of what I think the Arab rationale is, that if the partners in a firm are major contributors to a state with which those countries are at war, then they may be included in the boycott. All I can say is I think the boycott has been drawn in the most haphazard way and maintained with a high degree of irrationality. Some of the firms don't seem to have any reason to be on the list at all.

Mr. MACGREGOR. Yes, indeed. There were several of them.

Senator WILLIAMS. It seems to me any acquiescence just aids and abets a very immoral activity. That is how it strikes me.

Mr. BALL. I agree. As I suggested to you, if the problem were presented in my own firm, we wouldn't acquiesce at all; but that is not the question that is before the committee.

Senator WILLIAMS. I said something yesterday, and I would like to have your evaluation of whether I was correct. I said that NASD rules and regulations would prohibit a member from this kind of restraint, and being part of the syndicate where one of the members said others could not be part of it. Did the NASD rules

Mr. BALL. I don't know, Mr. Chairman.

Senator WILLIAMS. It certainly seemed to me that antitrust laws bear directly on this, too.

Mr. BALL. With this I agree. I think that to the extent that the country may have an investment in a U.S. firm, it obviously becomes much more directly subject to the antitrust laws than if it simply exists outside and tries to influence the situation by an occasional participation in a securities issue or something.

Senator WILLIAM. Senator Javits?

Senator JAVITS. Mr. Chairman, I would like to ask both of these gentlemen-especially Mr. Ball. He said that nothing really happens until a firm actually buys into some other firm; and then the laws reach it in terms of discrimination. I have grave doubts about that. Isn't it a fact that the effort to bar two allegedly Jewish banking firms from this underwriting syndicate came before they picked their underwriters? It was the very exercise of that discrimination before they picked their underwriters that was the serious thing that we complain about. Isn't that true?

Mr. BALL. I don't know actually what the facts were. I only know what I read in the newspapers. As I understood the situation, the matter was presented to the lead manager, a merchant bank in London in one situation for example, saying they couldn't have so and so in the syndicate, and they acquiesced, which was not the thing to do.

Senator JAVITS. The matter was presented here to Merrill, Lynch and they didn't acquiesce. That was before the particular Arab country picked its underwriter. That is what we are contending. We are contending you have to know about this before. That's what we consider immoral pressures that are being exercised.

Mr. BALL. The Arab country didn't pick the underwriter. As I understood it, it was the custom of an Arab country saying it wouldn't join in an underwriting syndicate in which one of the managers was a firm that was on the list.

Senator JAVITS. Isn't it true, Mr. Ball, that so far as you know-and I think you know a good deal about the Middle East-that you can go to jail in Kuwait if you are convicted of violating what they construe the boycott to be, even if you are awaiting business?

Mr. BALL. I don't know. I would assume that may well be the case. Senator JAVITS. That's pretty massive pressure.

The thing that does appall me, if I may speak candidly to you both, is that you go through this statement which you filed, and there isn't a line in it-I would like you to show me the line, if there is one-which takes into cognizance this moral issue about the United States. Can you show me a line in this statement other than the fact that you favor 2-way investment, et cetera, that has any feeling for the immoral nature of this pressure which is being-which we only see the beginning of, unless we say the buck stops here in the United States? Do you take any cognizance of it in this statement whatever? Mr. MACGREGOR. We didn't come down here to talk about that, Senator. That is a subject that has been raised here. I think in your absence I explained that my understanding of the situation was that these boycotts were involved in a "trading with the enemy" situation. I certainly think the best solution to that problem is to find how to get hostilities ended. To this end, I commend the efforts of Congress and the administration in doing this. The business community is concerned. None of the actions taken during the hostilities between governments have reached the extent of actual warfare, and boycotts and things like this are nothing that we commend at all.

We feel very much upset, but we look to our Government to resolve these problems. We were talking here about the question of investment under normal conditions.

Senator JAVITS. You say you look to your Government to resolve these problems. Nonetheless, you are here testifying against a measure which is proposed to be taken by your Government, so you are involving yourself very directly in the affairs of your Government. If you are going to advise us as to what we should do and shouldn't do, then you have to advise us in the face of the issues. I have stated the issue. So you can't come down here and avoid the issue if you want to oppose something we wish to do about it.

Mr. MACGREGOR. In your absence, Senator, I think we covered that point thoroughly. I would be glad to go over it again.

