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Now, on the other hand, I do think there is a power on the part of Congress to regulate hours and conditions in railroads. It was established in the Wilson Act case, Wilson v. New (243 U.S. 332), that the regulation of hours and wages of railroad employees was within the Congressional power.

Mr. HUDDLESTON. As I understand the Dagenhart case, it was pitched on the ground that the production in that case was not an act of interstate commerce.

Mr. LANDIS. Yes.

Mr. HUDDLESTON. It was not an attempt to deal with an act of interstate commerce.

Now, let us assume that the corporation is engaged in interstate commerce and nothing else. Why does not Congress have the same powers over securities of that corporation as it would have over interstate carriers?

Commissioner LANDIS. Well, I wonder if you do find that situation, where it is engaged in interstate and nothing else.

Mr. HUDDLESTON. You evade me by taking the concrete instead of the abstract. I am trying to assume a situation.

Commissioner LANDIS. I was trying to think of the basis of the distinction that lies between Hammer v. Dagenhart (247 U.S. 251) and Wilson v. New (243 U.S. 332).

With reference to interstate carriers, the Supreme Court has recognized Congress's power to regulate the conditions or what might be called the products of interstate commerce.

But, in Hammer v. Dagenhart, as you pointed out, the Supreme Court was not willing to recognize Congress's control over conditions of production of goods to be moved in interstate commerce.

Mr. HUDDLESTON. Of course, interstate carriers, perform many acts which are not part of interstate commerce.

Commissioner LANDIS. Yes.
Mr. HUDDLESTON. So that incident does not control.
Commissioner LANDIS. No.

Mr. HUDDLESTON. But, I can conceive, as a concrete illustration, of & distributor of goods who does nothing but an interstate business.

Commissioner LANDIS. Yes. Mr. HUDDLESTON. A shipper of goods who does nothing but ship them across State lines, and I would like to know why Congress does pot have the same power over that kind of a concern as it has over interstate carriers.

Commissioner LANDIS. Would you think there that Congress would have the power to regulate the hours that he made his clerks who mail the packages work?

Mr. HUDDLESTON. Not by any means, because the court has decided to the contrary in the Dagenhart case.

Commissioner LANDIS. Yes. Mr. HUDDLESTON. But, when it comes to dealing with securities of that concern, or the legal set-up of that concern, it may be quite a different thing. Just as I do not think that the Congress can regulate an act of an interstate carrier where the act has no relation to interstate commerce. If it is assumed that it is not an act of interstate commerce-not burdensome to interstate commerce-has no bearing upon it-it seems pretty obvious that Congress cannot deal with it.

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Commissioner LANDIS. You see what my fear is. It is the fear of the Dagenhart case.

Now, just how far that is to be carried and will be followed in situations of this nature, I do-perhaps I did not express myself clearly—but, I do seem to see there is a difference in extent of Congressional power over carriers, and people of that type, and over corporations who simply produce goods to move in interstate commerce, and for that reason, you may argue that even though Congress does have power to regulate the securities of common carriers, it does not have that power to regulate the securities of corporations engaged in interstate commerce; but beyond that, the power that is called for here is not a power simply over the issuance of those securities under the Interstate Commerce Act. All Congress has regulated is power with reference to the issuance of securities by railroad companies. It does not and has not regulated trading in those securities.

Now, the control that is asked for here is not control over the issuance, necessarily, but control over trading in an interstate manner.

Mr. HUDDLESTON. Of course, that comes back to the question of what is "regulation."

Commissioner LANDIS. Yes. I mean, it is that of which I really have a very genuine fear. I may be wrong as to Congress' power in matters of that kind, but I do have a very genuine fear of resting it all on that. That is one of the primary theories of this act, to rest it on cases like the Board of Trade case and the Packers and Stockyards case, namely, to conceive of the exchange as being a very essential instrumentality in the large streams of commerce that are moving in this country and one of those streams of commerce is trading in securities.

Mr. HUDDLESTON. Assuming the Congress has power to regulate the stock exchanges. It does not follow by any means there is no limit to that power.

Commissioner LANDIS. No, of course not.

Mr. HUDDLESTON. It must be a real regulation and a proper regulation.

