Gramm, SIA to push for review of 1930s laws

The chairman of the Senate Banking Committee and the securities industry this year will again look at comprehensive reform of the nation’s 68-year-old securities regulations.

In a press conference last week, Sen. Phil Gramm, the Texas Republican who heads the committee, cited reform as one of his key goals for 2001. The Securities Industry Association also highlighted regulatory review as one of its priorities.

Both Mr. Gramm and Marc Lackritz, president of the Washington-based SIA, emphasized that the industry was much different when the securities laws were enacted in 1933 and 1934. At that time, investors had no way of getting information about the securities markets or conducting transactions without the aid of a broker, Mr. Lackritz noted.

“The whole focus of our initiation into the regulatory process was to obtain transparency” to ensure that investors have as much information as possible on stock prices and transactions, Mr. Gramm said.

“In 1934, transparency was hard to come by and expensive, and we’ve rightly paid the price to get it,” he said.

“Today it’s free. Everybody has it, and they have it not only on the consummation of the transaction itself, but they have it two transactions deep into the market.”

Mr. Gramm referred to the Nasdaq Stock Market’s new SuperMontage system, which allows investors to see the two highest and two lowest bids for each transaction.

dramatic changes

Mr. Gramm said he wants to look at whether all the requirements established in the 1930s to give investors adequate information are still needed.

“The markets have changed dramatically,” he said. “We need to go back and look at our laws and our

regulations.”

He said benefits from regulations should be weighed against their cost to determine if they are viable.

Mr. Gramm began a review of securities regulatory law two years ago, but that never got off the ground because of the lack of interest from the Clinton administration and disagreements among different segments of the financial industry.

Neither Mr. Gramm nor the SIA gave many specifics of what changes they would like to see, but Stuart Kaswell, the association’s general counsel, noted that disclosures for many securities transactions won’t fit “on a computer screen that fits on a cellphone.”

With many investors getting information from — and conducting securities transactions over — the Internet, it is not possible to control the flow of information about securities markets, as it once was, Mr. Kaswell said. Hence, regulations need to be reviewed to ensure they make sense today.

Mr. Gramm also pledged to renew efforts for reducing fees on securities transactions so that the fees charged are no higher than the amount needed to fund the Securities and Exchange Commission.

More than $2 billion was charged for securities transactions last year, when the agency’s budget was only $370 million.

“Whenever your mutual fund or 401(k) or your thrift savings plan engages in a transaction to buy or sell a stock, it pays a tax on that transaction,” said Mr. Gramm.

“It was never our intention in any law that was ever passed on the subject to create a situation where we would collect substantially more revenue than we needed to fund the Securities and Exchange Commission,” he said.

Exploding volumes of securities transactions have led to the excess, which is expected to reach $8 billion over the next five years under current law. The senator termed the fees “a tax on 50 million people who are doing what we want them to do, and that is, they’re saving and investing for their future and their retirement.

“This is an unfair tax.”

in favor of fee cuts

Mr. Gramm said he supports reducing fees each year once the amount needed to fund the SEC has been raised. He predicted a broad base of support in Congress for reducing the fees.

In addition to regulatory reform, the SIA will focus its efforts on obtaining an enactment of legislation increasing the amount of money that can be saved in individual retirement accounts and 401(k)s. Last year, such legislation almost passed Congress, and it is expected to have an excellent chance this year with Republicans in control.

Steve Judge, senior vice president of government affairs for the SIA, said he expects savings incentives to be part of the tax cut bill that is likely to be considered by Congress.