"A MORE PERFECT WORLD: THE CONTINUING CONVERSATION BETWEEN THE 
                    THE SEC AND WALL STREET"
                REMARKS BY CHAIRMAN ARTHUR LEVITT
        UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                 SECURITIES INDUSTRY ASSOCIATION
                       BOCA RATON, FLORIDA
                        DECEMBER 3, 1994


     I'm here today to talk about the partnership between the SEC
and the industry -- a partnership that has served American
investors well for 60 years.  I thank outgoing 1994 Chairman
Howard Clark, 1995 Chairman John L. Steffens, and SIA President
Marc Lackritz, for their leadership and their commitment to the
securities industry.

     For me, this return to the 23rd annual SIA convention has a
sentimental side: it's a return to former colleagues from an
industry that has been such an important part of my life; a
return to friends and former associates.  As I meet you and greet
familiar faces, I recollect previous visits to this Boca meeting
-- memories of Morgan Stanley's parties, dinners with
Congressional staffers, hot dogs in the St. Louis Room, and gala,
invitation-only dances for honored guests and members of the old
guard.  It was a time when syndicate managers were courted by
firms seeking underwriting business.  I recall how difficult it
was for me when the only firm lower than Cogan, Berlind, Weill &
Levitt on a tombstone was Zuckerman Smith.  Whatever happened to
Gregory & Company?  

     That era is over, and many of those firms are no longer in
business.  We're in a leaner, tougher time, where issues of basic
survival in an increasingly competitive environment have become
the focus.  Today the question is not merely getting into a
Goldman Sachs deal, or moving up a bracket -- it's a question of
greater competition, a huge number of complex products, souped-
up technology, and speeded-up transactions.

     I find myself looking at the industry now from a very new
perspective -- no longer a member of the immediate family, more
like an uncle viewing the family from afar -- proud of
attainments, understanding of shortcomings; rooting for
excellence, impatient with mediocrity; stern about ethical
lapses, ecstatic about successes; applauding victory, mourning
failure -- and always, always, cheering innovation. 

     I fear sometimes that my words or my tone, or the
interpretation of them by the press, can make me sound like your
greatest critic.  I'm here today to tell you that I'm really your
biggest fan.  I want to congratulate you for how far we've come;
to encourage you because we have so far yet to go; and to commit
to you that we'll get there together.

     In some cases, I may appear to push too hard and move too
fast.  I'm fortunate that -- if I may continue the metaphor --
after so many years together, the family generally knows that my
heart's in the right place.  My goal is the soundness of our
securities markets, in terms of both perceptions and bottom line
results.  And it's clear to me that a sound market is one that
serves the interests of investors, above all else.  

     The SEC plays a vital role in ensuring sound markets.  The
securities industry has flourished in a self-regulatory
environment, in which the Commission effectively works to
maintain public confidence in the markets.

     From the very first public utterances of the very first SEC
Chairman, "partnership" and "cooperation" have described the
relationship between Wall Street and its regulator.  That's an
extraordinary vote of confidence in the industry's ability to
police itself, and Self-Regulatory Organizations must remain
worthy of that confidence.  SROs are NOT meant to be trade
organizations. That's the role of the SIA, one it fulfills very
well.  SROs, on the other hand, are no-nonsense defenders of the
public interest.  They have a practical responsibility, to see
that markets function efficiently and to keep American markets
competitive.  But they also have a public responsibility, to hold
no interest above that of the investor.

     The SEC has reponsibilities, too.  Key among them is to
respect the awesome power of the free market, and, whenever
possible, to use market solutions, such as disclosure, to solve
market problems.  The die of our partnership with the SROs was
cast long ago:  The SEC identifies an issue as fundamental to
protecting the industry's valuable franchise, and works with the
SROs to resolve it.  We don't always have the same view of what
makes a perfect world -- but somehow the relationship has worked.
Together, we've created a regulatory framework that has helped
make ours the deepest, most liquid market in the world.

     I've tried to build on the SEC's successful record of
working with the industry to enhance investor protection.  I've
found that consensus works better than confrontation, and at less
cost.  This is an industry that specializes not only in seeing
the writing on the wall, but in reading it, analyzing it,
interpreting it, and benefiting from it. 

