part of the voluminous information now compiled in a registration statement reaches the investor, and it wants to make it possible for the honest broker and dealer to give his clients, especially the small investor, information about the seasoned securities which comprise the outstanding investment securities in the world today.

Then will the flow of savings into industry be accelerated and then will our production grow, for defense in time of war and for a better standard of living in time of peace.

People sometimes lose sight of the fact that we are merchants who do business much as any other merchant. We have our customers who do business with us time after time, year after year. I have been in this business for over 20 years and today deal regularly with many of my first customers. It is obvious that to maintain this status one must have the customers' interest constantly in mind, and it is because of this that we, in the business, are more vitally interested in the welfare of our customers than anyone else-not even excluding regulatory agencies. I am afraid the Commission sometimes underestimates the fact that we have vital interest in the protection of our customers. Accordingly we are keenly alive to the responsibilities that we are willing to assume in recommending certain changes in the securities acts of 1933 and the Securities and Exchange Act of 1934. These acts have undergone no general review since 1934; and in the light of the intervening years of experience it would seem timely that desirable changes now be made by the Congress so that private capital might flow more freely into business, thereby creating jobs and national wealth, as well as aiding the defense effort.

I have no doubt that the amendments which we hope will be enacted by Congress will be a stimulus to the flow of invested savings into industry and thus be a lever for greater employment when we reach the end of the present emergency.

We had great problems when the last war ended, and many of them existed because there was no post-war planning. I feel at this time that everything should be done that can be done to simplify the problems which will inevitably confront us after the present war. A freer flow of private savings into industry to take the place of Government credit which is now being used will be fundamental to the solution.

It is not to be assumed that the present suggestions are all-embracing. We have stated in our report that we have no more specific suggestions to advocate at this time, but it may be well to point out to the committee that in order to insure a free flow of private capital we are of the feeling that the Congress can make a real contribution by reviewing the securities acts regularly, much as the Banking Act is revised from year to year.

Let us remember, too, that in the protective process we have, in addition to the Federal Securities Acts, many State "blue sky" and State securities laws. The work of these State commissions has been of inestimable value to the investing public, over a long period of time. Underlying this protection, of course, is the great body of common law, which continues to be the real bulwark against fraud of all kinds.

In amending the acts you will also assist in solving a problem that goes much deeper than appears on the surface, for the scarcity of new issues and the difficulty of dealing in outstanding issues has

been detrimental to the best interests of the investor, large or small, as well as seriously retarding the economic progress of the country. The Securities and Exchange Commission and we have labored diligently for over a year on a comprehensive revision of the acts.

I want to endorse what Commissioner Purcell said about these conferences. They were long, tedious, and tiresome; but they were done in the best of good will and good faith. There was an honest exchange of opinion and in many cases differences of opinion, which were ironed out satisfactorily; and where we failed to agree, we did it with all good nature, and we are indebted to the Commission for the time that they have given us. The Commission and its staff certainly gave us all of the time that we could ask, and I want to express our appreciation to them at this time.

The Commission and the investment banking industry have reached a large area of agreement, but there are several points of major importance on which there is disagreement. This is perfectly natural, for on certain questions the industry has approached them from the realistic business viewpoint, while the Commission's approach, of necessity, has been regulatory and legalistic. In putting forth these proposals we have agreed to every idea advanced by the Securities and Exchange Commission except those which, in our judgment, would virtually make it impossible to do business at all. We shall endeavor to present our arguments as to why we think we are right, in a factual, dispassionate manner and shall be happy to answer any questions that you may care to ask.

It would, of course, have been ideal if the Commission and the industry could have reached agreement on all fronts. However, we trust that the committee will consider carefully the points of disagreement, for in the controversial points there are matters of prime importance.

Our approach to this study has been that of the businessman who has lived with these regulations day in and day out through actual experience and who has more than a selfish interest to advocate. We would be extremely short-sighted had we viewed the problem from any other angle. As we present our testimony, we sincerely hope that you will be convinced that the welfare of the country and the protection of the investor is our primary concern. Only if that is accomplished will we be collaterally benefited.

On behalf of our association, I want to thank Chairman Lea and the members of this committee for making these hearings possible. I am sure much constructive good will come from them.

Thank you.

The CHAIRMAN. Thank you, Mr. Connely.

I would like to ask you one question, Mr. Connely. What can you say as to how long one of your customers remains with you after he once becomes your customer?

Mr. CONNELY. Well, as long as we give him better service than any of our competitiors, Mr. Lea. There is no monopoly on the

customers.

The CHAIRMAN. I am trying to find out how you do that, by asking how long he stays.

Mr. CONNELY. Well, I do not know. There is very aggressive competition in this business, you know, and it is no secret, in Detroit, as

to who the good bond buyers are. So we have to be pretty much on our toes to keep our customers that we have had for 20 years, because a competitor across the hall will get them if we do not take care of them.

The CHAIRMAN. Very well. Thank you.

Mr. CONNELY. Thank you.

The CHAIRMAN. The next witness will be Mr. Laurence M. Marks. Mr. Marks.

STATEMENT OF LAURENCE M. MARKS, MEMBER OF THE BOARD OF GOVERNORS, THE EXECUTIVE COMMITTEE AND TREASURER OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., NEW YORK, N. Y.

Mr. MARKS. Mr. Chairman and gentlemen, my name is Laurence M. Marks of Laurence M. Marks & Co., New York City. I am a member of the board of governors, the executive committee, and treasurer of the National Association of Securities Dealers, Inc., and am appearing before you today at the request and on behalf of Mr. Robert W. Baird, the chairman of the board of governors of the association, who unfortunately could not himself be present.

