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information before we act, and it suggested that the administrative authority be given considerable powers over short selling with a right to suspend short selling for a limited period of time in conjunction with the Governor of the Federal Reserve System.
The bill proceeds upon the theory of regarding short selling, generally, as a device capable of manipulating prices, but it does not ban it. It says it shall be exercised according to such regulations as the Commission itself may prescribe.
With reference to the reports to be made by the issuer as a condition of licensing and as a condition of not being delicensed, the Roper report is somewhat more specific than the bill is, and, in some minor details, I think there are differences there.
For example, the Roper report only calls for quarterly statements. The bill, as is set forth in section 12, calls for certain monthly reportsnot a complete income statement for the month, but a monthly report, which will set forth gross sales or gross income.
The Roper report again calls for the stock exchange to adopt regulations with reference to publicity and customers' men. The bill does not deal specifically with that problem. It does make unlawful dissemination of tips, of false rumors or the dissemination of inaccurate information, but it puts no specific regulation on the conduct of customers' men.
Finally-no, there are two other matters that deserve consideration. The Roper report calls attention to the question of segregation as between brokers, retailers, underwriters. Those three functions are now very frequently exercised by the same firm. And it says that segregation of that type has much to commend it in principle. It says it does not know what the functional consequences of enforcing that type of segregation will be.
The bill provides for segregation. It allows no merchandiser to be a member of the exchange. It limits the exchange activities to brokers, and brokers alone.
The Roper report again calls for examination of the books of the members of the exchange by the administrative authority.
The bill does the same thing in that respect.
Then, finally, the Roper report concludes by saying that something ought to be done about regulating over-the-counter transactions, but , it has not yet thought out an effective way of regulation.
I think section 14 of the bill tells the Commission to think out an effective way of regulating “over-the-counter” transactions.
One feature of the Roper report that runs all of the way through it, I which should be kept in mind, in differentiating between that report and the bill, is that the report avowedly calls for more reliance upon the governing committees of the exchange than the bill does. The report is built upon the theory of trying to get as much self-regulation as is possible out of the exchanges, permitting the administrative | authorities to come in on occasions when that self-regulation fails.
The bill, on the other hand, permits this intervention with greater sease. It makes matters crimes which are not asked to be made crimes under the Roper report, and it furthermore gives a direct power of suspension over members of the exchange, which the Roper report does not give except in emergencies. The device of the Roper report I was not to license the members of the exchange, but simply to license the exchanges, and if the exchanges did not behave, then a reserve power to license the brokers and members of the exchange could be invoked. Then, of course, in the exercise of that reserve power in case of misconduct by the member, the exchange could be a party. Mr. MERRITT. Mr. Chairman, may I interrupt? The CHAIRMAN. Mr. Merritt.
Mr. MERRITT. Would you care to express your opinion as to which is the better course, the course recommended by the report, or by the bill?
Commissioner LANDIS. Well, I should say, it is very hard for me to express an opinion one way or the other. I think the desirable thing, of course, is to get as much self regulation as possible and at the same time preserve the public interest.
Now, that balance has been differently achieved in the bill than it has been in the Roper report. The balance which was achieved in the Roper report, was the result of what might be called the lowest common denominator of five men there.
Mr. MERRITT. You would not care to say whether you think that the bill has gone a little too far in the way of regulation?
Commissioner LANDIS. I am not sure that I really have an opinion on that, Mr. Merritt. I think it is a very hard thing to be sure you are right or wrong on a matter of that type.
I hope that this committee will have before it some evidence upon the effectiveness of the stock-exchange committees to control their own affairs, and in the light of that evidence reach even a better conclusion than was possible by the members of the Roper report or those who drafted the bill.
Mr. MERRITT. Are you prepared to say that your views are that as much local government shall be given to the stock-exchange committees as is safe?
Commissioner LANDIS. I think that is right. I think that I-I mean, that would be the way in which I would think about the problem.
Mr. WADSWORTH. Commissioner, if you care to do so, can you give us information as to the origin of this bill? I mean, who cooperated in its preparation?
