September 29, 2019
It is my understanding that the proposed rule by the SEC is to limit dissemination of quotations on securities where public information isn’t readily available. The purpose of the proposal no doubt is to try and protect the public from fraudulent activities for the unknowing public. As most proposals the intent is well meaning. In this proposal I will also point out how if it is enacted it could grievously harm many current investors. I will use a case in point of a company started in 1921 in California that is currently considered the largest landowner there with approximately 135,000 acres in mainly farm land in California alone, the J.G. Boswell Co. (BWEL) It is a company with current shareholder equity of about $1,000,000,000 with some assets carried at cost from 9 decades ago. This company issues virtually no information to the public unless you can prove you are a shareholder. In so doing they try to protect themselves from their competitors and shy away from publicity. This is so unlike the companies that the SEC is trying to protect the public from who tout their own questionable value. I surmise since the founding in 1921 through inheritance, gifts, and transfers to employees the company’s shares which number almost 1,000,0000 have been more widely disseminated. I believe the management is honorable but if it wasn’t, and wanted to take unfair advantage of the people owning the shares that aren’t closely held by the insiders, it would be easy to do so if the SEC proposed rule was adopted. Without the free market of quotations that is currently available, a holder would be forced to take whatever price the management wanted to pay for the shares. This would be travesty to many serious investors that are value oriented. I know there are a great many more companies of substance like J.G. Boswell Co, that are in the same situation and I would be happy to name many of if requested. Many of these securities with the current quotation system afford the public quotes that are relatively narrow in spread compared to previous decades without such quote systems. I use the following example of my personal experience as I was the assistant head trader at Dean Witter, Los Angeles in 1961 as an example what would happen without the current quote system. A person wanting to buy or sell an unlisted security had to rely on whatever quotation their broker gave the client. I remember vividly trying to execute orders for clients for thinly traded securities that were only quoted in the Pink Sheets. Those brokers interested in a particular stock would advertise their names in this publication and a trader like myself would have to make a telephone call to a broker to get a quotation. Many times the quotation in an inactive stock was only one sided like “ 3 Bid only without showing a offering price”. Other times a quote from another broker would be “NO bid, 8 offered”. There might be a person willing to pay 6 for the stock and another person willing to sell at 6 but there was no way for the two parties to find each other. So the end result might theoretically be that one client would get 3 for his stock while another was paying as much as 8 to another broker. This was ludicrous of course but I personally saw situations where the public could be severely taken advantaged of and it was perfectly legal in inactive securities without quotations widely circulated like they are now electronically. Many brokers thrived on these huge spreads and even the sharpest estate attorney was at the mercy of the market place when instructed to liquidate an estate which was very common. If the SEC needs to address an important issue to protect shareholders it is the fact that the term “Shareholders of Record” that is used to determine the need to register a companies securities. With the Depository Trust Co (DTC) currently charging $500 to receive a stock certificate, it makes it almost impossible to get a stock certificate without a huge penalty. With almost all securities now owned as only beneficial holders and not registered holders, the 300 and 2,000 figures for registration requirements of registered holders is almost a totally meaningless figures. The qualifications for number of holders should be changed to beneficial holders immediately. Otherwise it is conceivable that even a large company could less than 300 registered holders since most are owned only beneficially through DTC. I have been in the investing field for approximately 65 years as a client, an OTC trader, a registered account executive, a specialist on the Pacific Stock Exchange, an owner of a securities firm (Don C. Whitaker, Inc) with as many as six specialist operations on the Pacific Stock Exchange and then as an active investor for myself and family private funds without outside funds. With the years of experience I have seen some great rules enacted to protect investors from unscrupulous vultures but occasionally there are well meaning proposals that have unintended consequences to the large detriment of the serious investor. I am afraid that this proposal could be one of the later. I hope other informed parties like myself submit statements like this stating how such a rule like S7-14-19 could be extremely detrimental to serious investors if enacted. Submitted, September 29, 2019 By: Don C. Whitaker [redacted]