SEC Over Counters

"To insure to investors protection comparable to that provided ... in the case of national securities exchanges," Congress gave the Securities & Exchange Commission exceedingly broad authority to regulate the country's over-the-counter markets. These markets are operated by some 5,000 securities dealers who transact an annual business variously estimated to be from 50% to 300% larger than the total volume handled by all U. S. stock exchanges. Two prime characteristics of this huge market are that nearly all business is done by telephone and that no one knows much about it. Last year, having established control over stock exchanges and listed securities, SEC prepared to extend its police powers by calling upon each & every securities dealer to register forthwith. Last week, when registrations for 5,088 dealers and brokers became effective, SEC officially began its over-the-counter supervision.

No rules or regulations have been promulgated, except for a few fairpractice standards that went into effect with registrations. Only major grounds for denial of registration were wilful misrepresentation of facts, and previous convictions or permanent injunctions in connection with, the securities business. Only 36 applications were refused. A few were accepted despite police records, one because the applicant was a first offender and had since made restitution. Another had to be passed because the applicant's offense involved not the securities business but the Federal Narcotic Law.

Since the law on over-the-counter markets is as vague as it is broad, SEC will probably ask Congress for specific authority to require some form of registration for at least the larger of the thousands of unlisted corporations whose securities arc traded telephonically. Only in that way will the same corporate publicity be obtained for unlisted securities as for listed. Even with clarifying amendments, over-the-counter regulation will be on less solid constitutional foundations than stock exchange control. Said Chairman Landis last week: "We expect to be in the courts any minute on this phase of the Act."

Sure enough, the next day SEC's over-the-counter rule was challenged in the District of Columbia Supreme Court by J. Edward Jones, the Manhattan oil royalty dealer whom SEC has been trying to put out of business for nearly a year. His other SEC trouble involved issuance of new securities. That case--the only pending challenge of the 1933 Act--Royalist Jones appealed all the way to the Supreme Court, which has not yet accepted it for consideration.

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