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THE SEC's DEREGULATORY PROGRAM

JOHN S. Rr SHAD*

Ninth AnnualSecurities Regulation Institute

San Diego, California

January 21, 1982

* John S.R. Shad is Chairman of the Securities and ExchangeCommission. In accord with Commission policy, the viewsexpressed are his own and not necessarily those of theCommission.

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HE ALSO:o .PROPOSED DEREGULATION

OF THE TRUCKING AND RAILROAD INDUSTRIES;o AND SUPPORTED REGULATORY REFORM

OF THE TELEPHONE~RADIO~ TELEVISION~AND DATA TRANSMISSION INDUSTRIES-

PRESIDENT REAGANHAS ESCALATED REGULATORY REFORMTO ONE OF THE FOUR PRINCIPAL OBJECTIVESOF HIS ADMINISTRATION-

UPON TAKING OFFICE~HE APPOINTED VICE PRESIDENT BUSHTO HEAD THE PRESIDE~TIAL TASK FORCEON REGULATORY RELIEF-

OVER THE PAST 10 YEARSTHE STAFFS OF THE 56 FEDERAL REGULATORY AGENCIESHAVE. TRIPLED-

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THEIR EXPENDITURESHAVE INCREASED 7 FOLD - TO $6.5 BILLION IN 1980 ••

. THE CENTER FOR THE STUDY OF AMERICAN BUSINESSAT WASHINGTON UNIVERSITYHAS PROJECTED AN ADDITIONAL 20% INCREASEBY THE END OF THIS YEAR-

IN FEBRUARYI PRESIDENT REAGAN SAIDI

(QUOTE) "ADMINISTRATIVE OUTLAYSOF THE REGULATORY AGENCIES.ARE PASSED ON TO INDIVIDUALSAND BUSINESSESIN THE FORM OF HfGHER TAXES.

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"MUCH LARGER . . .

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ARE THE COSTS OF COMPLIANCE)WHICH ADD S100 BILLION PER YEAR.TO THE COSTS OF THE GOODS AND SERVICES WE BUY.THE MOST IMPORTANT EFFECTS OF REGULATION) HOWEVER)ARE THE ADVERSE IMPACTSON ECONOMIC GROWTH.

PERSONNEL FROM 27)661 IN 1970 TO 881175 IN 1980 (1981E: 89)450;82E: 881800). EXPENDITURES FROM S866 MILLION IN 1970 TO $6.5BILLION IN 1980 (1981E: $7.2; 82£: $7.8). SOURCE: CENTER FORTHE STUDY OF AMERICAN BUSINESS) MAY 1981.

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-THESE ARISE BECAUSE ~EGULATIONS MAY:o DISCOURAGE INNOVATIVE RESEARCH AND DEVELOPMENTJ

o REDUCE INVESTMENT IN NEW PLANT AND EQUIPMENTJ

o RAISE UNEMPLOYMENTBY INCREASING LABOR COSTSJ

o AND REDUCE COMPETITION-

.TAKEN TOGETHER~THESE LONGER RUN EFFECTSCONTRIBUTE SIGNIFICANTLYTO OUR CURRENT ECONOMIC DILEMMAOF HIGH UNEMPLOYMENT AND INFLATION-" (UNQUOTE)

EFFECTIVE ENFORCEMENT

THE COMMISSION'S RAISON O'ETREIS THE EFFECTIVE ENFORCEMENTOF THE FEDERAL SECURITIES LAWS-

IN AN ERA OF DEREGULATIONJ

VIGOROUS ANTIFRAUD ENFORCEMENTTAKES ON ADDED IMPORTANCE-

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THE SEC's ENFORCEMENT PRIORITIES INCLUDECORPORATE FRAUD1

MARKET MANIPULATIONAND INSIDER TRADING ABUSES -EXPOSING AND PROSECUTING THOSE W~OIOVERCOME BY GREED1

WOULD IMPUGN THE INTEGRITYOF THE BEST SECURITIES MARKETS1

THE WORLD HAS EVER KNOWN -THE BROADEST1

THE MOST ACTIVE AND EFFICIENT -AND THE FAIREST-

EFFECTIVE CORPORATE DISCLOSUREOF MATERIAL INFORMATIONCAN ONLY BE ACHIEVEDTHROUGH VOLUNTARY COMPLIANCE-

WHILE IT CANNOT BEA SELF-IMMUNIZATION PROCESS1

CONSIDERATION WILL BE SHOWNTO COMPANIES THAT PROMPTLY CORRECTINADEQUATE OR ERRONEOUS FILINGSAND TAKE APPROPRIATE REMEDIAL ACTION-

