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Subsection (c) makes clear that the Commission has no powers with respect to the enforcement of the provisions of an indenture-its responsibility ceases when the form of indenture has been “qualified”. The committee reprint adds to this subsection a provision limiting the Commission's investigatory powers over a prospective trustee to matters relating to the qualifications of such trustee under the provisions of section 7 of the act.


This section incorporates by reference the provisions of section 9 and section 22 (a) of the Securities Act.


Subsection (a) imposes the civil liability of the Securities Exchange Act of 1934 in connection with false or misleading statements in any application, report, or document filed under the act.

Subsection (b) is substantially similar to section 28 (a) of the Securities Exchange Act and provides that the rights and remedies provided by the act shall be cumulative.

Sections 13 to 17, inclusive, substantially follow the Securities Act of 1933.
These sections deal with the following matters:

Section 13: Covers unlawful representations.
Section 14: Sets forth the criminal penalities for violation of the act.
Section 15: Covers the effect of the act on existing law.

Section 16: Makes invalid contracts to waive compliance with provisions of the act.

Section 17: Contains the separability provision of the act.

The CHAIRMAN. The first witness is Mr. Hanes, whom we shall be glad to hear at this time.



Mr. HANES. Mr. Chairman and gentlemen, as Mr. Douglas stated to you gentlemen in his testimony on last Wednesday, representatives of the American Bankers Association have been privileged to cooperate with the Securities and Exchange Commission in making suggestions to Senator Barkley for this bill. We have received the kindest and most considerate and cooperative treatment from Mr. Douglas and his associates, from Mr. Burke, his assistant, Mr. Landis, the chairman of the Commission, and the other gentlemen. We have been able, as we have gone along in the consideration of this bill, to point out certain practical difficulties in the administration of this proposed act, which these gentlemen have been good enough to listen to and accept in the same spirit in which they were given, for the betterment, as we think, of the proposed act, and for its improvement.

This seems to me a perfect example, gentlemen, of what can be accomplished by Government and business if their representatives will, with open minds and a cooperative attitude, sit down together to draft legislation in a fair and frank manner, and discuss the problems before them and try to work out their diffierences in an honest, frank attitude. Certainly it seems to me that the Government, business, and the general public, which they both represent, are the better served by such a procedure.

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Our conferences with Mr. Douglas and his associates have been held in absolute frankness, honesty, and good feeling; and we believe, in the words of Mr. Douglas, that a "workable, practical, and livable” bill has been the result.

Mr. Douglas has given you in detail a fair explanation of the bill, which makes it unnecessary to discuss it further. He has frankly said to you that the whole purpose of this legislation is to bring the procedure of corporate trustees to the high standards set by the best and most responsible persons in the profession. We

agree with the fundamental concepts of the bill. We wish, as much as anyone, to see that the interests of bondholders and the investing public are properly protected, and we shall cooperate fully with the Securities and Exchange Commission to the end that the provisions of the bill are rigidly lived up to and honestly carried out.

Many of our banks do feel that the loan conflict provisions on trustees acting under unsecured indentures are too stringent and are not in the best interests of the bondholders themselves. If, after a year's experience, we can prove to the Securities and Exchange Commission that changes are desirable, we believe they will join us in suggesting to you gentlemen amendments to the act.

The CHAIRMAN. You have no alternative to propose at the present time?

Mr. HANES. No, sir; we have not.

Mr. HANES. We feel that an honest job has been done, and that a fair job has been done.

The CHAIRMAN. Yes. Thank you very much.

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The CHAIRMAN. Mr. Page, we shall be glad to hear from you.

Mr. PAGE. Mr. Chairman and gentlemen, I am a vice president of the Bankers Trust Co., of New York. I am also chairman of a committee on mortgage trusteeships, appointed by the Trust Division of the American Bankers Association, at about the time when Commissioner Douglas began his investigation into mortgage trusteeships.

I might say that the committee has representatives from 12 cities across the country, from Boston and Atlanta on the east to St. Louis and Los Angeles on the west, and that each member of the committee in turn has organized an informal committee of his own district. So that it fairly may be said that my committee represents the thought of trust officials generally throughout the country.

