The Securities Acts Amendments of 1975 was the most comprehensive securities legislation passed by the Congress since the passage of the original securities laws in the 1930s, following the great stock market crash of 1929.
John Moss led the effort that produced this legislation. It compelled the United States’ securities markets to evolve in ways that has allowed them to deal with the tremendous changes that have taken place in the last quarter of the 20th Century, and has positioned them as world leaders as we approach the 21st Century.
The late 1960s were a difficult time for the United States’ stock markets, and for their member stock brokerage firms. Average daily trading on the New York Stock Exchange (NYSE) had skyrocketed from 2 million shares a day to 12 million shares a day, and more. Stock trades were settled in those days by the physical delivery of engraved pieces of paper (stock certificates) from the selling stock brokerage firm to the buying stock brokerage firm. The industry was not able to keep up with the paper blizzard as trading volume soared. The NYSE was compelled to close every Wednesday to allow its member brokerage firms to deal with the paperwork. But this didn’t solve the problem, and brokerage firms collapsed under the weight of the paper and went out of business, putting at risk the money in their customers’ accounts.
In response, in 1970 Congress passed the Securities Investor Protection Act, providing government backed insurance for stock brokerage firm customers similar to the FDIC insurance enjoyed by bank customers. The government pledged $1 billion to this fund (considered a large sum of money in those days). In order to get this legislation through the House, Commerce Committee Chairman Harley O. Staggers of West Virginia, and Mr. Moss, Chairman of the Commerce Committee’s Subcommittee on Commerce and Finance, pledged a full investigation into the causes of the problem, to ensure that the $1 billion was not at grave risk.
In 1971, as the 92nd Congress began, Mr. Moss hired a small staff, found space for them in the basement of the Rayburn House Office Building, and on August 2, 1971, launched the first in what would be over 20 days of hearings focused on the United States securities industry.
While the common practice in those days was to hear one witness at a time, Mr. Moss decided to have panels of witnesses. His instructions to the staff were to ensure that the panelists had different and, at best, conflicting points of view about the issue being considered, and that they came from different parts of the country. Being from California, Mr. Moss was sensitive to the concerns of the regional stock exchanges and stock brokerage firms, and wanted to ensure that the hearings were not dominated by witnesses coming from the New York-Washington corridor.
The hearings began with an exploration of the securities industry’s "back office" problem, the growth of institutional (as opposed to individual) stock trading, and the role that technology might play to keep the industry current and a world leader.
That led to the question of the Securities and Exchange Commission’s (SEC) authority over the practices of stock exchanges and their member brokerage firms. This led, in turn, to an examination of the hotly debated practice of "fixed commission rates", a form of public price fixing then being challenged by the Antitrust Division of the Department of Justice.
The hearings were lively, to say the least. Large amounts of money were at stake, and stakeholders were powerful and had powerful allies.
As the 92nd Congress drew to a close at the end of 1972, the Subcommittee issued a unanimous report calling for significant changes in the United States’ securities industry. Mr. Moss then instructed the staff to draft legislation to implement the report - another John Moss innovation.
At the beginning of the 93rd Congress Mr. Moss introduced the bill, cosponsored by the members of his subcommittee. More hearings with more panels ensued. Negotiations were undertaken with the various conflicting parties. On the subcommittee Congressman Bob Eckhardt, a brilliant liberal Democrat from Texas, and Congressman James Broyhill of North Carolina, the smart, tough ranking Republican, worked to shape the legislation in a way that would win the support of the Republican Administration, and the subcommittee and full committee.
In the closing days of the 93rd Congress, a bill passed the subcommittee and full committee. The bill was long and complex. It compelled the adoption of a National Stock Market System and a National Clearance and Settlement System that would use technology to tie together the resources of the New York and regional stock exchanges and give them all an opportunity to compete, and would foster the use of technology to handle the paperwork that accompanied transactions. The bill gave the SEC more power over stock exchanges and other "self regulatory organizations" like the National Association of Securities Dealers (NASD). And the bill outlawed the practice of fixed commission rates.
The most contentious issue in the bill was the provision that outlawed fixed commission rates. This provision was supported by the Administration, but bitterly opposed by the securities industry. In a series of votes in the Rules Committee that can only be described as bizarre, the Moss bill was denied a rule.
Between the close of the 93rd Congress, and the beginning of the 94th, the SEC (under pressure from Mr. Moss, the Justice Department, and the courts), adopted a rule that would eliminate fixed commission rates. With the adoption of that rule, effective opposition to the Moss bill was eliminated. Mr. Moss reintroduced the bill, cosponsored by members of the Commerce and Finance subcommittee, and by Mr. Staggers and other members of the full committee. The bill went directly to the full committee, where it passed overwhelmingly. This time it was granted a rule, and passed the House with little opposition.
The Senate had been working on similar legislation. The House and Senate bills were brought to conference, and a combined bill was reported to the respective chambers and passed. On June 4, 1975, President Gerald Ford signed The Securities Acts Amendments of 1975 into law.
The passage of time has shown the wisdom of that legislation. Daily volume on the NYSE has reached as much as 1 billion shares, with volume on the NASDAQ National Market reaching comparable levels. The mechanisms put into place as a result of the Moss legislation has prevented any reoccurrence of "back office" problems. Investors pay commissions on their transactions that are determined by market forces and are driven by technology. The legislation has allowed stock markets and their member stock brokerage firms to adopt to changing events in a way that has made the industry a world leading source of capital, while providing investment opportunities and appropriate protections for its customers.
Harvey A. Rowen was Counsel to the Subcommittee on Commerce and Finance from 1971-1975. He was a principal draftsman of the Securities Acts Amendments of 1975. After leaving the Congress, Mr. Rowen went on to become President and Chief Executive Officer of both the Merrill Lynch Trust Company, and the Charles Schwab Trust Company. Today Mr. Rowen is a founder and Managing Director of Starmont Asset Management LLC, an investment advisory firm headquartered in San Francisco.
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