Can the Securities and Exchange Commission (SEC) do its job when 150 million shares are traded on the New York Stock Exchange? Will the "national market system" be ready soon?And can corporations be made more accountable for their actions?
According to Harold M. Williams, a former chairman of the SEC, the answer to these questions is a qualified "yes."
The SEC, he said in a recent interview, is "doing a much more thorough job of inspection" in relation to the exchanges and the broker-dealers.
As a result, the SEC has a better sense of what rules may or may not be needed, he says. In order to ensure that the SEC can keep abreast of the market when volume soars, the commission is building this year an electronic system called MOSS, for Market Oversight and Surveillance System.
Additionally, he states, "I think the jawboning which I've done on a number of different occassions keeps the industry focused on the importance of the 150 -million-share day . . . I would say that it's an issue that is high on everyone's minds." (In recognition of this importance, the New York Stock Exchange has begun a study to determine if its members are prepared for that kind of volume. Recently volume has been running around 50 million shares per day.)
One of the problems in preparing for that kind of volume, says Mr. Williams, is the need and expense of new computer equipment. Since the industry has been diversifying into a "financial services" type of organization, it is not keen, says Mr. Williams, to put $2 million into a new cost center instead of a new profit center. "That's danger -- the diversion of talent and capital and priority from the broker-dealer business," warns Mr. Williams.
On paper, the ex-SEC chief says it makes sense for securities firms to diversify their businesses. However, his major concern is that "there will be instances where it will not be done successfully and the reputation of the firm might be harmed rather than helped because the customers who have traditionally gone to them for securities service buy other services as well and find that the other services are not to their satisfaction . . ."
Mr. Williams says the reason the national market system hasn't developed sooner is because "the rate of government intervention should bear some relationship to the sense of urgency implicit in the situation." If the markets were in terrible shape, the SEC would have to act faster. However, he states, "the markets are not in terrible shape. They are already the best in the world. The object is to improve them, not to risk them."
Congress mandated in 1975 that the SEC develop a plan for a more competitive system of trading securities that are listed on the major stock exchanges. The goal would be to increase the competition between the Big Board and the regional exchanges and ensure investors get the best deal wherever the trade was executed.
Currently, there is an electronic linkup between the New York, the American, and the regional exchanges, called the Intermarket Trading System. However, the system has yet to be expanded to over-the-counter markets, although Mr. Williams agrees the framework is there to do it.
Mr. Williams says he is satisfied with the speed with which the exchange worked toward its goal, even though there have been some congressional critics who have faulted the exchange for not moving faster (and some who faulted it for moving too fast.)
To determine the next move, he says the exchange will monitor the progress of a new rule, called 19C3. This rule says that when an over-the-counter stock is listed on any exchange, it can continue to be traded over-the-counter. Formerly , it could not.
(Currently, the National Association of Securities Dealers -- NASD -- is building an electronic linkage between the various OTC markets and the floors of the exchanges so this rule can be implemented.)
When Mr. Williams was appointed to the SEC in 1977, he stirred up the corporate realm by suggesting that corporations mainly appoint outside directors to their boards. However, he bridles at some attempts in Congress to legislate this concept. He calls legislative proposals on who can serve on corporate boards "a disaster in the making."
Rather, he says, "To me, the only valid alternative is making the existing system work as well as it can." Over the past four years, he claims, "there's been a lot of progress" in terms of the number of outside directors, the board's committee structure, and the extent to which directors are functioning effectively.
During Mr. Williams's term at the SEC corporations also had to file reports of any overseas payments they had made to gain business. Congress will soon begin hearings on this subject since many US businessmen claim they have lost business because of US restrictions on such payments. Mr. Williams says he believes the answer is to try to develop more international support for sanctions against such payments.
"If we could just get the Germans and the British and the French and the Japanese to do the same thing, and I think that's possible, we could well have something. It would obviously take some priority on the part of international policy, but I'd like to see it tried."