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What this really does, sir, is to provide that the Commission shall have something to say about all matters covered by stock exchange rules, because the stock exchanges have not themselves been able to take care of the problem of handling their practices through rules, and the multiplicity of particular situations is so great, sir, that you would have a bill 500 pages long, before you finished, if you tried to write in all the details. And when you finished, the people regulated would not want regulation in detail, because no two situations are ever alike. By the language used here you have specifically enumerated certain objects of legislation and by that enumeration given an indication of the kind of things you want the Commission to control. When you have done that, you have done about all Congress can do.

Mr. Mapes. The law ought to be made to apply to all alike, and I hate the idea that some man can go to an administrative official and get something done that another fellow on the street cannot.

Mr. CORCORAN. You have to have the power to make rules and regulations in every administrative body. The answer is to pick good men on your commissions.

Mr. MAPES. Well, that sometimes is no answer at all.

Mr. CORCORAN. It is the ultimate answer to any governmental problem.

The CHAIRMAN. If I may take a half a minute, I quite agree with Mr. Mapes, and that is what we are trying to do in the committee and have been trying to do for a long time. We have had to vote powers to the Interstate Commerce Commission that nobody dreamed of in 1887, because we cannot go into the particularities of regulations. And we are going to try to do that in connection with this bill before we get through with it.

We are very much obliged to you, Mr. Corcoran. You have made a very elucidating, interesting, statement.

I will ask the committee to remain a few minutes. (Thereupon, the committee proceeded to the consideration of other business, after which it adjourned.)

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Washington, D.C. The committee met, pursuant to adjournment, at 10 a.m., in the committee room, New House Office Building, Hon. Sam Rayburn (chairman) presiding.

The CHAIRMAN, Īhe committee will come to order.



NEW YORK STOCK EXCHANGE, NEW YORK, N.Y. The CHAIRMAN. Mr. Whitney, you may proceed in your own way, The committee, I am sure, will want to break into your statement at times and ask you questions, but probably it would be better for you to try to proceed and finish your statement.

Mr. WHITNEY. I will be very glad if they will break in, Mr. Chairman, naturally.

Mr. Chairman and gentlemen of the committee

The CHAIRMAN. Mr. Whitney, will you qualify? Tell your full name to the reporter, and your position.

Mr. WHITNEY. Richard Whitney, president of the New York Stock Exchange.

Shall I proceed, Mr. Chairman?

The CHAIRMAN. There is quite a large number of people in the room, and any shuffling of papers and whispering will disturb the committee very much, and we will ask you to maintain absolute quiet.

All right, Mr. Whitney.

Mr. WHITNEY. Mr. Chairman and gentlemen of the committee: The New York Stock Exchange is vitally interested in the bill now pending before you which is called the “National Securities Exchange Act of 1934.” We have studied the bill with great care, and in stating our opposition to it, I shall, with your permission, discuss first the general purpose of the bill and, without going into complete detail, show how the provisions will affect all business and industry and all investors as well as stock exchanges and persons dealing in securities. Secondly, I shall take up the particular provisions of the bill wbich affect most directly stock exchanges and the business of members of exchanges.

We have arranged to have a number of gentlemen, who can speak authoritatively on the different phases of stock exchange members' business, appear to inform you in this regard.

Each one of these gentlemen is thoroughly familiar with his own line of business and I feel sure that they will be prepared to explain

to you as fully as you may desire not only the nature of their business but just how it would be affected by the bill pending before you.

I trust you will not believe that our_sole purpose in appearing before this committee is to criticize and I hope you will understand that we are anxious to be helpful by way of explanation and the presentation of a definite suggestion.

Before taking up the bill section by section, I desire to say a few words on the bill as a whole and its effect upon the business and industry of this country.

H.R. 7852, although it is entitled "A bill to provide for the registration of national securities exchanges operating in interstate and foreign commerce and through the mails and to prevent inequitable and unfair practices on such exchanges, and for other purposes”, is far from a bill which deals solely with stock exchanges and stock exchange practices. It affects a far wider field unrelated in many ways to transactions on stock exchanges.