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THE DIVISION OF ENFORCEMENTIS CONDUCTINGA COMPREHENSIVE EXAMINATIONOF THE COMMISSION'S ENFORCEMENT POLICIES AND PRACTICES -THE FAIRNESS AND EFFECTIVENESS

. OF THE PROGRAMAND WHETHER OF THE COMMISSION'S SANCTIONS AND REMEDIESSHOULD INCLUDECEASE AND DESIST ORDERSAND COURT IMPOSED CIVIL FINES-

~EREGULATORY OBJECTIVES

UNDER THE CHAIRMANSHIPSOF WILLIAM ~ASEY~ RAY GARRETT~

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ROD HILLS AND HAROLD WILLIAMS -~ESPONSIBLE DEREGULATORY INITIATIVESHAVE BEEN TAKEN -SOME OF WHICHARE JUST NOW COMING TO FRUITION-

THE PRESENT MEMBERS OF THE COMMISSIONAND THE STAFFHAVE MADE MAJOR SUBSTANTIVE CONTRIBUTIONSTO THE COMMISSION'SPRESENT DEREGULATORY EFFORTS-

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THE FIVE OBJECTIVES OF THE PROGRAM ARE TO:o WITHDRAW OUTMODED

AND REDUNDANT REGULATIONS;o IMPROVE THE CLARITY

AND REDUCE THE BURDENOF PUBLIC DISCLOSURESBY SIMPLIFYING THE REGULATIONS;

o PLACE GREATER RELIANCE -ON THE SELF-REGULATORY ORGANIZATIONS -THE STOCK EXCHANGES1

AND OTHERS;o COORDINATE - AND ELIMINATE CONFLICTS -

BETWEEN REGULATORY AUTHORITIES;o AND ASSIST CONG~ESS

IN LEGISLATIVE REFORM -WHICH IS THE MOST IMPORTANTOF THESE EFFORTS-

r WILL B~IEFLY DISCUSSEACH OF THEM.

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SIMPLIFICATION OF SEC-RULES AND REGULATIONS.

JNTEGRATION PACKAGETHE SIMPLIFICATION

OF CORPORATE REGISTRATIONAND REPORTING REQUIREMENTSIS A PRIMARY ~BJECTIVE •

As YOU KNOW1

THE INTEGRATION PACKAGE1

RELEASED FOR COMMENT IN SEPTEMBER1

INTEGRATES THE REPORTINGAND REGISTRATION REQUIREMENTSOF THE 1933 AND 1934 ACTS -AND VOLUMINOUS REGULATIONS

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UNDER THESE ACTS. ~

As IN THE CASE OF THE S-161PRIOR CORPORATE FILINGSWILL BE INCORPORATED BY REFERENCE-

THE NEW SHORT FORM REGULATIONSWILL TELESCOPE CORPORATIONS'PAPERWORK1 TIME AND EXPENSES1

AND AFFORD GREATER FLEXIBILITY1Ni.STRUCTUR ING ',-ANDT 1MINGFUTURE PUBLIC FINANCINGS.

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AND - MOST IMPORTANT -

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THESE BENEFITS WILL BE ACHIEVEDWITHOUT COMPROMISINGINVESTOR PROTECTION.

THE RESPONSETO THE INTEGRATION PACKAGEWAS BEEN ENTHUSIASTIC.

IT IS THE PRODUCTOF AN IMPRESSIVETWO-YEAR EFFORTBY THE DIVISION OF CORPORATION FINANCE.

IT WILL BE SUBMITTED(

TO THE COMMISSION •FOR FINAL REVIEW AND APPROVALIN FEBRUARY.

THE FORMAT OF lO-KsHAS ALSO BEEN SIMPLIFIED.

REGULATION U

PROPOSED REGULATION DWILL EXEMPT FROM REGISTRATIONCERTAIN LIMITED SECURITIES OFFERINGS -UP TO $5 MILLION.

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1.REG D WILL ALSO BE UP FOR

FINAL REVI EW AND APPROVALIN FEBRUARY.

