TABLE II.-Printing and engraving expense for issues effectively registered under the Securities Act of 1933, by type of security and size of issue, 1938, 1939, and 1940

Printing of certificates, registration statement prospectuses, indentures and other exhibits; engraving of certificates.

' Compensation paid to securities distributors, exclusive of (1) amounts reimbursed to distributors expenses; (2) finders' fees; (3) noncash compensation such as options and securities.

Consists of two parts: (a) compensation to security distributors; (b) expenses, including taxes, incurred for professional and technical services incident to preparing an issue for sale.

Principal amount of bonds or number of shares of stock proposed for sale, multiplied in each instance by proposed offering price.

TABLE III.-Printing and engraving expense for issues effectively registered under the Securities Act of 1933, by type of security and size of issue, Jan. 1, 1936, to June 30, 1938

Commissioner PURCELL. I will summarize briefly some of the figures showing that the printing expenses are not as significant as they are often represented to be when considered in the light of the amount of the offerings. I would like to present certain data covering expenses of 57 bond issues sold in 1939 and 55 bond issues sold in 1940.

The 57 issues in 1939 aggregated $640,000,000 or an average of approximately $11,000,000 per issue.

As to the 1939 issues, the printing and engraving expenses were 0.116 percent or dollarwise approximately $14,000 in each case. It will be remembered that was approximately the figure which Mr. Stewart arrived at in the period covered by his figures. But, when you fit these figures into their proper context, however, we find that for each $100 of bonds sold, less than 12 cents was attributable to printing and engraving expenses, whereas the underwriting commission was 18 times as large, or $1.97 for each $100 of bonds sold.

Mr. YOUNGDAHL. Would it be convenient to ask a question at this point?

Commissioner PURCELL. Surely.

Mr. YOUNGDAHL. Your figures are based upon the larger issues? Commissioner PURCELL. No, sir; they are based on all types of

issues.

Mr. YOUNGDAHL. Let me ask you

Commissioner PURCELL. In bonds, of course, that is true.

Mr. YOUNGDAHL. Being from the "wild and woolly West," I am more or less interested in the smaller dealers and also smaller investors.

What would you say as to an issue of $300,000 or $400,000? I understand under the law that they can issue $100,000 exempt from registration, but over that amount they must be registered, and as I remember the testimony, I think you said that the Commission would go along with a $300,000 exemption?

Commissioner PURCELL. That is correct.

Mr. YOUNGDAHL. As to issues of $400,000 and $500,000, it is within my knowledge that these issuers are very careful people. They get the best counsel and go through practically the same steps as those who issue the larger issues. Therefore, would not their percentage of costs be a great deal more on a $400,000 issue than the percentage on larger issues?

Commissioner PURCELL. Of course, it is inevitable that the costs. on a percentage basis will be higher in the case of the smaller issue and the equity type of issue, as compared to the bond issue; but I assume these issuers want to do the right kind of a job and want to give full and accurate information when they offer their securities, whether it be through registration or not.

Mr. YOUNGDAHL. That is correct, sir.

Commissioner PURCELL. The conscientious small issuer would undertake probably the same procedure and have some of the expenses. Mr. YOUNGDAHL. Then, the figures that you are quoting now would probably not apply to issues ranging from a couple of hundred thousand dollars to a million dollars.

Commissioner PURCELL. The percentages would be higher on the small issue. But there would be an even larger rise in the costs of distribution not attributable to registration. Our figures on these issues would show that.

Mr. YOUNGDAHL. In the final analysis, probably the smaller investor would probably have to pay more.

Commissioner PURCELL. He would pay the higher distribution costs, certainly.

Mr. YOUNGDAHL. In other words, there is an opportunity to give some relief to that type of investment business or that type of investor in connection with possible changes in the law.

Commissioner PURCELL. You mean up to $300,000?

Mr. YOUNGDAHL. By raising the exemption so that these issueɔ would be exempted.

Commissioner PURCELL. I do not know how much relief on the cost side you can give, Mr. Youngdahl; perhaps a few cents.

I understand that we have some figures in preparation which will apply particularly to the smaller issuer's problem, which we can put in the record at the time it is discussed.

Mr. YOUNGDAHL. You are going to discuss that at a later time? Commissioner PURCELL. Yes; we will have some definite figures covering that particular field at that time.

Now, again as to the 55 issues in 1940, they averaged approximately $14,000,000 each, and the printing and engraving expense for each $100

of bonds was 12 cents again; the underwriting commission, $1.87; and legal expenses, 11.1 cents.

