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(4) The difficulties arising from liability of directors, officers, accountants, and others under the provisions of section 17.

Section 13 of the bill relating to proxies imposes an undue burden and an excessive cost which must be borne in the last analysis by the stockholders. It should be pointed out that in the vast majority of cases proxies are solicited only to insure à quorum so that necessary corporate business may be transacted at annual meetings thereby saving stockholders expense and time of attending meetings.

Reform of certain phases of the security usiness is necessary. Reform is always necessary in a dynamic Nation like ours. The only question is how to reform without creating more evils than are remedied.

We feel that the greater benefits to the American people can be secured through a continuation of the evolutionary process of reform through education-education of the public, of security dealers and brokers, and issuing corporationsrather than by such a process as is represented by this bill as written. Distinct progress along constructive lines has been made by the development of local blue-sky regulation, by the activities of better business bureaus and similar organizations, through the initiative of the leading organized security exchanges, and through the growth of a more public-spirited point of view on the part of the leading corporations, especially since their securities have become distributed so widely among the general public. To interrupt the evolution of reform through education and public opinion by suddenly setting up stringent regulations impossible of enforcement without driving the security business underground, would result in a set-back to the real progress which has been made so far. The Controllers Institute therefore respectfully recommends deferment of regulation of the securities business until a more thorough study of the subject has been made. The Securities Act of 1933 insofar as it covers issues which would be listed, duplicates to a large extent the listing requirements of the National Securities Exchange Act.

We believe that many of the provisions in the proposed bill, if enacted into law at the present time, would counteract to a large extent much of the moral and economic benefit that has resulted from the aggressive leadership provided by the present administration and much of the legislation passed since March 4, 1933.

It is also our opinion that the Securities Act of 1933 in its present form is a definite deterrent to economic recovery and to the flow of private capital in industry, and unless substantially modified is bound to bring many serious evils in its wake. This in our opinion is equally true of the National Securities Exchange Act reviewed by this statement, and we believe, therefore, that not only should the proposed law not be passed, but that it would be wise legislation to make drastic revisions of the Securities Act of 1933. Since such revisions can probably not be worked out quickly, it would in our opinion be desirable to repeal that law now and in lieu of both of those acts, appoint a commission for the purpose of studying the question thoroughly and reporting to the next session of Congress with proposed legislation to accomplish such reforms as

ht appear advisable after such study. As a suggestion, the make-up of such a commission of study in addition to representatives of the legislative authority and appropriate Government departments, might well include men selected from the stock exchanges, investment banking business, banks, insurance companies, legal profession, public accounting profession, and corporate executive and accounting officers. It is worth noting that the Federal Reserve Act, our most important piece of financial legislation, as finally enacted in December 1913, effecting a vast improvement in our whole banking and currency system, was incubated and perfected only over a period of several years.

We are very appreciative of the courtesy extended to us in permitting us to be heard on our reactions to the bill as presented. We offer to place our services at the disposal of the committee for any elaboration of the above or any study which it desires to obtain. Respectfully submitted.

CONTROLLERS INSTITUTE OF AMERICA,

By Edwin F. CHINLUND.
Approved by the Board of Directors:

DANIEL J. HENNESSY, President.
ARTHUR R. TUCKER, Secretary.

WASHINGTON, D.C., March 1934. Hon. Sam RAYBURN, Chairman Committee on Interstate and Foreign Commerce,

House of Representatives, Washington, D.C. MY DEAR CONGRESSMAN: The National Association of Building Owners and Managers, representing an industry with $6,000,000,000 of invested capital, has a direct and vital interest in the National Securities Exchange Act of 1934, now under consideration by your committee. Our membership consists of Federated Associations in 41 cities and of associate members in 90 other cities of the country.

We call your attention to the fact that the issues involved in this proposed legislation affect much more than the operation of security exchanges, and will have far-reaching influence upon the industry this association represents.

We would point out that regulations so drastic as to restrict greatly the security business and endanger the transaetion of many legitimate enterprises related thereto, would have a ruinous effect upon property accommodating financial institutions in all of the principal cities of the country.

Specifically, such curtailment of the security operations would result in our industry in loss of tenants, contraction of space occupied by such tenants, and obsolescence of special equipment and facilities provided for their use, which, with the difficulty of adapting much of this space to other purposes, could not fail to produce further impairment of real estate values. The investment in properties devoted to these uses in many communities is sufficiently great to make this a matter of far-reaching consequence.