Senator JAVITS. Well, if you would, I would greatly appreciate it. Mr. MACGREGOR. What we are talking about here is that you already have the mechanisms to avoid any exercise of control over the activities of corporations. That is the simple point.

Senator JAVITS. That's essentially the position of the administration? Mr. MACGREGOR. Yes.

Senator JAVITS. You back their position?

Mr. MACGREGOR. I would think so.

Senator JAVITS. All right.

The other question I would like to call to your attention is the fact that the boycotts to which Mr. Ball referred, respecting Rhodesia, and Cuba, are, one, a boycott of a valid international law because it is imposed by the United Nations on copper, et cetera. The other is a boycott imposed by U.S. law, the conscious law of this Government, which does not endeavor-it simply cuts off Cuba and does not endeavor to manipulate anybody in Cuba. That is the accusation. That is the state of facts which has surfaced in the United States; and what this legislation is directed against.

Mr. BALL. I don't claim that this is a complete analogy at all. I simply said that when we were getting into the area of boycotts in

America, we had to take account of the total situation. The U.S. Government found great, great abrasion resulting from its own efforts to compel the Canadian subsidiaries, for example, of American companies not to ship to Cuba-and before that not to ship goods to China-even though it happened to be the policy of the Canadian Government at that time to encourage shipments to China and is presently the policy of the Canadian Government to encourage shipments to Cuba.

What I was suggesting was merely that when these matters become extraterritorial, they become extremely difficult. What we face right now is an attempt to extend, on an extraterritorial basis, a policy which, in international law, is presumably justified as an act of economic warfare, but which becomes, then, an interference with the rights of individuals in a foreign country.

I am as much opposed to extraterritoriality in the one case as I am

in the other.

Senator JAVITS. Yes. But you see, it is not extraterritoriality in this country. Just as Canada could have in the final analysis decided what she would allow American subsidiaries operating there to do, and so could Argentina, that's the kind of authority which this bill seeks to assert. nothing extraterritorial about it. We are going to deal with American companies and what's happening in American companies. The fact that in economic terms all may be fair in love and war according to the Arabs doesn't mean that we should try to stop it if it distorts our policy and social structure. That's exactly what I understand this bill is trying to do.

What I was looking for was some comment as to the desirability or morality of this Government action. Essentially, Mr. MacGregorI don't know about you, Mr. Ball-essentially, Mr. MacGregor says, I refer you for that to the arguments of the U.S. Government; then, of course, we have argued that out with the U.S. Government. That's your position. There's really no use in debating it with you.

Mr. MACGREGOR. Well. Mr. Chairman-Senator, I would like just to add this: that our testimony was prepared before the boycott issue was incorporated in the amendment to your proposed legislation. We deprecate boycotts, whether they be internal or external in any form. As I said-again. in your absence, unfortunately-we don't like boycotts on lettuce, on pants, or on oil, or boycotts or black lists for people for discriminatory purposes.

Senator JAVITS. I take it that you. Mr. MacGregor, agree with the President's statement on this subject?

Mr. MACGREGOR. Generally.

Senator JAVITS. Mr. Ball?

Mr. BALL. Yes. I thought it was a very fine statement.

Senator JAVITS. Therefore, if we should consider implementing legislation necessary or desirable, you would not consider that I mean, I differ with you, but you wouldn't consider that an extreme decision by the Congress?

Mr. BALL. No. I think it is a matter of how you go about it. As I understand, what we were talking about was S. 425. I was told this morning there had just been another amendment to S. 425 which I haven't even seen. Mr. MacGregor hasn't even seen it. Is that the case? This covers this issue. I just want to make the record quite clear-I

have never seen that amendment and only heard about it when I came in this morning.

Senator JAVITS. Perhaps if the chairman wishes, he could let you make any written comment on that.

Mr. BALL. I would be glad to.

Mr. MACGREGOR. I think we can subscribe to the position you outlined. Clearly this is an area which we absolutely find totally unsatisfactory in international business transactions.

Senator WILLIAMS. Under the bill, the authority to restrict the investment is in the hands of the President. The amendment would define one activity that would be legislated as a restriction on investment. That would be a country that is engaged in the boycott.

Senator JAVITS. Thank you, Mr. Chairman.

Senator WILLIAMS. Thank you very much, Senator Javits.
And, gentlemen, we appreciate it very much.

Mr. MACGREGOR. Thank you.

Senator WILLIAMS. Mr. Theodor Schmidt-Scheuber is our next witness.

