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of the issuer of the security itself by coming in and seeking full listing.

There was considerable testimony in the hearings on the exchange bill tending to discredit that type of trading. It was pointed out, however, on behalf of the New York Curb Exchange, which had a very large unlisted department and also on behalf of many of the regional exchanges throughout the country which also had large unlisted departments, that to impose such a restriction as that, that is to prohibit unlisted trading on their exchanges would practically put them out of business in a very short time. Therefore, the temporary permission was left in the act with instructions to the Commission to make a study. The Commission did make a study and it considered all of the pros and cons of permitting unlisted trading privileges and came to the considered conclusion that the welfare of these exchanges themselves, regional exchanges, and their places in the communities which they served, as well as the welfare of the New York Curb Exchange, was of sufficient public interest to warrant continuance of unlisted trading privileges under appropriate safeguards. The Commission not only recommended continuance of the unlisted trading privileges which were extended to particular securities at the time of the passage of the act and at the time the report was made; but it advocated additional unlisted trading privileges to be sought by these exchanges on a showing of a public trading interest in and public distribution of the security in the vicinity of the exchange and on an assurance that there was available to the public from other commission sources-other commission filings-information comparable to that obtainable under the registration and disclosure process of the Exchange Act for listed securities.

The Congress adopted the recommendations of the Commission and in 1936 revised and amended section 12 (f) of the act so as to permit this to be accomplished. Since the effective date of that amendment, 10 of the 19 national securities exchanges have filed applications with. the Commission for the extension of unlisted trading privileges. Those applications, brought up to date within the last couple of days, and including the applications of the San Francisco Stock Exchange now pending for 28 additional stocks, number 337 stock issues and 64 bond issues. Of these applications 236 of them were granted; 67 were denied, and 19 were withdrawn and there are now 80 pending.

On the whole the experience of the Commission with this experiment has been quite satisfactory.

Mr. WADSWORTH. Generally, what is the character of the securities thus listed locally?

Commissioner PURCELL. They are not usually local, Congressman. For instance, let us take the case say of the San Francisco Stock Exchange or let us call it the X stock exchange, and make it a regional cxchange. By and large they would seek unlisted trading privileges more in a nationally known issue such as, let us say, General Motors, General Electric-the larger corporations. Usually speaking, if a company is located in a locality of the regional exchange, I do not think the exchange experiences so much difficulty in obtaining full listing of the securities listed elsewhere.

On the other hand, the New York Curb Exchange may well seek unlisted trading privileges in securities of the company located else

where and fully listed on the X regional exchange, we will say, in which there seems to be a considerable trading interest in the vicinity of New York, and which seems to be a desirable one from their point of view.

Pardon me, but I just want to see whether there are any other items which we should speak of before closing.

I have been requested by certain interested persons to make clear something with respect to my recitation of one or two of the rather outstanding and outrageous cases of “gouging" of customers. Although I think I said that they were not members of exchanges, I have been requested to make it perfectly clear that they were not.

Mr. BROWN. Mr. Chairman

The CHAIRMAN. Mr. Brown.

Mr. BROWN. Mr. Chairman, will Mr. Purcell be back on the stand tomorrow ?

The CHAIRMAN. You had concluded with the statement which you intended to make?

Commissioner PURCELL. Only the preliminary statement which you asked me to present, Mr. Chairman. I have now concluded with that. The CHAIRMAN. Mr. Purcell has presented his statement in the nature of a review of what occurred heretofore. He will discuss the bill as we go through it.

Mr. WADSWORTH. Mr. Chairman, may I say off the record. (After informal discussion off the record:)

Mr. HOLMES. Mr. Chairman

The CHAIRMAN. Mr. Holmes.

Mr. HOLMES. Mr. Purcell, how voluminous are your rules and regulations which you have promulgated in connection with this legislation? Do you have copies of them?

Commissioner PURCELL. We have. I might say that they consist of 2 small pamphlet on each one-each act. For instance, here is a copy of our general rules and regulations on the Securities Act.

Mr. HOLMES. Might we have copies of those?

Commissioner PURCELL. Yes.

The CHAIRMAN. The committee will stand adjourned.

Mr. BROWN. Mr. Chairman, may I ask Mr. Purcell if he can furnish the committee, or at least myself, with copies of the Commission's publication on How the Commission Works?

Commissioner PURCELL. The one that I spoke of yesterday, Work of the Commission?

Mr. BROWN. Yes.

Commissioner PURCELL. Yes; surely.

Mr. BROWN. And, can you with that, or would you, furnish me some information as to the number of copies that have been published or printed or mimeographed, of each kind, on each issue?

Commissioner PURCELL. How many have been printed?

Mr. BROWN. Yes. It is a monthly publication, is it not? Commissioner PURCELL. Oh, no. That is a standing piece of equipment that we have to answer the questions of libraries and educational institutions and all sorts of interested people who want to know, "What do you do? What are you supposed to do, and what do you do?" That has been revised, I suppose, a couple of times-two or three times during the course of the Commission's existence.

Mr. BROWN. I wonder, Mr. Purcell, if you could furnish me with information as to the number of press releases and information bulletins you have issued-I will not call them press releases-but bulletins that have been prepared in the Commission and sent out and about the coverage thereof-that is, the number of people to whom the bulletins are sent or have been sent-in the last 90 days.

