ment, or revocation orders entered under this Act. Such register shall be open for public inspection during regular business hours.

(1) License applications and materials submitted therewith or in connection therewith may be made available to the public under such rules as the Commission may prescribe. Such rules may include, but shall not be limited to, rules prescribing reasonable fees for furnishing photostatic or other copies upon request. The Commission may certify under seal such copy or copies of any document available to the public or any entry in the register, and any copy so certified shall be admitted as evidence with the same effect as the exemplifications of record referred to in section 1070 of the Act of March 3, 1901 (D.C. Code, sec. 14-401).

(m) The Commission may refer evidence concerning violations of this Act or of any rule or order under this Act to the United States Attorney for the District of Columbia who may, with, or without such reference, institute criminal proceedings under this Act. The Commission shall comply with any request of the Attorney General of the United States, the Postmaster General of the United States, the Securities and Exchange Commission, or the United States Attorney for the District of Columbia for any information or evidence coming to it in the administration of the Act. The Commission in its discretion may refer any information or evidence coming to it in the administration of this Act to any department or agency of the United States, to the securities administrator of any State, or to any national securities exchange or national securities association registered under the Securities Exchange Act of 1934.

(n) Any hearing held by the Commission pursuant to this Act shall be public unless the Commission in its discretion and with the consent of all the parties to such hearing order that the hearing be conducted privately.

JUDICIAL REVIEW

SEC. 17. Subsection (e) of section 7 of the Act of April 1, 1942, entitled "An Act to consolidate the Police Court of the District of Columbia and the Municipal Court of the District of Columbia, to be known as 'the Municipal Court for the District of Columbia', to create 'the Municipal Court of Appeals for the District of Columbia', and for other purposes" (D.C. Code, sec. 11-772), is amended (1) by striking out the word "and" at the end of paragraph 8, (2) by striking out the period at the end of paragraph 9 and inserting in lieu thereof "; and", and (3) by adding at the end thereof the following new paragraph:

“(10) Any final order of the Public Service Commission of the District of Columbia under the provisions of the District of Columbia Securities Act."

ADVISORY COMMITTEE

SEC. 18. The President of the Board of Commissioners of the District of Columbia shall appoint a District of Columbia Securities Advisory Committee which shall consist of six members, who shall be residents of the District of Columbia or the State of Maryland or the State of Virginia, at least two of whom shall be actively engaged in the securities business and at least two of whom shall be members of the bar of the District of Columbia. The members shall be selected on the basis of their experience and qualifications to advise the Public Service Commisison on all phases of the securities business. The members shall be appointed for staggered terms of three years each, with two members appointed each year, to serve without compensation and eligible for reappointment for additional terms, provided that not more than two of the terms are in succession. The duration of the terms of the first members appointed hereunder shall be designated by the President of the Board of Commissioners at the time of their appointment. The members of the Advisory Committee shall select their own chairman. Meetings of the Advisory Committee shall be held when called by the Chairman of the Public Service Commission and may be attended by members of the said Commission. The Advisory Committee shall give the Public Service Commission the benefit of its advice on any and all matters pertaining to the administration of this Act, particularly the adoption, amendment or repeal of rules, regulations, and forms provided for herein.

SEVERABILITY

SEC. 19. If any provision of this Act or the application thereof to any person or circumstance shall be held invalid, the invalidity shall not affect other provisions or applications of the Act which can be given effect without the invalid provision or application, and to that end the provisions of this Act are severable.

EFFECTIVE DATE

SEC. 20. (a) Sections 3, 13(b), 13(d), 16, and 21 of this Act, together with definitions of terms used therein, shall take effect upon approval of this Act.

(b) The remaining provisions of this Act shall take effect at 12:01 antemeridian on the one hundred and eightieth day after approval of this Act, or, if the one hundred and eightieth day be a holiday in the District, at 12:01 antemeridian on the first business day thereafter.

SEC. 21. The Public Utilities Commission of the District of Columbia established by paragraph 97 of section 8 of the Act of March 4, 1913, entitled "An Act making appropriations to provide for the expenses of the government of the District of Columbia for the fiscal year ending June thirtieth, nineteen hundred and fourteen, and for other purposes" (D.C. Code, sec. 43-201) hereafter shall be known as the "Public Service Commisison of the District of Columbia". Wherever reference is made to the Public Utilities Commisison of the District of Columbia in any Act of Congress, or in any compact authorized by an Act of Congress, or in any regulation or order, such reference shall be held to be a reference to the Public Service Commission of the District of Columbia.

SEC. 22. (a) The first sentence of section 26 of title II of the Life Insurance Act (D.C. Code, sec. 35-425) is amended by inserting "other than variable contracts described in section 41 of chapter III of this Act" immediately after “applications for insurance".

