mination of any question affecting his personal interests, or the interest of any person in whom he is directly or indirectly interested.

SEC. 10. Powers.-The investment bankers code committee shall be vested with all the powers necessary and appropriate to carry out the provisions of this article, and it may adopt such rules, issue such orders and directions, and make such decisions as it shall deem proper and appropriate therefor.

SEC. 11. Interpretative rulings.-The investment bankers code committee may, from time to time, present to the administrator proposed interpretative rulings based on the rules, which rulings shall be made in the light of the general principles set out in article III hereof, and said committee is hereby authorized to give a liberal interpretation of the rules, according to the spirit and intent thereof, in order to effectuate the policy and purposes of this article. Such interpretative rulings shall, upon approval by the administrator, become operative as part of the rules applicable to registered investment bankers as provided in section 1 of this article X.

SEC. 12. The list.-The investment bankers code committee shall furnish to each registered investment banker a list of all registered investment bankers and of all suspensions and cancelations of registrants.

Any registered investment banker may, at any time, withdraw from such registration and by so doing relieve himself of any further obligation as a registered investment banker upon giving notice in writing to the regional code committee of the district in which his principal office is located and to the investment bankers code committee of his desire to so withdraw and upon paying any amounts due from him.

SEC. 13. Expenses of committee.-Every registered investment banker agrees to make to the investment bankers code committee from time to time contributions to defray the expenses of the administration and enforcement of the code and the rules in the same manner provided in section 6 of article III of the code.

ARTICLE XI. ADMINISTRATION

SECTION 1. Statistics.-In order to provide statistical information regarding investment conditions from time to time, the investment bankers code committee is hereby authorized, within its discretion, to select a confidential agency to obtain from all investment bankers certified reports of such character and in such form as the investment bankers code committee may prescribe. Such confidential agency shall be in no way engaged in the investment banking business or interested in or connected with any investment banker. All such information so received shall be held as secret and confidential between such confidential agency and the reporting investment banker.

Such confidential agency shall analyze and digest the reports, and shall disclose to the investment bankers code committee only the general findings, which shall be available to all investment bankers who assent to the code and to all registered investment bankers.

SEC. 2. Regional code committees.—(a) Local districts.—In order to facilitate the administration and enforcement of the code and rules, local districts are hereby established the boundaries of which districts shall be as set forth in schedule A appended hereto. The investment bankers code committee may, from time to time, relocate such boundaries, and may increase or decrease the number of such districts.

(b) Regional code committees. In each district established as provided in paragraph (a) of this section there shall be organized a regional code committee to consist of 7 members each in the case of the New York district and of the Central States district, and of 5 members in the case of any other district to be appointed by the investment bankers code committee. Four members of each regional code committee for the New York district and Central States district shall be named to represent investment bankers located in the district in which said committee is organized who are members of the Investment Bankers Association of America, and three members of each said committee shall be named to represent investment bankers located in each said district who are not members of said association. Three members of each regional code committee for any district other than the New York district and the Central States district shall be named to represent investment bankers located in the district in which said committee is organized who are members of the Investment Bankers Association of America, and two members of said committee shall be named to represent investment bankers located in said district who are not members of said association. Each person appointed to any such committee shall be actually engaged or employed in the investment banking business at the time of his appointment, and

shall (1) if named to represent investment bankers who are members of the Investment Bankers Association of America, be a person selected from amongst investment bankers assenting to the code located in the district for which the appointment is made who are members of said association; and (2) if named to represent investment bankers who are not members of the Investment Bankers Association of America, be selected from amongst investment bankers assenting to the code located in this district for which the appointment is made who are not members of said association. Any vacancy occurring in the membership of any regional code committee shall be filled by appointment made by the investment bankers code committee in the same manner as original appointments are herein authorized to be made.

The regional code committees shall report all of their actions to and shall at all times and in all matters be answerable to the investment bankers code committee.

SEC. 3. General duties. Such regional code committees shall act as agencies of the investment bankers code committee for the administration and enforcement of the code and the rules in their respective districts.