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CORP FIN HAS DEVELOPED REG DIN CONSULTATION WITHSTATE SECURITIES COMMISSIONERS.

MOST STATES ARE EXPECTEDTO ENACT COMPARABLE EXEMPTIONS -WHICH WILL BE THE FIRST1

UNIFORM1 STATE AND FEDERALREGISTRATION EXEMPTIONS.

CORP FIN IS ALSO WORKINGWITH STATE SECURI~IES COMMISSIONERSON THE SIMPLIFICATION AND IMPROVEMENTOF REAL ESTATE PARTNERSHIP FILINGS.

HOPEFULLY1

THESE FIRST SMALL STEPSWILL LEAD TO BIGGER AND BETTER1

UNIFORM1 STATE AND FEDERALDEREGULATORY INITIATIVES •

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ACCOUNTING RULESIN THE ACCOUNTING AREA}

14 OUTDATED AND REDUNDANTACCOUNTING SERIES RELEASESHAVE RECENTLY BEEN WITHDRAWN-

THE OFFICE OF THE CHIEF ACCOUNTANTIS PRUNING THE REMAINING 245 ASRsWITH A VIEW TO WITHDRAWINGTHOSE THAT ARE NO LONGER RELEVANT)AND CODIF~ING THE BALANCE-

A SIMILAR REVIEWOF REGULATION S-XIS IN PROCESS-

THE BULK OF THESE REVISIONSWILL BE COMPLETEDWITHIN 90 DAYS-

JNVESIMENI COMPANIESIN THE INVESTMENT COMPANY AREA}

BASED UPON STUDIESAND RECOMMENDATIONS•BY THE DIVISION OF INVESTMENT MANAGEMENT}THE COMMISSION HAS RECENTLY:

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o ELIMINATED REPORTSON PORTFOLIO CHANGES;

o ADOPTED STANDARDIZEDFINANCIAL STATEMENTS;

o PERMITTED THE USE OF PROSPECTUSESAS SHAREHOLDER REPORTS;

a AND PROPOSED AUTOMATIC EFFECTIVENESSOF UNIT INVESTMENT TRUSTREGISTRATION STATEMENTS.

SELF-ExECUTING RULESIN ADDITION} PRIOR COMMISSION APPROVAL

OF CERTAIN TRANSACTIONSWILL NO LONGER BE REQUIRED.

CODIFICATIONOF RULE 10B-6 EXEMPTIONSISIN PROCE-SS.

THE PROPOSED SHELF REGISTRATION RULE}WILL PERMIT QUALIFIED ISSUERSTO SELL IN THE OPEN MARKETOR THROUGH UNDERWRITERS}FROM TIME TO TIME WITHIN 2 YEARS}ALL. OR ANY PARTOF THE SHARES REGISTERED.

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RULE 180 REDUCES THE NEEDTO OBTAIN KEOGH AND SIMILAR PLANREGISTRATION EXEMPTIONS.

STAFF INTERPRETATIONS HAVE RECENTLY •BEEN PUBLISHED ONo RULE 144;o EMPLOYEE BENEFIT PLANS;o AND THE SHORT-SWING TRADING RULES •

.PROXY REVIEWIN FEBRUARY1

CORP FIN WILL ALSO COMMENCEA COMPREHENSIVE REVIEWOF THE PROXY REGULATIONS.

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THE OBJECTIVE IS TO SIMPLIFYAND IMPROVE THE CLARITY OF PROXIESIN ORDER TO BETTER SERVE INVESTORS.

AREAS THAT WILL RECEIVEPARTICULAR ATTENTION INCLUDE:o SHAREHOLDER PROPOSALS;o MANAGEMENT REMUNERATION;o DIRECTOR RELATIONSHIPS;o MERGER PROXIES;o AND THE PROXY CONTEST

AND SOLICITATION RULES.

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THE ADVISORY COMMITTEEON SHAREHOLDER COMMUNICATIONSAND OTHERS WILL ASSISTIN SOME OF THESE EFFORTS.

EFFECTIVE DISCLOSURES

THUS, PROGR~SS IS BEING MADEIN THE SIMPLIFICATION AND IMPROVEMENTOF THE RULES AND REGULATIONS.

BUT YOUR HELPIS ALSO NEEDED -IF THE FULL BENEFITSOF THESE EFFORTSARE TO BE REALIZED.