(b) The first sentence of section 29 of such title (D.C. Code, sec. 35-428) is amended by inserting ", other than as a broker dealing solely in variable contracts described in section 41 of title III of this Act," immediately after “life insurance broker".

(c) Except as otherwise provided by the amendments made by this section, nothing in this Act shall be construed to exempt any person or company from any requirements of law relating to insurance companies, agents, brokers, or solicitors. Passed the House of Representatives February 24, 1964. Attest:

RALPH R. ROBERTS, Clerk.

I would have been here a little earlier but I have been testifying at hearings before another committee involving the Indiana National Dunes Park. I hope you can understand that sometimes matters concerning my home State do take a little priority.

The first witness this morning is the Honorable William L. Cary, Chairman, accompanied by Mr. Philip A. Loomis, Jr., General Counsel, of the Securities and Exchange Commission.

Good morning, gentlemen. I'm delighted to have you with us.

STATEMENT OF HON. WILLIAM L. CARY, CHAIRMAN, SECURITIES AND EXCHANGE COMMISSION; ACCOMPANIED BY PHILIP A. LOOMIS, JR., GENERAL COUNSEL; AND ALEXANDER J. BROWN, JR., REGIONAL ADMINISTRATOR, WASHINGTON REGIONAL OFFICE

Mr. CARY. Mr. Chairman, and members of the committee, I am William L. Cary, Chairman of the Securities and Exchange Commission. I am accompanied by our General Counsel, Philip Loomis, and by the Director of our regional office, which includes the District of Columbia, Mr. Alex Brown.

I am here today at your invitation to urge the enactment of H.R. 9419, a bill to provide for the regulation of the business of selling securities in the District of Columbia and for the licensing of persons engaged in it.

The Commission, as well as representatives of the securities industry and responsible citizens, have been concerned over the fact that the complete lack of any local securities regulation in the District of

Columbia had created a serious gap in the protections available to investors. This is true both for those who live in the District of Columbia and those outside the District of Columbia who may be solicited by brokers within the District. H.R. 9419, which passed the House of Representatives on February 24, 1964, would remedy this gap.

On May 21, 1962, I testified before a subcommittee of the Committee on Interstate and Foreign Commerce of the House of Representatives on this subject. A copy of my statement on that occasion has been submitted to this committee.

I pointed out that a serious problem existed in the Metropolitan Washington area with respect to the conduct and qualifications of numerous broker-dealers, that the lack of local regulation appeared to be a factor in that problem since it attracted substandard firms to this area and that the Commission has been compelled to devote a disproportionate part of its enforcement effort to the local area. For example, during recent years the Commission had brought more enforcement actions against District of Columbia brokerage firms than against firms in Maryland, Virginia, West Virginia, Delaware, and Pennsylvania combined, this being the area served by our Washington regional office. The National Association of Securities Dealers, which is a self-regulatory body for the securities industry, established pursuant to section 15A of the Securities Exchange Act of 1934, has had a similar experience.

I urged the enactment of a strong "blue sky" law for the District to be administered by the District government, and do today.

Thereafter, Mr. David C. Acheson, U.S. Attorney for the District of Columbia, took the leadership in drafting such a bill with the cooperation of representatives of all interested groups, including the Commission. I think we in the District owe a great deal to the responsible, public-spirited, and effective way in which Mr. Acheson has handled it.

The resulting bill was introduced in the House of Representatives as H.R. 4200 and in the Senate as S. 1001. I testified in support of that bill before the Committee on the District of Columbia of the House of Representatives on May 2, 1963. A copy of my statement at that hearing has likewise been furnished to the subcommittee.

I concluded that enactment of H.R. 4200 would furnish the local regulation necessary to complement the Federal statutes and would contribute significantly to the protection of investors in the District. of Columbia and of persons in adjoining States who may have dealings with such broker-dealers. I stated that the Commission strongly favored enactment of the bill.

H.R. 9419, now before this committee, is substantially the same as H.R. 4200, except for the treatment of persons engaged in selling variable annuity contracts mentioned below, and, as I stated to the House committees, the Commission urges its enactment.

I understand that the only feature of this legislation which presently is in any way controversial involves the regulation of persons engaged in selling so-called variable annuities. In my testimony before the House Committee on the District of Columbia I pointed out that the Supreme Court has held that, for purposes of the Federal securities laws, variable annuities are securities and not insurance, and therefore are subject to regulation by this Commission. I stated

that in our view persons who sell variable annuity contracts may be more appropriately regulated by a securities commissioner but indicated that the Commission was not primarily concerned with the choice of regulatory authorities on a local level. Subsequently, when I learned that efforts were being made to resolve the difference of opinion with respect to this matter, I wrote to the Honorable Walter Tobriner, President of the Board of Commissioners of the District on July 3, 1963, to advise him that the Commission believes that the appropriate position is to treat variable annuities in the same manner as other securities. I would like to elaborate on this.