SEC. 4. Expenses.-Members of such regional code committees shall serve without pay. Funds to meet the necessary and actual expenses of each such regional committee for administering this code will be provided by the investment bankers code committee out of the funds collected by said committee under the provisions of section 6 of article III of the code and section 13 of article X hereof, but all such expenses shall be subject to approval by the investment bankers code committee. Any such regional code committee may be authorized to raise additional funds for such expenses in accordance with regulations prescribed by the investment bankers code committee with the approval of the Administrator.

SEC. 5. Additional local rules.—Any such regional code committee may, from time to time, propose additions to the general rules of fair practice herein provided, as may be deemed desirable for such district and are not inconsistent with the provisions of the code or of the rules. Any such additional rules of fair practice shall be submitted to a vote of all investment bankers located in such district who have assented to the code, and if approved by a majority of those voting, shall be submitted to the investment bankers code committee and upon approval thereof by the investment bankers code committee and by the Administrator, such additional rules shall become effective in said district.

SEC. 6. Modification of additional local rules. Any such regional code committee may, from time to time, propose a modification of any addition to the rules of fair practice for its district, or of any portion of such additional rules, and upon approval of any such proposed modification by the investment bankers code committee and by the Administrators, such modification shall become effective in said district.

SEC. 7. Cancelation of local rules. The investment bankers code committee, with the approval of the Administrator, may at any time, and from time to time, cancel any addition to the rules of fair practice for any district, or any portion of any such additional rule.

SEC. 8. Investigations.—Each regional code committee may, of its own volition, and shall, at the request of the investment bankers code committee, investigate any matter pertaining to an alleged violation of the provisions of the code, or of any rule of fair practice effective in said district. In making any such investigation such regional code committee shall act as a fact-finding body, and in any case where in the opinion of said committee a violation has occurred, such committee shall report its findings of fact, together with its recommendations, to the investment bankers code committee. In any instances where the investment bankers code committee shall direct any regional code committee to make any investigation, as provided in this section 8, it shall be the duty of the investment bankers code committee to provide or make provision for the expenses of such investigation in accordance with the requirements of section 4 of this article.

SEC. 9. Privileged communications.-All communications addressed either to the investment bankers code committee or to any regional code committee, with respect to or involving any complaint of a possible violation of the code or rules shall be deemed to be a privileged communication, and the name of the writer of such communication shall not be disclosed by any such committee.

SEC. 10. Waiver of rules.-Any rule contained in these supplementary provisions or hereafter established pursuant to these supplementary provisions may be waived in whole or in part, in any particular case, by the investment bankers code committee, in the manner provided in this section 10. Any investment banker desiring to secure such waiver in any particular case shall make written application therefor to the investment bankers code committee, which committee

shall consider such application at its next meeting. If a majority of all the members of the committee shall determine that such waiver will not permit any unfair trade practice, and will not be detrimental to the public interest, the committee with the approval of the Administrator shall advise the applicant investment banker in writing to that effect, and upon receipt of such advice such waiver shall become effective, with respect to the particular transaction, to the extent provided therein.

SEC. 11. Liability of members of investment bankers code committee and regional code committees.-No member of the investment bankers code committee or of any regional code committee shall be liable to any investment banker or to any other person for any action taken by such member in his capacity as a member of any such committee in connection with the administration or enforcement of the code or rules or of any provision of these supplementary provisions.

SCHEDULE A

Territorial boundaries of the several local districts established as provided in section 2 of article XI, are as follows:

1. California district: State of California.

2. Central States district: States of Illinois, Indiana, Iowa, Nebraska and Wisconsin.

3. Eastern Pennsylvania district: Counties of Tioga, Lycoming, Union, Snyder, Juaniata, Perry, Cumberland, and Adams in the State of Pennsylvania and all the remainder of the said State lying east of such counties, and the State of Delaware.

4. Michigan district: State of Michigan.

5. Minnesota district: States of Minnesota, Montana, North Dakota, and South Dakota.

6. Mississippi Valley District: The counties of Schuyler, Adair, Macon, Randolph, Boone, Cole, Osage, Maries, Phelps, Dent, Shannon, and Oregon in the State of Missouri and the remainder of the said State lying east of such counties; the States of Kentucky, and Arkansas; and the counties of Henry, Benton, Decatur, and Hardin in the State of Tennessee and the remaining counties of the State lying west of such counties.

