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or practice in connection with the purchase or sale of any security; or (D) has willfully violated any provision of the Securities Act of 1933, as amended, or of this title, or of any rule or regulation thereunder. Pending final determination whether any such registration shall be denied, the Commission may by order postpone the effective date of such registration for a period not to exceed fifteen days, but if, after appropriate notice and opportunity for hearing, it shall appear to the Commission to be necessary or appropriate in the public interest or for the protection of investors to postpone the effective date of such registration until final determination, the Commission shall so order. Pending final determination whether any such registration shall be revoked, the Commission shall by order suspend such registration if, after appropriate notice and opportunity for hearing, such suspension shall appear to the Commission to be necessary or appropriate in the public interest or for the protection of investors. Any registered broker or dealer may, upon such terms and conditions as the Commission may deem necessary in the public interest or for the protection of investors, withdraw from registration by filing a written notice of withdrawal with the Commission. If the Commission finds that any registered broker or dealer, or any broker or dealer for whom an application for registration is pending, is no longer in existence or has ceased to do business as a broker or dealer, the Commission shall by order cancel the registration or application of such broker or dealer.

"(c) No registered broker or dealer, or any other person, shall make use of the mails or of any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security (other than comemrcial paper, bankers' acceptances, or commercial bills) otherwise than on a national securities exchange, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest to prevent fraud, concealment, unfair discrimination or manipulative or deceptive practices or otherwise to insure to investors protection comparable to that provided by and under authority of this title in the case of national securities exchanges.

“(d) Each registration statement hereafter filed pursuant to the Securities Act of 1933, as amended, shall contain an undertaking by the issuer of the issue of securities to which the registration statement relates to file with the Commission, in accordance with such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors, such supplementary and periodic information, documents, and reports as may be required pursuant to section 13 of this title in respect of a security listed and registered on a national securities exchange; but such undertaking shall become operative only if the aggregate offering price of such issue of securities, plus the aggregate value of all other securities of such issuer of the same class (as hereinafter defined) outstanding, computed upon the basis of such offering price, amounts $2,000,000 or more. The issuer shall file such supplementary and periodic information, documents, and reports pursuant to such undertaking, except that the duty to file shall be automatically suspended if and so long as (1) such issue of securities is listed and registered on a national securities exchange, or (2) by reason of the listing and registration of any other security of such issuer on a national securities exchange, such issuer is required to file pursuant to section 13 of this title information, documents, and reports substantially equivalent to such as would be required if such issue of securities were listed and registered on a national securities exchange, or (3) the aggregate value of all outstanding securities of the class to which such issue belongs is reduced to less than $1,000,000, computed upon the basis of the offering price of the last issue of securities of said class offered to the public. For the purposes of this subsection, the term 'class' shall be construed to include all securities of an issuer which are of substantially similar character and the holders of which enjoy substantially similar rights and privileges. Nothing in this subsection shall apply to securities issued by a foreign government or political subdivision thereof or to any other security which the Commission may by rules and regulations exempt as not comprehended within the purposes of this subsection."

SEC. 4. Subsection (a) of section 17 of such Act is amended by striking out “every broker or dealer making or creating a market for both the purchase and sale of securities through the use of the mails or of any means or instrumentality of interstate commerce”, and inserting in lieu thereof "every broker or dealer registered pursuant to section 15 of this title",

SEC. 5. Subsection: (a) of section 18 of-such A'ct is amended by inserting immediately before the comma following "aný rule or regulation thereunder” the following: "or any undertaking contained in a registration statement as provided in subsection (d). of section 15 of this title".

SEC. 6. Subsection (c) of section 20 of such Act is amended by inserting immediately before the period the following: “or any undertaking contained in a registration statement as provided in subsection (d) of section 15 of this title".

SEC. 7... Subsection (f) of section 21 of such Act is amended by inserting immediately before the period the following: “or with any undertaking contained in a registration statement as provided in subsection (d) of section 15 of this title".

SEC. 8. Subsection (a) of section 23 of such , Act is amended to read as follows:

"(a) The Commission and the Board of Governors of the Federal Reserve System shall each have power to make such rules and regulations as may be necessary for the execution of the functions vested in them by this title, and may for such purpose classify issuers, securities, exchanges, and other persons or matters within their respective jurisdictions. No provision of this title imposing any liability shall apply to any act done or omitted in good faith in conformity with any rule or regulation of the Commission or the Board of Governors of the Federal Reserve System, notwithstanding that such rule or regulation may, after such act or omission, be amended or rescinded or be determined by judicial or other authority to be invalid for any reason."

