Mr. WHITNEY. Well, I will be delighted to try to go into that and advise you sir in detail; but I am trying to give you my impressions of the reactions I have to the entire provisions in that regard of the bill.

The reaction I get as to my personal responsibilities, or what my responsibilities and that of the other governors would be under this bill as now written, are as I have stated.

Mr. LEA. Of course, as a member of this committee, I recognize the necessity, the benefit, and the legitimate purpose of the exchanges, and I do not want to interfere or injure any legitimate functions of the exchanges; but, on the other hand, recognizing what I believe to be evils, we need all of the help we can get from you, who are familiar, with the operation of the exchanges, with what those evils are, and any suggestions you can give as to how they might be remedied in a regulatory measure.

Mr. WHITNEY. And I assure you, sir, that we stand ready, with everything we have, and at your command to give such cooperation. Mr. LEA. Do you have in mind any particular suggestions as to what might be done through a regulatory provision to guarantee or produce more stability in stock prices?

Mr. WHITNEY. No, sir; frankly, I have not. That is a mighty hard question.

Mr. LEA. This extreme fluctuation, I presume, you would regard as undesirable from the standpoint of business stability in the country, would you not?

Mr. WHITNEY. Yes, sir; from every point of view; but how we can control or influence the minds of men who make up the supply and demand in the market, I just do not know.

Mr. CROSSER. Mr. Chairman

The CHAIRMAN. Mr. Crosser.

Mr. CROSSER. You may have answered this while I was out answering the roll call of the House. If you have, I will not insist further. But, you made some reference as to what happened in 1929. Mr. WHITNEY. Yes, sir.

Mr. CROSSER. Do you think that the stock exchanges as institutions, or the membership had anything of a definite nature to do with that situation, and if so, what?

Mr. WHITNEY. Why, there is no question but that the stock exchanges and every other agency I know of, from the Government down, had a part in the 1929 conditions. I think that the country as a whole lost its head and I certainly believe that on the stock exchange were reflected prices showing that losing of the head, and I believe that if the control of credit had been exercised at that time instead of loosening it to a tremendous extent, as I have just said to Mr. Pettengill, I think it could have been stopped, but, I truly do not know I wish I did-how the exchange itself can stop other unwarranted rising of prices or unwarranted depressions in prices. That lies in the hands of the people of this country.

Mr. KENNEY. Mr. Chairman

The CHAIRMAN. Mr. Kenney.

Mr. KENNEY. In referring to the excessive speculative prices, did you mean that the little fellows throughout the country went into the market?

Mr. WHITNEY. I think that the little fellows throughout the country, sir, not only went into the market, but went into real estate; they went into everything.

Mr. KENNEY. Did they not go into the stock market to an inordinate degree in your opinion?

Mr. WHITNEY. I think that would be true.

Mr. KENNEY. And, of course, that had the effect of unstabilizing the market?

Mr. WHITNEY. Yes, sir.

Mr. KENNEY. Do you think you could get along without the little fellow in your operations in the stock market?

Mr. WHITNEY. I think it might be possible. We would like to see a lot of little fellows, so called, out of the market; but, may I say this

Mr. KENNEY (interposing). If you could divert the little fellow from the market, would there be any objection on your part?

Mr. WHITNEY. That was what I was going to try to say.

Mr. KENNEY. I would like to have an answer to that, "yes" or "no." Mr. WHITNEY. I do not think that is quite fair. I will

Mr. KENNEY (interposing). I want to be fair, and you may be just as bold as you want with me.

Mr. WHITNEY. May I answer that I would like to see what I interpret to be your terminology of the little fellow not in the market. Mr. KENNEY. Yes.

Mr. WHITNEY. But I add, after saying that word "not", it has been the effort of the stock exchange for a period of years to offer facilities to the little fellow so he will not go into a bucket shop, and I think the New York Stock Exchange is more responsible than any other place of trying, through an organized market, to give the small man a place to buy and sell securities in less than 100-share lots. The bucket shop is growing up again, and if it is deemed wise to put the so-called little fellow in the clutches of the bucket shops, we think that is going to be detrimental to him, but I do think that he should not probably speculate at all.

Mr. KENNEY. Well, you cannot prevent him from speculating, can you?