Commissioner Landis. Of course.

Mr. HUDDLESTON. A regulation which does not extend and go further and exercise more than a reasonable power.

Commissioner LANDIS. And, I think when you come to a detailed consideration of this bill you will have to think very clearly and very hard about certain features of this bill in order to satisfy yourselves that those features, even though the main purpose of the bill is constitutional, that those particular features meet all our constitutional tests.

Mr. WOLVERTON. May I ask a question, Mr. Chairman?
The CHAIRMAN. Mr. Wolverton.

Mr. WOLVERTON. I rather gather from your remarks, especially in answer to Mr. Huddleston's questions, that the main basis upon which this bill is drawn, is the power of Congress to regulate interstate commerce.

Commissioner LANDIS. Yes.
Mr. WOLVERTON. Is that the only basis on which it is placed?

Commissioner Landis. No. The other powers have been dragged in incidentally. Of course, you try to get as many props as you can to support a particular matter.

Mr. WOLVERTON. It would seem to me from section 2, which you state is argument for the bill, or reasons for it

Commissioner LANDIS. Yes.

Mr. WOLVERTON. You have definitely fixed the taxing power also as a basis.

Commissioner LANDIS. That is correct.

Mr. WOLVERTON. And you are using that also as a basis for this regulation.

Commissioner LANDIS. I tried to mention that as an additional basis.

Mr. WOLVERTON. That is very clearly set forth. You make reference to the fact that it is a basis for establishing and determining the value of securities for the purpose of calculating the amount of taxes owing to the United States and the several States.

Commissioner LANDIS. Yes.

Mr. WOLVERTON. So the justification for this bill is not entirely to be found in the power of Congress to regulate interstate commerce?

Commissioner LANDIS. That is true, and yet I think this support lies on the interstate power.

Naturally, you try to get every support you can for any particular piece of legislation in order that you may have at least one prop, if one happens to be knocked out from under you by a constitutional decision that is adverse.

Mr. WOLVERTON. Is it your thought that by incorporating in section 2 these different reasons for this legislation, that you are fixing, by a declaration of Congress, those reasons, rather than leaving it to a court to determine that such was the reason, by reading of the Committee report?

Commissioner LANDIS. Yes; that is quite true. It happens to be true. I think that the true idea of the separation of powers is that the facts, factual judgments, primarily are matters of concern to Congress rather than the courts; matters of law are largely for the courts.

Mr. WOLVERTON. You feel that it is proper for the court in construing legislation to look at the committee report to determine the reasons for the legislation? Commissioner Landis. Yes, sir. Mr. WOLVERTON. And therefore it would be much better to state those reasons in the act itself?

Commissioner LANDIS. Yes, I think so, and to return to that same thought, it is possible to take to a court this argument. The committee report, after all, represents the mere judgment of a committee and here we have a weightier judgment of the entire Congress, if you write the thing into the bill. How much there is in that I do not know. It may be more apparent than real.

Mr. WOLVERTON. In other words, Congress is fixing it by their own declaration, rather than depending on the language of a committee report?

Commissioner LANDIS. Yes. Mr. PETTENGILL. Mr. Chairman The CHAIRMAN. Mr. Pettengill. Mr. PETTENGILL. Well, is it not a fact that in the District of Columbia and New York' State emergency rent statutes during the World War the Supreme Court of the United States paid a good deal of attention to the preamble?

Commissioner LANDIS. Yes.

Mr. PETTENGILL. In deciding or passing upon the constitutionality of those laws?

Commissioner Landis. It did pay a great deal of attention to the preamble.

In the Chicago Board of Trade case it paid a great deal of attention to the preamble, and in the Dayton Goose Creek Railway case, where Congress expressed in that situation its conclusion that it was impossible to regulate rates so as to be sure not to get more than an excess return on some and on others get less than a fair return and therefore it was desirable to have this recapture provision in there, Mr. Chief Justice Taft in deciding that case laid great empahsis on the fact that that particular language was contained in, I believe, section 15 (a) of that act.

Mr. PETTENGILL. Mr. Landis, you agree, of course, that the various stock exchanges have the power themselves to do all this bill calls for?

Commissioner Landis. Practically; not quite.

