Mr. HUDDLESTON. Do your rules permit that securities be listed on the Curb Exchange which are also listed on other exchanges? Mr. GRUBB. Yes, sir. Mr. HUDDLESTON. That would apply to the New York Stock Exchange also? Mr. GRUBB. No. Mr. HUDDLESTON. In other words, if listed on the New York Stock Exchange, they could not be listed on the Curb Exchange? Mr. GRUBB. You see, I think the reason there is, you have a market in New York, sir; and for that reason we could not do so. Mr. HUDDLESTON. But am I correct in that? Mr. GRUBB. Yes, sir. Mr. HUDDLESTON. Is that forbidden by the rules of both exchanges. Mr. GRUBB. I do not think that there is any rule to that effect; not that I know of. Mr. HUDDLESTON. Neither exchange has such a rule? Mr. GRUBB. No, sir; I beg your pardon, the New York Curb Exchange has a rule prohibiting dealing in stocks listed on the New York Stock Exchange. Mr. HUDDLESTON. But has the New York Stock Exchange such a rule applicable to the Curb Exchange? Mr. GRUBB. No, sir. Mr. HUDDLESTON. Do you permit of trading in unlisted securities which are also listed on the stock exchange? Mr. GRUBB. No, sir. Mr. HUDDLESTON. In other words, a security listed on the stock exchange which is not listed on the Curb Exchange, may not be traded in on the Curb Exchange? Mr. GRUBB. You are correct, sir. On the other hand, the information actually available is deemed by the exchange adequate to protect an investor. The New York Curb Exchange early recognized the importance of this market not only to its members but to the public at large. Shortly after the reorganization attendant upon its going indoors in 1921, a special committee was appointed, whose function and duties were to admit to unlisted trading, upon the application of a regular member of the exchange, securities which passed the examination of the committee. The requirements for admission to unlisted trading have naturally developed and become more stringent as experience showed the need. Mr. HUDDLESTON. May a dealer, or a broker, be a member of both the Curb Exchange and the New York Stock Exchange? Mr. GRUBB. Yes, sir. Mr. HUDDLESTON. And there are such duplications of membership? Mr. GRUBB. Yes, sir; the rule was early made that no security would be admitted when the company issuing it had less than 2 years' experience. Financial statements had to be published in Poor's, Moody's, or other reliable standard publications of a statistical nature, or an authoritative statement; that is, from official sources, had to be furnished to the committee. The application for admission of a stock had to be presented by a regular member of the exchange, himself a stockholder of the company whose securities it was sought to list. The committee examined the company's statements, considered the character of the security and its earning record, the distribution of the issue and the market therein, and the security was admitted to unlisted trading only upon its approval. With your approval, I will skip the next paragraph. No, I will read it all. Quite naturally, the exchange made mistakes both of commission and of omission. In the speculative period immediately approaching 1929, many securities were admitted to trading where an actual market in New York did not exist but where it was hoped that a market would develop. The exchange now appreciates that the existence of an active market here is fundamental and should in all cases be a prerequisite for admission of a security to unlisted trading. This requirement is now among those firmly insisted upon. We have already called attention to the requirement that a company must have been in existence for a substantial number of years which is prerequisite to the admission of a security to unlisted trading. While the requirement today, as earlier, is that a company, whose securities are so admitted, shall have a minimum corporate existence of 2 years, in actual practice the great majority of such companies have, prior to the admission of their securities, been in existence much longer. Recently a statistical test was made which very clearly illustrates this point. Taking at random the files of the companies lettered F to K, number 231 stocks, an examination showed that at the time of application, the average period of corporate existence of these companies had been 25.7 years, clearly showing the character and attention given to the nature of these securities before they are admitted to trading. Companies which have weathered economic business stress and strain for so long a period not only invite confidence by reason of this factor but also furnish records of extended experience which may be studied by an investor before making his purchase. The unlisted securities are never new an untried, but must always have a record of actual performance behind them. As we have already seen, all securities traded in on the exchange are officially listed; one on application of the company, the other on the application of a member. The factor not generally understood is the information required and the care exercised in the admission to dealing of any