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•OVER THE YEARS,

PROSPECTUSES, PROXIES AND 10KsOF LEGITIMATE CORPORATE ENTERPRISESHAVE BECOME PONDEROUS DOCUMENTS,NOT ONLY BECAUSE OF THE COMMISSION'SCOMPLEX REGULATIONS,BUT ALSO BECAUSE SOME L -VI EW THEMPURELY AS. NEGATIVE DISCLOSURE DOCUMENTS-AS -INSURANCE POLICIES. - •

FOR USE AGAINST SHAREHOLDERS I~ LITIGATION.

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MORE THA~ ONE -.CHIEF EXECUTIVE OFFICERHAS NOT BEEN ABLETO RECOGNIZE HIS OWN COMPANYFROM THE INFORMATION SET FORTHIN HIS 10K.

IF HE QUESTIONSTHE PONDEROUSI NEGATIVEI

OVERKILL COMPLIANCE LANGUAGEI

HE IS OFTEN TOLDI

-DON'T WORRY ABOUT ITI NO ONE READS THEM ANYWAY".

IT IS TRUE THAT FEWINDIVIDUAL SHAREHOLDERS READ THEM.

INDEEDI THEY ARE SOMETIMESUNINTELLIGIBLE TO PROFESSIONAL ANALYSTS-

BUT THEY ARE NOT ONLY READI

THEY ARE CAREFULLY STUDIEDBY INVESTMENT BANKERS I ANALYSTS AND ADVISERS;LONG AND SHORT TERM LENDERS;THE BOND RATING AGENCIES;AND - MOST IMPORTANT -BY INSTITUTIONAL INVESTORS -WHO ACCOUNT FOR 70% OF THE MARKET IN LISTED STOCKSAND HALF OF THE OVER-THE-COUNTER MARKET-

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AND THEY ARE REVIEWEDBY ISSUERS' KEY PERSONNELAND MAJOR CUSTOMERS AND SUPPLIERS -AS WELL AS BY ACQUISITION PROSPECTSAND THE FINANCIAL PRESS-

SUCH DOCUMENTSSHOULD MAKE FULL DISCLOSUREOF MATERIAL AFFIRMATIVE -AS WELL AS ALL MATERIAL NEGATIVE INFORMATIONAND RISK FACTORS -NOT ONLY TO AVOID SUITSFROM SHAREHOLDERSWHO WOULD NOT' HAVE SOLDIF THEY HAD BEEN PRqPERLY INFORMEDjBUT ALSO BECAUSEINTELLIGENT INVESTMENT DECISIONSCANNOT BE MADEON DISTORTED1 ONE-SIDED PRESENTATIONS-

CLEAR1 CONCISE1 FULL DISCLOSUREOF MATERIAL NEGATIVE AND AFFIRMATIVE FACTSSERVE THE INTENT OF THE SECURITIES LAWS -AS WELL AS THE BEST INTERESTSOF SHAREHOLDERS -AND THE CORPORATIONS THEY OWN-

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COORDINATION WITH OTHER REGULATORY AUTHORITIES

THE COORDINATION -AND ELIMINATION OF CONFLICTS -WITH OTHER REGULATORY AUTHORITIESIS ANOTHER IMPORTANT OBJECTIVE-

STATE COORDINATIONSUCH EFFORTS WITH THE STATES1 INCLUDE:

o THE UNIFORM REGISTRATION EXEMPTIONS1

PREVIOUSLY MENf.IONEDjo STANDARDIZATION

OF BROKES-DEALER REGISTRATION FORMSjo CENTRAtCOMPUTER REGISTRATION

. OF SECURITIES SALESMEN1«

BROKER-DEALERS AND INVESTMENT ADVISORSjo ANO COOROINATED BROKES-DEALER INSPECTIONS-

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THERE HAS BEENA LONG HISTORYOF CLOSE STATE AND FEDERAL COOPERATIONON ENFORCEMENT MATTERS.

tETe ACCORDAT THE FEDERAL LEVEL,

THE RECENTLY ANNOUNCED ACCORDCONCERNING THE LONG-STANDINGJURISDICTIONAL DISPUTESWITH THE COMMODITY FUTURES TRADING COMMISSIONWILL SOON PERMITCORPORATIONS, INVESTMENT AND MORTGAGE BANKERS,

. PORTFOLIO'MANAGERS AND OTHERSTO HEDGE FLUCTUAT1NG INTEREST RATES,'•SECURITIES MARKETS AND OTHER RISKS.

