Tough to Nudge Judge Budge

While investors are brooding over the deterioration in stock prices, their brokers are grappling with many longer-range problems that will importantly affect the future of the securities business. Should brokerage houses be permitted to sell their own shares to the public? What kind of commission discounts should the stock exchanges give to the big institutional investors? The answers to these and other basic questions will depend largely on the views of the Securities and Exchange Commission, Washington's watchdog over Wall Street. The times would seem to call for a tough-minded decision maker as SEC chairman. In Hamer H. Budge, the SEC has instead a tranquil, kindly administrator who has a penchant for delay. In addition, Budge last week was accused of "gross, clear, conspicuous, transparent conflict of interest."

The accusation was leveled by Senator William Proxmire after Budge ad mitted that he had considered an offer to become president of the six mutual funds managed by Investors Diversified Services, the biggest company in the fund business. Budge eventually declined the $80,000-a-year bid, but only after pondering over it for more than two months. A Senate banking subcommittee has called on him to explain how he could justify negotiating for a job in an industry that the SEC regulates.

Budge contends that he did "nothing improper" because his personal labor negotiations were with the funds rather than with the parent I.D.S. Some Congressmen consider this distinction irrelevant. True, the SEC regulates fund management companies more closely than the funds themselves, but the funds' activities are hardly outside the scope of its concern. New Hampshire Senator Thomas J. Mclntyre noted last week that the SEC had unsuccessfully advised the Senate Banking Committee to soften the language of a bill that would limit the fees that mutual funds can charge investors. Senator Proxmire said that he was "shocked" that Budge would negotiate for a fund job while that legislation was still pending. Other Senators also expressed chagrin. The bill has been passed by the Senate, but the House has not yet taken it up.

Following a Whirlwind. The fact that Budge considered leaving the SEC just five months after becoming its head tended to confirm an impression in Washington that he is not overenthusiastic about his current post. He succeeded Manuel Cohen, a whirlwind policymaker who had greatly speeded the pace and expanded the variety of SEC regulatory activities. "Judge" Budge, a former Idaho Republican Congressman and state district judge who served as one of the SEC commissioners for more than four years, is quite different. He is likely to put off a study of an important question for a month or so until an SEC aide returns from vacation. In making policy, he allows securities-industry leaders to talk themselves out on any pending matter and encourages the four other SEC commissioners to voice divergent opinions at great length, while insisting that decision in the end must be unanimous.

The simplest policy decisions now meet extensive delays. For example, a regulation that would apply the requirements of the Truth in Lending Act to margin loans has been debated since May without a decision, and no final action has been taken on a proposed rule regarding corporate names. Under the rule, a company's registration statement to sell stock would be deemed misleading if the company's name contained such words as "missile" or "space" but the firm did no work in those fields.

Budge has his defenders. They point out that the SEC staff has continued to press stern disciplinary actions against brokers suspected of manipulations. The SEC has also been prodding brokerage houses to clean up the continuing paperwork mess in back offices. On the major issue of overhauling commission rates, however, Budge has left it to the stock exchanges to develop detailed proposals. He believes that the SEC should only act as devil's advocate, asking questions about any proposed changes to make sure that no important considerations are overlooked. This approach annoys some high stock-exchange officials, who want specific guidance as to what sort of new schedule the SEC would accept.

There is no reason to think that President Nixon is dissatisfied with Budge. During the campaign, Nixon attacked "heavyhanded" regulation of the securities industry. His recent actions indicate that he sees little need for a driving pace at the SEC. In May he appointed James J. Needham to fill a vacancy on the commission. Needham, who for twelve years headed the New York office of a North Carolina-based accounting firm, is a complete unknown in the securities industry. SEC staff members fear that he may need lengthy on-the-job training from Judge Budge and others.

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