it just for a rise he is a speculator; if he sells short, he is a speculaThis bill certainly does seek to restrict speculation to some extent, I think to a limited extent. It does not allow stock-exchange houses to lend stocks to people who have sold short. In other words, if a man sells 100 shares of stock short he has to deliver them. The rule now permits, and the customer permits him to go to another broker, who is carrying them for you and for me, and get those stocks and borrow them from that broker, and make his delivery; that is what facilitates short selling. This bill seeks to prevent the lending of stocks for that purpose.

Senator WEEKS. The law would prevent a broker loaning his stocks, as a matter of fact?

Mr. UNTERMYER. No; this bill prevents him lending the customer's stock and not his own.

Senator WEEKS. But his customer's stocks are his until they are paid for?

Mr. UNTERMYER. That is not the law with us.

Senator WEEKS. It is the law in Massachusetts.

Mr. UNTERMYER. He has a lien on those stocks.

Senator WEEKS. The Supreme Court of Massachusetts has passed on that question.

Mr. UNTERMYER. I do not understand any court has laid down any such proposition. I should not dispute with you if you were a lawyer.

You being a business man I take issue with you and I will undertake to say that no court has ever held that the pledges of a stockexchange certificate, or any other kind of a certificate, is the owner of it. He is the lender and that is all.

Senator WEEKS. You look up the decision of the Supreme Court of Massachusetts and the law of England and then come and apologize.

Mr. UNTERMYER. No; on the contrary, I would not ask you to apologize to me, because you are not supposed to know the law. Senator WEEKS. Having been in business, I am supposed to keep within the limitations of the law.

Mr. UNTERMYER. Then, you always go and consult a lawyer as diligently as you can, if you are wise.

Senator NELSON. With all due respect, it seems to me your plan is just scotching the snake. It is not killing it.

Mr. UNTERMYER. I have been told it was too drastic. Everybody connected with the stock exchange and the newspapers is denouncing it as too drastic.

Senator NELSON. You do not reach the real difficulty. The real root of the trouble is the listing of worthless stocks on the stock exchange. That gives them credit among the public when you list them on the stock exchange. Every time they list a stock there that is watered and does not represent actual value they are imposing on the public by saying that "We regard this stock as worthy to be listed on the exchange."

Mr. UNTERMYER. I imagine you will reach that by your trade commission and Interstate Commerce Commission control of securities. Senator NELSON. I hope we will reach it somewhere.

Mr. UNTERMYER. I do not think you can reach that through the stock exchange entirely. This bill does not seek to bring about the millennium. It seeks simply to be an advanced step in the journey toward honest conduct in the stock-exchange business.

I want to say this, if I may be pardoned for digressing a moment: There is an opposition to this sort of legislation-a natural opposition on the part of the press. I am going to ask you gentlemen to ignore and set aside that attitude of the press, especially the metropolitan press. I think it ought to be understood what motives may be behind or back of that opposition.

The press has always been very jealous of any extension of the post-office privileges or the use of the post office for even the most legitimate purposes. Fearing that it may at some time reach the point at which libelous matter will not be permitted to go in the mails, or if it does that somebody may be held accountable for it by some sort of legislation on the part of Congress, they assume this attitude of opposition. Whatever may be the purpose that opposition has been very much accentuated since the decision a few months ago by the Supreme Court of the United States in the case of the Lewis Publishing Co. against Morgan, in which you will remember Congress, by a rider on an appropriation bill for the Post Office Department, said something to the effect that no newspapers should be accepted as second-class matter, which means they should not be accepted at all, because that is the only way they could send that newspaper matter through the mails, unless certain conditions are complied with. One thing is that they must state their circulation; another is that they must not send advertisements under the guise of news matter without labeling the matter as an advertisement; and there are a number of other conditions.

Senator NELSON. They must state who are the owners and what their holdings are?

Mr. UNTERMYER. Yes.

Senator NELSON. While you are on that press matter, let me call your attention to another matter. Do they allow newspaper reporters on the stock exchange

Mr. UNTERMYER. No; I think not. I do not think any but members are allowed on the floor of the exchange. Senator NELSON. I mean in the building.

