Upbeat securities industry faces legislative pressure

Ira J. Kaufman, chairman of the Chicago-based brokerage firm of Rodman & Renshaw Inc., brought his 102-foot yacht Gray Mist II to the Securities Industry Association's annual convention here.

Leslie Quick III of Quick & Reilly, a discount brokerage house, took a group of brokers for a luncheon ride on his 68-foot sailboat Parlay.

As the rest of the nation struggles to pull out of a steep recession, the brokerage industry - as evidenced here - is sailing on.

Soaring volume, a rising market, and reinvigoration of the investment banking climate have made this year's SIA annual meeting anything but somber.

As brokers stroked backhands on the tennis courts at the Boca Raton Hotel & Club, where a room in the pink cement structure costs $125 to $150 a night, they could luxuriate in the knowledge that the securities markets were giving them a real ride. The industry, said Edward I. O'Brien, president of the SIA, should have its third-best year in terms of profit, but gross revenues will be over $21 billion, a record.

That the brokers are on something of a roll has attracted the attention of Mayor Edward Koch, the mayor of New York City, who unexpectedly suggested last week the city reinstate a stock-transfer tax to help close its budget deficit. The tax, based on a sliding scale, depending on the size of the transaction, had been negated a year ago.

The mayor's suggestion drew an immediate response from the brokers. Mr. O'Brien said it would encourage firms to relocate their trading floors to other states or to develop other ways to avoid the tax. The wide use of electronics, pointed out Robert Linton, chairman of SIA, now makes it possible to move trading floors anywhere. At one point, the American Stock Exchange had considered moving to New Jersey. However, it recently refurbished its trading floor, which Mr. O'Brien said would make it less attractive for the exchange to move. William Batten, chairman of the New York Stock Exchange, said in an interview that the Big Board would not consider a move outside the city. And, he added, securities firms should consider where they can get the best price - not necessarily the cheapest execution.

Robert Linton, SIA chairman for 1983, recalled his brokerage firm, Drexel Burnham Lambert Inc., had taken an option to lease property in Jersey City, N.J. , before the city stopped collecting the tax. Mr. Linton said he wasn't sure how serious the mayor's comments were, but he added, ''If I were in City Hall, I would not take the prospect of firms leaving the city as an idle threat.''

''All securities firms would consider doing a Citicorp-South Dakota number,'' said George Ball, chairman of Prudential-Bache Securities Inc. Citicorp moved part of its credit operations to Sioux Falls, S.D., when New York State was slow in changing its usury law.

''If things were carried to an extreme,'' said Michael Lipper, chairman of Lipper Analytical Services, in an interview, ''the industry could move to Newark.'' The tax, he concluded, ''can be very counter-productive to the mayor. The financial community is one of the few sources of incremental employment benefiting the city.''

The brokers not only are opposed to any implementation of a stock transfer tax, but now are lobbying Congress for changes in the tax code - reducing the holding period for long-term capital gains from one year to six months. According to Mr. Ball, such a change would result in ''substantial increases in revenues, on the order of 5 to 10 percent.'' The Treasury is opposed to the plan , however, arguing that it would cost the Treasury $197 million. The SIA says the government would end up with an extra $500 million in taxes because of the increase in trading. At worst, says Mr. Ball, it will be ''neutral'' in terms of taxes but would act to stimulate the market.

Mr. Linton estimated the tax had a 60 percent chance of passage next year, and Mr. Ball estimated it had only a 40 percent chance of passage during the current lame-duck session. The measure has passed the Senate and House in the past, but has been killed in conference committee. Sen. H. John Heinz III (R) of Pennsylvania, speaking here, indicated the Senate would probably pass the legislation soon and pass it on to the House before year-end.

The industry also is eager to get Congress to ''revisit'' the Glass-Steagall Act, the regulatory maze that governs the banking industry. Mr. Linton noted that banks, insurance companies, and thrift institutions are moving into areas previously the arena of securities firms. However, he complained they are not regulated in the same way as securities firms. For example, banks can deduct the cost of carrying tax-exempt inventory and set up pre-tax reserves for holdings of questionable securities.

Although the brokers claim they want everyone to operate on a so-called ''level playing field,'' Mr. Ball quipped, ''Frankly, no one wants a level playing field. . . . The banks don't want it and the securities firms don't want it.''

At a press conference on Friday morning, both Senator Heinz and Sen. Donald W. Riegle Jr. (D) of Michigan indicated the prospects for a revisit of Glass-Steagall any time soon were not good. Senator Heinz said his main concern was the stability of the financial system. His highest priority, he said, was in enacting legislation that acted to stabilize financial institutions.

Citing what happened to the trucking and airline industries once they were deregulated, Senator Heinz said any changes in Glass-Steagall must be made within the context of ensuring that financial institutions survive.