Mr. PETTENGILL. What is to prevent them from doing all that the bill calls for, if they would?

Commissioner LANDIS. Well, perhaps short-sightedness. Undoubtedly this thing—I think this thing is to be said: That what the stock exchange has done, especially the New York Stock Exchange, in the last 3 years has been very important; there has been a great deal done in the last 3 years with reference to adoption of new regulations. The regulations which they adopted yesterday are among the most helpful and important things.

Mr. PETTENGILL. Would it be possible to state very briefly what this bill does that is not now being done by the various stock exchanges as a matter of self-government.

Commissioner LANDIS. Well, I do not know whether I can state that brielly or not. I will try my best on that. The important requirement, for example: The margin requirement today does not run as high as in this bill. They run-I think I am right on this—50 percent on the accounts under $5,000 and 30 percent on accounts above that; and the 30 percent is fixed on the debit balance rather than the value of the securities. Furthermore, this act also governs not only the lone relationship between brokers and customer, but between broker and banker as well. That is an important feature of those requirements.

The exchanges' regulations on pools, I do not believe, are as broad as are set forth here in section 8. The exchange, I do not believe, has any strict requirement—I may be wrong on this—but, I do not believe it has any strict requirement that a broker, a member of the exchange, shall not borrow beyond a certain percentage of his capital. They watch that very closely, but whether they have a strict requirement on that, I am not sure.

Short selling: The exchange has placed regulations on short selling. At times it has suspended short selling entirely, I know of no regulation on stop loss orders that correspond with the type of things that are looked forward to in this bill.

The segregation of the functions of broker, specialist, and dealer, which is accomplished by this bill, is not accomplished in the present exchange regulations.

Considerable criticism exists today against the licensing requirements of the exchanges in that they do not require persons who register the securities on the exchange to tell their full story, adequately, sufficiently. Some unfortunate controversies have been raised, not very long ago, with reference to matters of that type.

Nr. PETTENGILL. Might it be said that, in defense of the need for additional regulation over and above the control of human self interest and cupidity and further that if the New York Stock Exchange, for example, were to increase its margin requirements, and the Chicago Stock Exchange would not do so, that the business would be lost to one exchange and go to the other?

Commissioner LANDIS. That might be true; yes.

Mr. PETTENGILL. And so, general legislation that would regulate margin requirements in all stock exchanges might work to the advantage and protection of all exchanging?

Commissioner LANDIS. Of course, I think that is one thing that it is desirable always to keep in mind on the question of this matter, namely, when we commonly talk and think of the New York Stock Exchange, which, of course, handles more traffic of this nature than any other, we criticize perhaps a requirement of the New York Stock Exchange, but I think it should be remembered that those requirements are very much higher than those prevailing in many exchanges all over the country, with smaller traffic, it is true. Perhaps not in Chicago.

This bill produces uniformity, and yet this bill does not look forward to freezing over the situation completely: In other words, it gives administrative discretion to the Commission to treat the Cincinnati Exchange differently from the New York Exchange because perhaps of different requirements that may be necessary there.

The CHAIRMAN. But, your standards are fixed?

Commissioner LANDIS. There are minimum standards and the general standard.

The CHAIRMAN. Even though the stock exchanges have all these rights to make changes, have the same right to change back to former practices.

Commissioner LANDIS. Yes, sir.

The CHAIRMAN. And under this law they would not be allowed to do that?

Commissioner LANDIS. No.
Mr. KENNEY. Mr. Chairman-
The CHAIRMAN. Mr. Kenney.

Mr. KENNEY. As I recall it, the Roper report made a general observation or suggestion that something new and less harmful should be found to take the place of widespread speculation or gambling on the part of the masses of the people.

Commissioner LANDIS. Yes, it does.

Mr. KENNEY. Would you be good enough to read that part of the report, which I understand is very brief? Commissioner LANDIS. I would be very glad to.

It must always be recognized that the average man has an inherent instinct for gambling in some form or other. It has been recognized as a social evil, always inveighed against since early times. No method of combating it has ever been completely successful. If once abolished in one form it seems always to crop out in another. In America the man of average income has perhaps turned to the stock exchange because of the prohibition of various forms of

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