I think these last 4 years are particularly interesting. The figures illustrate what is happening and how the trend is going: 16.99 percent for the year 1937, 35.37, percent for the year 1938, 37.62 percent for 1939, and 47.99 percent for the year 1940. What it will be in 1941, I do not know. We do not have the figures, other than very incomplete ones; but anyway, it is clear from that table that the act as at present interpreted and administered failed in 1940 to include in its scope 43.59 percent of all new corporate financing, and that 47.99 percent of all bond financing by corporate and foreign issues was carried on outside of the registration requirements of the act. The figures which we have for 1941 are shown in table E. (Table E is as follows:)

TABLE E.-Corporate securities sold in transactions exempted from Securities Act registration as not involving any public offering from January 1, 1941, to September 15, 1941

[Data tentative and incomplete]

1. Total dollar amount of issues placed directly by issuers with investors___

2. Total dollar amount of domestic corporation and foreign' issues in all financing---

3. Total dollar amount of bonds issued in all domestic corporation and foreign 1 financing_

1

$1,038, 791, 071

2, 389, 174, 117

22, 201, 289, 771

1 Bonds of foreign issuers payable in United States dollars and registered under the Securities Act of 1933.

2 As of Aug. 31, 1941.

4. Percent direct purchases to total financing (1 divided by 2) 5. Percent direct purchases to bond issues (1 divided by 3) 6. Total number of issues placed with direct purchasers-

43. 48 47.19

260

Mr. STEWART. That table shows the figures which I have just spoken about. It indicates that in 1941, up to September 15, at least, $1,038,791,071, dollar amount of issues was placed directly by issuers with various institutional and other investors. That is financing which might otherwise have been subject to the act.

Total dollar amount of domestic corporation and foreign issues in all financing, during the period, amounted to $2,389,174,117.

Then, as we see [indicating] that total dollar amount of bond issues in all domestic corporation and foreign financing, amounted to $2,201,289,771.

Then, we divide these totals (total 1 by total 2 and total 1 by total 3) and we get these other two percentages; 43.48 percent direct purchases to total financing; 47.19 percent direct purchases to all bond issues.

And there were 260 issues placed with direct purchasers. That is from January 1, 1941, to September 15, 1941.

Now, the figures for 1941 are very incomplete. We have taken them from the newspapers, from the Commercial and Financial Chronicle, and from other sources as we find them; but we have no means of testing them as thoroughly as we have tested the figures relating to the earlier years. There it has been possible for us to look through the annual reports of the insurance companies, to examine other statistical material and to verify our figures and information to, I think, a quite satisfactory extent.

More interesting than any of the tables which I have shown you so far is the next one which I have here, table F. (Table F above referred to is as follows:)

TABLE F.-Corporate securities sold in transactions exempted from Securities Act registration as not involving any public offering-Largest purchasers, 7 years, 1934-40, inclusive

Mr. STEWART. That table shows, I think, rather clearly, that this practice of direct placement is operating for the benefit of the large institutions at the expense of the smaller institutions and smaller investors. At the same time it does injury to the investment banking business.

Mr. BOREN. You are going to pursue this subject into an interpretation of the public interest involved, in the sense of the individual purchaser?

Mr. STEWART. That is right, sir. It is highly interesting to note from this table, which accounts for $3,403,135,880 of securities-those are the ones we actually traced. We know that an additional $1,006,718,105 aggregate amount of securities was sold in the same way, but we have not been able to discover who bought those securities. That is, we have not undertaken the labor which would have been involved— the immense amount of research which would have been necessary to trace them down; but we have built up this analysis covering the 20 purchasers named in the table.

As will be seen from the table those 20 purchasers accounted for $3,125,679,000 or 91.85 percent of all of the securities sold in identified transactions which in turn represent 70.88 percent of all direct purchases.

I particularly call your attention to the figures at the top of the chart here, because you will see that the first four or five purchasers

named in the compilation are the ones who have really derived the greatest advantage from this system of operation.

The Metropolitan Life Insurance Co. has, according to the compilation, purchased $860,879,000, or 25.30 percent of identified purchases. That figure of $860,879,000, according to my calculation, represents about 16 percent of the total assets, total admitted assets of the Metropolitan Life Insurance Co. which were about $5,358,000,000, according to its last report.

The Equitable Life Assurance Society purchased $590,456,000, and that, according to my calculation represents about 23 percent of its total admitted assets which are shown by its last report to amount roughly to $2,564,000,000.

So it is no minor matter. A very substantial volume of securities. is involved in this method of doing business.

And these purchasers have been able to buy securities on a basis. which has certainly given them a very great competitive advantage as compared with the smaller investor throughout the country. That has been a real factor in the situation. It has hurt us, yes; but it has also hurt the small investors to a greater extent, as shown by the figures which we are presenting. Some investors will, I think, wish to tell you of this themselves.

Twenty insurance companies and banks, as shown by the compilation in table F, acquired, as I say, an aggregate of $3,125,679,000 of securities, and, out of that figure, an aggregate of more than $2,000,000,000 of securities or 45 percent of all corporate securities sold in direct transactions went to three of the largest insurance companies-the first three mentioned in table F.

The next table which I have here, table B, shows a break-down of these securities by industrial classifications.

It shows the volume of financing which has been carried out through direct sales by public utility companies, by general industrial corporations, and by the railroads.