Commissioner LANDIS. A great many men. I do not believe that I could name all of them. I think that I could give you the names of some of them if you choose
Mr. WaDSWORTH. Any of the members of the Federal Trade Commission or its staff?
Commissioner LANDIS. One member of the Federal Trade Commission and its staff; yes. No; two members were detailed on occasions to help, collaborate, and that was done.
Mr. WADSWORTH. Does it represent the opinion of the Federal Trade Commission? Has it the backing of the Federal Trade Commission?
Commissioner LANDIS. Yes, I think so.
Commissioner LANDIS. Yes; I think so. I do not mean by that to intimate that every provision in the bill has the backing of the Federal Trade Commission. I do not believe I can say that. The provisions of the bill itself have not-every provision has not been weighed by the members of the Federal Trade Commission, individually, and they have not reached a judgment.
Mr. WADSWORTH. Can you say if it has the support of the Federal Trade Commission as introduced ?
Commissioner LANDIS. Has what?
Mr. WADSWORTH. The support of the Federal Trade Commission and the Roper committee?
Commissioner LANDIS. I would not say that; but I think it would be doubtful if any member of the Roper committee, although they differ as to details, would not accept it in general.
Mr. WADSWORTH. I am not speaking of the general principles. I had in mind especially the discrepancy between the recommendations in the Roper committee and the actual provisions of the bill.
Commissioner LANDIS. Well, I am sure that some members of that committee would think their conclusions there were better than the conclusions that were arrived at in the bill, and some might not
Mr. WADSWORTH. May I ask about section 2? It is not important, really
Commissioner LANDIS. Yes.
Mr. WaDSWORTH (continuing): As a part of the solution of this problem, but do you regard section 2 as a proper enactment?
Commissioner LANDIS. I would, Mr. Wadsworth. I do that largely on the basis of the importance that section 3 was in the disposition of the constitutionality of the Grain Futures Act.
Mr. Wadsworth, Section 2 really is an argument?
Commissioner LANDIS. Section 2 is an argument, and section 3 of that act, from which this is quite clearly drawn, with such modifications as make it applicable to the securities exchanges was relied on, so much, by Mr. Chief Justice Taft in deciding that that act was constitutional. In other words, he said that section represents certain judgments of fact by Congress and “We are not going to question those judgments of fact."
If you would like me, I think I can turn to the particular provisions of the opinion that are set forth.
Mr. WADSWORTH. I think that I shall not ask you to do that. That is not what I had in mind. This section is an argument and arguments are generally contained in the report of the committee.
Commissioner LANDIS. Yes. That is perfectly true.
Mr. WADSWORTH. And my information is that courts in passing upon the validity of an act of Congress take cognizance of the arguments presented in the committee reports.
Commissioner LANDIS. They do.
Mr. Wadsworth. Which is just about as effective as putting the argument into the law.
Commissioner LANDIS. It is a question of degree.
Mr. WADSWORTH. My question may be directed from the standpoint of a legislator. I do not like to see speeches put in the statutes of the United States.
Commissioner Landis. Now, if you will let me illustrate your point, by taking the difference between the Grain Futures Act and the Packers and the Stockyards Act (the Packers and Stockyards Act did not really have a long speech of this type). The court, in dealing with the Packers Act and the Stockyards Act, which involved very much
the same type of problem went back and quoted at length from reports not only of House committees but also from a report of the Federal Trade Commission which preceded it, and even reports of other groups, in order to bring out the factual conclusions, that in section 3 of the Grain Futures Act, were written right in the legislation itself.
It is a question of technique that is involved there. It is pretty hard to say one way is better than another. Perhaps it is a little stronger to write it into the bill rather than into a report. Sometimes, people do not see the reports.
Mr. WADSWORTH. Courts generally do.
Commissioner LANDIS. Well, sometimes they neglect them. I am sure that I have been very regretful, in connection with legal proposals as a whole, because the court did not go back to the reports and really get at the intent of Congress, rather than mouthing about the intent of the Congress.
The CHAIRMAN. Are you through, Mr. Wadsworth?
Mr. HUDDLESTON. May I ask you to return to the constitutional aspect of the bill.