Mr. WHITNEY. I presume it could be prevented, so far as stocks are concerned; yes, sir.

Mr. KENNEY. And, if that is done, of course, what you have just said would probably be true that he would be inclined to go to the bucket shops or some other form of speculation or gambling.

Mr. WHITNEY. Yes, sir.

Mr. KENNEY. Are you familiar with the Roper committee's report? Mr. WHITNEY. Sir?

Mr. KENNEY. You remember that part which said that it might be well if something new or less harmful could be found to give a legal outlet to the speculative urge or instinct of the great masses. of the people?

Mr. WHITNEY. Yes, sir; I have got it right here. I do not know just where it is. I remember that; yes.

Mr. KENNEY. Now, if the Federal Government should enact a law inaugurating a national lottery, that would not unduly interfere with the usual business of the stock exchanges would it?

Mr. WHITNEY. No, sir.

Mr. KENNEY. And it might take care of the little fellow and keep him out of a lot of trouble.

Mr. WHITNEY. It might.

Mr. MARLAND. Mr. Chairman

The CHAIRMAN. Mr. Marland.

Mr. MARLAND. Mr. Whitney, if I have understood you correctly today, you do not object to reasonable Federal control over the rules of the exchanges, and reasonable supervision over the operation of those rules, speaking as a member of the exchange and board of governors, and not speaking as president of the exchange, you do not object to reasonable Federal control over the rules of the exchange? Mr. WHITNEY. I do not believe that Federal control and regulation of the exchanges, except when it is very reasonable, and understood, would be wise. If I can have my definition of what is reasonable, then I agree with you; but not as under this bill, sir.

Mr. MARLAND. Would not it be reasonable legislation to enlarge the authority of the board of governors in connection with the issuance of rules and regulations governing the conduct of members; would that not be reasonable?

Mr. WHITNEY. In what regard, sir? I do not quite understand the thought?

Mr. MARLAND. There appears to be inability on the part of the board of governors to control the activities of the members of the exchange, mainly due to existing law.

Mr. WHITNEY. Well, if that is so, I am deeply regretful. I would say that insofar as its members are concenred, the members of the exchange, and their activities are concerned, they are pretty well controlled insofar as any human agency is.

We are going to be a human agency, whether we have Federal Government or State government control, and I am just wondering whether such control can possibly be as intimate and have as much knowledge of what the members are doing as those who are working beside them day by day, and know the intricacies and the delicacies, and the technicalities of the business.

Mr. MARLAND. Would it not be proper for some Federal authority to say whether the rules of the New York Stock Exchange are reasonable or are not?

Mr. WHITNEY. We would be glad to have advice in that regard, but I do not think I quite follow you.

Mr. MARLAND. Would you not be willing to give the Federal Government authority to say whether your rules are reasonable or not?

Mr. WHITNEY. Under certain conditions; yes. Again referring to whether that authority was reasonable or not. As I have told you, I have some suggestions in that general regard which I wish to present later.

Mr. MARLAND. That is all.

The CHAIRMAN. Proceed, Mr. Whitney.

Mr. WHITNEY. I have some suggestions.

The CHAIRMAN. How many are there of those suggestions?

Mr. MARLAND. I beg your pardon.

The CHAIRMAN. There are not many of those suggestions that will

come out of this proposal?

Mr. WHITNEY. I beg your pardon.

The CHAIRMAN. I say, not many suggestions that you are proposing will come of the proposal we have on our desks, this bill? Mr. WHITNEY. How many are?

The CHAIRMAN. No; I did not ask you that. I said that there would not be many of your suggestions that would be taken from this bill that you are discussing.

Mr. WHITNEY. It is on a different basis, Mr. Chairman. There are a good many of certain phases and definitions in the bill that we do endorse quite heartily.

We were at subdivision (f), which deals with the lending of customer's securities without consent, makes effective another ruling of the New York Stock Exchange. The final part of this paragraph, however, provides that the account of the customers whose securities are loaned must be credited with "the interest received on account of such lending". This provision, quite frankly, is meaningless. The lender of securities does not receive interest but pays interest. Mr. MAPES. May I ask a question?

The CHAIRMAN. Yes, Mr. Mapes.

