Evening star., 1963-04-03
SEC
Continued From Page Al
Still to Be Covered

and even foundation strength
ening" since the study began.
StiIl to Be Covered
Sections of the report sched-
uled for May will cover such
topics as operations of the
stock exchanges, credit and
margin requirements, mutual
funds and the market break Of
May. 1862.
Assisting Mr.. Cohen in the
study were Ralph H. Saul,
associate director, a member
of the SEC staff who super
vised the commissions l96l-62
study of the American Stock
Exchange; Richard H. Paul,
chief counsel, a New York
lawyer; Sidney M. Robbins,
chief economist, professor Of
finance at the Columbia Uni
versity graduate school Of busi-
ness: and Herbert G. Schick,
assistant director, a Philadel-
phia lawyer and former mem
ber of the SECS staff.
On the question Of dealer
qualifications, the report said
inexperience has been a ajor
problem as the number Of new
firms has scared.
In 210 firms established in
1861, the report said. 54 per
cent of the principals had no
securities experience. More |
than IS per cent of the secur-
tiles statesmen registered by the
NASD in 1861 had less than |
one years experience.
Training is inadequate or
non-existent in many cases, the
report said, singing out mutual
fund statesmen for special
criticism.
Legislation Needed
New legislation is needed,
the report said, to bar from the
securities industry persons con-
victed within 10 years Of any
crime involving theft, fraud or
similar infractions. Violation
Of securities laws now is the
only basis for barring any one
from the industry.
Standards also should be
raised, the report recon-
mended, by requiring all brok-
er-dealers and investment ad-
visors registered with the SEC
to belong to an industry self
regulatory group.
More than 1000 registered
broker dealers, including some
large mutual fund sales organ
izations. are not members of
the NASD. And investment ad-
visers have no self-regulatory
organization.
Local Committees Asked
Individual salesmen, super
visors and other personnel
should be licensed, the report
proposed, and standards of ex-
perience. knowledge and integ-
rity should be established. The
industry was called on to set
UP local committees on char
acter and fitness, similar to
bar association committees.
Broker-dealer firms should
be required to have minimum
capital Of $4,000 plus $2,500 for
each branch office and $500 for
each salesman, the report rec
commended, and underwriters
should have minimum net cap
ital Of $4,000 plus 2 per cent
Of annual underwriting COM
mitments.
Criticizing selling practices,
the report said some dealers
specialize in speculative stocks
and lack concern for the in
terests of their customers.
Boiler room operations and
other high-pressure sales tech
niques are not extinct, the re-
port said. Larger firms gen.
orally try to sell securities
ethically, the report continued,
but inadequate controls have
resulted in abuses rivalling
those Of boiler room statesmen.
Detection Methods Inadequate
The NASD and the New York
Stock Exchange have adequate
rules on selling, the report said,
but their methods of detection
are insufficient.
Strengthened supervision by
ker-dealer executive was
recommended and the report
said the SEC, NASD and New
York Stock Exchange should
adopt stronger rules on sales
standards. surveillance and en-
forcement.
The report said the SEC and
the self-regulatory organiza-
tions should put greater en-
phasis on the suitability" of
particular stocks for particular
customers. and should insist on
fuller disclosure of facts about
corporations.
Sales commission syste m S
should be changed to reduce
undue pressures on statesmen
to recommend certain types Of
securities, the report said.
Hits Reckless" Advice
Charging that irresponsible
dissemination Of advice" on
stocks has hurt investors, the
report said legislation is needed
TO prohibit reckless" advice on
investments.
Citing a corporation that
went bankrupt shortly after II
was recommended by broker
dealers and investment ad-
visers, the report said the case
illustrated the broad gap
which can exist between reality
and the rosy recommendations
OF the advisers"
While some investment ad-
vice is competent, the report
said. much Of II lacks the basis
OF adequate research and is
designed simply TO stimulate