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any regulation which might be adopted, that transactions by those houses who act as dealers in securities, such as I mentioned, which are not listed, can be perfectly safely carried on in combination with a brokerage business.

I might also say here, I believe that to a great extent you might assume with me that the operations of such business are even safer in the hands of a member of a recognized reputable stock exchange, because of the regulations and rules which those stock exchanges put over their members. In other words, as with the Los Angeles Stock Exchange, we tell our members that we assume the authority to investigate any of their activities in securities. It does not mean that we only punish for infractions of our market rules; but any transactions, in bonds, unlisted securities of any sort, are subject to our supervision so that any of our members conducting other phases of business besides brokerage business are subject to our rules and our regulations.

I happen to have been forced or drafted to assume the office of secretary of our exchange, due to the death of our own secretary.

And I offer you gentlemen in all seriousness any of my time while I am in Washington on any matter concerning stock exchanges.

In line with San Francisco, we have tried to parallel with the New York Stock Exchange by adopting those rules in our organization which we thought most acceptable. In line with Mr. Shaughnessy, we have made changes where we thought that they might be necessary; but those changes, I do not believe have occurred within recent months, and they have not been brought about as a result of any investigation which we thought might be coming along.

We had a thorough house-cleaning at one time, and for the last 6 or 7 years, at least, the records of the Stock Exchange are open for any investigation by any organizad body that would like to see them.

Frankly, gentlemen, I believe in the stock-brokerage business and I believe in the men who are in that business, and I believe that the vast majority of us are in danger of being unduly penalized for the acts of the minority.

I thank you. Mr. COOPER. Mr. ChairmanMr. HUDDLESTON. Mr. Cooper. Mr. Coop ER. The speakers this afternoon have been dealing mostly with their own regulation or the regulation of the stock exchanges. What is your opinion as to how this will affect other people, business and industry, and so forth? We are concerned about that, too.

Mr. Paul. I have some definite opinions on that. I thought that it would be covered adequately, or had been covered previously. I did not want to take up too much of your time.

I have no doubt but that, particularly, the exchanges, such as the San Francisco and Los Angeles Exchanges and others, those we might call secondary or regional markets, will be adversely affected and when it comes to the business end that many corporations will not feel that they can either from the standpoint of expense or burden, continue to maintain their securities as listed securities which in turn is going to have, in my opinion, a very definite effect in the future financing program of those corporations.

In other words I can see very definitely an extreme burden being placed on the smaller corporations of the United States as they need capital in the future.

Now, the great corporations of the United States naturally can turn to New York for their larger capital requirements but the more modest corporations, which after all are probably the backbone of American business, must depend upon their local exchanges and because I, as a broker in my town, am willing to assume the responsibility of recommending an investment in a small corporation, recommending it to my clients, they invest in that corporation. And I, as a rule, am rather reluctant to do that unless I know there is nothing going to interfere with the liquidity of that security afterward, and I will tell you, I believe, very frankly, that the financing of the smaller units of American industry would be very seriously and adversely affected by this act.

Mr. MARLAND. Mr. Chairman
Mr. HUDDLESTON. Mr. Marland.

Mr. MARLAND. What percentage of the sales per day on your exchange is the result of the execution of orders for customers and what percentage is the result of trading between brokers and members as such?

Mr. Paul. I should say that during the last 3 years now, this can only be an estimate, because no analysis has been made-I am simply judging this from my experience in daily contact on the floor of the exchange—I should say by far the greater majority, at least 80 percent of the orders executed on the floor during the past 3 years have been actual execution of customers' orders.

Mr. MARLAND. You report publicly daily the number of shares traded in on your exchange, and have during that time?

Mr. Paul. We have an official bulletin that goes out every day.

Mr. MARLAND. Have you ever required your members to show to or report to the exchange the number of shares purchased or sold for customers' account during the day.