As I mentioned, the Supreme Court held in the case of Securities and Exchange Commission v. Variable Annuity Life Insurance Company of America et al., that variable annuities were securities for the purposes of the Federal securities laws and that they were not entitled to the exemptions provided in those laws for insurance or for insurance policies and annuity contracts. A principal reason for this holding was the fact that a variable annuity differs from a conventional annuity, in that the risk of change in the value of the portfolio of equity securities underlying variable annuities is borne by the purchaser of the contract rather than by the insurance company. In the case of conventional annuities and insurance policies the investment risk is borne by the insurance company and not the policyholder. Because of this, as pointed out in more detail in the concurring opinion of Mr. Justice Brennan, the scheme of Federal securities regulation was found to be better suited to the protection of such purchasers than conventional insurance regulation which is primarily designed to insure the solvency of the insurance company. A principal reason for the regulation of securities brokers and dealers, as contemplated by H.R. 9419, is to endeavor to insure that they are competent to advise investors with respect to the risks and advantages inherent in investment in equity securities. By reason of the fact that variable annuities, unlike conventional annuities, involve both such risks and such advantages, I believe it more appropriate that the sellers of such contracts be regulated as sellers of securities rather than as sellers of insurance. As the Supreme Court pointed out, conventional insurance or annuities do not involve this element of participation in the investment experience of a pool of equity securities which is similar to a mutual fund.

In the second place, persons engaged in the sale of variable annuities in the District are required to register as broker-dealers under the Securities Exchange Act of 1934 and are thus regulated as sellers of securities. It should prove easier to coordinate local regulation of these firms with the regulation under the Federal securities laws to which they are already subject if they are regulated under the securities laws of the District rather than under the insurance laws.

For the above reasons, the Commission believes that the House of Representatives arrived at an appropriate solution of the variable annuity question in H.R. 9419. We, accordingly, believe that it would be in the public interest for the Senate to concur in the decision of the House, rather than to entangle this important legislation in a controversy as to which local agency should regulate this relatively small group, a controversy which, in comparison with the important public protection which this legislation would afford, seems relatively insignificant.

I would say, therefore, that this should not founder on an intramural

dispute.

Thank you, Mr. Chairman.

Senator HARTKE. Thank you, Mr. Cary.

Senator Dominick, any questions?

Senator DOMINICK. Thank you, Mr. Chairman.

Mr. Cary, it is always a pleasure to see you again.

I have a few questions on your statement, just for the purposes of the record, to clear up some of the confusion in my mind.

Is it my understanding that the Securities and Exchange Commission at the present time has jurisdiction over the sale of securities within the District?

Mr. CARY. Yes, we do have with respect to broker-dealers in the District of Columbia. We would have jurisdiction under the 1934 act, and with respect to the issuance of securities under the 1933 act, we similarly have jurisdiction.

Senator DOMINICK. So, as a mater of fact, the people who are engaged in selling securities in the District are already under regulation which is applicable on interstate sales countrywide?

Mr. CARY. They are under the limited kinds of regulation we can afford, Senator Dominick. We feel very strongly indeed that our jurisdiction should be supplementary to that of local-of a local blue sky law or securities law which would offer far more protection to the investor with respect to the selling by security people.

Senator DOMINICK. Then in your opinion the local enforcement of these provisions are far more effective than national enforcement? Mr. CARY. They are totally different, Senator, and as a consequence we feel that they should be supplementary-in other words, one very definite thing we feel is that we should not be taking over the total jurisdiction of this activity, and that they should work together rather than one excluding the other.

Senator DOMINICK. Now, would this require the establishment of a new body in the District of Columbia?

Mr. CARY. I am not really as competent to speak on that as the persons who are in the District of Columbia.

As I understand it, the Public Service Commission, as it is now called, Senator Dominick, is really made up of the persons who formerly were members of the Public Utilities Commission of the District of Columbia.

Now, whether or not it will be supplemented by individual persons, I cannot say. But this is a change in name, first of all, and an addition in their function.

However, I don't want to-this is not my area of competence, and so I think that ought to be answered more effectively by Mr. Acheson and others.

Senator DOMINICK. Does the Public Utilities Commission of the District of Columbia have expertise in the question of securities sales?

Mr. CARY. I do not know one way or the other. They have some expertise in financial matters, by definition of their work with respect to public utilities regulation.

I cannot speak on that point.

Senator DOMINICK. Now, Mr. Cary, the SEC, as I understand it, has enforcement provisions within its organization, not only with