EHLRB COORDINATIONALSO, RECENT CLOSE COORDINATION

WITH THE FEDERAL HOME LOAN BANK BOARD.FACILITATED THE ORDERLY RESOLUTION

OF A MAJOR THRIFT INSTITUTION'S PROB~EMS.

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-20-ACCOUNTING SELF-REGULATIONALSO~ BY THE END OF THIS YEAR~

THE AICPA's PEER REVIEW PROGRAMWILL BE ON A FULL SCALE~THREE-YEAR INSPECTION CYCLE-

PeER REVIEWS -• WHICH TEST

ACCOUNTING FIRMS' QUALITY CONTROLS -HAVE INCREASED FROM 50 IN 1980TO THE 200 SCH EOULED FOR TH IS YEAR.-

BROKER-DEALER S~LAST WEEK'S

REDUCTION IN BROK~RrDEALeRS'•NET CAPITAL REQUIREMENTS

IS THE CULMINATIONOF AN INTENSIVETHRE~YEAR STUDYBY THE DIVISION OF MARKET REGULATION-

IT IS PREDICATED ONMAJOR IMPROVEMENTSOVER THE PAST SIX YEARSWITHIN THE SECURITIES INDUSTRY -,

AND ITS SELF-REGULATORY ORGANIZATIONS-

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THE SROs' ARE ASSUMINGGREATER RESPONSIBILITYFOR THE EARLY WARNING SURVEILLANCEOF FIRMS THAT ARE APPROACHING OPERATIONALOR FINANCIAL DIFFICULTIES.

jNVESTMENT COMPANY Sa[THE COMMISSION IS ALSO EXPLORING

THE FEASIBILITY AN INVESTMENT COMPANYSELF-REGULATORY ORGANIZATION.

SUCH AN SROWOULD HELP IMPROVE COMPLIANCE}UNDER COMMISSION OVERSIGHT.

~ATIONAL MARKET SYSTEM~ •. WITH REFERENCE TO THE NATIONAL MARKET SYSTEM}

THIS MARCHINTEGRATED TRADING -ON AND OFF THE BOARD -WILL.COMMENCEIN THE 30 MOST ACT1VE 19c-3 STOCKS.

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THE COMMISSION HASSUPPORTED INDUSTRY EFFORTSTO RESOLVE CONCERNSOVER ~HE INTERNALIZATIONOF ORDER EXECUTIONSBY MAJOR FIRMS.

THE LINKAGE EXPERIMENT•WILL BE CLOSELY

MONITORED BY MARKET REGAND THE DIRECTORATE OF ECONOMICAND POLICY ANALYSIS.

lEGISLATIVe REFORM

THE FINAL - AND MOST IMpORTANT -•AREA OF THE COMMISSION'SDEREGULATORY EFFORTSIS LEGISLATIVE REFORM.

THE GENERAL COUNSEL'S OFFICEIS VERY ABLY COORDINATINGSEVERAL LEGISLATIVE INITIATIVES-

PUBLIC UTILITY HOLpING COMPANY ACT REPEALIN DECEMBER1

THE COMMISSION PROPOSED REPEALOF THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935-

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UNDER THAT ACT"12 MAJOR UT1LITY SYSTEMS -WHICH GENERATE 20%OF THE NATION'S ELECTRICITYAND DISTRIBUTE 8%OF ITS NATURAL GAS -

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ARE REQUIRED TO OBTAINPRIOR SEC APPROVAL •

OF THEIR MERGER" ACQUISITION AND FINANCING PLANSAND THEIR INTRA-SYSTEM TRANSACTIONS.

THE ACT ALSO INHIBITSTHE ACTIVITIES OF SOME 80NON REGULATED UTILITY SYSTEMS". .

cWH ICH ARE HES ITANT ~TO EFFECT MERGERS"ACQUISITIONS OR GEOGRAPHICAL EXPANSIO~IFOR FEAR OF BECOMINGSUBJECT TO THE ACT.

