great powers of an undefined nature in the hands of such administrators, rather than by the use of specific language and precise terms enunciate principles within the framework of which such an act is to be administered. In other words, we think an act of this nature should provide for the qualification of indentures along prescribed adjective lines rather than having each indenture the subject of individual substantive rulings. We point this out not merely in the interest of the members of the Investment Bankers Association but in the broader interest of borrowers under indentures who would have no way of knowing, prior to the time the indenture is qualified, what the form or provisions of the indenture would have to be in order to elicit the approval of the Commission, and thus would be forced to grope in ignorance while formulating their individual indentures and their financial plans in connection with securities to be issued thereunder. We hope it will be understood that by this observation no criticism, direct or implied, is intended of the Securities and Exchange Commission or its individual members. If the administration of this act could be concentrated in the hands of the five Commissioners, perhaps some of the doubts expressed herein would be resolved and fears allayed.

It is patent, however, that such direct administration cannot be expected of Commissioners already overburdened with the responsibility of administering three novel and comprehensive laws. Consequently, the duty of passing judgment on the literally thousands of indentures which would be presented to the Commission for qualification and, thereby, on the terms of the securities to be offered to the public thereunder, would devolve upon a veritable legion of subordinates whom it would be necessary to add to the staff of the Commission and most of whom could not have that breadth of knowledge and experience requisite for the satisfactory performance of so important a role, especially when, as we have indicated, the patterns or precedents to follow in the formulation of such judgments are so indistinct if not, in fact, entirely nonexistent.

In the interest of brevity we have endeavored in this memorandum to point out only what we considered the most basic faults and shortcomings of the bill. We reiterate that there are parts of it with which our sense of duty to the clientele which we serve dictates our complete agreement; but there are other parts which, while not referred to in this memorandum, that same sense of duty to that clientele and our experience in finance indicate are unsoundly formulated.

Summarizing, we should say that we feel it is sound public policy to entrust to the Commission authority to make certain that the protection which the prospectus represents as being ensured to the indenture security by the indenture under which it is issued is actually so afforded. We do not, however, feel that Congress should delegate, or that a Governmental commission should assume, the responsibility of passing on the substantive provisions of any indenture. Though this responsibility may not be apparent from a cursory reading of the bill, a careful analysis of it clearly demonstrates that this is the power with which it vests the Securities and Exchange Commission. It appears to us that through this process the Securities Act of 1933, as amended, is being transformed from an administrative law, whose fundamental concept is provision for adequate disclosure, to an approval law whose underlying principle involves specific approval of

individual indentures of all types of corporations, large and small, and, through that approval, of securities issued by such corporations under such indentures. Such a transition we firmly believe must inevitably lead to lulling the investing public into a false sense of security, and this, of course, is something which we know Congress and the Commission would sedulously seek to avoid.

Our feeling is that there is nothing emergent in the present investment situation to warrant undue haste in the passage of a bill embodying such a drastic change in fundamental public policy involving publice reliance on governmental approval of this nature and having such far-reaching effects. We would therefore respectfully suggest a more careful consideration of the implications of this bill and a more detailed study of the practice of other countries in legislation of this nature, with a view to the passage of a bill which would render true protection to investors and at the same time be less deleterious in its effect on the investing public, on corporate obligors, and on the investment-banking business. For such study and consultation the members of the Investment Bankers Association stand entirely ready to place at the disposal of the Senate Committee on Banking and Currency their experience, their facilities, and their unstinted cooperation.

We respectfully submit this, and appreciate your having heard it. Does that cover your point, Senator Barkley, as to the fundamental difference in concept between the Securities Act of 1933, as amended, and the present bill?

Senator BARKLEY. I understand the point you make.

Mr. BUTTENWIESER. On the one hand, under the Securities Act, there is no representation, implied or direct, that the Commission has passed on any of the information made available. It simply says that it is all set out, and the investor can judge for himself. Under this bill, as we read it, there is a rather direct implication that the Commission will have to pass upon the merits of the provisions of the respective indentures.

Senator HITCHCOCK. In other words, you have reference to the language "which the Commission shall deem adequate"? Is that what you have reference to?

