Mr. CORCORAN. Because there are plenty of men doing a dealers' business, without being members of the exchange, from whom his customers could buy.

Mr. MERRITT. They could not buy to so much of an advantage, of course. That is to say, the net cost to the man who is a member of the exchange is less than if he were not a member of the exchange. Mr. CORCORAN. I have a suggestion to meet this temporary situation that you are talking about. I will come to that in just 1 minute. Mr. MERRITT. That is what I was going to ask, if you have anything to say on that.

Mr. CORCORAN. Yes; I will in just 1 minute. What you are up against is a practical situation. You are going to have letters such as that which Mr. Merritt read, and you are going to have very good and honorable houses coming down from New York, and from all over the country, saying, "We agree with you in principle, but practically, we are in a jam.'

If you have to make some adjustment to that temporary situation, you might say that this provision will not come into effect until 1, or 2, or 3 years after the rest of the act goes into effect, in order to give houses organized on a combination basis an opportunity to reorganize their business to see if they cannot operate on this segregated basis with each kind of business commission, dealers' and underwriters', standing on its own bottom. The underwriting business has been a very, very profitable business, but, like all very profitable businesses, it is a feast-or-famine business, and right now it happens be going through a period of famine. You might say: "No dealer or underwriter can be a member of the exchange, but anyone who has been a dealer or underwriter and is a member of the exchange will be permitted by the rules of the exchange to enter into an arrangement whereby he will not pay the full commission when orders are executed for him through members who are on the exchange." What bond dealers are worrying about is that they will have to pay full brokerage commissions on their purchases.

That is, there might be an arrangement whereby, during a transition period, while this segregation is going into effect, the exchanges whose rules now provide that commissions cannot be split, might permit their members to split commissions on a very favorable basis with bond dealers, who would step off of the Exchange during the period while they are trying to work out the transition, and decide whether they want to be brokers or dealers.

Mr. MERRITT. May I interrupt you for a moment?

Mr. CORCORAN. Yes.

Mr. MERRITT. Do you think that this is a practical suggestion? I think I read it before:

I wonder if the proposed law cannot be so drawn that a distinction is made between bond dealers doing only a cash business in investment securities on a dealer and brokerage basis, and stock brokers doing a margin business on the exchange.

Mr. CORCORAN. I have heard that suggestion from the bond dealers before, and I will confess that I personally have not thought it out, all the way through. Of course, the difficulty with bonds is that there are all kinds of gradations, from bonds down through convertible bonds, down through stocks.

Mr. MERRITT. Yes,

Mr. CORCORAN. It might prove feasible, after thinking through the difference between a bond dealer, and a stock broker, to treat the bond dealer differently, particularly the dealer in the very high grade bonds. That differentiation is something to be thought out. I would not say "yes" or "no" to it now.

Mr. MERRITT (interposing). It occurred to me, at least, a situation of that sort might in some way under the law be left to the discretion of the governors of the exchange, under certain general rules. Mr. CORCORAN. Well, I do not know.

Mr. MERRITT. I think you would say, of course, the governors of the Stock Exchange in New York are honest men; do not want to have any unfair practices; would you not?

Mr. CORCORAN. I certainly say that I think so; but I say that sometimes perfectly honest men differ on the appreciation of values.

Mr. MERRITT. Do you not think also that reformers are sometimes like a dog following the deer? They want to get the deer, anyhow? Mr. CORCORAN. That is true. That is why I am putting the other side of segregation to you today, so that you will not think I am trying to get the deer. So that you might say to combination brokers and dealers "You cannot stay on the exchange unless you want to be a broker on the exchange, execute orders for other men as a broker and have no other interests, but during the interim period, although exchanges now generally forbid splitting of the commissions, exchanges may permit you dealers and underwriters special favorable rates of commissions from the brokers through whom you will have to operate off the exchange."

A second requirement should be that broker-dealer-underwriters off the exchange should have to segregate the capital that goes into commission business from that employed in the others, so that their accounts with their brokerage customers will not be imperiled by their own operations taking positions in securities.

A third safeguard should require that these combination brokerdealers disclose to their customers in what capacity they were operating in each transaction. Suppose a dealer who also acts as a broker receives an order from you to buy a certain stock. He may either buy is for you as a broker on the exchange or he may have it on his shelf as dealer's merchandise and pass it on to you as a merchant.

