress, stated certain initial conclusions and recommendations regarding the study's analysis of the area. Not surprisingly, the first conclusion was that the essential nature of timely information about institutional holdings and trading in the equity security markets required that such information be collected by the agency responsible for administration of the Federal securities laws. The Commission also stated that an effective program of Government regulation of institutional investors and the securities markets must emanate from empirical analyses of institutional behavior; that the course of future developments could not be accurately gauged, or reasoned regulatory policies be plotted, without a continuing flow of such information.

To implement these conclusions, the Commission recommended that the Securities Exchange Act of 1934 be amended to provide the Commission with authority to require reports and disclosures of such holdings and transactions from all types of institutions.

Last fall, Senator Williams introduced the Commission's draft legislation, which became S. 2683, amending section 13 of the Securities Exchange Act ot accomplish those purposes.

S. 2683 would require certain institutions to provide the Commission with data concerning their securities holdings and certain equity security transactions so that the SEC could continue certain of the studies and analyses which the IIS report began-studies and analyses which are necessary and essential to the SEC's statutory responsibility to oversee the securities markets and develop regulatory programs regarding institutional investors.

Slightly more than 1 month after the IRS report was released, SEC Commissioner Richard B. Smith testified before the House Committee on Banking and Currency with respect to the Banking Reform Act of 1971. He criticized the bill's disclosure provisions as being too limited on the ground that they only required annual reports of aggregate bank holdings, nor transactions in securities as well. Moreover, he characterized the SEC as having "the broadest regulatory responsibilities over public securities markets," and as the most logical agency, rather than the FDIC, to serve as a central depository for information.

As an observer for the executive branch of Government, concerned that different financial institutions are subject to a more searching level of disclosure than others, the Hunt Commission recommended that corporate fiduciaries be required to file with "the appropriate regulatory agency" a report detailing: (1) the 20 largest stock holdings, in terms of market value, unless they do not exceed $10 million; (2) all holdings which constitute 5 percent or more of the outstanding shares of a corporation registered with the SEC; (3) dollar values with respect to each holding broken down into categories reflecting the degree of voting responsibility; (4) interlocked officers or directors with portfolio companies where the bank had sole voting responsibility; and (5) instances where the bank voted against management. Following these strong endorsements of the concept of disclosure by institutional investors, others began advocating the need for immediate legislative implementation. Kenneth J. Bialkin, chairman of the Subcommittee on the Investment Company Act of 1940 of the American Bar Association's Committee on Securities, criticized the disparity in reporting the investment activities of investment companies and other institutional investors. Paul Kolton, chairman of the American Stock Exchange, suggested that financial institutions adopt voluntary guidelines covering "the periodic disclosure by institutions such as insurance companies, pension funds, banks, college endowments, of information relating to their activities and holdings in the markets similar to mutual fund disclosures."

The Senate Subcommittee on Securities in its securities industry study noted its belief that:

The SEC should obtain regular and comprehensive information regarding institutional transactions which contribute to unusual price movements, so that it will be continuously in a position to impose or recommend appropriate restrictions on institutional trading if they are required.

On April 25, 1973, former SEC Chairman G. Bradford Cook first announced the possibility of a legislative program by the SEC to require institutional disclosure. Thereafter, Representative John E. Moss, chairman of the Subcommittee on Commerce and Finance of the House Committee on Interstate and Foreign Commerce, stated that this legislative program was "of the utmost importance," as did Senator Edward Brooke during the floor debate on S. 470. Donald Regan, chairman of Merrill Lynch, and John C. Whitehead, a Goldman, Sachs partner and chairman of the Securities Industry Association, added the prestige of their positions to the mounting demands for institutional disclosure. And on August 7, 1973, a large Chicago bank made an unprecedented disclosure of its trust department's stock portfolio.

In apparent response to this evidence of public concern, and perhaps to fortify his committee's jurisdiction, Senator Harrison A. Williams, Jr., introduced S. 2234, the Institutional Investors Full Disclosure Act, on July 23, 1973. That bill would require quarterly disclosure from "institutional investment managers,' dealers, and exchange members of their securities holdings and all of their equity securities transactions of at least 2,000 shares or one percent of a corporation's outstanding shares, whichever is less.

An institutional investment manager is defined to include banks, investment companies, investment advisors, insurance companies and

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