authority in charge of regulation of exchanges should be a separate body, thoroughly familiar with the operation of stock exchanges and the security business.

With respect to section 34 we would like to point out that the effective dates suggested by the bill will make it absolutely impossible, as a practical matter, for the machinery which the bill itself proposes to be put into effect. There are approximately 900 corporations listed on the New York Stock Exchange. Even with the best wish in the world to comply with the registration requirements of the bill it would be physically impossible for them to do so.

Of course, if our amendments were accepted to sections 11 and 12, that matter would be cured automatically, because those corporations which are now listed would be allowed to continue listed, at least temporarily.

There is a comment here in regard to certain sections of the bill which do not directly affect the work of stock exchanges. There is one thing

Senator TOWNSEND. Do you want that inserted in the record? Mr. REDMOND. Suppose I read it. It is very brief. [Reading:] A number of sections deal with subjects which do not directly affect the work of stock exchanges. We have refrained from making any comment on such sections but this fact must not be considered as indicating approval by stock exchanges of the substance of these sections. This is particularly true of section 15 insofar as it deals with the liability of principal stockholders, of section 19 which deals with the liability of controlling persons, and of section 23 which deals with the public character of information. Senator GORE. What was the first section? I did not get it. Mr. REDMOND. Section 15, Senator Gore. [Continuing reading:] The first two of these sections will impose liability upon persons merely because they are the owners of property and will almost certainly interfere with the free flow of capital into industry. The last will require corporations whose securities are dealt in on exchanges to disclose highly confidential information which will be of value only to competitors, both foreign and domestic.

There is one other. It came in late, and is therefore an addendum, showing that even persons like ourselves, who think we have some knowledge of stock exchanges, do not always remember all the details. Counsel for the San Francisco exchanges, who came on from the coast, has pointed out to us that under their rules they have today certain banks which are literally members of the exchange. Therefore they would be swept in under the definition of a member of the exchange under many provisions of this bill which would not normally be considered applicable to banks. For this reason he suggests that there be added to paragraph 3 (a) 3, at the beginning, the following:

Subject to paragraph 7.

That is to be added to the definition of members of the exchange. Also the following language in subsection 7. [Reading:]

(7) The term "broker or dealer" shall not include a bank, except as bereinafter set forth, or any person insofar as he buys or sells securities for his own account and not as a part of a regular business; the term "member" shall include a bank member of a national securities exchange but only to the extent that it shall act as broker or dealer.

Thereby putting a bank, when it acts as a broker or dealer, subject to the same restrictions as members of the exchange, but otherwise exempting them from the provisions of the act and putting them in the category with banks.

The CHAIRMAN. Is that all? Are there any questions?

Mr. WHITNEY. Mr. Chairman, I would like to add this one word: That these amendments have been approved-if I state anything that is inaccurate, the gentlemen are here, so that they can contradict me if they wish. These amendments have been approved by the representatives of the Boston Stock Exchange, the Chicago Stock Exchange, the New York Curb Exchange; by Mr. Thompson, president of the Associated Stock Exchanges, as members of which there are 18 exchanges, and he has been authorized as well to represent the Louisville Stock Exchange, of Louisville, Ky.; the Seattle Exchange, of Seattle, Wash.; and the Richmond Exchange, of Richmond, Va.

Separately we have been instructed to represent, by members in the Associated Stock Exchanges, the Baltimore Stock Exchange and the Philadelphia Stock Exchange.

There are present here representatives of the four California stock exchanges, in Los Angeles and San Francisco. They also approve these amendments as suggested, with the one reservation made by San Francisco which Mr. Redmond has just referred to.

That covers, by and large, almost all the exchanges of this country with the exception of some of the smaller ones or exchanges on which particular securities are dealt in.

Senator GORE. Mr. Redmond, did you say that the changes which you have suggested cover the case of transactions and dealings in bonds, which are not speculative, and that they would not be involved in these regulations? Somebody was talking to me a day or two ago, and said there ought to be a differentiation between transactions or dealings in bonds and dealings in stocks. Do your amendments cover that point?

Mr. WHITNEY. The matter in section 6, Senator Gore, leaving it to the Federal Reserve Board as to rules and regulations would enable them to accommodate that situation. Also section 10, which is section 9 in our amendments.

Senator GORE. What section do you leave out?

Mr. WHITNEY. We leave out section 9, and section 10 deals with segregation. Again, that is left to the Commission to determine the function of dealer and broker. Under that come bond brokers as well as all other types of brokers.

Senator GORE. You kept section 2 in there?