security. The belief prevails in some quarters due, undoubtedly, to the misleading phrase "unlisted", that any type of security will at any time, without examination and without information on file, be admitted under the caption "unlisted." That the contrary is the case will be made clear by a study of the application blanks, requirements and resolutions relating to the admission of securities to unlisted trading and by the record of treatment of listing applications. During the spring of 1933, the attorney general of the State of New York conducted a public examination of the unlisted department of the New York Curb Exchange. This examination satisfied the exchange that the rules and regulations governing the admission of securities to so-called "unlisted trading" needed additional strengthening and enlarging and, at the conclusion of the examination, requirements were adopted which it is believed assure the public of a maximum of care in the admission of securities to unlisted trading. The present requirements for admission to unlisted trading, supplemented by the resolutions which were adopted at the close of the investigation above referred to, are available and will be furnished to any who are interested, as will the requirements for admission to "full" or formal listing. A comparison of the respective requirements for "full" or formal listing and for "unlisted" trading, it is believed, will satisfy any reasonable person that adequate investigation is made of the unlisted securities before they are admitted to trading. While less data and information are obtained in support of an application for admission to unlisted trading than in support of an application for formal listing, any objection on this ground is more than offset by the fact that the unlisted security usually has a long record of actual performance. While performance is by no means the sole test in admitting a security, a bad record is always sufficient reason for rejecting it. That the standards applied by the New York Curb Exchange in the admission of unlisted securities have been sufficient, except in a relatively very few cases, is adequately established by its actual experience with these securities. Mr. PETTENGILL. Mr. Chairman The CHAIRMAN. Mr. Pettengill. Mr. PETTENGILL. Can you tell us very briefly what is the difference between a formal listing and unlisted securities? Unlisted securities are traded in in certain cases? Mr. GRUBB. That is quite correct, sir. Mr. PETTENGILL. What is the difference? Mr. GRUBB. With reference to our own particular case, sir, stocks that are admitted to unlisted trading are seasoned stocks, as was explained in this pamphlet, a little prior to this particular point. The formally listed stocks are stocks of newer companies with the records that are probably not quite as old as companies we have on our floor, which are unlisted. Mr. PETTENGILL. Unlisted are more seasoned securities? Mr. WADSWORTH. May I interrupt there? Mr. GRUBB. Yes, sir. Mr. WADSWORTH. But, they are not formally listed really because the management, those responsible in the affairs of the corporation do not care to do it? sir. Mr. GRUBB. You mean-yes, in a great many cases, that is so, In other words, we do not get the complete information that we require and we want for formal listing from those companies. Mr. WADSWORTH. But, on your own definition, a majority of them would be eligible for formal listing if the respective managements desired? Mr. GRUBB. That is quite right, sir. Mr. WADSWORTH. Why is it not desired? Mr. GRUBB. Well, that is a difficult question to answer, in some respects. Some of them do not want to and cannot and will not answer our formal requirements. Mr. WADSWORTH. And yet, you find out sufficiently about them to have confidence in them? Mr. GRUBB. Yes, sir; that is quite true, Mr. PETTENGILL. Is it a question of the fee involved? Mr. GRUBB. With reference to the formal listing there is; yes. Our formal listing is $1,000, and with reference to unlisted securities, there is a fee of $100 charged, which is paid by brokers who make application for the stock. Mr. WADSWORTH. Are most of them small companies? Mr. GRUBB. Which, in which respect, sir? Mr. WADSWORTH. The unlisted. Mr. GRUBB. No, sir; they are not. As a matter of fact, our biggest companies that we have on our exchange, as a matter of fact, are unlisted. For instance, all of the great, or a great many of the Standard Oil stocks, and some of the big utilities, and some of the big industrial stocks. Some of the best ones we have, and the ones that are most largely held by the investing public. Mr. LEA. Do you mean are not listed at all, or are not listed on your exchange? Mr. GRUBB. No, sir; I am speaking particularly with reference to unlisted stocks that are traded on our exchange in connection with that remark. Mr. LEA. Standard Oil stocks are usually listed, are they not? Mr. GRUBB. I said that some of the Standard Oil Co. stocks; Standard Oil of Indiana. Mr. WOLVERTON. Mr. Chairman The CHAIRMAN. Mr. Wolverton. Mr. WOLVERTON. Mr. Grubb, is there any difference as to the