Can newspaper re

porters be there in the gallery and know about the sales?

Mr. UNTERMYER. I imagine they can be in the visitors' gallery. I do not know as to that.

Senator NELSON. They could be there and make a note of the sales and other transactions?

Mr. UNTERMYER. It would not be possible.

Senator HITCHCOCK. If there is any excitement, they describe it. Mr. UNTERMYER. They describe a general excitement, but they could not know the sales.

Senator NELSON. Suppose the newspapers, through their own account, through their own reporters and not through any instrumentality or employee of the stock exchange, printed the stock transactions every day?

Mr. UNTERMYER. That is a physical impossibility.

Senator NELSON. But suppose they did it, how, could you exclude those newspapers from the mails?

Mr. UNTERMYER. I am coming to that in a moment. That is a physical impossibility. You will see that when you understand how the quotations are gathered and how they are distributed.

I was about to say that since this decision in the Lewis case the fear and hostility of the press to any kind of legislation, however legitimate, looking to the freeing of the mails from fraudulent matter and to their use for their legitimate functions in keeping fraudulent matter out of the mails, has become very much more intense, so that while many of them doubtless would like to see the stock exchange regulated, they would not like to see it regulated in the only way in which it can be regulated that is one ground of objection that is undoubtedly made.

Senator HITCHCOCK. Of course, as a newspaper man, I will have to stop you right there. I do not think there is any sentiment at all among the newspapers in the country against the proposed stopping of fraudulent matter being circulated through the mails. There is a very strong prejudice in the legitimate newspaper world against vesting any man, whether he is the Postmaster General or anybody else, with the power to censor the matter which newspapers publish. Mr. UNTERMYER. This does not attempt to censor the matter at all. This bill does not allow him to open a letter or newspaper unless it is addressed to himself. I am coming to that in a moment.

Senator HITCHCOCK. But it does allow him in section 1, where it

says:

Unless such exchange has been incorporated under the laws of the State or Territory in which its business is conducted, or unless the charter and by-laws of such an exchange or the law under which it is organized shall contain regulations and prohibitions satisfactory to the Postmaster General.

In other words, the Postmaster General has got to be satisfied that those things are right; that is, it leaves it purely discretionary with him; and if he is not satisfied the paper can not even publish the news from this exchange.

Mr. UNTERMYER. Let us see what he has to be satisfied about. Somebody has to be satisfied. You have to regulate in some way.

Senator HITCHCOCK. No one wants to establish a censorship such as they have in Russia. We do not want such a censorship in the United States, and the newspapers want to protect the public from it. They are not going to vest in any individual the power of admission or refusal of admission to the public mails.

Mr. UNTERMYER. But they do now. The Postmaster General can issue a fraud order where he believes that any security is being dealt with or any matter is being sent through the mails that has a tendency to deceive the public, and the Supreme Court has affirmed that principle in a number of cases that are rather border-line cases. He can prosecute criminally for sending misleading and fraudulent representations through the mails, and he can stop anything going through the mails that has the semblance or color of fraud.

Senator WEEKS. He has all the legitimate power he should have, and the newspapers do not object to that; but they do not want the Postmaster General intrusted with the power to say what news the papers shall publish. Freedom of the press is absolutely fundamental in this country, and it is not only the newspapers but it is public sentiment that will not permit any one man to have that power.

Mr. UNTERMYER. Senator Hitchcock, there is nothing in this bill that can be regarded, by any stretch of construction, as either a censorship of the press or as abridging the freedom of the press; I would be the last man in the world to have anything to do with any such legislation.