Furthermore, the industry, as you must know, has suffered, and is still suffering, severe distress. Our recent survey of rental conditions, covering 1,900 office buildings, in 35 cities, shows a total vacancy of 48,447,161 square feet, and an average vacancy for these buildings of 27.57 percent. In addition to this, our inquiries have shown a delinquency in the payment of rent to the extent of 15 percent of a year's rental. This 15 percent delinquency has the same effect upon current income as if vacancies were increased by this same percentage, so that practically all office buildings of the country have a combined actual and potential vacancy of 40 percent. From 1929 to 1933, the income for the industry decreased $217,000,000, while operating expenses, not including taxes, decreased $58,500,000, or only about one quarter as much as the decline in income. result of the drastic shrinkage in operating net income, hundreds of buildings have been forced to default on their bonds, have been unable to pay their ground rent, and in many cases have insufficient funds to meet tax bills. A survey of 929 buildings in 16 cities shows that 24.3 percent of these buildings are in financial default.

It may commonly be assumed that the effects of legislation regulating stockexchange operations would concern only those cities in which important exchanges are located. The point we desire to emphasize is that in our industry alone, they will affect all of the larger and many of the smaller cities of the country. In the limited time at our disposal, we have canvassed the opinion of member-organizations, and a substantial majority of the cities affected have thus far registered disapproval of those features of the act which would tend to restrict seriously the volume of security business.

You have already been informed by the representatives of the Real Estate Board of New York, Inc., that the building occupancy of stock-exchange tenants in that city represents at least 5,000,000 square feet of space, with a rental value of $15,000,000 annually.

A survey of similar conditions in Chicago, Detroit, Indianapolis, Los Angeles, Denver, Spokane, Louisville, Baltimore, and Pittsburgh reveals that in these nine cities 105 office buildings would be affected, with 2,987,270 square feet of space occupied by tenants engaged in the security business, the invested capital represented by such occupancy being estimated at $69,700,680.

We are opposed to those features of the proposed legislation, which by reason of drastic requirements, would bring about a serious curtailment in the operations of this business, and strongly recommend that material modifications be made in the act with respect to restrictions so imposed.

We ask-as I am sure you are disposed to do—that in the consideration of this legislation you weigh fully the contingent effects upon this, as upon other avenues of business throughout the Nation. Very sincerely yours,

NATIONAL AssociATION OF BUILDING OWNERS AND MANAGERS, By R. B. BEACH, Executive Secretary.

As a

WASHINGTON, D.C., March 7, 1934. Hon. Sam RAYBURN, Chairman Interstate and Foreign Commerce Committee,

House of Representatives, Washington, D.C. MY DEAR MR. CHAIRMAN: I respectfully request that the enclosed statement be interested in the record in connection with the hearings on the National Securities Act of 1934.

This is a statement of Mr. Richard G. Babbage, representing the Real Estate Board of New York. Mr. Babbage appeared before the Senate committee on March 6, and would like to have his statement included also in the House hearings for the consideration of your committee. Sincerely yours,

HARRY J. GERRITY.

STATEMENT OF RICHARD G. BABBAGE, REPRESENTING THE REAL ESTATE BOARD

OF NEW YORK IN REGARD TO S. 2693, THE SHORT TITLE OF WHICH IS “NATIONAL SECURITIES Exchange Act of 1934"

The Real Estate Board of New York is a corporation organized under the laws of the State of New York, having its place of business at 12 East Forty-first Street, New York City. Its membership of 2,348 is made up of owners of New York City real estate and of management agents and brokers. It is the representative real estate association of the Borough of Manhattan in said city.

As a result of an investigation, we find that the Stock Exchange tenants occupy at least 5,000,000 square feet of space in the city of New York.

At an average price of $3.40 per square foot, this would produce a rental of $15,000,000. In this space there are employed over 35,000 employees, who, it is reasonable to suppose, receive an average salary of $1,500 a year, which would make the aggregate salaries amount to $52,500,000.

Another great class interested in this real estate are those who hold the mortgage securities issued against it. It is impossible to state the number, but these securities are held by savings banks, life-insurance companies, and individuals in all walks of life.

Anything that affects the value of real estate affects these owners and holders of mortgages. A serious vacating of space at the present time might cause the rentals to be insufficient to carry the properties.