Commissioner PURCELL. I could get that very easily and submit it for your information.

Mr. BROWN. Also, would you be willing to furnish the names and the type of work and salaries paid to those employed in the Bureau of Information?

Commissioner PURCELL. Yes, sir; surely.
Mr. BROWN. And their work?

Commissioner PURCELL. Yes, sir.

That is information which is sub

mitted along with similar information every year to the Appropriations Committee. There is no reason why it cannot be given to you very easily.

Mr. BROWN. All right.

The CHAIRMAN. We thank you.

Commissioner PURCELL. Thank you.

The CHAIRMAN. The committee will stand adjourned until 10 o'clock tomorrow morning.

(Thereupon, at 3:15 p. m., the committee adjourned until 10 a. m. the following morning, Thursday, October 30, 1941.)

PROPOSALS FOR AMENDMENTS TO SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934

THURSDAY, OCTOBER 30, 1941

HOUSE OF REPRESENTATIVES,

COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D. C.

The committee met, pursuant to adjournment, at 10 a. m., in the committee room, New House Office Building, Hon. Clarence F. Lea (chairman) presiding.

The CHAIRMAN. The committee will come to order.

I believe the first witness this morning is Mr. Emmett F. Connely. Mr. Connely.

STATEMENT OF EMMETT F. CONNELY, PRESIDENT OF THE INVESTMENT BANKERS' ASSOCIATION OF AMERICA, DETROIT, MICH.

Mr. CONNELY. Mr. Chairman and gentlemen of the committee, my name is Emmett F. Connely. My home is at Detroit, Mich. I am president of the Investment Bankers' Association of America, a voluntary association consisting of 649 member firms, as of August 31, 1941, operating 1,374 offices in 187 cities in 42 States in the United States and 10 cities in Canada.

The association is managed by a board of 47 governors, geographically distributed throughout the United States. Only 7 of these governors come from New York City, whereas the remaining 40 are scattered from coast to coast, and from Texas to and including Canada. I believe our association is a fair cross section of the investment-banking business.

The members of our association do a diversified business in the underwriting and distribution of securities. This includes the underwriting and sale of stocks and bonds of railroads, public utilities, industrial concerns, and the securities of municipal, State, and governmental subdivisions, as well as issues of the Federal Government itself. It may be appropriate to quote the preamble of our constitution so that the committee may better understand the purposes and objectives of our association.

In order that investment bankers may the better serve those who purchase and those who sell securities, through which the necessary funds are raised for the operation and expansion of business activities and for the carrying on of public functions, and may thus contribute to the increase in national wealth and in its wide diffusion; and in order that they may aid in these directions through mutual cooperation, through the maintenance of high standards of service, through self-regulation, and through the support of appropriate legislation, this constitution is hereby adopted by the Investment Bankers' Association of America.

74947-42-pt. 1- 7

93

This states in simple language a point on which I want to elaborate. We who are engaged in the business of selling securities are guided by the same basic rules that govern every business that wishes to stay alive, namely, treat the customer right by giving him good merchandise at a fair price.

The investment banking industry is an integral part of our free enterprise system and serves as the market place where savings and the need for capital meet to join in productive effort. As underwriters and distributors of securities it is necessary that the people engaged in our business utilize a sizable amount of their own capital. A recent census taken by our association showed that the 305 nrms reporting on the question of capital employed over $300,000,000 of their own. There is, of course, considerably more than that amount of money used in the general operation of the securities business, entirely exclusive of commercial banks, which do a sizable amount of municipal underwriting. I mention this because it has sometimes been said that there is insufficient capital in the securities industry, but there is no evidence to support such a statement. In fact, we know of no case in which an underwriter has failed to take up his commitment in recent years.

We are here to urge amendments to the securities acts of 1933 and the Security Exchange Act of 1934 and to talk about present-day conditions, conditions that have existed since the passage of the acts.

We of the investment banking business have always favored legislation to bring protection to the investor, and we have gone on record many times as endorsing the "truth in securities" and "ull disclosure" theory of the acts of 1933 and 1934. It may be of interest to know that over 20 years ago the investment Bankers' Association made a serious effort to have a Federal "blue sky" law enacted.

We agree with the principles of the 1933 act and the Exchange Act of 1934. It would, however, have been nothing short of miraculous if such all-embracing legislation as the two acts of 1933 and 1934 could have been written so that they would be flawless in operation in their original form. It is to smooth out the flaws, while still retaining the protection for the investor and permitting honest business to operate freely, that we seek amendment of the acts.

I was much impressed with Chairman Lea's opening statement regarding the flow of capital. I would like to supplement that just a little.

We think of this flow of capital into industry as a great highway with an immense volume of traffic. That traffic is money going to work, the lifeblood of our private enterprise system. Always there is some reckless driving on this highway, and we should make conscientious efforts to stop it, because reckless financial driving, like reckless automobile driving, produces wrecks and casualties. But we must recognize that if every automobile driver had to stop at every corner and have his driving tested and his reactions measured, traffic on this highway would be materially slowed up, and, in fact, many honest and efficient drivers would probably stay at home. And so it comes back to the philosophy underlying the proposed changes in these acts. The securities industry wants to see fair and adequate disclosure, the prevention of fraud in the sale of securities with the least possible interference with honest business. It wants to see to it that the essential

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