For the benefit of those of you who may not be intimately familiar with the nature and objects of the National Association of Securities Dealers, I would first like very briefly to make a few remarks by way of identification.

The National Association of Securities Dealers is an organization composed primarily of investment bankers and securities dealers but many of our members are also members of the various national securities exchanges and of the Investment Bankers' Association. The association was organized some 2 years ago to register under and carry out the purposes of the so-called Maloney Act amendment to the Securities Exchange Act of 1934. We have now been registered under that act since August of 1939 and we have been the only organization so to register. At the present time we have 2,924 members, whose places of business cover substantially the entire United States. In general, our principal purpose and activity is and has been to bring about effective self regulation of the investment banking and securities business under governmental supervision, as contemplated by the Maloney Act, but we are also vitally concerned with the general welfare of the business in which we operate. It is also our purpose to provide a medium through which our membership may be enabled to confer, consult, and cooperate with governmental and other agencies in the solution of problems affecting investors and the public as well as our business, so we naturally welcomed the opportunity to participate with the Investment Bankers Association, the New York Curb Exchange, the New York Stock Exchange, and the Securities and Exchange Commission in the many months of hard work which has resulted in the two reports before you today in connection with this hearing.

I think it would serve no useful purpose for me to review in detail the background of the so-called industry report or the nature and extent of our participation therein, because that is well covered in the report itself. I do want to say, however, at this point, that al

though I personally had no part in any of these discussions I have heard on all sides, both officially and otherwise, that the cooperative spirit in which the various conferees and the Commission approached this problem was of a very high order, and when one considers the size and complexity of the task, I think the results attained are a high tribute to all of those connected with this endeavor and will work for the welfare and right ultimate solution of these many problems by your committee.

There are others here who actively participated in the discussions and the drafting of the industry report who are obviously better able than I to discuss its specific recommendations, and so I shall not even attempt to discuss details, but I do want to make it very clear that we think the industry report represents a sincere endeavor to meet the problems presented without in any way relaxing the essential safeguards of the present acts.

Thank you.

The CHAIRMAN. Thank you, Mr. Marks.

The next witness is Mr. Rea.

STATEMENT OF GEORGE P. REA, PRESIDENT OF THE NEW YORK CURB EXCHANGE, NEW YORK, N. Y.

The

Mr. REA. Mr. Chairman and gentlemen, my name is George Rea. I am the president of the New York Curb Exchange. You have been convinced, I am sure, of the earnestness with which representatives of the securities industry have approached the study before you. months which have been spent in conferences among ourselves and with the Securities and Exchange Commission are conclusive evidence of this.

There is another factor in our approach to these problems which I hope you will note. Our industry knows that it will not prosper unless the public is assured and believes that investors are getting a fair deal. We are convinced that the changes in the acts which we are proposing are in the public interest. If we doubted this, it would be both stupid and suicidal to make them.

We are asking you to review and consider two statutes around which there has developed a vast growth of rules, regulations, practices, and experiences. These regulations and practices constitute the Federal Government's contribution to the rules relating to the use of our market places.

I am, naturally, primarily concerned at these hearings with the business of exchanges generally and with that of the New York Curb Exchange in particular.

In respect to exchanges, the rules which will be discussed will deal with information about the securities which are bought and sold on exchanges. They will deal with the way purchases and sales may be made on exchanges. They will also deal with broad grants of power over exchanges which have been made in the past to, and additional powers which are now sought by, one of our administrative bodies, the Securities and Exchange Commission.

Before plunging into the forest and looking at individual trees, I urge you to look at the whole stand of timber. I ask you to realize its value to the entire territory in which it grows, to consider its general

health and what that means to the future of that territory. I believe, with such a perspective established, one can better diagnose both the internal and external ills and proceed to discuss cures.

The exchanges are only a part of the whole securities business. The thousands of corporations, partnerships, officers, managers, partners, bookkeepers. salesmen and messengers who are the security business not only in New York City but in every city in the United States, are engaged in various jobs contributing to one big piece of work, the work of converting private funds into business capital. Business cannot operate without capital. From the point of view of employment it has been estimated that it takes $7,000 of invested capital to keep one man at work in industry. The contribution to our economy of those engaged in making this capital available to business is, therefore, obvious and apparent.

But what of the health of the security business and the exchanges, which are an essential part of it? Several arresting statistics will serve vividly to show just how sick our business is.

Let us look at the amount of new security issues, both stocks and bonds, representing the solicitation of new capital for enterprise. These figures are from the Bulletin of the Federal Reserve Board, and show from 1923 through 1932, including, to be sure, the peak year of 1929, but also including the 3 years of acute depression, 1930, 1931, 1932, the yearly average was $3,400,000,000. Beginning with 1933 the yearly average to date has been only $642,000,000, less than one-fifth. From the regular releases of the United States Treasury Department come figures showing the receipt by the Federal Government from taxes imposed on the transfer or sale of stocks and show a decline from 1933 of $40,000,000 to $12,900,000 in 1940, even though the volume in 1940 had been increased more than 25 percent.

Effective for the last 6 months of 1940, the rate had been increased more than 25 percent.

Let us look again at the volume of transactions in stocks as measured by the total in millions of shares traded on the New York Stock Exchange and the New York Curb Exchange-again showing a trend down from 755,700,000 in 1933 to 330,400,000 in 1940, and in 1941 there is no change in this marked trend.

The volume of transactions in shares of stock on the New York Curb Exchange and the New York Stock Exchange during those years was:

As I have said, during 1941 there has been no change in this marked trend.

Part of the securities business as a whole is the business of securities exchanges. What are exchanges? What part do they play in the whole organism? Why are they necessary?