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 matters 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 stocks 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.29 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.30

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

"See note 21 supra.

Hearings on Corporate Disclosure Before the Subcommittee on Budgeting, Management, and Expenditures and the Subcommittee on Intergovernmental Relations of the Senate Committee on Government Operations, 93d Cong., 2d sess., pt. 1 at 34, 35 (committee print 1974) (remarks of George M. Lingua); Heilshorn, the Case for Trust Department Disclosure, Trusts and Estates 428 (July 1974).

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, 31 or the purported desertion of individual investors from the equity securities markets, might have been discernable 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 closely 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

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,32 prior testimony at the hearings before these subcommittees by Congressmen and re

The phrase "two-tier market" is used to describe the situation where a few institutionally favored stocks sell at artificially high-price-earnings ratios, while the other, disfavored companies in the second "tler" sell at such artificially low-price-earnings ratios that they are virtually unable to raise additional capital through the securities markets. See, e.g., Loomis, "How the Terrible Two-Tier Market Came to Wall Street." Fortune, July 1973, at 82. But see Callaway, the "Two-Tier Market Reexamined," Wall Street Journal, Sept. 28, 1973, at 8; Rowe, "Trust Departments' Investing Minimized in New ABA Study," Washington Post, Oct. 9, 1973. at D10.

32 Keeffe, "Who Owns and Controls the Corporations?", 60 American Bar Association J. 624 (May 1974); Bradner, "Disclosure of Corporate Ownership," Trust and Estates 276 (May 1974); Metcalf, "The Secrecy of Corporate Ownership." 6 Ind. L. Rev. (1974), reprinted in 16 Corporation Practice Commission 86 (spring 1974).

sponsible Government officials,33 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 hearings which will receive their support and energies, to support the institutional disclosure legislation. While it is possible in the abstract to consider the proposed 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. Congressman Harrington was interrupted in the middle of his presentation. His entire statement will be incorporated in the record at that point and we will also incorporate the letter that Mr. Turner was talking about and some other material that he did supply and would have been presented for the record in the course of his testimony.

Unless there is something else to come before the committee, we will recess subject to the call of the Chair.

(Whereupon, at 12:25 p.m., the subcommittees recessed, to reconvene subject to the call of the chair.]

Hearings on corporate disclosure before the Subcommittee on Budgeting, Management, and Expenditures and the Subcommittee on Intergovernmental Relations of the Senate Committee on Government Operations, 93d Cong., 2d sess., pts. 1 and 2 (committee print 1974). See, "Energy Companies' Ownership Studied," Washington Post, May 22, 1974, at A17 (Representative Aspin, SEC Commissioner Sommer); Shifrin, "FTC Staff Urges Fuller Disclosure," Washington Post, May 21, 1974, at A2 (FTC Chairman Engman).

Pursuant to your request, we have compiled the list of statutes from the 50 states and the District of Columbia, pertaining to the right of stockholders to inspect corporate records, in as nearly camera-ready condition as was possible. (As I indicated in my memorandum of May 23, 1974, Hawaii makes no provision for such inspection, but does provide that corporate books and records shall be made available annually for inspection by the director of regulatory agencies (H. Rev. Stat. Section 416-95).)

In addition, I am returning the copies of the law review articles that were sent in response to the subcommittee's request of May 10, 1974.

Canine E. Kuben

Janice E. Rubin
Legislative Attorney

ALABAMA

Reference is to Title 10, 1958 Recompilation of Code of Code of 1940 and 1973 Supplement thereto)

§ 21 (46). Books and records of corporation.-Each corporation shall keep correct and complete books and records of account and shall keep written minutes of the proceedings of its stockholders and board of directors, and shall keep at its principal office, or at the office of its transfer agent or register, a record of its stockholders, giving the names and addresses of all stockholders and the number and class of the shares held by each.

Any person who shall have been a stockholder of record for at least six months immediately preceding his demand or who shall be the holder of record of at least five per cent of all the outstanding shares of a corporation, upon written demand stating the purpose thereof, shall have the right to examine, in person, or by agent or attorney, at any reasonable time or times, for any proper purpose, its books and records of account, minutes, and record of stockholders and to make extracts therefrom.

Any officer or agent who, or a corporation which, without reasonable cause, shall refuse to allow any such stockholder, or his agent or attorney, so to examine and make extracts from its books and records of account, minutes, and record of stockholders, for any proper purpose, shall be liable to such stockholder in a penalty of ten per cent of the value of the shares owned by such stockholder, in addition to any other damages or remedy afforded him by law. It shall be a defense to any action for penalties under this section that the person suing therefor has within two years sold or of fered for sale any list of stockholders of such corporation or any other corporation or has aided or abetted any person in procuring any list of stockholders for any such purpose, or has improperly used any information secured through any prior examination of the books and records of account, or minutes, or record of stockholders of such corporation or any other corporation, or was not acting in good faith or for a proper purpose in making his demand.

Nothing herein contained shall impair the power of any court of compe tent jurisdiction, upon proof by a stockholder of proper purpose, irrespective of the period of time during which such stockholder shall have been a stockholder of record, and irrespective of the number of shares held by him, to compel the production for examination by such stockholder of the books. and records of account, minutes, and record of stockholders of a corporation.

Upon the written request of any stockholder of a corporation, the corporation shall mail to such stockholder its most recent financial statements showing in reasonable detail its assets and liabilities and the results of its operations. (1959, p. 1073 § 46, appvd Nov. 13, 1959.)