[Text only of letters sent from the Commerce Committee Democrats]
The Honorable Arthur Levitt, Jr.
Chairman
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Chairman Levitt:
I am transmitting a copy of a document that was faxed to my office last evening by an official of the Securities Industry Association's (SIA) Washington office. The document contains proposed amendments to Title II, Subtitle A of H.R. 10 regarding functional regulation of brokers and dealers.
In a conference call this morning with Mr. Irving Weiser, Chairman and CEO of Dain Bosworth Inc. and current Chairman of the SIA, Mr. Weiser informed Chairman Bliley and me that, while he used SIA staff to negotiate this document with the American Bankers Association Securities Association (ABASA), this document has not been endorsed by the SIA and does not represent an official SIA position. He represented that its genesis was last month's New York City meeting sponsored by Reps. Boehner and Oxley, and that the document embodies what he and his firm can live with. I am writing to ask for the SEC's analysis and views as to whether the proposed amendments are in the public interest and whether investors and consumers can and should live with them.
Mr. Weiser insisted that his compromise is consistent with the concept of functional regulation, providing only very "limited" exemptions for banks from the broker-dealer registration provisions of the federal securities laws and the responsibilities and investor protections that flow from that registration. However, preliminary analysis of the SIA-ABASA language indicates quite the opposite. (See enclosure.) Among other things, it appears that it would permit banks to sell high-risk securities and derivatives products to any governmental entity and to any natural person with assets exceeding $10 million without the protections of the federal securities laws. Also banks would be able to run large-scale retail securities sales operations through their trust departments, outside the protections of the federal securities laws, including regulation of sales practices and the duty to supervise employees. Furthermore, you testified before this Committee that there was nothing in H.R. 10 to keep a registered broker-dealer from affiliating with a bank and running its securities sales through the bank exemptions in H.R. 10. (See The Financial Services Competitiveness Act of 1997, Hearing Before the Subcommittee on Finance and Hazardous Materials, Committee on Commerce, House of Representatives, 105th Cong., 1st. Sess. [July 17, 1997] at 76.) At a time when securities fraud is growing, and when federal prosecutors, your agency, the SROs, and the state securities regulators have stepped up your collective efforts to combat it, creating loopholes for rascality is totally unacceptable.
In order to assist us in evaluating this matter, please provide me by the close of business on Monday, March 2, 1998, with your analysis of both the practical and the investor protection implications of each of the bank exemptions in the SIA-ABASA compromise. Also please advise me whether and how currently-registered broker-dealers might exploit these loopholes by affiliating with banks.
Thank you for your cooperation and attention to my request.
Sincerely,
JOHN D. DINGELL
RANKING MEMBER
cc: The Honorable Tom Bliley
The Honorable Michael G. Oxley
The Honorable Thomas J. Manton
The Honorable Edward J. Markey
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