STATEMENT OF THEODOR SCHMIDT-SCHEUBER, PRESIDENT, ABD SECURITIES CORPORATION; ACCOMPANIED BY CHARLES MORIN, GENERAL COUNSEL

Senator WILLIAMS. On our list, do we have your name spelled correctly, Mr. Schmidt-Scheuber?

Mr. SCHMIDT-SCHEUBER. Yes.

Senator WILLIAMS. We welcome you, Mr. Schmidt-Scheuber.

Mr. SCHMIDT-SCHEUBER. Thank you very much, Mr. Chairman. My name is Theodor Schmidt-Scheuber, and I am president of ABD Securities Corp.-which I shall refer to hereafter as ABD. ABD is a Delaware corporation with its principal office in New York City and branch offices in Boston and Chicago, and is engaged in a general securities business. We are registered with the Securities and Exchange Commission, and we are a member of the National Association of Securities Dealers, the Boston Stock Exchange and the Midwest Stock Exchange. We are also an associated member of the PBW Stock Exchange.

Besides my position as president of ABD Securities Corporation, I have served as governor of the Boston Stock Exchange since 1969 and I have been vice chairman since 1971.

I have with me Charles Morin, our chief counsel.

ABD is jointly owned by four of the largest banks in Europe, which, in turn, serve as securities brokers for over 4 million retail accounts. It is fair to say, therefore, that ABD is one of the largest, if not the largest, purchaser of U.S. securities for the accounts of European customers on U.S. securities exchanges.

As you have no doubt concluded for yourselves, I am from Germany, and I should like briefly to tell you how it happens I am here today. We have filed a written statement which goes into some detail regarding the formation of ABD and its membership on the various securities exchanges. This statement also contains specific reference to the various amendments to the Securities Exchange Act which are proposed in S. 425. In the interest of conserving time, I shall simply refer to this statement without reading it and use the time allotted to me

first to summarize the history of my company, and then to comment in some detail on the two provisions of S. 425 which give us particular

concern.

[The complete statement is printed at p. 269].

Mr. SCHMIDT-SCHEUBER. ABD was originally German-American Securities Corp., a wholly owned subsidiary of Dresdner Bank, which is Germany's second largest commercial bank and by far its largest stock broker, handling over 2 million retail accounts. I mention this to emphasize the fact that in Germany, as in most European countries, our law requires that only banks may represent the public in securities transactions quite the opposite from your U.S. concept which is embodied in the Glass-Steagall Act.

At the beginning, in 1968, German-American was formed by Dresdner Bank in order to compete with U.S. brokerage firms who were members of the New York Stock Exchange and who had either purchased or made arrangements with German banks to service German customers at lower commissions than Dresdner Bank could charge. In common with most other European banks purchasing New York Stock Exchange securities for their customers, Dresdner Bank was forced to pay a U.S. member firm the regular stock exchange commission, on top of which it added its own commission. Purchasing membership on the Boston Stock Exchange through German-American enabled Dresdner Bank to place its order directly with GermanAmerican and to charge only one commission if the trade could be executed on that exchange. Although German-American was not eligible to join the New York Stock Exchange, a number of procedures were available which enabled German-American to recapture a very substantial proportion of New York Stock Exchange commissions which it was required to pay.

In 1972, German-American had proven so successful that it was able to expand greatly. It purchased all of the assets of a similarly owned subsidiary of Algemene Bank Nederland, the Netherlands' largest commercial bank, and, joined by one of Belgium's largest banks, Banque de Bruxelles, and the principal bank in Bavaria, Bayerische Hypotheken-Und Wechsel-Bank, ABD was formed with a net capital of over $5 million.

Today ABD handles virtually all of the securities transactions for its 4 bank shareholders, servicing over 4 million retail accounts in Europe and accounting in 1974 for an annual volume of over $1.5 billion, only 15 percent of which was transacted on the New York Stock Exchange. We are, therefore, very much interested in the Foreign Investment Act, and I am here because our own experience in handling many thousands of trades from European sources might be of use to your committee.

I should like briefly to refer to the section in my statement entitled, "Membership on U.S. Securities Exchanges," where I have tried to emphasize the fact that ABD is not only using its membership to provide cheaper securities executions for its shareholders' customers in Europe. It is also making a major contribution to the health of both exchanges of which it is a member. ABD is one of the largest specialists on the Boston Stock Exchange, accounting for about 31 percent of the volume on that exchange and is perhaps one of the most important marketmakers on all of the regional exchanges. We handle large blocks