Mr. BUTTENWIESER. Yes; and the other language we have quoted. Senator BARKLEY. The bill provides that these indentures shall contain certain provisions. That does not necessarily mean that the Commission approves of the indenture, but if it is to be issued, and a trustee is to be appointed, it shall contain the provisions set out in the bill, designed to protect those who had no opportunity to sit in at the inception of the indenture, or with regard to its terms, and who, in many cases, do not take the trouble, or could not understand all the legal phraseology involved in an indenture of many pages. It is provided that the indenture itself shall contain certain provisions. I do not see where that implies that the Commission has approved the issue of the indenture or in any way sanctioned it, so far as its liability or responsibility is concerned. It just simply provides that if those indentures are issued, these stipulations shall be set out in them, so that those who invest their money in the indentures may more readily understand what they are buying.

Senator ADAMS. May I supplement what Senator Barkley has said? I have gathered from your statement that this bill merely has to do

with the form of the indenture, and that that is what is submitted; that is, that there is not submitted any statement as to the property to be covered by the indenture.

Mr. BUTTENWIESER. It is more than just a form, Senator. It is the form and the actual provisions.

Senator ADAMS. Does it in any way submit to the Securities and Exchange Commission the securities which are to be covered by the indenture, either as to whether they are accurately described or whether there is any misrepresentation with reference to them? That is done under the Securities and Exchange Commission now; that is, they now, to a certain extent, pass upon information. That is, the full information is furnished of the financial set-up of the company and the assets which are to be covered, but, as I understand it, this bill has to do with the form of the indenture only.

Mr. BUTTENWIESER. You are quite right. It has to do with the form, but it goes one step further. It has to do with the actual provisions-not merely their form, but the actual provisions to be inserted in such indenture. Take a concrete example, for instance. It is quite usual to have

Senator HITCHCOCK. Just a minute. If the State has a code saying that you shall do certain things, you do not mean to say that the State of New York, for example, guarantees any indenture that is made according to the provisions of that code, do you?

Mr. BUTTENWIESER. So far as I am aware, we have no code that is analogous to this. Do you refer to the Martin Fraud Act in New

York?

Senator HITCHCOCK. Yes.

Mr. BUTTENWIESER. I do not think it is analogous to this. What I was trying to indicate is this: It is quite the common practice to have an indenture-say a first mortgage on a steel plant-which says securities can be issued for 75 percent of the cost or fair value of an addition or improvement. Under this bill, as we read it, it is well within the power of the Securities and Exchange Commission-we do not anticipate that they will use it, of course, but it is there, as we see it to say, "We think 75 percent on a steel mortgage is too high. You should only have releases up to 66% percent of the cost or fair value." That is the difference between adjective superintendency of it and dictating the substantive provisions of an indenture. That is what we sought to make clear in the memorandum, and we assume it is the latter power that Congress would not want to delegate to any commission.

Senator BARKLEY. I think, if you will examine the new print of the bill, you will find that we have met, to some extent, some of the objections you raise. We have gone over it since the testimony was closed the other day.

I would like to have you look over this committee print No. 3. I think you will find that some of the matters you discuss have been clarified.

Mr. BUTTENWIESER. I am glad they have, because that lends more substance to the points we have made.

Senator TOWNSEND. Would you care to go over this print and drop a line to the members of the committee giving your views on the print as it has been changed?

Mr. BUTTENWIESER. I should be very glad to.

Senator LODGE. You have not yet seen this committee print No. 3? Mr. BUTTENWIESER. I did see it for a moment, outside the hearing room this morning, but not sufficiently to know whether the points we have raised are adequately covered in that.

I apologize again for having been late on this, because the committee was pretty well scattered.

The CHAIRMAN. We had closed the hearings, but I appreciate the fact that you represent very substantial interests, and we wanted to get the benefit of your views and experience.

Mr. BUTTENWIESER. Thank you very much for permitting me to make known our views.

If there are any other questions, I shall be glad to answer them, or I shall be glad to go over this new print and submit a second memorandum.

Senator LODGE. Will Mr. Buttenweiser have further opportunity to appear before the committee, after he has read the new print?

The CHAIRMAN. Can you not transmit in writing your views, if they are modified as a result of the new print?

Mr. BUTTENWIESER. Yes.

The CHAIRMAN. You can understand that if we continue these hearings indefinitely, we will never get to the point of actual consideration. We have had 4 days of hearings.