Let us see what the purpose of this bill is and what it does. It is the only possible way, as the Supreme Court said in the Lewis case, of preventing fraudulent matter from going through the mail. Let us see what this bill does. The stock exchange is an integral and important part of the great financial system of this country, as great as any other part of the system-more so, as I have said, than the banks. The quotations of the New York Stock Exchange are taken. by banks all over this country as a basis for loans on securities. Courts of justice in every section of the country figure their damages on the quotations of the New York Stock Exchange. Those quotations constitute evidence of value. The Comptroller of the Currency, in fixing the value of the assets of a bank, fixes that value on the stock-exchange quotations. Superintendents of banks, taxing officials in taxing a man's capital, in attempting to settle an estate, take the stock-exchange quotations. In fixing an inheritance tax the stock-exchange quotations of securities are taken. This is not a thing that affects New York alone. This is an institution which is just as foreign to New York, almost, as if it were in Kamchatka. It is a country-wide institution, impressing its influence upon nearly all the daily transactions of the country. What more important, what more imperative, than the dissemination through the mails of that sort of information should be protected, so that it can not create fictitious values, so that it shall represent the meeting of the minds of the buyer and the seller. How are you going to do it? What is the most legitimate method? What is the title of this bill, to begin with, and does it go one iota beyond the title? The title of the bill is

To prevent the use of the mails and of the telegraph and the telephone in furtherance of fraudulent and harmful transactions on stock exchanges.

It has been said, Why does not the State of New York take care of it? Why does it not insist on incorporating and regulating the exchange? You can not have one rule by which the quotations of the New York Exchange go through the mails and another for the Boston quotations or the Chicago Stock Exchange quotations. You must have some uniform restriction under which these quotations are permitted the use of the mails.

Senator NELSON. Pardon me, Mr. Untermyer-excuse me for asking you questions, for I am asking to clear up this matter in my own mind-assume you have these restrictions about publication. What tribunal or board is to determine the character of these sales? Where is that tribunal that determines whether or not these sales that you call fraudulent are fraudulent? Who is to determine that question? Here are, say, 1,000 sales or 100,000 sales of shares of stock in a day. Mr. UNTERMYER. I will tell you that, Senator Nelson. Senator NELSON. Who is to determine that question?

Mr. UNTERMYER. This bill first defines manipulation, and defines fraudulent transactions of different kinds. To define them and say they are crimes means nothing. That does not enforce their detec

tion. You can not find out when a transaction is manipulated unless you can get at the books of the brokers. When you incorporate the stock exchange and provide that manipulated transactions and fraudulent transactions shall not go through the mails, that is perfectly legitimate.

Senator NELSON. But here-

Mr. UNTERMYER (interrupting). I am coming to your question, Senator Nelson.

The next question is to find some machinery for discovering that. Senator NELSON. That is the point.

Mr. UNTERMYER. Because we merely say they are fraudulent means. nothing. The stock exchange itself has the right to call on every broker, to get his books and look them over. They can tell whether a transaction is manipulated. They do not want the public authorities to have that knowledge or means of securing it. They do not want to give the same facilities to those who are intrusted with the mails as they themselves have. All this bill seeks to do is to require them to incorporate so that the Postmaster General can go in there and find out whether a transaction is fraudulent; and if he can do that, we will have no more fraudulent transactions. It is because he can not get at those books, because nobody can do that except the members themselves of the board of governors of the stock exchange; it is because of that inability to get the evidence that you can not stop these transactions. This bill asks for nothing more or less in that direction than the right, on the part of a responsible officer of the Government, to go to those who are carrying on these transactions, promoting these frauds to deceive the country, and ascertain whether or not they are fraudulent-to get the evidence which is not otherwise obtainable, and without which no law can be made effective.

Senator NELSON. Take the example you gave of what you call wash sales. We will say Senator Weeks is a broker, and he buys, and I am another broker, and I sell, and you are the stock exchange. We are independent of each other; I know nothing about his deal and he knows nothing about mine. Now, do you, as the stock exchange, determine that his buying and my selling are wash sales?

Mr. UNTERMYER. They have no trouble in determining it. The governors can determine it whenever they please. For instance, if you are buying and selling

Senator NELSON (interposing). But I am buying, and Senator Weeks is selling.

Mr. UNTERMYER. If you are buying and he is selling, then that is not a wash sale.

Senator NELSON. But suppose some third gentleman has the stock. Mr. UNTERMYER. A wash sale is when you are buying and selling, both.

Senator NELSON. The same man?

Mr. UNTERMYER. Yes.

Senator NELSON. The same broker?

Mr. UNTERMYER. No; through the same authority.

Senator NELSON. Senator Weeks is one broker and I am another broker. How do you, as a stock exchange, determine that our deals are fraudulent?