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THE BASIC OBJECTIVE OF THE ACT -THE DISMANTLEMENTOF MULTI-TIERED HOLDING COMPANIES -WAS ACCOMPLISHED 20 YEARS AGO-

IF THE ACT IS REPEALED~THE 12 UTILITY SYSTEMSWILL CONTINUE TO BE SUBJECT

•TO THE 1933 AND 1934 SECURITIES ACTS~AS WELL AS STATE REGULATION-

FOREIGN CORRUPT PRACTICES ACT AMENDMENTSMAJOR AMENDMENTS

TO THE FOREIGN CORRUPT PRACTICES ACTARE ALSO PENDI NG. BEFQRE CONGRESS.

THE COMMISSION HAS PROPOSED CHANGESIN THE BOOKS AND RECORDSAND INTERNAL ACCOUNTING CONTROL SECTIONS1

WHICH WOULD CLARIFY AMBIGUITIESAND RELIEVE BURDENS ON INDUSTRY.

THE COMMISSION ALSO SUPPORTEDCONSOLIDATION WITHIN THE JUSTICE DEPARTMENTOF ALL ANTIBRIBERY ENFORCEMENT RESPONSIBILITIES •

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yLASS-STEAGALL ACT AMENDMENTSON A BROADER THEMEJ

LAST SEPTEMBERSECRETARY OF THE TREASURY DONALD REGANCALLED FOR A NATIONAL DEBATEON THE LAWS THAT GOVERNOUR FINANCIAL INSTITUTIONSAND MARKETS-

IN 1933 THE GLASS-STEAGALL ACTSEPARATED COMMERCIAL AND INVESTMENT BANKING-

SINCE ENACTMENT OF GLASS-STEAGALL -AND OTHER DEPRESSION INITIATIVESNEARLY HALF A CENTURY AGO -

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WEBS OF EXCESSIVE ANt CONFLICTINGJ

REGULATORYJ TAX AND PUBLIC POLICIESJ

HAVE BEEN SPUN-

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~EINANCIAL PRODUCTSAT THE SAME TIME1,

IN RESPONSE TO CHANGING ECONOMIC CONDITIONSJ

PARTICULARLY DURING THE PAST 5 YEARS1

NEW AND INNOVATIVEFINANCIAL PRODUCTS AND SERVICESHAVE BRIDGED THE TRADITIONAL GAPSBETWEEN THE SECURITIES1

COMMERCIAL BANKINGJ SAVINGS AND LOANAND INSURANCE INDUSTRIES-

THESE NEW PRODUCTS INCLUDE:o THE MONEY MARKET FUNDS;o CASH MANAGE~ENT ACCOUNTS;o GUARANTEED INVEST~ENT CONTRACTS;o VARIABLE ANNUITIES AND LIFE INSURANCE POLICIES;AND MANY OTHERS-

LEGISLATION HAS BEEN SUGGESTEDTO LIMIT THE COMPETITIVE IMPACTOF SOME OF THESE NEW PRODUCTS AND SERVICES-

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FOR EXAMPLE1

IT HAS BEEN SUGGESTEDTHAT MONEY MARKET FUNDSBE REQUIRED TO HOLDA PORTION OF THEIR ASSETSAS RESERVES - IN CASH-

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WHICH PERIODICALLY INSPECTS THESE FUNDS1

HAS TESTIFIEDTHAT SUCH RESERVESARE NOT WARRANTEDBY INVESTOR PROTECTION REQUIREMENTS-

WHILE ALL INVESTMENTS INVOLVE RI~KSI•THE MONEY MARKET FUNDS

HOLD HIGHLY LIQUID1

SHORT TERM1

PRIME CREDIT OBLIGATIONS1

WITH AN AVERAGE MATURITYOF LESS THAN 35 DAYS-

THESE ARE THE TYPES OF OBLIGATIONSTHAT OTHERS HOLD AS RESERVES-

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NEW AND INNOVATIVE PRODUCTS AND SERVICESSHOULD BE ENCOURAGED -NOT INHIBITEDBY BURDENSOME REGULATIONS.

MAJOR ~ERGERS AND ACQUISITIONSTHE SECURITIES1 COMMERCIAL BANKING1

SAVINGS AND LOAN1 AND INSURANCE INDUSTRIES1

HAVE ALSO MOVED INTO EACH OTHER'S BACKYARDSTHROUGH MAJOR ACQUISITIONS AND MERGERS.

