Page images

Mr. THOMAS. Let's take a look at your positions.

. What type of personnel are you getting? Mr. Cary. We are planning

Mr. THOMAS. These employees are not subject to the Classification Act. How long do you think you will need these people?

Mr. Cary. The time when we are supposed to furnish our report is January 1, 1963.


Mr. THOMAS. About 15 months off. I figured out last night your total authorization is $750,000 to conduct your studies, and if you live up to your first request, instead of having an expenditure of $750,000, I figured out it would be $1.1 million.

Is that about right? You will exceed your authorization by 3313 percent?

Mr. Cary. We have not arrived at any such calculations.
Mr. THOMAS. That is simple arithmetic.

Mr. Cary. We believe there are certain expenses in the beginning which will not carry over throughout the second fiscal year.

Secondly, we just counted on the fact

Mr. THOMAS. Mr. Cary, is my mental arithmetic approximately correct?

Mr. Cary. We counted on the fact this would be really in effect 9 months out of a total of 15, so, as a consequence, we allocated a larged amount of the $750,000 to this fiscal year as distinguished from the second fiscal year.

As to whether or not it would amount to that, I did not have that in mind when the calculation was made. Perhaps Mr. Donaty may have a comment on that.

Mr. Donary. This estimate basically represents the cost for this fiscal year—approximately 9 or 10 months. In fiscal 1963, we will have these positions for about 6 months.

Mr. Thomas. For your regular 1962 bill, what was your appropriation ?

Mr. DONATY. $11 million.
Mr. THOMAS. How much did that exceed your 1961 appropriation!

Mr. DONATY. I believe $1,482,500.


Mr. THOMAS. What is the nature of your personnel here?

Mr. Cary. It will be divided among an Office of Director, three branches, and an Office of Chief Counsel.

Mr. THOMAS. Are you setting up a new organization?
Mr. Cary. In effect, it will be treated as a new division.
Mr. THOMAS. You are setting up a commissioner?
Mr. CARY. A Director, not a commissioner.
Mr. THOMAS. At $18,500?
Mr. CARY. Yes.
Mr. THOMAS. An Associate Director at $16,500?
Mr. CARY. Yes.
Mr. Thomas. Chief Counsel, $16,500?

Mr. Cary. Yes, and three Assistant Directors.
Mr. THOMAS. Well, you will get competent personnel, I hope.

Mr. Cary. We are at the present timo looking for the right people. I do think it will be necessary to have them in a non-civil-service category, particularly since they are going to be brought in for only a period of about 15 months at the most.

Mr. Thomas. We have learned through experience that the most permanent thing on earth is a temporary Government agency.


Will you go out of business according to schedule? Will you have your report wound up January 1, 1963, or will you come back and say “We will have to have another year”?

Mr. Cary. We hope to have it done. We also hope to have recommendations for legislation and rule changes in the interim. I do not think we are going to wait until January 1, 1963, to benefit by that study.

In other words, we are going to use the results of it as we go along.

Mr. Thomas. This money will be used as follows you will set up a new division: one, the Office of the Director; two, the Office of the Chief Counsel; three, the Branch of Exchange Study, and four, Branch of Over-the-Counter Study, and Branch of Reports and Analysis.

JUSTIFICATION OF THE ESTIMATE We will insert pages 1, 2, and 3 and the customary tables of the justifications in the record at this point.

(The justifications referred to follow :)

[ocr errors]


1962 SUPPLEMENTAL ESTIMATE House Joint Resolution 438 dated June 1, 1961, as amended and approved by the Congress, authorizes and directs the Commission to make a study and investigation of the adequacy, for the protection of investors, of the rules of national securities exchanges and national securities associations, including rules for the expulsion, suspension, or disciplining of a member for conduct inconsistent with just and equitable principles of trade. The resolution includes also the following: (1) the Commission shall report to the Congress on or before January 3, 1963, the results of its study and investigation, together with its recommendations, including such recommendations for legislation as it deems advisable; (2) to carry out such study and investigation, there is authorized to be appropriated the sum of $750,000 ; and (3) employment of personnel may be made without regard to civil service laws, rules, and regulations or to the Classification Act of 1949, as amended, except that no such rate shall exceed $18,500 per annum.