Senator BARKLEY. More than that.

Mr. BUTTENWIESER. I can well appreciate that; and, from previous experience before this same committee, I know it gets warm down here. The CHAIRMAN. We have gone over it pretty thoroughly.

Senator BARKLEY. I hope Mr. Buttenweiser can send a brief memorandum to the committee if he finds any occasion, in the new print, to modify his views. I think he will find it.

Mr. BUTTENWIESER. I hope so.

I assume you have no objection, Senator Barkley, or Senator Lodge, to our submitting suggestions over and beyond that, if we think the points we raise are not adequately covered in your reprint?

Senator BARKLEY. We would like to have these hearings printed as soon as possible, so that members of the committee can have them available to study. This is a very technical bill, as you know, and it takes a considerable amount of study to get into the meat of it. I would not like to have the hearings delayed.

The CHAIRMAN. You are the last witness who has asked to be heard on this proposition, who represents any substantial interest, so that I think we are in a position where we can close the hearings now.

However, I should like to have you read over that committee print No. 3 today, and, if you have any modification of your views, or other views you want to present, send us a memorandum.

Mr. BUTTENWIESER. Very well. We can send it to you by tomorrow, or Thursday at the latest.

Senator LODGE. May I ask one more question? Is it your opinion that this bill would tend to decrease the amount of business that is now being done in the way of financing, and so forth? Would it have a restrictive effect on the total volume?

Mr. BUTTENWIESER. It might, very conceivably. It could have that effect, from quite another viewpoint, not merely investment banking. I can conceive of it having a very substantial effect, through its restrictions, in smaller communities, where it might be

very difficult to meet the various conflicts of interest which have been enunciated in this bill, but which we have not considered particularly, because we know the American Bankers Association has considered them.

Senator BARKLEY. As a matter of fact, if there is any real need for the issue of these debentures for the financing or refinancing of any concern, and the public can more easily obtain information and facts, and understand what they are, would not that tend to greater confidence, and increase rather than restrict the amount of money that might be invested?

Mr. BUTTENWIESER. Senator Barkley, any bill which has as its fundamental concept the greater publicity of all the terms of an indenture or security is a bill which has our wholehearted support. We ardently will champion any bill or any type of legislation which will provide for greater publicity to the investing public, so that the man who buys will know what he is receiving.

Our point is that we think it is unwise and unsound to delegate to any governmental organization the right or power to fix the substantive provisions of any indenture or of any security.

Senator BARKLEY. You do not think Congress could do that? It has to be delegated to somebody, or not exercised at all, because it would be impossible for Congress to sit around the table and help write up every indenture, and fix its terms. If there is any regulation at all of the contents of these indentures, it must be done by somebody to whom the authority is delegated.

Mr. BUTTENWIESER. That is perfectly true; but our point is that we feel that Congress is going as far as it would want to go or should go if it delegates to an organization like the Securities and Exchange Commission, which is eminently qualified to do that, the duty of seeing that the terms that have been agreed upon are adequately portrayed to the investing public; in other words, that there are no jokers in it, and that what the buyer thinks he is getting he is actually purchasing. That is why we feel that the Securities Act has been very beneficial.

The CHAIRMAN. You mean it ought to be limited to approval or disapproval?

Mr. BUTTENWIESER. It ought to be limited, we think, Senator Wagner, to an adequate description of the terms which have been agreed upon between the initial purchaser and the initial seller.

Senator BARKLEY. There is a difference between the nature of these securities and the ordinary stocks issued by corporations to get more money. Here you have the question of the trustee involved, where he or it may have conflicting interests. One of the objects of this bill is to make it the primary duty of the trustee to look after the investors whom he represents. You do not have that same situation in the ordinary issue of stocks, where all that is necessary is for the investor to know the condition of the company or its resources, and all those things. But there may be hidden clauses in one of these long indentures that form a loophole by which the trustee may escape the performance of his real duty or, if there is any conflict between the investor and somebody else, he may have to choose which one he will serve. Mr. BUTTENWIESER. We are wholeheartedly in accord with that, and you will notice that our memorandum did not touch on any of that, Senator Barkley, because we have not the slightest quarrel with that.

The CHAIRMAN. Thank you very much.