THE PRUDENTIAL INSURANCE COMPANY1 SEARS AND AMERICAN EXPRESSHAVE EACH RECENTLY ACQUIREDMAJOR SECURITIES FIRMS.

THE BANK OF AMERICAN A~D SECURITY PACIFIC•HAVE EACH ANNOUNCED INTENTIONSTO ENTER THE SECURITIES BflOKERAGE BUSINESS.

MERRILL LYNCH AND E. F. HUTTONHAVE ACQUIRED INSURANCE COMPANIES.

SHEARSON HAS ACQUIRED A TRUST COMPANY.

AND THE LIST GOES ON.

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REGULATORY CONFLICTSREGULATORY CONFLICTS AND OVERLAPS

. HAVE ALSO MULTIPLIED.

TODAYI AT LEAST TEN FEDERAL AGENCIES. ~PLUSI THE STATE SECURITIESI BANKING1

SAVINGS AND LOANI AND INS~RANCE COMMISSIONS -EXERCISE JURISDICTIONOVER ASPECTSOF OUR CAPITAL MARKETS-

Do OUR CAPITAL MARKETS REQUIREREGULATION BYOVER 100 GOVERNMENT AGENCIES?

THE TIME HAS COMETO SIMPLIFY AND RATIONALIZE THE SYSTEM •

.EMERGENCY RELIEF

IS NEEDED IN CERTAIN QUARTERSI

BUT OTHERS REQUIRE MORE DELIBERATE -LONG-TERM SOLUTIONS •

• THE SEC; COMMODITY FUTURES TRADING COMMISSION; FEDERALRESERVE BOARD;. FEDERAL HOME LOAN BANK BOARD; COMPTROLLER OFTHE CURRENCY; FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION;FEDERAL DEPOSIT INSURANCE CORPORATION; SECURITY INVESTOR

'PROTECTION CORPORATION; PENSION BENEFIT GUARANTEEBOARD; AND THE DEPARTMENT OF THE TREASURY.

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, .,IN RECENT TESTiMONY

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O~ PROPOSED AMENDMENTSTO GLASS-STEAGALtl

THE COMMISSION SUPPORTEDSECRETARY REGAN'S PROPOSALTHAT BANKS AND SECURITIES FIRMSBE PERMITTED GREATER ACCESSTO EACH OTHERS' FIELDS -THROUGH CORPORATE AFFILIATES.

COMPREHENSIVE REVIEWTHE COMMISSION ALSO RECOMMENDED

A COMPREHENSIVE REVIEWOF THE EXCESSIVE1 DUPLICATIVE AND CONFLICTING LAWSTHAT GOVERN OUR F1NANCIAL INSTITUTIONS AND MARKETS ••

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SIMILAR SUGGESTIONS WERE MADE BYTHE CHAIRMENOF THE FEDERAL RESERVE BOARDTHE FDIC~THE FEDERAL HOME LOAN BANK BOARD •THE COMPTROLLER OF THE CURRENCYAND OTHERS.

SENATOR PROXMIRE~A RANKING MEMBEROF THE SENATE BANKING COMMITTEEI SAIDI

(QUOTE) MIT SEEMS THAT THE BANKING INDUSTRYIS SUBJECT TO MORE COMPLICATEDIDUPLICATIVE AND INEQUITABLE REGULATIONTHAN-ANY OTHER .NDUSTRY -ONLY BECAUSE THERE ARE THREE REGULATORS •

•You HAVE THE FDIC~YOU HAVE THE COMPTROLLER [OF THE CURRENCY]IYOU HAVE THE FEDERAL RESERVE BOARDIWHICH ALL REGULATE BANKS -REGULATE DIFFERENT BANKSUNDER DIFFERENT CIRCUMSTANCES.

