Senator WILLIAMS. That is a very, very constructive and new thought that has been raised here. I don't think it has been raised before. Now your list of participation in the economy of this country is imposing. I missed whether you are a member of the New York Stock Echange. Mr. SCHMIDT-SCHEUBER. That's correct. We are not a member of the New York Stock Exchange. Senator WILLIAMS. You start in Boston Mr. SCHMIDT-SCHEUBER. Right. Senator WILLIAMS. [continuing]. And go to Chicago- Senator WILLIAMS [continuing]. You pick up Baltimore, but you overlooked New York. Mr. SCHMIDT-SCHEUBER. We didn't really overlook it. We tried to become a member back in 1971 and filed a letter of intent and as soon as the New York Stock Exchange decides to eliminate 314, which bars foreigners, from buying membership on the New York Stock Exchange, we would be very happy to buy a membership on the New York Stock Exchange. Senator WILLIAMS. What was the restriction under the rule? Mr. SCHMIDT-SCHEUBER. 314. Senator WILLIAMS. That restricts who? Why were you prohibited under the rule? Mr. SCHMIDT-SCHEUBER. Companies owned by foreigners. Mr. MORIN. The New York Stock Exchange, as I recall, prohibits more than 25 percent of the voting securities, or of control, to be owned by other than United States or Canadian citizens and also prohibits more than 45 percent of the profit-sharing interest-that is the equity in a member firm-from being owned by other than American and Canadian citizens. I believe those figures are correct. Senator WILLIAMS. I wish I had known that an hour ago. I would have asked Mr. Ball, who is a partner in a member firm, just what the justification for that is. Mr. MORIN. I believe it has been in the rules for about 40 years, Mr. Chairman. Senator WILLIAMS. That comes as news to me, and I am very curious about the possible justification. We will have to inquire at another time. I am glad you asked the question. Anything further? Excellent statement, Mr. Schmidt-Scheuber. Mr. SCHMIDT-SCHEUBER. Thank you very much. Senator WILLIAMS. That is our last witness for today. Tomorrow we return at 10:00 o'clock to Room 1318. I would like to announce that the anchor witness of today, Mr. Menell, will be the lead-off witness tomorrow. Thank you. [Whereupon, at 12:58 p.m., the hearing was adjourned, to reconvene at 10:00 a.m. Thursday, March 6, 1975.] [Complete statement of Mr. Schmidt-Scheuber and a letter from Mr. Morin subsequently received for the record follows:] Statement of THEODOR SCHMIDT-SCHEUBER, PRESIDENT ABD SECURITIES CORPORATION INTRODUCTION My name is Theodor Schmidt-Scheuber, and I am President of ABD Securities Corporation (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. Exchange. We are also an associated member of the PBW Stock ABD is jointly owned by four of the largest banks in Europe, which, in turn, serve as securities brokers for over four million retail accounts. It is fair to say, therefore, that ABD is one of the largest, if not the largest, purchaser of United States securities for the accounts of European customers on U.S. securities exchanges. HISTORY OF ABD SECURITIES CORPORATION ABD was organized in 1968 under the name "German-American Securities Corporation" as the wholly-owned subsidiary of Dresdner Bank, a commercial and investment banking organization with principal offices in Frankfurt, Germany. Prior to 1968, Dresdner Bank in common with other European banks acting as broker for their retail had directed its customers' orders for U.S. securities to U.S. brokerage firms and had charged its customers a so-called "double commission" on the transactions. accounts - Thus, Dresdner Bank would charge its customers a normal brokerage commission on the transaction, and, in addition, would pass along to the customer the New York (or other) Stock Exchange commission which it was obligated to pay to the U.S. broker-dealer with which Dresdner Bank placed the order. In response to competition presented by the opening of branch offices in Germany by large U.S. brokerage firms, and to the solicitation of the Boston Stock Exchange, Dresdner Bank in 1968 organized German-American Securities Corporation and became a member of that Exchange. Following this, all orders for securities traded in the U.S. securities markets were placed by Dresdner Bank directly with its subsidiary, GermanAmerican Securities Corporation, and the customer was charged only the minimum commission charged by German-American on the transaction. In 1972, German-American was greatly enlarged through the acquisition of the assets of ABN Corporation ("ABN"), a wholly-owned subsidiary of Algemene Bank Nederland, a very large Netherlands bank which was engaged in commercial and investment banking, with its principal offices in Amsterdam. ABN, a Delaware corporation with offices in New York City, was primarily engaged in underwriting and and international arbitrage. At the time of acquisition, ABN was a member of the Midwest Stock Exchange and was also registered with the Securities and Exchange Commission and the N.A.S.D. with the acquisition, two other large foreign banks Bruxelles of Brussels, Belgium, and Bayerische Hypotheken-Und WechselBank of Munich, Germany, purchased substantial equity capital in the Simultaneously Banque De enlarged company, whose name was changed to the present ABD Securities Corporation. Each of the four participating European bank-shareholders owns 25% of the voting stock of ABD. MEMBERSHIP ON U.S. SECURITIES EXCHANGES Before presenting the views of ABD which concern S.425, the Foreign Investment Act of 1975, it might be appropriate to point out the reasons why Dresdner Bank, as well as other European banks, have formed subsidiaries to become members of U.S. securities exchanges. Obviously, economic access is significant and the reduction of the cost of executing transactions in the U.S. exchange markets is important if a foreign broker-dealer is to compete effectively with U.S. broker-dealers with foreign branches. This is, however, not the principal reason for ABD's shareholders' desire to expand ABD's access to U.S. securities markets. Through ABD the four shareholders are able to offer their customers in Germany, Belgium and the Netherlands, in addition to reduced brokerage costs, full investment services in the U.S. securities markets, including execution of orders, investment advice and management, direct and broader participation in U.S. offerings and corporate financial services. Although these customer services may be available to the ABD shareholders through unrelated U.S. broker-dealers, we have found that they are not available in the quality and quantity to which we believe the shareholders' European customers are entitled. In addition, the four shareholders have discovered that their customers are more willing to invest their capital in U.S. securities when they are dealing with an entity which is related to the financial institution with which they have been dealing on a regular basis and in which they have more personal confidence. It should be added that although ABD was initially organized to provide these customer services, the four shareholders are also strongly committed to making ABD a contributing factor in the U.S. securities markets through its activities as a specialist on the Boston and Midwest Stock Exchanges, its trading and "positioning" of large blocks of securities, its market-making activities and its international arbitrage operations. Obviously, all of these activities add depth and liquidity to the U.S. securities markets, and to this extent benefit not only ABD's own customers in Europe, but all investors in these markets. They are activities which are engaged in with full knowledge of the risks involved, but with an awareness of the obligations which ABD must assume if it is to grow and prosper as a member of United States Exchanges. SELECTIVE TREATMENT OF FOREIGN MEMBERS OF U.S. SECURITIES EXCHANGES A year ago in a speech before the International Symposium on Foreign Investment in the United States Mr. Lee Pickard, then and now Director of the Division of Market Regulation of the Securities and Exchange Commission observed that it was the national policy of the |