Mr. Paul. As against any trades they may have made personally?
Mr. MARLAND. As against anything.
Mr. Paul. No; we have never made such a check.
Mr. MARLAND. You do not have any such figures?
Mr. Paul. No, sir.
Mr. HUDDLESTON. Mr. Kenney.

Mr. KENNEY. You do not object to such regulation of stock exchanges, do you?

Mr. Paul. I might answer that question this way, that I would prefer not to be regulated. I am a human being.

Mr. KENNEY. Would you have any objection, provided the business of the country were not injured by the regulation?

Mr. Paul. My answer to that is, I think it might be very politic to do so, and I see no reason why I could object if our operations were permitted in such a fashion that we would not be damaged. In other words, practically as it was expressed in the opinion of Mr. Whitney.

Of course, I hate to be regulated. I feel this very keenly, if I do not satisfy my clients, if I do not give them the best of everything I have, I will lose them as clients, and contrary to the general prevailing public opinion, I do not believe that I know a member of my exchange who is not intensely interested in doing the best he can for his clients, and every rule of my exchange that I know of really penalizes the broker in his relationship to his clients, to his customers, rather than

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his cutomer's relation to the broker, so that any regulation which merely makes that a general practice, I should see no objection to.

Mr. KENNEY. Now, it seems to me that the general testimony here today has pulled all of the teeth out of this bill.

Are you prepared to tell us briefly how far you think the regulation ought to go?

Mr. PAUL. I am not prepared to tell you how far the regulation should go. I should say, frankly, I believe, from the standpoint of my exchange, and myself personally, our greatest fear is, too much rigidity. For example, we strenuously object to the rigid margin requirement, because we do not believe it is sound economically. It can be changed downward, and cannot be changed upward.

Mr. KENNEY. In whose hands would you leave that?

Mr. Paul. Frankly, from a rather hurried consideration of the proposal made by Mr. Whitney, I am inclined to feel that some such body as that would be highly desirable. In other words, I do not want to be in the position of saying that we are afraid of Government bodies. It is not that, except I do feel that a body such as he suggested would be more flexible, possibly, would represent a greater cross section, not only in finance, but of business relationships and rules and regulations, and could conceivably be more effective and possibly more capable, and would be more satisfactory to all concerned.

Mr. KENNEY. I understood Mr. Whitney to say yesterday that he thought that the rules and regulations and the conduct of the Stock Exchange should be left in the hands of the governors of the exchange entirely and that their decision should be final and that there should be no appeal from that decision. Do you agree with that?

Mr. PAUL. In large part, yes, sir; because I believe that the rules governing trading in most parts are purely technical and I do not believe that they are such as to have any serious effect on the public interest.

Mr. KENNEY. Would you give any of that power to this coordinating authority that has been suggested here, or was suggested yesterday?

Mr. Paul. Well, I would assume that the coordinating body would have some powers along that line, except that the exchanges themselves having representation would be able in detail to present each case and the practical matters involved would be understood. The net result should be satisfatory.

Mr. KENNEY. Would you have the coordinating authority sit with the governing committee of the stock exchange? Mr. Paul. I think that would be a very serious error.

I believe that any investigation this body would care to make on the activities of governing bodies of stock exchanges would disclose that they have acted in the majority of cases properly and promptly, and I do not believe that that power could in all fairness be delegated to some other constituted authority, because, as Mr. Whitney explained, through no one's fault many cases arise suddenly, and if they were not willing to act

Mr. KENNEY. Would you give that power solely to the governing committee of the exchange or would you reserve the right of review to the coordinating authority?

Mr. Paul. My reaction to that would be that the coordinating authority in its investigation probably would arrive at the conclusion I maintain. They probably might themselves see the wisdom of leaving that subject to review.

Mr. KENNEY. Subject to review by the coordinating authority?
Mr. Paul. Yes.
Mr. KENNEY. Would that that be agreeable to you?
Mr. Paul. I should assume so.
Mr. HUDDLESTON. Thank you.

Mr. THOMPSON. I would like to give our time to Mr. Whitney. I am sorry that we have taken up so much of his time, but part of it has been due to questions.