Mr. WHITNEY. Yes, sir.

Senator WALCOTT. There is no change in section 2.

The CHAIRMAN. Is there anything else?

Senator WALCOTT. Mr. Chairman, just one question. With regard to section 6, Mr. Redmond, in presenting that, on the matter of exempted securities, in which he now includes Federal and State securities and securities of subdivisions thereof, made the remark, I think, that he did not object to that change. It was a half-hearted, rather lukewarm advocacy of that, as I recall it. How do you feel about that?

Mr. REDMOND. I think our feeling is that it is not a subject really on which the exchanges ought to express a very definite position. Very few of the municipal bonds are actually listed and dealt in. The committee has heard, of course, from the representatives of the bond traders who deal in such securities over the counter, and I believe also from persons representing municipal interests.

Senator WALCOTT. Do you not feel that there are a great many that are really vitally interested in dealing in municipal securities and securities of other State subdivisions who would be very seriously hurt if they were not included in the exemptions?

Mr. REDMOND. I think there is no question about that. Senator WALCOTT. I would like to make that clear, because I thought, from the fact that you were rather lukewarm, you merely meant by what you said that the stock exchanges are not particularly interested in this particular thing.

Mr. WHITNEY. It is merely outside their province, as such, although of great and most vital interest to many of their members. Mr. PECORA. But insofar as you would permit yourself an expression of opinion on that, you think exemption could be provided. for in the bill for all issues of States and political subdivisions of States.

Mr. WHITNEY. I certainly do.

Senator GORE. Under your suggested amendments, could a person who does not know a thing on earth about securities or stock exchanges make money every time he ventures in?

Mr. WHITNEY. I wish it were true, sir.

Senator GORE. If it is not I am against it. [Laughter.] The CHAIRMAN. Is there anything else, gentlemen. (No response.) If that is all, then you may be excused, Mr. Whitney. We are very much obliged to you. We will take up these matters and consider them carefully.

I want to submit for the record a communication and have it read. Mr. Pecora will read it, and let it go into the record.

Mr. PECORA (reading):

Hon. DUNCAN U. FLETCHER,

THE WHITE HOUSE, Washington, March 26, 1934.

Chairman Banking and Currency Committee,

United States Senate, Washington D.C.

MY DEAR MR. CHAIRMAN: Before I leave Washington for a few days holiday. I want to write you about a matter which gives me some concern.

On February 9, 1934, I sent to the Congress a special message asking for Federal supervision of national traffic in securities.

It has come to my attention that a more definite and more highly organized drive is being made against effective legislation to this end than against any similar recommendation made by me during the past year. Letters and telegrams bearing all the earmarks of origin at some common source are pouring in to the White House and the Congress.

The people of this country are, in overwhelming majority, fully aware of the fact that unregulated speculation in securities and in commodities was one of the most important contributing factors in the artificial and unwarranted "boom" which had so much to do with the terrible conditions of the years following 1929.

I have been definitely committed to definite regulation of exchanges which deal in securities and commodities. In my message I stated, "It should be our national policy to restrict, as far as possible, the use of these exchanges for purely speculative operations."

I am certain that the country as a whole will not be satisfied with legislation unless such legislation has teeth in it. The two principal objections are, as I see it

First, the requirement of what is known as "margins" so high that specu lation, even as it exists today, will of necessity be drastically curtailed; and

Second, that the Government be given such definite powers of supervision over exchanges that the Government itself will be able to correct abuses which may arise in the future.

We must, of course, prevent insofar as possible manipulation of prices to the detriment of actual investors, but at the same time we must eliminate unnecessary, unwise, and destructive speculation.

The bill, as shown to me this afternoon by you seems to meet the minimum requirements. I do not see how any of us could afford to have it weakened in any shape, manner, or form.

Very sincerely,

FRANKLIN D. ROOSEVELT.

The CHAIRMAN. The bill to which the President refers is the redraft we have been considering in this committee for some time past.

Senator GOLDSBOROUGH. I would like to submit for the record a letter from Mr. George A. Lambell of New York City, chairman of the committee of put and call brokers and dealers in the city of New York; also a telegram from Mr. Jacob France, chairman of the board of the Equitable Trust Co., of Baltimore.

The CHAIRMAN. They may be entered in the record.

(The communications referred to will be printed at the conclusion of today's proceedings.)

The CHAIRMAN. If there is nothing further, this closes the open hearings. We will not adjourn until 2:30 this afternoon, to meet in executive session.

(Whereupon, at 1 p.m., Tuesday, Mar. 27, 1934, the committee recessed until 2:30 p.m. of the same day, to meet in executive session.)

