States' laws on securities called costly Krongard testifies before House panel on need for changes; U.S. share of equities falls; Alex. Brown chief says duplicative rules raise costs of capital

THE BALTIMORE SUN

WASHINGTON -- Alex. Brown Inc. Chairman A. B. Krongard told a congressional subcommittee yesterday that securities laws must be overhauled to prevent the United States' share of the world's equity market from declining further.

Mr. Krongard, who testified on behalf of the Securities Industry Association, a trade group representing brokerage firms, mutual funds and investment bankers, said laws enacted by states duplicate federal regulations and stifle capital-raising efforts in the United States.

"Many state regulations unduly burden the market and raise the cost of capital," the chief executive said. He was named chairman of the trade group last month.

"People will seek capital where it is the cheapest to get," he said. "I think it is going to hurt us in the long run."

Mr. Krongard said the United States' share of the world's equity market dropped to 33 percent last year, compared with 58 percent in 1974. He said other countries are hungrier for the business, and have taken steps to make it simpler for companies to raise money in their markets.

The debate, which has grabbed the attention of the securities industry and consumer groups, was started by Rep. Jack M. Fields Jr., a Texas Republican who in July introduced a controversial bill to reform the nation's 60-year-old laws governing the securities industry.

Mr. Fields, who is chairman of the Telecommunications and Finance subcommittee, proposed reforms that critics say would strip away consumer protections by eliminating states' ability to regulate the industry as they see fit. The critics also say the proposal would put counties, universities and municipalities at risk of being sold bad securities without the ability to sue the sellers.

Most of the dozen experts who testified sided with Mr. Fields.

Matthew P. Fink, president of the Investment Company Institute, a Washington-based trade group that represents the mutual fund industry, assailed states for laws that are inconsistent with federal regulations. He said such laws hurt consumers because documents that spell out goals and performance of mutual funds are muddied by states that regulate what the prospectus says.

"A congressional solution is needed," Mr. Fink told the Telecommunications and Finance panel.

Dee Harris, president of the North American Securities Administrators Association, agreed that some changes must be made, but he took issue with Mr. Krongard's argument that states are driving away business.

"This is not true," Mr. Harris said. He noted that big national and international offerings are exempt from state regulations.

Last week, Securities and Exchange Commission Chairman Arthur Levitt told the subcommittee that many state laws are redundant, but he warned that changes must be made slowly and carefully.

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