In many cases where the dealers have had securities of the kind ordered on their shelves, they have taken them off the shelves but charged the customer a brokerage commission, which they had never actually incurred.

Therefore the third safeguard should be that on all confirmations which a broker-dealer sends out he disclose to his customer whether he had sold the shares to the customer as a dealer or whether he executed an order for the customer as a broker and itemize the entries and the commissions on the confirmation slip. That brings us to the problem of the specialist.

Mr. MARLAND. Mr. Chairman, may I ask a question?

The CHAIRMAN. Mr. Marland.

Mr. MARLAND. Before the witness passes the point, I want to ask him this: Mr. Corcoran, has the New York Stock Exchange ever attempted to determine what percentage of the number of shares

Mr. CORCORAN. Because there are plenty of men doing a dealers' business, without being members of the exchange, from whom his customers could buy.

Mr. MERRITT. They could not buy to so much of an advantage, of course. That is to say, the net cost to the man who is a member of the exchange is less than if he were not a member of the exchange. Mr. CORCORAN. I have a suggestion to meet this temporary situation that you are talking about. I will come to that in just 1 minute. Mr. MERRITT. That is what I was going to ask, if you have anything to say on that.

Mr. CORCORAN. Yes; I will in just 1 minute.

What you are up against is a practical situation. You are going to have letters such as that which Mr. Merritt read, and you are going to have very good and honorable houses coming down from New York, and from all over the country, saying, "We agree with you in principle, but practically, we are in a jam.'

If you have to make some adjustment to that temporary situation, you might say that this provision will not come into effect until 1, or 2, or 3 years after the rest of the act goes into effect, in order to give houses organized on a combination basis an opportunity to reorganize their business to see if they cannot operate on this segregated basis with each kind of business commission, dealers' and underwriters', standing on its own bottom. The underwriting business has been a very, very profitable business, but, like all very profitable businesses, it is a feast-or-famine business, and right now it happens be going through a period of famine. You might say: "No dealer or underwriter can be a member of the exchange, but anyone who has been a dealer or underwriter and is a member of the exchange will be permitted by the rules of the exchange to enter into an arrangement whereby he will not pay the full commission when orders are executed for him through members who are on the exchange." What bond dealers are worrying about is that they will have to pay full brokerage commissions on their purchases.

That is, there might be an arrangement whereby, during a transition period, while this segregation is going into effect, the exchanges whose rules now provide that commissions cannot be split, might permit their members to split commissions on a very favorable basis with bond dealers, who would step off of the Exchange during the period while they are trying to work out the transition, and decide whether they want to be brokers or dealers.

Mr. MERRITT. May I interrupt you for a moment?

Mr. CORCORAN. Yes.

Mr. MERRITT. Do you think that this is a practical suggestion? I think I read it before:

I wonder if the proposed law cannot be so drawn that a distinction is made between bond dealers doing only a cash business in investment securities on a dealer and brokerage basis, and stock brokers doing a margin business on the exchange.

Mr. CORCORAN. I have heard that suggestion from the bond dealers before, and I will confess that I personally have not thought it out, all the way through. Of course, the difficulty with bonds is that there are all kinds of gradations, from bonds down through convertible bonds, down through stocks.

Mr. MERRITT. Yes.

Mr. CORCORAN. It might prove feasible, after thinking through the difference between a bond dealer, and a stock broker, to treat the bond dealer differently, particularly the dealer in the very high grade bonds. That differentiation is something to be thought out. I would not say "yes" or "no" to it now.

Mr. MERRITT (interposing). It occurred to me, at least, a situation of that sort might in some way under the law be left to the discretion. of the governors of the exchange, under certain general rules. Mr. CORCORAN. Well, I do not know.

Mr. MERRITT. I think you would say, of course, the governors of the Stock Exchange in New York are honest men; do not want to have any unfair practices; would you not?

Mr. CORCORAN. I certainly say that I think so; but I say that sometimes perfectly honest men differ on the appreciation of values.