(Table B above referred to is as follows:)

TABLE B.-Corporate securities1 sold in transactions exempted from Securities Act registration as not involving any "public offering”—classifications

1 All railroad issues (that is, all securities issued by common or contract carriers) are exempted from registration by the provisions of sec. 3 (a) (6) of the Securities Act whether sold in a pub'c of rig or without public offering. The exemption contained in present sec. 3 (a) (6) would not be changed i. any way by the proposed sec. 2 (14).

Mr. STEWART. This table, as I say, shows a break-down of these securities by industrial classifications. At this point I wish to correct an error which appears in table B. I do not think that materially affects the figures. But it is shown in the heading that the figures relate only to corporate securities sold in transactions exempted from the Securities Act registration as not involving any "public offering."

That is, of course, not true of railroad securities. Railroad securities are exempt from registration under the act, irrespective of the manner in which they are sold. So that while these figures relating to railroads are interesting as shown in comparison with other financing, it is improper to say that sales of railroad securities have in any way been affected by the Securities Act. They represent a very small total, of course $67,339,000, or 1.53 percent, out of $4,409,853,985.

The significance of this chart is that the two big groups shown here, the public-utility group, and the industrial and miscellaneous group, which together account for all except 1.53 percent of the total, are securities of issuers which would have been subject to registration under the Securities Act except for the theory that no public offering was involved in these sales.

Mr. BOREN. Did I understand that represents all but a little more than 1 percent of all of the securities offered in the Nation; does that represent the financial index of security offerings from all of the Nation's industries?

Mr. STEWART. Not that total, Mr. Boren. In table D, I related the figures which are shown here, $4,409,853,895 to the total financing in the country during the years from 1934 through 1940.

Mr. BOREN. What I am trying to arrive at is the difference between this table and table D, from the standpoint of the analysis of including all securities. You see, you have got public utilities there 46.77 percent.

Mr. STEWART. That is right.

Mr. BOREN. Of that total.

Mr. STEWART. Yes, sir.

Mr. BOREN. Although that totals about half of the total you have shown there..

Mr. STEWART. Well, it is 46.77 percent of $4,409,853,985.

Mr. BOREN. Now, as related back to the total of table D, what I am trying to arrive at is what percentage of all securities in the Nation were public-utility securities in the year 1940.

Mr. STEWART. I do not think that I have such a break-down of the totals in table D.

Mr. BOREN. I do not think it has any bearing on the point that you are discussing, but it is of interest.

Mr. STEWART. I can get that information for you, Mr. Boren, if you would like to have it. It is not shown in the figures which I have available at the moment.

Mr. BOREN. The point that I have in mind would be aside from the immediate point that you are relating your figures to here, but I simply had that in mind as having that as an additional index of what the securities in the Nation represent. If you are putting out $19,000,000,000, which I believe is the total that you showed in one of your charts, if you are putting out $19,000,000,000 as securities, over a given period, what do those securities represent in general classifications, such as you have made in this chart?

Mr. STEWART. As an index to the relative amount of public-utility financing, industrial corporate financing, and other such financing, I have here a tabulation which covers $8,119,618,000 of financing in the period from June 16, 1934, to June 30, 1939. That was made up in this way

Mr. BOREN. That represents about half of it.

Mr. STEWART. Yes. You see, the table which we are looking at runs through 1940.

Mr. BOREN. But, that represents about half of all the securities in the Nation or would it not?

Mr. STEWART. Yes.

Mr. BOREN. So that would be an accurate index of the thing that I have in mind.

Mr. STEWART. I think it is a very accurate index, Mr. Boren. It shows a break-down of $8,000,000,000 which I have mentioned as follows: Railroad issues, $936,507,000; public utilities, $4,306,941,000; industrial issues, $2,406,420,000; foreign issues, including those of Canada, $459,750,000-altogether a total of $8,119,000,000.

I think probably for the period we are discussing that that has been about the relationship for the various classes of issues aggregating the total of $19,084,734,470 shown in table D.

From 1934 on, the great volume of financing which took place without meeting the requirements of public offering

Mr. BOREN. I particularly would like to have the information contained in the record, expanded just a little.

Mr. STEWART. I will try to get the actual break-down for table D. Mr. BOREN. I think that that is an index which is sufficient to cover the thing that I have in mind.

Mr. STEWART. The point of the table (table B) which is on the easel at the present time is that the majority of issues purchased directly by the insurance companies, and others, has consisted of issues which would otherwise have been subject to registration.

As I said to you a moment ago, at least $936,000,000 of railroad securities was sold in this period of years; yet according to this tabulation only $67,000,000 of railroad securities was bought directly by insurance companies.

The theory has been asserted by others that the Securities Act has nothing to do with so-called private placement. That is the position taken by the Commission. They say that private sales are wholly attributable to economic phenomena. I do not know how they can arrive at such a conclusion. I would like to discuss this in greater detail later on.

I now invite your attention to table C which I have here, which shows the number of issues sold.

TABLE C.-Corporate securities sold in transactions exempted from Securities Act registration as not involving any “public offering”—Number of issues

NOTE. All railroad issues (that is all securities issued by common or contract carriers) are exempt from registration by the provisions of section 3 (a) (6) of the Securities Act whether sold in a public offering or without public offering. The exemption contained in present section 3 (a) (6) would not be changed in any way by the proposed section 2 (14).