SEC. 9. Section 32 of such Act is amended by striking out “SEC. 32." and inserting in lieu thereof "SEC. 32. (a)"; by inserting immediately before the comma following the phrase "filed under this title or any rule or regulation thereunder the following: "or any undertaking contained in a registration statement as provided in subsection (d) of section 15 of this title”; and by adding thereto a new subsection (b) to read as follows:

“(b) Any issuer which fails to file information, documents, or reports pursuant to an undertaking contained in å registration statement as provided in subsection (d) of section 15 of this title shall forfeit to the United States the sum of $100 for each and every day such failure to file shall continue. Such forfeiture, which shall be in lieu of any criminal penalty for such failure to file which might be deemed to a rise under subsection (a) of this section, shall be payable into the Treasury of the United States and shall be recoverable in a civil suit in the name of the United States."

SEC. 10. All brokers and dealers for whom registration is in effect on the date of enactment of this Act in accordance with rules and regulations of the Commission prescribed pursuant to section 15 of the Securities Exchange Act of 1934 shall be deemed to be registered pursuant to section 15 of such Act as amended by section 3 of this Act.

SEC. 11. Nothing in this Act shall be deemed to extinguish any liability which may have arisen prior to the effective date of this Act by reason of any violation of section 15 of the Securities Exchange Act of 1934 or of any rule or regulation thereunder.

SEC. 12. This Act shall become effective immediately upon the enactment thereof; except that clause (2) of subsection (f) of section 12 of the Securities Exchange Act of 1934, as amended by section 1 hereof, and subsections (a) and (d) of section 15 of such Act, as amended by section 3 hereof, shall become effective ninety days after the enactment of this Act, and that clause (3) of said subsection (f), as amended by section 1 hereof, shall become effective six months after the enactment of this Act. Passed the Senate April 24, 1936.

EDWIN A. HALSEY,

Secretary. The CHAIRMAN. I presume all of us have had a great many telegrams concerning municipal bonds, and so forth, and in connection therewith a suggested amendment by the American Bankers' Association, which we were discussing with Mr. Landis.

Mr. Landis, I am sure the committee would like you to give us a history of this matter. I think we asked you to study this question when we passed the bill for the regulation of the stock exchange. Your report is in, and the committee would like to hear you discuss it with relation to this bill.

STATEMENT OF JAMES M. LANDIS, CHAIRMAN, SECURITIES AND

EXCHANGE COMMISSION

Mr. LANDIS. Mr. Chairman, the best way in which I think this subject can be presented is by bringing to your attention at the outset the distinction between listed securities on exchanges and securities which are not listed on exchanges but are traded on exchanges, being admitted to so-called unlisted trading privileges.

Many exchanges do not allow any security to be traded on that exchange unless a listing statement is filed by the issuer. On the other hand, other exchanges have admitted to trading on those exchanges securities irrespective of the filing of any listing statement by the corporation which issues those securities, sometimes even against the objection of that corporation. In other words, they have made an exchange market in those securities without regard to whether or not the corporation is willing to have an exchange market made or whether the corporation desires or has expressed any agreement to furnish any information to the exchange.

That situation was before this committee and before the Congress in 1934 when the Exchange Act was up for adoption. The Exchange Act, in one of its very fundamental theses, started off by saying that it is important for Congress to buttress the listing requirements of the various exchanges, and therefore with regard to so-called lisited securities it insisted that a registration statement should be filed by the corporation which issued the securities, setting forth in quite some detail the history of the business, financially and otherwise; in other words, furnishing the type of information that is essential for intelligent investment analysis of that security.

When the Congress came to this question of the unlisted securities, it felt, as I gather, that that was an anomalous situation. It decided that the best way in which to deal with that at the moment was to permit this anomalous trading in unlisted securities to continue, in the meanwhile giving the commission that was created the duty of studying the problem and seeing how best it might be solved in the final analysis.

The commission thereupon went about the work of studying that problem and turned in a report to Congress on January 3 of

I think it is best to sense first the magnitude of the problem that is involved here. These unlisted securities embrace about 1,800,000,000 shares of stock and about $6,800,000,000 par value of bonds.

Mr. MERRITT. That is throughout the whole United States? Mr. LANDIs. Throughout the whole United States. The majority of those unlisted securities are to be found on the New York Curb Exchange. But many of the smaller exchanges also have a considerable amount of business in unlisted securities,

Furthermore, those unlisted securities are of two types. It may be that the corporation has never chosen to list its securities anywhere and therefore you have a true unlisted security in that situation. That is true, for example, of the majority of the unlisted securities on the New York Curb Exchange. But if ones takes, for example, the unlisted department of the Philadelphia exchange

this year:

or the unlisted department of the Boston exchange, one finds a different situation. There the security is traded unlisted from the standpoint of that exchange, but that security, is usually listed on.. some other exchange.