Mr. MERRITT. Do you not think also that reformers are sometimes like a dog following the deer? They want to get the deer, anyhow? Mr. CORCORAN. That is true. That is why I am putting the other side of segregation to you today, so that you will not think I am trying to get the deer. So that you might say to combination brokers and dealers "You cannot stay on the exchange unless you want to be a broker on the exchange, execute orders for other men as a broker and have no other interests, but during the interim period, although exchanges now generally forbid splitting of the commissions, exchanges may permit you dealers and underwriters special favorable rates of commissions from the brokers through whom you will have to operate off the exchange."

A second requirement should be that broker-dealer-underwriters off the exchange should have to segregate the capital that goes into commission business from that employed in the others, so that their accounts with their brokerage customers will not be imperiled by their own operations taking positions in securities.

A third safeguard should require that these combination brokerdealers disclose to their customers in what capacity they were operating in each transaction. Suppose a dealer who also acts as a broker receives an order from you to buy a certain stock. He may either buy is for you as a broker on the exchange or he may have it on his shelf as dealer's merchandise and pass it on to you as a merchant.

In many cases where the dealers have had securities of the kind ordered on their shelves, they have taken them off the shelves but charged the customer a brokerage commission, which they had never actually incurred.

Therefore the third safeguard should be that on all confirmations which a broker-dealer sends out he disclose to his customer whether he had sold the shares to the customer as a dealer or whether he executed an order for the customer as a broker and itemize the entries and the commissions on the confirmation slip. That brings us to the problem of the specialist.

Mr. MARLAND. Mr. Chairman, may I ask a question?

The CHAIRMAN. Mr. Marland.

Mr. MARLAND. Before the witness passes the point, I want to ask him this: Mr. Corcoran, has the New York Stock Exchange ever attempted to determine what percentage of the number of shares

traded in on the day were actually purchases by the investing public and what percentage was simply floor trading?

Mr. CORCORAN. I do not know, sir. As I told you, I do not know. Mr. MARLAND. They have never published any such information? Mr. CORCORAN. You may remember that you asked Mr. Thomas that question the other day. Mr. Thomas is as near an export on stock-exchange trading as we have here in Washington and he said he did not know. As I told you the other day, I have heard figures quoted by Mr. John Flynn, of Senator Fletcher's investigating committee, that during last year one half of all of the buying and selling on the exchange was done by floor traders for their own account. I have only Mr. Flynn's authority for that statement. He has made a special study of the floor trader. Whether they are right or wrong, I just do not know.

Mr. MARLAND. Does your experience lead you to believe that the percentage is even greater than that?

Mr. CORCORAN. I just cannot tell, sir.

Mr. MARLAND. On the great days, when 4 or 5 million shares are traded, is it not quite likely, from your own experience, that 75 or 80 percent of that is floor trading and not purchases by the investing public?

Mr. CORCORAN. I have heard it said, sir, but I just do not know. Mr. MARLAND. Well, no one knows. There have been no figures compiled by the stock exchange. The stock exchange has never authorized those, have they?

Mr. CORCORAN. No.

Mr. MARLAND. They have never authorized the compilation of such figures, so that we do not know. When we see a 4,000,000 or 5,000,000 share day, we do not know whether that represents purchases, or purchases on the floor and gambling.

Mr. CORCORAN. Or whether it is floor trading in and out.

Mr. MARLAND. You could ascertain, could you not, for the benefit of the committee, whether the stock exchange has ever compiled or attempted to compile such a statement?

Mr. CORCORAN. We will try to find that out for you, sir. Why do you not ask Mr. Whitney when he comes down here tomorrow? He ought to know that, sir. I should think that he would be able to give you the answer right off hand. I will try to find out for you, sir. Mr. MARLAND. Well, you would know if there had been any such figures compiled.

Mr. CORCORAN. I should think so, because I follow this business pretty closely; but I just do not know.

When we come to the problem of the specialist, I do not think anybody not on the stock exchange disagrees that something has to be done to make the specialist in effect just a clerk who matches orders.

The specialist has always been a special broker who takes care of 1, 2, or 3 stocks. If you send your broker an order at market, he normally executes it himself for you. But if you send in an order at a fixed price, your broker cannot stand around the post waiting for a corresponding order to come in from some other broker wanting to buy or sell at that price, so your broker turns over your order to a so-called "specialist" who keeps a book in which he enters all orders not at market. If you have put in an order to buy at 90, when an