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"OF COU~SE"THE VARIOUS BANK REGULATORSTEND TO WANT TO PRESERVE THEIR TURF -THAT'S UNDERSTANDABLE AND NATURAL -BUT I WOULD HOPE THE TREASURYWOULD TAKE A LOOK AT THISAND RECOGNIZETHAT IF YOU CONCENTRATEDREGULATION IN A SINGLE AGENCY -THE FEDERAL RESERVE"THE FDIC" OR WHATEVER -YOU WOULD, HAVE A MUCH MORE EFFICIENT"EQUITABLE OPERATION -AND YOU WOULD AVOID

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A LOT OF DUPLICATIO~-. (UNQUOTE)

~PARTISAN TASK FORCEWHEN PRESIDENT REAGAN

WAS THE GOVERNOR OF CALIFORNIA"HE EF.FECTIVELY UTILIZEDNON-PARTISAN TASK FORCES

•OF PRACTICAL BUSINESSMENAND RECOGNIZED AUTHORiTIESTO ASSESS AND RESOLVE,

i ..MAJOR Pft~BLEMS ON A TIMELY BASIS-

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AT THE FEDERAL LEVEL~IT TAKES A BIT LONGER~BUT THE APPROACH IS SOUND.

BEGULATION BY FUNCTION, INSTEAD OF BY INDUSTRYTODAY~

THE SECURITIES FIRMS~ COMMERCIAL BANKS1

SAVINGS AND LOANS~ AND INSURANCE COMPANIESARE REGULATED BY INDUSTRY CATEGORIES.

HOWEVER1 THE DEMARCATIONS,BETWEEN THESE INDUSTRIESHAVE BLURRED.

Too OFTEN~(CRITICAL ECONOMIC ANp COMPETITIVE' FACTORS

DEPEND UPON REGULATORY PIGEON HOLES1

RATHER THAN THE NEEDS AND DEMANDSOF THE MARKETPLACE.

REGULATION BY FUNCTION~RATHER THAN BY OUTMODED INDUSTRY CLASSIFICATIONS1

WOULD RESOLVE SOME OF THESE DISPARITIES.

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CONSOLIDATE RELATED ACTIVITIESCONSOLIDATION OF RELATED ACTIVITIES

WOULD'REDUCE ADMINISTRATIVE COSTSAND INCREASE OPERATIONAL EFFICIENCYAND FINANCIAL FLEXIBILITY.

LEGISLATION HAS BEEN PROPOSEDTO CONSOLIDATE.THE INSURANCE FUNDSOF THE FDIC1 THE FEDERAL SAVING AND LOAN INSURANCE CORPORATIONAND THE NATIONAL CREDIT UNION ADMINISTRATION.

MANY OTHER REGULATORY FUNCTIONSWARRANT SIMILAR CONSIDERATIO~.

REGULATORY SIMPLIFICATIONEVEN MORE IMPORTANT" ~

THAN CONSOLIDATIONSAND REGULATION BY FUNCTION1

IS THE NECESSITYTO ELIMINATEEXCESSIVE1 DUPLICATIVE AND CONFLICTINGREGULATIONS WITHIN AND BETWEENFUNCTIONAL ACTIVITIES.

THE PROTECTIONS ACCORDEDINVESTORS AND DEPOSITORSSHOULD BE IMPROVEDIN THE PROCESS.

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SIGHT IS SOMETIMES LOSTOF THE FACT

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THAT THE PURPOSE OF REGULATIONIS THEIR PROTECTION.

AND THAT IN THE FINAL ANALYS~S~THEY BEAR THE COSTSAND SUFFER THE CONSEQUENCESOF THE PRESENT BURDENSOME STRUCTURE. •

THESE ARE MAJOR CONSIDERATIONSTHAT SHOULD BE ADDRESSEDBY A NON-PARTISAN TASK FORCE -WITH A ONE-YEAR MANDATE -AND A VIEW TO LEGISLATION IN 1983.

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SUMMATIONIN SUMMATION1

THE EXISTING REGULATORY STRUCTURESWERE SPAWNED HALF A CENTURY AGO -IN THE DEPTHS OF THE DEPRESSION •

.THEY WERE RESPONSIVETO A DIFFERENT ERAAND DIFFERENT PROBLEMS.

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GIVEN THE REAGAN ADMINISTRATION'S PRIORITIESAND THE SUPPORTFOR REGULATORY REFORM -ON BOTH SIDES OF THE AISLE -IN BOTH HOUSES OF CONGRESS -NOW IS THE TIMETO ADDRESS THE NEEDS OF THE FUTURE -AND SHED THE BURDENS OF THE PAST.

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THE ULTIMATE RESOLUTION OF THESE ISSUES -OR OUR FAILURE TO RESOLVE THEM -WILL HAVE A PROFOUND EFFECTUPON EACH OF US"OUR CHILDREN AND THE NATION.

THANK YOU.

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