     Regulation can be a blunt instrument, with unintended
consequences.  Wall Street is a free market, and we prefer to use
market forces.  Our recent investor education campaign is an
example.  

     We've been pointing out, among many other things, that
mutual funds with high fees don't necessarily perform better than
no-load funds; but there's a big difference between telling
investors how loads work, and telling funds what loads should be.

     We'll regulate where warranted -- but it's my strong belief
that a call for legislation or rulemaking should be only a last
resort to the kinds of consensus actions that have characterized
our relationship during the past year and a half.  Just think of
some of the things we've accomplished together:

    The Commission was concerned about "pay-to-play" in
     municipal bond issues; the industry came up with a voluntary
     ban on political contributions.

    The Commission sought greater transparency for municipal
     bond prices and mark-ups; the PSA and MSRB stepped forward
     with several creative proposals.

    The Commission expressed apprehension about personal trading
     by mutual fund managers; the ICI quickly developed
     guidelines to prevent abuses.

    The Commission had questions about over-the-counter
     derivatives; the industry formed a panel, ably chaired by
     Gerry Corrigan and John Heiman, to come up with answers.

     The same pattern holds true for any number of goals we've
identified:  Clearer prospectuses.  Broker education and
compensation.  Shareholder voting rights.  In each case, we've
looked to the industry for an answer; in no case has the industry
failed to respond.  Although not every answer has been precisely
the one we envisioned, partnership involves both give and take -
- and on balance, we've done very well.  

     In the interest of our continued success, let me be explicit
about some of the obligations I see on both sides.

     My pledge to the industry is, first and foremost, to
communicate -- to continue our 60-year dialogue, to listen as
well as talk, and to avoid surprises.  

     It's also to work to keep competition fair, and to help
improve the machinery of American finance -- not throw a
regulatory wrench at it.

     We'll continue to strive for quick decisionmaking, without
compromising thoughtful decisionmaking -- in fact, I've asked
Commissioner Steve Wallman to look at ways to streamline our
rules and ensure that they're cost-effective.

     Above all, we'll continue to favor self-regulation and to
work toward consensus solutions, pursuing legislation and
regulation only where necessary.

     In return, the Commission has the right to expect certain
things from you.  Your active partnership, for one, and your
equal participation in our dialogue.

     We also expect the industry to move quickly on problems once
identified, not to drag its heels.  There's no sense in fighting
the inevitable.

     And there's no sense in fighting each other.  I'm dismayed
that, after signs of a truce early this year, the SROs have
continued their bitter ad campaigns -- wasting resources of
member firms that would be better spent advertising the
advantages of American capitalism.

     Most of all, we expect from you an absolute commitment to
the primacy of the public investor.  The issues that challenge us
from year to year are complex, and each has many sides; but
there's one side you can expect to find the SEC on every time,
and that's the INVESTOR'S side.  We need you to be there as well,
because what is pro-investor is also pro-investing.

     In the interest of maintaining this even-handed
relationship, I'm going to do something today that may be
unusual.  Typically, it falls to the SEC Chairman to highlight
poor practices in the industry and call for changes.  But that
doesn't strike me as fair, unless I also highlight the good
practices.  

     A few positive practices have caught my attention recently. 
I'm not a lawyer, but I do know when I need a disclaimer: the
following is not an endorsement of any firm or SRO on behalf of
the Commission; it's merely a list of what seem to me to be
positive practices.  It's not complete; I welcome anyone not on
it to share the practices you're proudest of -- I'd like to help
you bring attention to them.  

     Technology can be a powerful tool for improving compliance. 
PaineWebber has a new computer system that it believes defines
the state of the art, and it's willing to share the technology
with other firms at cost.  I think that's commendable.

     With the proliferation of 401(k) programs, more people are
now responsible for planning their own retirement.  T.Rowe Price
has shifted gears with a greater emphasis on retirement planning,
and they're offering free kits with workbooks, strategies, and
model portfolios.  