Hon. PHILLIPS LEE GOLDSBOROUGH,

[Telegram]

BALTIMORE, MD., March 24, 1934.

United States Senate:

As chairman of board of one of Maryland's largest State banks I earnestly request your full cooperation and support in opposing paragraph A, section 7, National Securities Exchange Act, 1934, because of its unfair discrimination against nonmember State banks. I feel I am likewise voicing the sentiment of Maryland's 119 nonmember State banks whose total deposits are approximately $147,000,000.

JACOB FRANCE,

Chairman of Board, Equitable Trust Co.

NEW YORK, N.Y., March 23, 1934.

Hon. PHILLIPS LEE GOLDSBOROUGH,

United States Senate, Washington, D.C. DEAR SIR: On March 7, 1934, we submitted to the committee of the United States Senate a brief in regard to the National Securities Exchange Act of 1934. The committee of put-and-call brokers at that time pointed out and tried to make plain the economic importance of puts and calls and endeavored to show the difference between the so-called "manipulative options" and those dealt in openly by the put-and-call brokers and dealers in this country.

We were then, and are now, of the opinion that section 8. paragraph 9, as it appears in the proposed law, as well as in its revised form, only applies to such options which are acquired in conjunction with the actual purchase or

sale of stock. Such puts, calls, and straddles are clearly manipulative options. It seems to us that for the sake of clarity and sharper distinction that this paragraph should be drawn so as to leave no doubt as to the intention of allowing dealings in and the guarantee of legitimate puts, calls, straddles, etc., eliminating puts, calls, straddles, etc., used for manipulative purposes.

We also call your attention to the last part of section 8, paragraph 9, third subdivision, reading as follows:

"Or if a member, directly or indirectly, to indorse or guarantee the performance of any put, call, straddle, option, or privilege in relation to any security registered on a national securities exchange. The terms put, call, straddle, option, or privilege as used in this paragraph shall not include any registered warrant, right, or convertible security."

We submit that this wording should be clarified so that there can be no doubt that the foregoing subdivision was meant to refer to manipulative options only.

We further recommend that the National Securities Exchange Act of 1934 shall provide that the Federal Trade Commission will have the power to require, after an appropriate hearing, that all put-and-call dealers and brokers conform with rules and regulations adopted by the Commission, and that the effective date of section 8, paragraph 9, be changed from August 1, 1934, to some later date.

We therefore respectfully request that such changes be made.

Very truly yours,

THE COMMITTEE OF PUT AND CALL BROKERS

AND DEALERS IN THE CITY OF NEW YORK. GEO. A. LAMBELL, Chairman.

MEMORANDUM OF PROPOSED AMENDMENTS TO H.R. 8720

Section 1: No change.

Section 2: No change.

Section 3: Amend subsection (a) (6) to read:

"(6) The term 'bank' means (a) a banking institution organized under the laws of the United States, (b) a person engaged in the business of banking pursuant to the laws of any State, who is subject to examination or regulation by Federal or State banking authorities, (c) a banking institution organized under the laws of a foreign country or any agency or branch thereof authorized to engage in business in a State and which is subject to the supervision of State banking authorities, or (d) a receiver, conservator, or other liquidating agent of any institution included in clause (a), (b), or (c) of this paragraph." Amend subsection (a) (12) so as to read:

"(12 The term 'equity security' means any stock or similar security, other than a preferred or guaranteed stock which is entitled to receive only a fixed or limited dividend; or any security convertible with or without consideration into such a security and any warrant or right to subscribe to or purchase such a security; or any other security which the Commission shall deem to be of similar nature and consider necessary or appropriate by rules and regulations to treat as an equity security."

Amend subsection (a) (13) to read:

"(13) The term 'exempted security' or 'exempted securities' shall include securities which are direct obligations of or obligations guaranteed as to principal or interest by the United States, such securities issued or guaranteed by corporations in which the United States has a direct or indirect interest as shall be designated for exemption by the Secretary of the Treasury, securities which are direct obligations of or obligations guaranteed as to principal or interest by a State or any political subdivision thereof or any agency or instrumentality of a State or any political subdivision thereof, and such other securities and instruments as the Commission may by such rules and regulations as it deems necessary or appropriate in the public interest or for the protection of investors, either unconditionally or upon specified terms and conditions or for stated periods exempt from the operation of any one or more of the provisions of this Act, which by their terms are inappli cable to an 'exempted security' or to exempted securities'." Omit subsection (c) of section 3 in toto.

Section 4. No change.