Resoundingly unhappy with Yandell's report and believing that it was detrimental to the SEC, Chairman Douglas hired Harold Neff to embark on a trip to London and write another report. Neff had devoted much of his legal practice to international business issues, including questions involving international securities trading. He had also been a special advisor to the State Department, a director of the Export-Import Bank, and had drafted the regulations for the SEC on the listing of foreign securities. He thus appeared eminently qualified to engage in this project.
In London, Neff examined how the London Stock Exchange functioned and what procedures it followed. He then compared this to the U.S. market and undertook to analyze what effect foreign trading in U.S. securities had on the U.S. market. His report to the SEC begins: "The charge has been frequently made that recent legislative enactments have caused trading in American securities to flee from this country, with a resulting escape from the law . . . [creating] an undue loss to the American business community. This report is concerned primarily with the consideration of the quantity and kind of that trading in England."(20)
Although Neff's work in London was cut short by World War II, his report concluded that through British institutional market structures, customs, informal government action, and the way in which the Bank of England, the Board of Trade, and the London Stock Exchange functioned, the LSE was adequately regulated. He concluded that at times the LSE provided less opportunity for speculative trading and was less volatile than the U.S. markets. Neff, like Yandell, reported that trading in U.S. securities on the LSE was rather limited.
If Yandell's report was heresy, Neff's was blasphemy. Especially galling was Neff's finding that the LSE was in some areas as regulated as the New York Stock Exchange. An SEC report on the Neff report recommended that it remain unpublished for its findings would give comfort to opponents of the SEC.(21)
It is striking that the Yandell and Neff reports reached somewhat similar conclusions and that these raised the ire of SEC Commissioners and staff. The SEC was adamant that trading abroad in U.S. securities was dangerous to the U.S. markets and to its own power to control such trading. The agency's position was that anything but U.S.-style securities regulation was really no regulation at all.
(20) March 1, 1940 Report on the trading in American securities on the British market, by Harold H. Neff, Foreign Expert, SEC (courtesy of the National Archives and Records Administration)
(21) June 27, 1941 Memo from Harold Neff to the Commission on the study of the London Stock Exchange (courtesy of the National Archives and Records Administration)
