Securities and Exchange Commission chairman Harold M. Williams today gave the brokerage business an expected reprieve on the proposed Jan. 1 elimination of New York Stock Exchange Rule 390 and other off-board trading restrictions.
But, in a speech to the annual meeting of the Securities Industry Association, Williams said he was dissatisfied with the pace of the industry's movement toward a national market system. He warned that the SEC intends to start choosing the form and technology for such a system if the stock exchanges and brokerage firms don't make prompt progress on their own.
Williams also expressed concern about the increasing concentration in the industry and suggested the SEC might take some unspecified action if the merger trend reaches what it considers harmful proportions.
""The commission is here not to look at the graveyard but to avoid the graveyard," the SEC chairman said in his first address to an industry group since he took office seven months ago.
Williams acknowledged the SEC is worried about some of the competitive after-effects of its own order to end all fixed brokerage commission fees effective May 1975. Price-cutting on brokerage fees - almost entirely for institutional customers - probably has contributed to the elimination of about 100 NYSE firms since 1975 and has gotten to the point where it "may, in effect, be predatory and destructive," he said.
To help the SEC understand the "real impact" of negotiated rates on the industry, commission economists soon will seek "detailed financial information - on a one-time voluntary basis - from selected firms," Williams said.
He said he also believes there is a "clear . . . connection between the demise of fixed commission rates and the explosion of interest in the trading of standardized options."
The SEC recently froze any expansion in options trading pending a probe, and today in Washington announced formation of a highe-level staff to investigate any abuses that may have taken place in the options markets and to determine the connection between trading in options and their related stocks.
Williams said he did not know how long such an investigation would take.
The former business executive and head of the UCLA Graduate School of Business also made some uncharacteristically outspoken remarks for an SEC chairman on the question of capital gains incentives for investment in securities.
At a news conference, Williams said he was in favor of retaining the capital gains preference which he said, if anything, should be liberated rather than eliminated as Carter administration officials have suggested.
"In my judgement, the elimination of the capital gains preference would further discourage securities investment," Williams said, and told reporters he has made his views known at the White Hosue.
Treasury Department officials have indicated that next year's tax bill will emphasize tax cuts for businesses and individuals and will not include a recommendation to eliminate the capital gains preference which now shelters from taxation 50 per cent of the profits from the sale of stock or other assets. But the proposal reportedly has been tabled rather than eliminated, and is still under active consideration as part of a comprehensive overhaul of the tax code later in the Carter administration.
The SEC chairman and other commission members traditionally don't comment on tax policy. Williams acknowledged his remarks were "beyond the traditional scope of the SEC" but said he believes the commission has "a responsibility to be concerned" about tax issues that affect investment.
Concerning Rule 390, he said the commission might disclose before Jan. 1 when it will make a final determination of all-board trading restrictions, but he did not indicate what kind of decision it would ultimately make.
The SEC held hearings this summer on whether to eliminate the off-board rules, which it said are anticompetition of the rules prior to establishment of the basis outlines of a national market system would lead to development of dealer markets and a fragmentation of stock trading rather than to centralization.
Williams said the commission was proceeding slowly because "the issues are of such importance, and we will all have to live with their consequences for so long a time that some temporary uncertainty, uncomfortable as it is, is an insignificant price to pay to ensure careful and reasoned long-term decisions."
"Part of my apprehension about not finalizing the 390 rule-making by Jan. 1 is that it not be misread," he told reporters. "It doesn't mean that we're not going to pursue it. It doesn't say we don't know what we're doing. It says we're trying to be responsible. We are trying to see and understand how far the industry is willing to go and is able to go on its own, and how can work to gether rather than do it all by ourselves."