We have been in contact with Commissioner Douglas and his associates for a year, and during the last month have been in almost constant contact with him. I desire to reaffirm all that Mr. Hanes has said about the spirit of cooperation which has been accorded us by the Commission, and particularly by Mr. Douglas and his associate, Mr. Burke.

While the Commission has accepted and recommended to Senator Barkley many of my committee's suggestions which were designed to make the bill more flexible, we regret that other of our suggestions did not meet with the viewpoint of the Commission, because we think that they were sound. I have particularly in mind the present prohi

bition in the bill against the making of short term loans by banks which are acting as trustee for unsecured or short term issues. We at present are discussing with Mr. Douglas several other matters of some importance: One is the exclusion from the provisions of this bill of issues of foreign governments; because we do not believe the provisions of this bill would fit a foreign government issue; and second, the suggestion that paragraph (j) of section 7, subdivision B, be extended, so that in proper cases the Commission will be authorized to permit the inclusion in indentures of a provision limiting the monetary liability of a trustee, in the case of any given issue.

Despite the feeling of my committee that the bill in some respects is unnecessarily rigid and that the prohibition against certain types of short-term loans will substantially handicap not only the banks doing a corporate trust business, but also the obligor corporations who desire the loans, without commensurate benefit to the bondholders, nevertheless, we do believe that the bill is otherwise workable and livable; and I have been authorized on behalf of my committee to say to you gentlemen that we do not oppose the passage of the bill.

I should like to say that our committee is prepared, if the Commission so desires, to continue our work with them on questions involved in the preparation of regulations and on other problems of administration, under the bill. We are as anxious as you gentlemen that the bill, when enacted, shall accomplish its purpose promptly and with as little handicap to legitimate business as possible. To this end we pledge our full cooperation.

The CHAIRMAN. Thank you very much. That is a very fine spirit, Mr. Page.

Mr. PAGE. Well, we have found a fine spirit on the other side.

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DIRECTORS, BANKERS TRUST CO., NEW YORK CITY The CHAIRMAN. Very well, Mr. Tilney; we are glad to hear from you.

Mr. TILNEY. Mr. Chairman and gentlemen, I am chairman of the board of directors of Bankers Trust Co., New York, and appear as a representative of my own institution and also as chairman of an informal committee of New York bank executives who represent many of the banks of New York City doing a substantial corporate trust business.

This committee was appointed, at about the time the Barkley bill was introduced in the Senate, to consider the bill on behalf of the New York institutions it represents.

We have consulted with the American Bankers Association committee which has been working with the Securities and Exchange Commission on the bill, and have studied the confidential committee print under date of June 9. We desire to join with the American Bankers Association in expressing appreciation of the spirit of cooperation extended by the Securities and Exchange Commission in discussions on the bill.

We do not oppose the enactment of the bill as amended in the confidential committee print. With the fundamental objectives of the bill we are in accord, however, we may differ as to the best means to accomplish the desired ends. However, we do wish to note upon the record that, in our judgment, first, the prohibition against short-term


bank loans to a corporation for which a bank is acting as trustee under an unsecured or a short-term issue is unnecessary and unwise and will be burdensome to corporations and will work to the disadvantage of the bondholders themselves. We believe that it would have been wiser to remove this prohibition and to have concentrated on the penalty provisions against improvement by a trustee bank of its creditor position at the expense of its bondholder beneficiaries.

Second, certain other provisions of the bill seem to us too rigid and in some instances too severe and may prove unduly burdensome to legitimate business and many banks.

The broad discretionary power granted to the Securities and Exchange Commission by the bill will require in its administration, if the objectives of the bill are to be attained, a high degree of common sense, reasonableness, and cooperation both by the Commission and the trustee institutions. To this end we pledge our support.

We do not accept as well founded many of the statements and conclusions in the report of the Commission upon which the bill is based. We are, however, prepared to try in good faith to do our part toward the successful administration of the bill. We ask of the Senate a sympathetic hearing if after a fair trial we then find it necessary to suggest amendments. That is all I have to say, gentlemen.