requirements for dealing in listed, and unlisted stocks, with respect to margin requirements, or any of the other usual requirements? Mr. GRUBB. We do not on the exchange, in some cases, there would be I think the answer to that is no, sir. Mr. WOLVERTON. Well, take as an illustration, one stock that is listed and one stock which is referred to by you as unlisted. Mr. GRUBB. Yes, sir. Mr. WOLVERTON. Would there be any difference in the margin requirements for either of those two stocks? Mr. GRUBB. No, sir. Mr. WOLVERTON. Well, much of your time has been taken up, it seems to me, in explaining that there is no difference, in fact, between listed and unlisted stocks, except the manner in which they are entered for trading in your market. Why do you continue the use of a term, or a name that results in so much misunderstanding or requires an explanation that there is no material difference. Mr. GRUBB. Well, I was attempting to set forth, as clearly as I can in this, why. Mr. WOLVERTON. You have set it forth very clearly to me. Your statement is that the only difference between listed and unlisted stock is the manner in which the particular stock is admitted to trading on your exchange. Mr. GRUBB. That is correct. Mr. WOLVERTON. For instance, instead of the application being made by an officer of the corporation to have stock of that corporation listed, it is listed by reason of an application made by a member of your exchange who is a stockholder in that corporation. Mr. GRUBB. Yes, sir. Mr. WOLVERTON. Now, why do you continue to use the terms "listed" and "unlisted", when in fact there seems to be no difference Today it is still by far the second largest exchange in the country, approximating or exceeding in stocks alone the combined transactions taking place on all other exchanges in the country excepting only those on the New York Stock Exchange. It is indeed a national exchange. Further details of the history and operations of the exchange are contained in my memorandum which is filed herewith. The New York Curb Exchange believes that it has adopted rules and regulations to prevent manipulative practices which, when all things are considered, are at the bottom of great swings in the market. It does not believe that any rules will obviate rises and falls in the price of securities, for stabilization in the last analysis depends upon economic conditions and public psychology. That these trends should not be fomented or augmented by its members is its purpose; 1928 and 1929 taught the exchanges of the country lessons which they have not failed to observe. It may be questioned whether or not in the light of previous experience any Federal commission or authority or any rules adopted by Congress based upon experience prior to 1929 would have been comprehensive enough in their scope to have done more than possibly retard the great orgy of speculation. The New York Curb Exchange recognizes, however, that Congress and the public are not prepared to leave unlimited control of exchange practices with the exchanges themselves, and welcomes in the interest of exchanges as well as of the investing public, the advice and help of a regulatory commission as well as the imposition of regulations which will be to the advantage of the public. The danger which has been made obvious in the discussions before this committee of regulations and rules which are destructive rather than constructive, leads it to approve the appointment of a coordinating and regulatory body such as was suggested by Mr. Whitney. Study of the admitted problems by an highly intelligent body, expert in the various branches of the subject, in advance of the imposition of drastic rules is of the utmost importance, and to the end that evils or dangers are shown to exist and may be obviated or minimized the exchange is in full sympathy. A Federal commission on which the exchanges are represented has two great advantages over the Federal Trade Commission, first, that its obligation would be confined to exchange problems only and would not be one of many problems which the regulatory body was considering; second, the commission would not be bound by Congressional limitations but would be in a position to consider new problems and to act promptly and constructively in relation to those. In other words, it would be dynamic and not static. The New York Curb Exchange for the reasons which have been presented to the committee by others in previous hearings, believes that many of the provisions of the present bill would be to the disadvantage of the public. For those reasons it is opposed to the bill in its present form. It is my purpose this morning not to comment on other than section 10 and sections 11 and 12 of the bill, and in respect to section 10 only as it presents a problem different on the Curb Exchange from conditions on the New York Stock Exchange. It arises by reason of the fact that on our exchange, as well as on other exchanges throughout the country, a specialist in full lots is a specialist in odd lots. It is, accordingly, essential if owners and purchasers of odd |