For the period ending June 30, 1962, the Commission will require the additional amount of $450,000 to cover the cost of 65 positions and related expenses in order to carry out the provisions of the resolution. An additional amount for this purpose will be included in the regular budget estimate of the Commission for fiscal 1963.

Implementation of the provisions of the resolution will require the establishment of a new organization within the Commission which will be known as the Division of Securities Markets. This Division will be composed of the following organizational elements: (1) Office of the Director; (2) Office of the Chief Counsel; (3) Branch of Exchange Study; (4) Branch of Over-the-counter Study; and (5) Branch of Reports and Analysis.

The Branches of Exchange and Over-the-Counter Study will be responsible for conducting the studies and investigations of the exchanges and over-the counter markets, respectively. The Branch of Reports and Analysis will conduct broad economic studies of the current practices in all phases of the securities markets to determine their effect on the public interest and assist the two investigating branches in the analyses and preparation of reports and other material associated with the study and investigation. The attached statements Nos. 1 and 2 indicate the distribution of the additional positions by organizational entity and grade level, respectively. A unit consisting of approximately 16 positions will be established in the New York regional office reporting directly to the Director, Division of Securities Markets.

Hearings on the resolution were conducted by the Subcommittee on Commerce and Finance on June 27, 28, 29, and July 10, 1961. The legislation is supported by the Securities and Exchange Commission, the National Association of Securities Dealers, Inc., and the American and New York Stock Exchanges. A substantial portion of the testimony at the hearings by the representatives of these four organizations consists not so much of consideration of the need and desirability of a study and investigation, which appears to have been presumed, but discusses a great number of matters which each witness felt was comprehended by, and appropriately should be taken up in, such study. No one appeared in opposition to the legislation. The House of Representatives passed the resolution on August 24, 1961.

On August 25, 1961, the Senate passed the resolution after the Committee on Banking and Currency authorized the chairman of that committee by unanimous vote to waive referral of the resolution to the Securities Subcommittee and requested that it be given immediate consideration on the floor of the Senate.

Although the language of the resolution is specific, it is c'early the intent of Congress that the investigation be comprehensive. As Chairman Oren Harris of the House stated “the scope of the investigation authorized by this resolution is exceedingly broad.” Similarly, Senator Williams, speaking for the Senate Committee on Banking and Currency stated, "It is intended that this study and investigation be wide in scope; otherwise the resulting information will not enable Congress to examine the broad spectrum of the securities industry." House Report No. 882 dated August 10, 1961, emphasizes the need for an intensive and broad review and investigation of the rules of the national securities er. changes and national securities associations, in light of the significant growth of public participation in the securities markets and changes in methods of distributing securites.

In addition to the question of the adequacy of the present rules and of enforce ment procedures, there is a need for a comprehensive study or review of the following subjects and recommendations relating thereto:

(1) Adequate reporting requirements for companies whose securities involve a substantial public interest, but which are not subject to the reporting require ments of the 1934 act.

(2) Obtaining basic information on a continuing basis on the volume and activities on the over-the-counter markets.

(3) Distribution practices in the operation of mutual funds,

(4) Reconsideration, in the light of present conditions, of the advisability of segregating the functions of brokers and dealers.

(5) Exchange listing and delisting standards.

(6) Delivery of securities and the proceeds of the sale of securities within a reasonable time by brokers and dealers.

(7) Extension of credit by moneylenders and others in unregulated areas.

[merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][ocr errors][subsumed][merged small][merged small][merged small][merged small]

Personnel summary

1960 actual

1961 actual

1962 estimate

Total number of permanent positions.
Full-time equivalent of other positions..
Average number of all employees..
Number of employees at end of year.
Average GS grade.
Average G8 salary..


7 952 980

8.9 $7,114


7 1,024 1,087

8. 9 $7,649

1, 315

10 1,213 1, 325

9.3 $7, 883

Detail of personnel compensation


45,801 15,287

[ocr errors]
[ocr errors]

9, 235, 900

1, 213

9, 574, 900

net salary)------
See footnotes at end of table.



« PreviousContinue »