I think particular attention should be paid to the fact that printing and engraving were necessary before the Securities Act was passed, and it is therefore obvious that only a portion of such expenses are actually attributable to any requirement of the Securities Act.

Let me proceed to the over-all registration costs as distinct from printing alone.

Mr. WADSWORTH. You are sure, Mr. Purcell, that printing and engraving costs before 1933 were as great as now?

Commissioner PURCELL. No, sir; I do not pretend to say that they were. But printing and engraving were necessary, and the point that I am trying to make is that the present printing and engraving expense cannot be wholly attributed to the Securities Act in the sense it was necessary to do engraving of certificates and at least a certain amount of printing even to get out post-card prospectuses. With some securities, such as mining and oil promotions, the very spectacular pamphlets they used to print far exceeded in cost the documents now used.

Mr. WADSWORTH. I think that no one contends that the printing was given to them free prior to 1933.

Commissioner PURCELL. No. Certainly there may be more printing at the present time.

Mr. HOLMES. Do you take into consideration the time of preparation in connection with this printing in this estimate or is this just simply the setting up of the type?

Commissioner PURCELL. On the printing estimates, that is merely printing.

COSTS OF DISTRIBUTION NOT ATTRIBUTABLE TO REGISTRATION

I am going now to discuss some of the over-all costs figures which take the other expenses of public offerings into consideration.

I

In the over-all field it is interesting to note again that underwriting fees or commissions constitute the bulk of the flotation costs. Studies which have been made show that underwriting fees or commissions consume approximately 83 percent of all flotation costs. have a short schedule here which shows the expenses by years for all issues registered with the Securities and Exchange Commission covering the years from October 1934 through June 30, 1941, to date. I call attention to the fact that the 1935 figure covered only the 9month period from October 1, 1934, to June 30, 1935. The costs are given for each $100 of securities registered for cash sale.

Now, these figures are as to all securities o fall types (excluding exchange offers) which have been registered or sale for cash during the period from October 1934 to June 1941 and they run variously from a high figure of underwriting fees and commissions of $4.40 a hundred to a low of $2.50 a hundred dollars. All other expenses, which include legal, accounting, engineering, trustees' fees, transfer fees, listing fees, Federal and State taxes; qualification expenses; printing and engraving and other expenses, run from a high of 80 cents a hundred dollars down to a low of 50 cents a hundred dol'ars. I might say that that low figure is for the most recent year, 1941; the low figure in both instances.

If I may, sir, Mr. Chairman, I would like to have that brief schedule inserted at this point in my remarks.

The CHAIRMAN. Very well.

(The table referred to is as follows:)

Flotation costs per $100 of securities offered for cash

The aggregate amcunt offered for sale for cash, excluding exchange offers, was $15,706,000,000. The total underwriting fees and commissions were $502,000,000 and the other expense of flotation was $104,0 0,0 0. This means that on the average, over the period, over-all flctation costs were $3.86 for each $100 of securities. Of this amount, $3.20 (83 percent) went to the underwriter and 66 cents (17 percent) was consumed by all other expenses.

Mr. YOUNGDAHL. Does that table show how many issues were taken into consideration?

Commissioner PURCELL. No, sir; it doesn't show that, but I can get the facts very readily. In fact, I believe we have them here in the room.

Mr. YOUNGDAHL. And the amount of the issues also.

Commissioner PURCELL. All of the issues that have been registered with us up to June 30, 1941, are included in that schedule.

My recollection is that there have been up to that period about 4,800 statements filed with us. Certain of them were withdrawn, and I do not know just how many there are. I think possibly we could get that figure. As to the dollar amount, we have had in the neighborhood of $20,000,000,000 registered with us for all purposes in that period of time. I will see if I can get those figures.

Mr. YOUNGDAHL. You took all issues that came in for registration? Commissioner PURCELL. That is correct; small, large; bonds and stocks; everything else, except exchange offers.

Perhaps it would be well for me to explain a little bit about the figures which I have just mentioned, and which are entered in the record just above. I should like to point out that the Commission in its forms requests a statement of the expenses, other than underwriting costs, incident to the offering. The information furnished. by issuers in response to this item in the registration form usually shows in some detail the costs of different items entering into the total expense of preparation for a public offering. The Commission. has never had submitted to it either in registration statements or as supplemental information any reliable data indicating the proportion of these expenses attributable solely to the registration process under the Act.

Before the enactment of the statute, counsel were employed by issuers and underwriters in connection with the preparation for public offering of securities; in many cases accountants were employed; usually some item of printing expense was necessary either in connection with the preparation of a new indenture, an amend