Senator TOWNSEND. You have no suggested amendments, have you,


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Mr. TILNEY. The fundamental difficulty, if I may put it that way, that we see in the bill, is the question of the conflicts which may occur in loans made by trustee institutions, where they happen to be trustee under an indenture covering an unsecured or a short-term issue. We have suggested here that the emphasis should rather be placed on the penalty for the betterment of the position by the trustee institution, rather than on the prohibition of such loans themselves. I should think that it probably would improve the bill—at least, from our standpoint, gentlemen—if short-term loans, which we call bank loans in our section, were limited to 6 months rather than a year. I cannot see that it makes any particular difference to the purposes at which the Commission is aiming and certainly it is much more in accordance and in keeping with the general usages of the banking business.

That is fundamentally the only suggestion I have to make.
The CHAIRMAN. Thank you.

Senator TOWNSEND. You mean loans made by the trustee bank to the obligor?

Mr. TILNEY. Yes.
Senator TOWNSEND. Six-month loans?
Mr. TILNEY. Yes.
Senator BARKLEY. The bill provides for a year?
Mr. TILNEY. Yes.
Senator BARKLEY. And you think 6 months would be preferable?

Mr. TILNEY. Oh, I should think if that term were shortened to 6 months, you would make the operation of many business transactions which take place between corporate trustees—who in many instances have important banking connections with the obligor-and the obligors very much simpler and easier. In the last analysis, I cannot see that such a change would do violence to anything at which the bill aims.

The CHAIRMAN. Thank you, Mr. Tilney.




The CHAIRMAN. Mr. Bradley, are you ready to address the committee?

Mr. BRADLEY. Yes, sir; I am here primarily as the direct representative of my company, the Prudential Insurance Co., and I cannot say that I am authorized to speak for the business of life insurance as a whole. However, I may say that we of course have been in conference with our colleagues, both the financial and legal staff of many of the other companies, ever since the question of legislation of this character was first discussed; and the views that I express here today may be taken as the views of a number of the larger companies, from different parts of the country. I know of no company that dissents from the views that I may express here, although I wish it to be understood that I am not purporting to speak officially as the representative of any company other than my own.

Of course we, as a large institutional investor—and the whole

siness of life insurance constitutes perhaps the greatest institutional investors' interest in the country-are particular beneficiaries of this legislation; the investors are those whom it seeks to protect. I may say that we feel that the general conception of this legislation is wise and beneficial.

To regard it in detail: We do not feel that we are properly qualified to discuss the question of the qualification of trustees. Of course it is desirable, and wherever possible we always see to it, that the trustee shall be an institution of high financial responsibility.

With regard to the question of conflicts, I understand from the testimony given here today and from informal conversations that I have had, that essentially the trust companies are satisfied with these provisions, barring the question of short-term loans. I think I can serve no useful purpose by making any comment on them.

Our concern with the conflict provisions is only that we should not be in a position of having to deal with a trustee who will not faithfully serve the interests of the investors; and we are entirely satisfied to support those provisions as they stand today, without wishing to comment on them one way or the other. We do not oppose them in any way.

As to the affirmative provisions of the act directly touching the conduct of the trustee, we are in sympathy with practically all of them. We believe them to be beneficial, wise, in the interest of investorsrealizing, however, and I should like to go on record as saying, that much of this regulation is in a wholly novel field. It may well be that this legislation, if enacted, will prove unworkable in some of its details. We have no experience to guide us as to the effect of some of the provisions. I think, perhaps, that from the point of view of the bondholders and the investors, the most important of all the provisions are those which confer a very broad discretion upon the Commission. With those provisions we are in very hearty sympathy; because we feel that with an able, skilled Commission, experience will from time to time point out what those regulations should be and in what respects any changes should be made.

The particular provision to which I wish to refer is section 7, subsection (m), page 40. The administration of that subsection undoubtedly will prove difficult; but we regard it as exceedingly wise that it is

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