Commissioner LANDIS. Yes.
Mr. HUDDLESTON. You have defended it on the ground that an exchange is a throat
Commissioner LANDIS. Yes.
Mr. HUDDLESTON. Now, may I ask whether, assuming a case in which there was no interstate commerce flowing through this throat there would be power in Congress to regulate it?
Commissioner LANDIS. You would have to argue a lot harder for that case.
Mr. HUDDLESTON. I beg your pardon.
Commissioner LANDIS. I say, you would have to argue a lot harder for that case; but I think this is true, that as exchanges are organized today, interstate and intrastate commerce of that type is so inextricably intertwined that in order to effectively control the interstate commerce, Congress would allow you to go ahead and control what might be intrastate commerce, just in the way in which Congress did in handling the problem of interstate commerce under section 15a of the Interstate Commerce Act, the recapture clause there, which applied also to revenues derived from intrastate rates as well as interstate rates. There Congress said that they were so tied up.
Mr. HUDDLESTON. Your answer deals with a situation as is? Commissioner Landis. Yes. Mr. HUDDLESTON. A concrete case. Commissioner LANDIS. Yes. Mr. HUDDLESTON. Instead of an abstract case. Commissioner LANDIS. Yes. Mr. HUDDLESTON. Now, if we may assume that the commerce which is flowing through the exchange is purely intrastate, would there be power in Congress to regulate it then?
Commissioner LANDIS. I think the power then would have to be based upon such conditions as possibly underlie the National Indus
trial Recovery Act, which as you know, has not yet been tested, namely that the securities exchanges are so intimately related to consumer credit that regulation of that is necessary in order to fostre and maintain buying power over the country at large. It would have to follow some argument of that type.
I just took the easiest argument, namely, the argument that there is interstate commerce in the handling of these securities.
Mr. HUDDLESTON. Undoubtedly there are transactions on every exchange in which citizens of a State other than the one in which the exchange is situated are not involved.
Commissioner LANDIS. Yes.
Mr. HUDDLESTON. And as to those particular transactions, assuming that they are not intertwined or comingled with interstate transactions, what power has Congress over that?
Commissioner LANDIS. It would have to rely upon such power as I suggested there; namely, I do not believe myself, that the mere fact that securities are dealt in on the exchange are securities of companies who ship goods in interstate commerce, is in itself sufficient to give the power or the right to Congress to regulate transactions in those securities. I have my doubts on that.
Mr. HUDDLESTON. I was coming to that question.
Now, we have in the Interstate Commerce Act, provisions for the regulation of securities of interstate railroads, and that is a regulation of interstate commerce.
Commissioner LANDIS. Yes.
Mr. HUDDLESTON. And, do you think that that is proper? Would you be able to differentiate between the regulation of the securities of concerns engaged in intrastate commerce and those which were not so engaged? Has Congress had power to regulate the securities of concerns engaged in interstate commerce, which it would not have over the other concerns?
Commissioner LANDIS. It might be argued, but I do not think so myself. I never thought that connection was quite close enough.
Mr. Huddleston. Now, this bill is not addressed, as I get it, to that aspect.
Commissioner Landis. No.
Mr. HUDDLESTON. It does not assume any power in Congress to regulate the securities of concerns engaged in interstate commerce because of that fact.
Commissioner LANDIS. It does not rest on that.
Mr. HUDDLESTON. And, I wonder whether or not it would not add something to the strength of its constitutionality to include that aspect. If Congress has power to regulate the securities of interstate railroads, it has the power to regulate the securities of other concerns engaged in interstate commerce; would you not say so?
Commissioner LANDIS. Well, I do not think that necessarily follows. Mr. HUDDLESTON. Why not? Commissioner LANDIS. Because obviously Congress's powers over interstate carriers is much larger than Congress's power over manufacturing concerns who ship their goods in interstate commerce.
We may take, for example, the illustration shown by the childlabor cases. In the child-labor cases, there the Supreme Court said to Congress, “You cannot regulate wage conditions or labor conditions in industry, which ship their goods in interstate commerce."