     Merrill Lynch's ads state, "Our clients' interests come
first.  By serving them well, we will also succeed."  Merrill is
seeking to prove that's more than a mantra by encouraging
investors to create long-term financial plans.  

     There's a great need today to find better, fairer ways to
resolve disputes.  I'm told that customer contracts at Nutmeg
Securities and at Fidelity offer model arbitration clauses that
give clients an even break.  That's as it should be.

     Raymond James has developed a totally new concept in
confirmation statements, by actually conveying useful information
in plain English.  They tell you whether the trade was solicited
or unsolicited, principal or agency, and they're forthright about
commissions.  There's even an explanation of front-load, back-
load, and no-load mutual funds.

     The Nasdaq market has been having an especially tough time
of late.  A sense of balance demands that we also point out how
it has moved to recognize the primacy of investors.  Limit order
protection and a new system for executing small customer orders
are intended to give investors a better chance at a fair price.

     As admirable as all of the practices I've mentioned are,
there's still quite a distance from here to a perfect world. 
When I first came to the Commission, we set four priorities for
the agency: enhancing investor protections; reforming the debt
markets; raising the standards of practice for brokers and
financial advisors; and strengthening the international pre-
eminence of U.S. capital markets.  In the spirit of our
continuing dialogue about how to improve the industry, let me
tell you some of the ways we'll be carrying that agenda forward
in the year ahead.

     We will continue to work with you to raise standards in the
retail brokerage industry, through a strong enforcement program,
but also through ongoing education and higher education for
brokers.  We'll consider compensation and discuss ways to turn
BEST practice into COMMON practice.  

     Investor protection will also continue to be a priority,
especially with one in three American families now involved in
our markets.  We'll expand our efforts to educate investors. 
We'll set a higher standard of clarity for mutual fund
prospectuses.  We'll police fund advertisements that raise
unreasonable expectations.  And we'll seek better ways to measure
shareholder risk.

     In terms of market structure, we'll work to ensure that
customer orders receive priority treatment.  That means, where
possible, they are displayed, protected, and able to interact
directly.  We'll also seek to reduce risk in the settlement
process by overseeing a smooth transition to T+3.

     In the municipal market, we'll continue to move against any
vestige of "pay to play," and we'll take the next step on the
road to reform by asking for better, more public, and more
current reporting of prices.

     Finally, in the international arena, the SEC will work to
preserve the preeminence of our nation's capital markets, and to
expand the choices available to American investors.  We set a
record this year with 126 new foreign listings on US markets --
we want to top that next year.

     That's the core of our agenda for 1995 -- assuming that
market events don't distract us.  And I guess that if I could go
a step further and wish for ALL the things I'd really like to see
in 1995, I'd add greater diversity in the industry and at the
SEC; improvements in the costly litigation process that don't
compromise legitimate investor claims; functional regulation for
financial services; bring back Mary Schapiro; a strong economy;
robust markets; peace on earth; and -- if we're REALLY lucky --
computer cables that cannot possibly be eaten by squirrels...

     Our priorities for the year ahead all focus on the needs of
investors because, in the long run, the interests of investors
are the interests of the market.  That's a key lesson that we all
learn in this industry.

     The first Chairman of the SEC, Joseph P. Kennedy, Sr., also
came from Wall Street.  He once joked that, had the SEC existed
just ten years earlier, he might never have become a millionaire.

     I guess I feel the opposite -- had the SEC NOT existed, the
industry might not have been as successful, and my career in it
not as productive.  And that experience informs everything I do
as Chairman.  I owe almost everything I have to the tremendous
opportunities afforded by the securities trade.  I believe deeply
in this industry and in its power to do good for individuals, for
companies, and for nations.  I believe in the future and
resourcefulness of the markets and the people running them.  My
most heartfelt goal is to help make our markets better, and the
professionals who work in them prouder.  

     That's a goal that we both share -- but it's a goal neither
of us can reach alone.  For the sake of your firms -- for the
benefit of investors -- for the good of our nation:  Let's keep
up our dialogue -- let's continue to trade ideas about a perfect
world -- and, above all, let's do even more to get there in the
year ahead than in the productive year just past.

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