In other words, Boston trades in, we will say, United States Steel. United States Steel is listed on the New York Stock Exchange, but may be traded unlisted either in Philadelphia or in Boston,

Now, in that situation you will see immediately that the information about the security is available, because it is listed and registered in New York. But from the standpoint of trading in the Boston exchange and in the Philadelphia exchange, it is an unlisted security and falls within that category of unlisted securities which were given over to us to study.

Mr. Mapes. May I interrupt for a question, Mr. Landis ?
Mr. Landis. Yes; indeed, Mr: Mapes.

Mr. MAPES. Who determines whether a stock is traded on the exchange as an unlisted security or not?

Mr. LANDIs. In the days before the Exchange Act—that is, prior to 1934—that question was determined by the exchange itself. A broker would apply for unlisted trading privileges in a security because he felt that a market could be made on the exchange in that security. And the exchange would exercise a certain amount of supervision; would make, perhaps, some review of the stock to see whether or not the outstanding stock was sufficient in volume so as to make a fairly good exchange market and might make its inquiries of the issuer, or it might not. It might listen to objections of the issuer, or it might not. But the entire control of that question of the admission of the securities to unlisted trading privileges was in the hands of the exchange itself.

In 1934 that situation was changed by legislation. What Congress said was that you can keep these unlisted securities that you now have on the exchanges, but you have no power to increase that list of unlisted securities.

In other words, it froze the situation in 1934.
Mr. MAPES. So the list is limited to what it was?

Mr. LANDIS. As of March 1, 1934. In dealing with that problem the Commission, I think, recognized from the start that unlisted trading is an anomaly. I think we must recognize that.

The theory of the Exchange Act is that information of an adequate character ought to be available to persons who wish to buy and sell securities and that in many of these instances adequate information might or might not be available, but there could be no assurance without the intervention of the proces of registration that information of this type would be available. But assuming that to be true, the question was, what to do with this anomaly? Was it wise to throw off from the exchange markets this great volume of stocks and bonds? The Commission felt that it was not wise to do that; that the way in which to handle the problem was to allow the freezing process still to take place; in other words, not to admit ad lib further unlisted securities to the exchanges, and that gradually by a process of encouraging the listing of the isuance of new securities, the unlisted trading departments of the various exchanges would go out of existence over a period of years; and that a gradual

adjustment would thereby take place of moving these securities from the unlisted department over to the listed department. or, in those instances where the exchange market was not desirable, that they would drop off and go out of trading on the exchanges anyway.

That comprises the general idea of the Commission in dealing with the whole problem of unlisted trading.

Mr. Martin. How did this plan work that you have just described in the way of reducing the volume of unlisted securities and their transfer to the listed category?

Mr. LANDIS. It has already worked to some degree. Certain securities which were traded in considerable volume on the unlisted side have since 1934 been listed. I cite, for example, Standard Oil of Indiana, which was a well-known stock on the unlisted side of the curb, which is now listed. It has moved over to the New York Stock Exchange as a listed security. That process has not gone very far yet. I do not think that you can expect it to go very far except over a period of time, as the value of listed exchange markets as distinguished from unlisted exchange markets becomes more and more apparent.

Consequently, we recommended that the situation of permitting unlisted trading privileges to continue under our supervision should continue and should not be lopped off as of May 31 this year, which is the present provision of the statute.

Secondly, we examined this other class of unlisted securities, namely, those which are unlisted and traded on one exchange but listed and registered on another exchange. There you have the question of a secondary market involved, namely, what justification is there for, we will say, Boston making a market in United States Steel if a market already exists on that in New York?

The prior practice in that connection was this, that if the company and the exchange desired a secondary market to be created on a smaller exchange, the larger exchange would raise no objection and the secondary market would be created. Sometimes the larger exchange would raise an objection to the creation of this secondary market if the corporation itself did not want to create it. But nevertheless it might still be created.

Now, our solution of that problem was to say this, that this question of whether or not a secondary market ought to be created in a listed security elsewhere is really a question that ought to be determined in the light of the entire public interest and by an independent authority, such as the Commission, which would have nothing but that interest at stake. That is, we would not be interested in building up trade in Boston purely for the sake of Boston; or, we would not care whether or not the building up of trade in Boston might take away a little trade from New York.

In other words, considerations of self-interest would be about as far removed with us, certainly further removed, than the exchanges themselves. Therefore we felt that the transfer of that power to us would be in the public interest.

Consequently, the second recommendation which was made, which is incorporated in this bill, is to the effect that the continuance or the extension of unlisted trading privileges in these cases should be subject to the jurisdiction of the commission,

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