Mr. MAPES. Is it the practice of brokers to require the customers to sign a statement consenting to the loaning of their securities? Mr. WHITNEY. It is customary for brokers to ask their customers to sign; yes, sir.

Mr. MAPES. So that if they do sign, as I suppose most of them do, this provision here is of no effect, insofar as changing present practices of the exchange is concerned?

Mr. WHITNEY. That is the same as subdivision (e); yes; but subdivision (f) requires the giving of the interest received by the lender of the securities. He does not receive interest. He pays interest. It is only when stocks are lending at a premium that the lender of securities receives any direct compensation for the loan. It has frequently been urged that brokers should account to their customers for any premiums so received but the practical difficulties of doing so are almost insuperable. If the committee is interested in this subject, I can readily give them an example of how impossible it is for a broker who receives a premium on a loan of stock to apportion it among the persons who might theoretically be entitled to a part of it.

Section 8 of the bill deals with certain prohibitions against the manipulation of security prices. Subdivision (a) contains nine specific subsections which I will refer to as briefly as possible.

The first prohibits fictitious transactions which, of course, include "wash" sales. That is already the penal law of the State of New York and is, likewise, prohibited by the rules of the New York Stock Exchange.

Mr. PETTENGILL. If I may interrupt you there, please. You say section 8 (a) (1) is covered by the penal laws of the State of New York, or your own rules?

Mr. WHITNEY. Yes, sir.

Mr. PETTENGILL. Is it covered by the penal laws or by rules of various other exchanges all over the United States?

Mr. WHITNEY. I cannot speak as to the other exchanges. It is not covered in all of the law statutes of all of the States.

Mr. PETTENGILL. Well, then to the extent that it may not be covered in the penal statutes, in States where there are other stock exchanges, this might be a good thing?

Mr. WHITNEY. Absolutely.

Mr. COOPER. Mr. Chairman, may I ask what the procedure for the rest of the afternoon is?

The CHAIRMAN. I am hoping to adjourn about a quarter to 5.

Mr. COOPER. I am very much interested in that part of this bill which provides for registration requirements of securities, which affects the general public and industries and business, and I am wondering if Mr. Whitney will have a chance tomorrow to explain that?

The CHAIRMAN. I think that we will have to go on with Mr. Whitney tomorrow morning for awhile.

Mr. COOPER. I was wondering if he would be here tomorrow. Will you, Mr. Whitney?

Mr. WHITNEY. Oh, sir, I am at your disposal as long as you want

Mr. WHITNEY. Subsection 2 prohibits the purchase and sale on an exchange of a listed security at substantially the same time and substantially the same price, unless the transaction is made only as a matter of record and is reported in a specified manner. It is not quite clear whether this section is intended to prohibit more than "matched orders", which, in effect, are a form of fictitious transaction whereby two or more persons, by prearrangement, enter orders at about the same time to buy and sell a certain security with the intention or design that these orders will meet and be executed one against the other. This practice we consider is a violation of our rule prohibiting transactions which do not involve a real change of ownership. If, on the other hand, this section is given a broader interpretation and will operate to prevent a man in the course of a single day buying and selling the same security at about the same price, it will prevent perfectly legitimate and honest transactions. Many purchases are made with the idea of selling again as soon as market conditions change and it frequently happens that in the course of a single day a man who has bought in the morning may deem it advisable to sell in the afternoon. There is no good reason why he should not do so.

Subsection 3 deals with transactions made for the purpose of raising or depressing the price of securities or for the purpose of creating a false or misleading appearance of activity. I think we will all agree that such practices should be forbidden when they involve an intentional effort to unfairly influence the price of securities for the purpose of making a profit. The rule adopted by the New York Stock Exchange on February 13 not only forbids members from participating in transactions of this kind but, likewise, prevents them from either managing or financing such activities for others.

Subsection 4 deals with the dissemination of rumors as a means of stimulating market activity. Such acts are already prohibited by the rules of the exchange.

Subsection 5 seems to prohibit false or misleading statements, but the definition is so general that it is difficult if not impossible to say what statements would fall within the scope of this prohibition. We all agree, I am sure, that the dissemination of false information to induce the purchase or sale of securities is fraudulent The difficulty