The Real Estate Board having given consideration to the provisions of the proposed bill is of the opinion that the Act would greatly deflate the securities industry, if it would not destroy it. All the interests, therefore, represented by the Real Estate Board would sustain a very serious loss in connection with the devaluation of their properties.

We do not contend that the Stock Exchange does not need regulation but we do contend that it is unnecessary to pass a law which would be so serious in its effects that it might destroy that organization. We have the impression on the act that its draftsman was not so much concerned over curing the evils in the exchange alone but was seeking to bring around governmental operation of the industry and of the listed corporations, and to make it so difficult and expensive for them to carry on business that the industry would be dissipated. An act of this character should be drafted by some unprejudiced person. It is to be hoped that the act, when amended, will be the result of a competent, intelligent, and sympathetic draftsmanship and will be confined to its alleged purpose of curing the evils instead of fixing absolute Government control upon the stock exchange and the corporations listed on it. The provisions making it difficult and dangerous to do business under the act and imposing unnecessary expense should be eliminated.

The different provisions of the act have been subject to so much discussion that I shall not attempt to take them up again with the committee. To sustain the foregoing statements, I will call attention to one or two of them, which, I think, illustrate the general character of the act.

The provision in relation to proxies is so written that it would be practically impossible to hold a corporate meeting under it. The requirement for filing å statement with a list of stockholders and the later requirement that you are to send a copy of that statement to every stockholder from whom you desire a proxy is entirely impracticable and out of line with all corporate practice. It is elementary that the purposes of the meeting are stated in the notice of meeting and that the proxies should enable persons holding them to vote for any question that can be legally brought before the meeting. It is necessary in order to obtain a quorum that some system of obtaining proxies should be adopted.

The other provision, forbidding the disclosure of any confidential information, which is intended to prevent officers of the corporations from giving to some favored few information which may affect the value of the stock, will do away with the great improvement which has taken place of late years in relation to the contact of officers of corporations with their stockholders. This contact should be encouraged and in my opinion the stockholder should be furnished with all information in relation to the corporation's activities that he may desire. Under the provision, however, the officers of a corporation, especially those against whom the section is aimed, will find a ready excuse for not furnishing a stockholder with information, except through public statements, while the confidential information is carried in some indirect way to the favored few. Any information than an officer may give in relation to his company is liable to have some bearing upon the value of its stock and might, therefore, be held to be confidential.

The provision in relation to registration is also extremely onerous. Why should a corporation agree to comply with the law? It has to comply with the law, if the law be constitutional. The documentary evidence which will have to be produced in connection with the registration of a corporation would incur a heavy burden especially as the officers of today would become responsible if there were any inaccuracies in the accounts of past generations. It is a very serious thing for a corporation to agree to comply with any rules that a public body may hereafter promulgate.

We therefore call these matters to the attention of the committee and the serious damage which may be done to the interests represented by us, and we trust that the committee in its wisdom may confine the proposed bill to remedying such evils as may exist but not to approve in its final form an act which will be so rigid and severe that the industry of our public exchanges will be crippled or destroyed.

COMMUNICATION FROM John C. LEGG, JR., MEMORANDUM REGARDING SEN.

2695 AND H.R. 7852

Attendance at five hearings before the Interstate and Foreign Commerce Committee of the House, followed by attendance at nine hearings before the Banking and Currency Committee of the Senate, leads us to believe that most of the sections of the National Securities Exchange Act of 1934 have been adequately discussed, but also leaves us in doubt as to whether there is a clear understanding of a few sections upon which we desire to comment.

We do not come with apologies for the profession in which we are engaged. We know that our business is essential and any regulations which would seriously hamper its normal operations would unfavorably affect the public. Those interested in securities must, of necessity, have someone to whom they can turn for advice. My own firm, in association with two other banking firms, just completed what I believe to be one of the largest refunding operations of its kind ever attempted in the United States. A plan was worked out with the assistance of the Reconstruction Finance Corporation for the refunding by two large surety companies of approximately $80,000,000 of bonds secured by mortgages which had been guaranteed by those surety companies. Seven hundred and eighty security dealers located in 45 States and the District of Columbia cooperated with us in this plan and more than 39,000 certificates of deposit were issued to 29,395 investors. The significant fact of this achievement is that thousands of bondholders relied upon the advice of those dealers to the extent of approximately 94 percent of the bonds affected. This is only one illustration of what is constantly going on throughout the country; investors depending upon their local dealers for advice and counsel. Years of experience, constant study and the expenditure of a substantial part of gross earnings on statistical departments are necessary to give adequate service to clients. The cost, time and expense involved precludes any but very substantial investors from maintaining adequate statistical organizations, making it necessary for smaller institutions and investors to seek the advice of security dealers.

