SO THE REAL TRUTH IS IT GETS ANT HUNTERS OUT OF THE WAY OF HAZ. MAT. FIREPERSONS!
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Speech Before the Securities Traders Association
January 30, 1997
I am pleased to be here today to speak with you -- the professionals of an industry that is one of the
primary engines of growth and capital formation in our country. Every day, you help to make the
U.S. capital markets the most vibrant and robust in the world. The traders that make up the
securities industry help Americans to achieve their financial goals and provide the liquidity to the
markets that helps American businesses to create new jobs. And I know that one of the things you
and your clients pay very close attention to is performance.
Well, I thought I'd share with you some thoughts on our performance. The American people made a
very significant investment in the Republican majority that they elected in the 104th Congress. And I
don't care what benchmark you use -- that Congress saw results out of the Commerce Committee
that are paying off for not only the securities industry, but for every American.
We passed the Private Securities Litigation Reform Act of 1996 -- the only Clinton veto override of
the 104th Congress -- to put an end to meritless lawsuits that are a drain on our economy.
Prior to litigation reform, strike suits initiated by a handful of plaintiffs lawyers were costing American
investors $3.5 billion a year. Bill Lerach, the self-proclaimed king of strike suits, stated that "I have
the greatest law practice in the world, I have no clients." Professionals like accountants and securities
professionals were named to suits because of their status as deep pockets.
Securities Litigation Reform did four significant things to curtail strike suits:
(1) It established a pleading standard that requires that plaintiffs' lawyers plead facts showing a
strong inference of fraud in order to get into court. In laymen's terms, the change required that
plaintiffs' lawyers actually allege some fact indicating that a fraud has been committed;
(2) Litigation reform established a stay of discovery. This provision was designed to allow a judge to
consider whether a case should be allowed to go forward before allowing a trial lawyer to demand
literally millions of pages of documents from a faultless defendent. Often, under the old system,
defendents would find it cheaper to settle meritless claims than produce the millions of pages of
documents;
(3) It established proportionate liability for non-knowing fraud, so that accountants, securities
personal and other professionals would not be targeted as deep pockets and be faced with
theoretical liability of tens of millions of dollars;
(4) It established a safe harbor for forward-looking statements so that companies will be willing to
share their prospects with investors in the markets without fear of liability. I am personally very
pleased -- and relieved -- that the voters of California rejected the effort to undo, through state
initiative, the excellent, bipartisan achievement that Securities Litigation Reform represents.
Ordinarily, the achievement of a single landmark securities bill would have been sufficient in one
Congress, but we did not stop there. In September, the Congress agreed on and the President
signed sweeping reform of the nation's securities laws.
The Capital Markets Act, as we call it in the House, surprised many naysayers who thought it
couldn't be done. We created, for the first time, a logical division of labor between the states and the
federal government in the regulation of national securities markets. For issuers of many types of
securities offerings, we have eliminated the 50 roadblocks standing in the way of our national
securities markets. The costs of complying with the "blue sky" laws of the 50 states are now a thing
of the past for mutual funds, securities listed on a national exchange, securities sold to sophisticated
investors, and certain types of private placements.
We issued a mandate for a consistent, uniform approach to state regulation of books and records
requirements. The SEC has already received a multitude of comments on the proposal they issued
on this subject. We will be watching closely to ensure that books and records regulation is consistent
with the spirit of the legislation.
And here's a performance figure for you: we have saved American investors $850 million over the
next ten years by reducing SEC fees. At the end of that period, the SEC will no longer take in
double what it costs to run the agency -- it will take in only as much as it needs. I am extremely
proud that we were able to work with the Senate and the Administration to achieve this goal that had
been so elusive through so many Congresses.
Now, while past performance is no guarantee of future results, I have very good feelings about what
we're going to see in the 105th Congress.
At the beginning of my Chairmanship over financial services issues, let me say that the Congress is
not about business as usual with the markets and regulators. We are pro-market, pro-competition,
and pro-investor. We will insist that the applicable regulators, including the SEC, comply with the
requirement that their rules proposals consider costs as well as benefits of regulation. We will
consider legislation to make our markets more efficient and investor-friendly. We have an open-door
policy -- if you have concerns, let us know.
The financial services reform debate will surface in the new Congress. I expect we will look at new
ways to resolve the various obstacles that stood in the way of Glass-Steagall reform in the last
Congress. Any reform of the laws governing financial services must provide a level playing field
among financial service providers. It should also provide a regulatory structure that protects the
taxpayers who foot the bill for federal deposit insurance. The banking regulators have, over the
years, effectively repealed Glass-Steagall for banks, which are now, for all practical purposes, fully
integrated into the securities business. I believe there should be a fair two-way street, and that
brokers should be given the same opportunity to enter the banking business as banks have been
given to enter the securities business.
Continuing our record of clearing out unnecessary, outdated, and costly regulation, I plan to take a
look at other ways in which we can streamline the regulation of our securities markets. Many of the
rules of self-regulatory organizations have not kept up with the pace of development of our global
markets. Technological development, competition within and outside the United States, and the
remarkable growth of global capital markets have had an enormous impact on the members of
self-regulatory organizations, and I want to make sure that self-regulation is promoting growth and
innovation, not standing in its way.
That is just a taste of some of the things I'm looking forward to in this coming Congress. I thank each
one of you, and the Securities Traders Association, for your support in helping us achieve a track
record of which I am extremely proud -- and I look forward to working with you in the coming
months to build upon these accomplishments.
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