7. New England district: States of Maine, New Hampshire, Vermont, Massachusetts and Rhode Island.

8. New York district: States of New York, Connecticut, and New Jersey. 9. Northern Ohio district: Counties of Mercer, Auglaize, Hardin, Marion, Morrow, Knox, Coshocton, Guernsey, and Belmont in the State of Ohio and all of the remainder of the said State lying north of such counties.

10. Ohio Valley district: Counties of Darke, Shelby, Logan, Union, Delaware, Licking, Muskingum, Noble, and Monroe in the State of Ohio and all of the remainder of the said State lying south of such counties.

11. Pacific Northwest district: States of Oregon, Washington, and Idaho. 12. Rocky Mountain district: States of Colorado, Arizona, Nevada, New Mexico, Utah, and Wyoming.

13. Southeastern district: States of Maryland, Virginia, West Virginia, North Carolina, and South Carolina; and the District of Columbia.

14. Southern district: States of Louisiana, Mississippi, Alabama, Georgia, and Florida; the counties of Stewart, Houston, Humphreys, Perry, and Wayne in the State of Tennessee and all the remainder of the said State lying east of such counties; and the counties of Newton, Jasper, Tyler, Polk, San Jacinto, Walker, Grimes. Brazos, Milam, Williamson, Burnet, Llano, Mason, Menard, Schleicher, Crockett, Pecos, and Jeff Davis in the State of Texas and all the remainder of the State lying south of such counties.

15. Southwestern district: Counties of Putnam, Sullivan, Linn, Chariton, Howard, Cooper, Moniteau, Miller, Pulaski, Texas, and Howell in the State of Missouri and all of the remainder of the said State lying west of such counties; the States of Kansas and Oklahoma; and the counties of Sabine, San Augustine, Angelina, Trinity, Houston, Madison, Robertson, Falls, Bell, Lampasas, San Saba, McCulloch, Concho, Tom Green, Irion, Reagan, Upton, Crane, Ward, Culberson, Reebes, Hudspeth, and El Paso in the State of Texas and all the remainder of the said State lying north of such counties.

16. Western Pennsylvania district: Counties of Potter, Clinton, Center, Miffin, Huntingdon, and Franklin in the State of Pennsylvania and all of the remainder of the said State lying west of such counties.

INVESTMENT BANKERS CODE COMMITTEE

The following list of the personnel of the investment bankers code committee is submitted for the information of all dealers and brokers in securities:

Francis A. Bonner, Bonner, Troxell & Co., Chicago; Arthur H. Bosworth, Bosworth, Chanute, Loughridge & Co., Denver; George W. Bovenizer, Kuhn, Loeb & Co., New York; Robert E. Christie, Jr., Dillon, Read & Co., Inc., New York; Sydney P. Clark, E. W. Clark & Co., Philadelphia; Edward J. Costigan, Whitaker & Co., St. Louis; Harry S. Grande, Grande, Stolle & Co., Seattle; B. Howell Griswold, Jr., Alex. Brown & Sons, Baltimore; Edward H. Hilliard, J. J. B. Hilliard & Son, Louisville; W. Hubert Kennedy, Wells-Dickey Co., Minneapolis; Lamartine V. Lamar, Lamar, Kingston & Labouisse, New Orleans; Lawrence H. Marks, Lawrence H. Marks, New York; Frank McNair, The N. W. Harris Co., Chicago; Robert H. Moulton, R. H. Moulton & Co., Los Angeles; Daniel W. Myers, Hayden, Miller & Co., Cleveland; Joseph R. Swan, Guaranty Co. of New York, New York; Henry B. Tompkins, Robinson-Humphrey Co., Atlanta; Frank Weeden, Weeden & Co., San Francisco; Sidney J. Weinberg, Goldman, Sachs & Co., New York; George Whitney, J. P. Morgan & Co., New York; Orrin G. Wood, Estabrook & Co., Boston.