The representatives of recognized stock exchanges scattered throughout the United States have testified here that an overwhelming majority of their members are both brokers and dealers in securities.

To our mind the first sentence of section 10 is especially objectionable. It is necessary for a broker and dealer to combine their two functions in the smaller financial centers, and the smaller the city or town the more necessary this becomes if the broker-dealer is to have sufficient revenue to afford the overhead costs essential to provide the character of service desired by the investing public. In this act there is a clause which does not allow an investment banking house to have any affiliation with the brokerage business, meaning the selling or buying of securities for their clients either on a cash or part-cash basis. This bill, if unchanged, will force out of business the great majority of the bond and brokerage houses in the smaller financial centers, which in the aggregate number more than 6,000 firms, employing many thousands of people. Merely to act as dealer and underwriter and distributor of new issues would not bring them enough income to keep their businesses going. Who, then, would remain to underwrite and distribute new securities and perform the useful function of dealing in securities now outstanding?

Conditions of the securities markets may be such that at one time most activities in securities would be centered in the brokerage department of a brokerdealer, while at another time the major activities are confined to the investment and over-the-counter departments, and only occasionally are conditions of the securities market such that all departments are active at the same time.

The right to exercise both functions tends to keep the income from the business at a more uniform level than would otherwise be the case, which permits the broker-dealer to employ an average force much larger than if he is permitted to act as broker only, and, in doing so, gives much better service to his clients.

It may be roughly estimated that of all transactions in bonds only 10 percent is made on the New York Stock Exchange, the remaining 90 percent being made on other exchanges and on over-the-counter markets, which are largely dealer transactions.

Very careful consideration should be given to the position in which the buyer of unlisted securities would be placed by segregation. Billions of dollars of securities—including State and municipal bonds—are traded in only over-the-counter. If the broker-dealer retains his membership in an exchange, he is prevented from exercising his latter function—that of dealing in securities and so his clients who buy or sell such securities are forced to transact their business elsewhere with a nonmember—a person unregulated except as the Federal Trade Commission may at some future date prescribe. The Dickinson report and statements made here by Mr. Corcoran emphasize the difficulty in formulating effective control of over-the-counter markets. In what possible way can this segregation be called a safeguard for the public? The activities of the broker-dealer as a member of a recognized exchange are under supervision and his methods scrutinized. On the other hand, if we interpret the proposed law correctly, the nonmember dealer will be comparatively unregulated.

In February 1933, the bond market was completely demoralized. A sale of as few as five bonds would often cause a decline of several points from the last recorded sale. Bids at times were so far below last sales that frequently the stockexchange authorities would refuse to allow a sale to be made at the market but would fix a minimum price. Such action by the exchanges helped to stabilize the markets, but did not help the banks and insurance companies to raise the funds demanded by their depositors and policyholders. Frequently a broker-dealer would act as broker for his bank or insurance company customer and sell on the exchange as many bonds as the market would take at a fair price, and then in his capacity as dealer would negotiate with his client and purchase the balance of the block and through his own sales force distribute them.

A similar operation comes about through the functions of broker-dealer in distribution of stocks and bonds through options on securities which are worthy of recommendation to his clients. We have in mind a block of stock held in a bank loan. Careful investigation convinced the broker-dealer of the merits of the stock; a circular was issued and through their sales organization they distributed a substantial block of the stock. As broker they were able to stabilize the market by purchasing such stock as was offered for sale on the exchange and sell such stock as was wanted while the distribution was going on.

We believe the question of segregation, which involves over-the-counter transactions, is grave enough in its possibilities of harm to both the investing public and the broker-dealer and his employees to justify the appointment of a committee to study every phase of the proposed segregation.

Under Margin requirements on long accounts,” section 6 (a) may possibly have been designed to protect brokers, but would work serious hardships upon small corporations throughout the country and upon owners of their unlisted securities by destroying their collateral value. The burden of registration requirements under the act may force many small and medium sized corporations to

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