Mr. HUDDLESTON. I do not know how long the committee wants to sit. As for myself, I would be pleased to hear Mr. Whitney further.

Mr. THOMPSON. We would appreciate it if he could be heard. Of course, questions have taken up a good deal of our time.

Mr. HUDDLESTON. If there is no objection, we will hear Mr. Whitney.


STOCK EXCHANGE, NEW YORK, N.Y.—Resumed Mr. Whitney. Mr. Chairman, I do not want myself to take but very little of your time, although I regret I have not been able to put my entire statement and certain other things that I would like to present before the committee, because

Mr. HUDDLESTON. May I suggest that you may add to your statement and incorporate in the hearings your entire statement, if you have not done so.

Mr. WHITNEY. As I understand, that was put in the record this morning.


Mr. WHITNEY. There are two things that I would like to say in my suggestions for a stock exchange coordinating authority. I think there may have been some impression that the word "may” had reference to the designated representative of the New York Stock Exchange. It was my very definite intention that in suggesting such authority on which a representative of the stock exchange should be, that he must be on there and must serve on it.

The stock exchange would certainly want such a representative as I suggested.

Mr. Gay, this morning, for a correction of the record, if I mayMr. Gay said, I think purely inadvertently, that the members of the New York Stock Exchange were all residents of New York. The majority of them are residents, I think, of New York. Many, of course, also are residents of—the active ones-of New Jersey and Connecticut. And then there are scattered memberships, residents throughout the rest of the United States.

With regard to some of the questions that Congressman Lea asked recently, if there is time later, I would take particular pleasure in going into certain points he raised.

I may say Mr. Allshue, chairman of the committee on stock listings, was here this morning, and was prepared to make a complete statement to you regarding the workings of his committee and the effect of the bill upon listings of securities, when we were advised that it perhaps would be impossible for the committee to hear us at length today. Mr. Allshue, realizing that he would not have today an opportunity to present to you his statement, prepared a brief memorandum, to which is attached a document describing the workings of the committee on stock listing requirements of the exchange as they exist today, and the action of the changes in listing requirements and policies of the committee which have been made since 1926.

With your permission, I will submit for the convenience of the committee, a copy of this memorandum and document. It goes into the subject very completely, into the progress that has been made, and the details demanded by the New York Stock Exchange as to corporation listings.

Mr. HUDDLESTON. How extensive is that material?

Mr. WHITNEY. That is a covering letter, Mr. Chairman, and a bound volume, I should say, of about 15 pages.

Mr. HUDDLESTON. I suppose that it would be better to file it with the clerk rather than print it in the record.

Mr. WHITNEY. Very good, sir.

With your permission, I would like to have you hear from Mr Arthur F. Hetherington, a partner of the New York Stock Exchange firm of De Coppet & Dorenius, one of three large odd-lot dealers, house members, of the New York Stock Exchange.

Mr. HUDDLESTON. We will hear Mr. Hetherington.



Mr. HETHERINGTON. Mr. Chairman, I wish to thank the committee for the privilege of presenting the following statement on behalf of the odd-lot dealer system of the New York Stock Exchange. Let me explain that an odd lot of stock is a denomination of shares less than 100. I shall take the liberty of reading the headings of my paragraphs as well as the context.



Eighty-cight percent of the number of stockholders of 48 representative American corporations, at the end of 1931 (the last year when these figures were compiled) were holders of less than 100 shares of stock.

If a somewhat lesser percentage, let us say 80 percent, is applied to the estimated total number of holders of stock in American corporations, the number of holders of small lots—that is, of odd lots, or less than 100 shares—is indicated as reaching the enormous total of 14,000,000.

Although an exact census of the number of these holders of small or odd lots of stock does not exist, this approximation reveals that a phenomenon of tremendous sccial-economic significance has occurred in the United States.

A vast army of its citizens has become part owners of its corporations, great and small. This huge assembly of small stockholders is composed of workers in the railroad, telegraph, telephone, and other

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