STATEMENT OF OLIVER J. TROSTER

Mr. TROSTER. My name is Oliver J. Troster of the firm of Hoit, Rose & Troster, 74 Trinity Place, New York City, dealers in overthe-counter securities. I am also secretary of the New York Security Dealers Association, which is (so far as I know) the only organized association of over-the-counter dealers in New York City. I am appearing at the invitation by your chairman to that association to send a representative to this hearing. I am submitting herewith a list of our members and a copy of our constitution; but I will not take the time of the committee to read either of these.

Most of the members of our association are not members of any stock exchange. The typical business of an over-the-counter securities dealer consists of buying and selling as a principal, and not as a broker or agent, securities which are not listed on any exchange. We deal in a very wide range of securities, including among others Liberty bonds, Federal farm-loan bonds, home-owners-loan bonds, bank stocks, insurance stocks, municipal bonds, public-utility stocks and bonds, guaranteed railroad stocks, real estate, industrial and railroad bonds, baby bonds, and so forth.

In general, we serve two principal functions:

The first being to provide a market for investors in securities in which there are not enough buyers and sellers for investment for the stock exchanges to provide a really free market;

The second-a function of an entirely different character-to provide a market for dealings by insurance companies and other large institutions which deal in such large blocks that their purchases and sales would frequently swamp the market on an exchange.

This latter function is of particular importance in dealing with Liberty bonds, Federal farm-loan bonds, and other Government and State and municipal bonds. Although some of these are listed on stock exchanges, the trading in them on stock exchanges is of very small volume, and by far the greater volume of sales are made off the exchanges. This does not necessarily mean that the greater number of sales take place off the exchanges. In these issues the small investor may customarily use the exchanges. The purposes of the bill appear to us to be met, therefore, by regulating the exchanges. It is there that the small investor will be protected, and it is there that the credit

system of the country will be protected against undue price fluctuations. In this, our function is supplementary. By handling the sales in large blocks by large institutions and large investors, we prevent the devasting fluctuation in price which would really result if these securities were all thrown onto the exchange.

One of the Senators asked the other day if there were any reason why all this trading in bonds should not take place of the exchanges. The "social reason" (as Mr. Corcoran expressed it) is the one that I have given.

I now come to the service which we render in providing a market for securities which otherwise would not have one. These are the securities which cannot wisely be listed or dealt in on a stock exchange, because they have one or more of the following characteristics: First, lack of speculative interest;

Second, small capitalization, or limited number of shares or bonds; Third, limited distribution, or small number of shareholders or bondholders; or

Fourth, comparatively high price.

These are the types of security which, if they were listed on an exchange, would be subject to wide fluctuations in price due to the comparative scarcity of dealings.

Securities vary greatly in their availability for this purpose. At one extreme stand securities like the common stock of the American Telephone & Telegraph Co. or the General Electric Co., with millions of shares distributed among tens of thousands of different shareholders. Such a stock will generally find a ready and active market between active investors willing to buy or sell. The function of the exchange which makes a business of trading in securities is simple in such a case, being merely to provide a place where buying and selling orders can be matched at one price at a fixed rate of commission.

The normal over-the-counter security does not belong to this class. It is ordinarily of a type which could not be successfully listed or dealt in on an exchange. Recent attempts by the exchanges to deal in the slower-moving securities prove that they are not adaptable to this purpose. The attempts to deal on the New York Real Estate Exchange in bond issues of limited distribution affords an example. This exchange, created some 4 years back by well-intentioned people who apparently did not understand the economics of the situation, and since which time there has been intense change in real estate values, has been virtually nonfunctioning. Other unfortunate examples have been the attempt to deal in unlisted securities by the securities division of the New York Produce Exchange and the so-called unlisted section of the New York Curb Exchange.

In the progress of marketability from the slowest to the most active type of security, it is the function of the over-the-counter dealer to provide a market for as many securities as he may, excluding those which enjoy a wide enough distribution to be properly listed on an exchange. Natural desire for profit will make him extend the range of his activities as widely as possible the list of securities in which the public can find a market. At the same time it promotes business development and employment by extending the number of corporations in which the public will be willing to invest.

Now let us see this picture in its full perspective. It is estimated that there are 180,000 industrial corporations in the United States