The provisions of the bill which purport to deal with margin requirements and brokers' credit might affect the entire credit system. This is due to the fact that in an effort to prevent any evasion of the restrictions on margin accounts contained in the bill, similar restrictions have been placed on loans made through banks or other persons. In like manner, the provisions of the bill limiting the amount which brokers may borrow and requiring that brokers must borrow only from members of the Federal Reserve System affect credit in a much wider field. Not only will stock exchanges and their members be affected by these provisions but also banks, industry, and all investors.

I will not undertake to describe in detail the provisions of the bill affecting banks and banking, as I am advised that the committee will hear shortly from persons who are expert on such matters.

The bill also directly affects all companies which inay list their securities upon a national exchange. It does so by requiring them to submit registration statements and to furnish information to the Federal Trade Commission, which, under the bill, is charged with the duty of enforcing its provisions. The extent of the power given to the Federal Trade Commission to require listed corporations to furnish it with information and the control over corporate practices, which is likewise given to the commission, are so great that many of the functions of management are, in effect, transferred to an administrative department of the Government. Certainly, provisions having this effect form no part of a bill dealing with the regulation of stock exchanges and stock exchange practices. I understand that the officers of a number of important companies have asked an opportunity to appear before this committee, and I feel sure that they will point out the various provisions of the bill which affect them and discuss these provisions full, with you.

I would, however, like to say very briefly a word on behalf of the great number of investors, scattered through out the country, who may not be represented before this committee. The bill, naturally, contains many provisions which affect members of exchanges and dealers in securities. But I would like to draw your particular attention to the fact that any regulation of stock exchanges necessarily affects all investors. Stock exchanges are organized as public market places for securities, in which are concentrated the supply and demand which arise from the willingness of owners to sell and the desire of others to buy. A public market by concentrating the buying and selling demand creates fairer prices for the benefit of both buyer and seller and, therefore, the principal function of an exchange is to give the public the facility of selling the securities which they own and of buying others. There are literally millions of our citizens who own or are interested in listed securities. The vast majority of them are investors and not speculators. Among this great number of persons you will find both rich and poor, but whether they are the owners of thousands of shares or the owners of only a few shares of a single company, they are all interested in the maintenance of a public market for securities. Their interest is a real one because the concentration of supply and demand on exchanges results in creating a market in which securities are daily bought and sold in volume. This gives assurance to the holder of securities that his property can, if it is necessary, be turned promptly into money.

Through the activity of exchanges, securities have remained liquid throughout the entire depression. It is true that they have declined tremendously in value, but in spite of declines securities have remained marketable. Real estate, on the other hand, became practically unsalable and at times it was impossible to find a buyer for mortgages or other forms of real-estate investment. Holders of listed securities, however, have been able to sell them whenever it was necessary to raise money. The interest of these security owners in the bill to regulate stock exchanges is, therefore, very direct and real. To the extent that this bill seeks to regulate stock exchanges to the point where it will destroy the free and open market for securities, the liquidity of the one form of investment that has remained liquid throughout the depression will certainly be impaired if not entirely destroyed. I say, therefore, that this bill affects not only members of stock exchanges and dealers in securities, but the entire public.

With your permission I will now discuss the bill in detail.
Section 1 of the bill contains simply the title of the act.

Section 2 of the bill consists of a number of statements of fact which I understand are included solely for the purpose of supporting the constitutionality of the bill

. I disagree with some of these conclusions and doubt whether they are true. As a layman, I am not competent to discuss questions affecting the constitutionality of the bill. Mr. Thomas B. Gay, of the firm of Hunton, Williams, Anderson, Gay & Moore, of Richmond, Va., is present and will, if the committee will permit, make a brief exposition in regard to the provisions of the bill which, in his opinion, are not constitutional. I have asked Mr. Gay to prepare a brief on this subject, which he will submit at a later date.

Section 3 of the bill contains definitions of the terms used in the bill. These definitions are unusually broad and sweeping. I call your attention particularly to the first definition which defines the word "exchange" to include not only the institution itself but also all of its members.

The third definition defines a "member" of an exchange to mean not only those persons who are actually members but also all persons who have a right to use in person any facility of an exchange for the purpose of making purchases or sales thereon. This extension of the meaning of the term "member” produces certain surprising results in some of the later sections of the bill.


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