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Trade Commission, that the multitudinous duties of the Federal Trade Commission would absolutely prevent the tremendous labor involved in the supervision of the exchanges. That would be one reason.

The Chairman. Well, what bureau of the Government at this time is not overburdened?

Mr. Grubb. I do not know, sir; I do not know.

The CHAIRMAN. All right. Do you think that there is anybody much more overburdened than the people here that Mr. Whitney suggests in his authority? He was a coordinating authority.

Mr. GRUBB. No, sir; I do not.

The Chairman. What is your thought about his coordinating authority? Mr. GRUBB. I think it is a very good one, sir.

The CHAIRMAN. To take two men, to be appointed, who do not hold any official position; two Cabinet officers, the Secretary of the Treasury and the Secretary of Commerce. Do you know anybody who is any busier than they are?

Mr. GRUBB. No, sir; I do not know anyone down here that is not busy.

The CHAIRMAN. Do you know anybody that is not busy who is connected with the Federal Reserve?

Mr. GRUBB. No, sir; I do not; no, sir.

The CHAIRMAN. Then, you take two other men, one suggested by Mr. Whitney to be appointed by the New York Stock Exchange, and another, I think, by the Association of Exchanges. I do not know, but by somebody.

Mr. GRUBB. Somebody outside of New York.
The CHAIRMAN. Now, that makes 5 to 2.
Mr. GRUBB. Yes, sir.

The CHAIRMAN. Would not the two representatives, appointed by the exchanges, be looked upon by the public and by, in all probability, the five other members of the board as special pleaders and not men who are looking after the public interest?

Mr. Grubb. That possibly might be.

The CHAIRMAN. In all probability, even though they were the most patriotic and wise men that could be selected, would not their usefulness in all probability be disturbed by the very fact that they were selected by these groups?

Mr. Grubb. Very possibly, sir.

The CHAIRMAN. And do you not think that is rather unusual legislation anyway, when the President has the appointive power, to tell him a certain group that he has got to make his appointment from?

Mr. GRUBB. Mr. Chairman, I do not see how it is possible for any committee, how it could be possible, to form any committee that would be acceptable to everyone, regardless of what the committee finds, or what regulations are finally approved, everybody is not going to be pleased with it.

The CHAIRMAN. Well, what would you think if a division of the Federal Trade Committee were given the authority to administer whatever act is passed? Of course, with whatever general suprvision is necessary, in the full commission.

Mr. Lockwood. Mr. Chairman, may I venture a reply?
The CHAIRMAN. Yes; Mr. Lockwood.

Mr. LockWOOD. If the committee will permit.
The CHAIRMAN. Yes, sir.

Mr. Lockwood. The matter of the exchange's dealings with broker practices is perhaps one of the most complicated situations we have to face in the country.

I think that has been made clear here, that the bill as drawnany bill—would be opposed by many; certainly by a few organizations or individuals.

The business is a living, going, business. To confine it to drastic rules which would be necessarily more or less inflexible, this you will recognize must be dangerous. If certain restrictions which have been provided in your bill might be embodied as the law of the land, if certain of the abuses which you have perceived and which the exchanges have perceived might be prohibited by statute and at the same time if either the Federal Trade Commission, a branch thereof, or some other authority, would take up with the exchanges' officials and others interested the problems which we recognize exist, or should be considered, a wise procedure would be followed. I refer to the segregation of capital. I refer to options and various matters which are extremely difficult to cover in a few words at this time.

We are not well enough advised ourselves.

If, as I say, we had a Federal authority limited in its jurisdiction to the enforcement of prohibitions against practices which are generally agreed should be prohibited-practices against which the exchanges have themselves acted, and if the authority or a congressional commission were appointed to consider and report to Congress in respect to the many other problems as to the solution of which there is no present consensus of opinion, the procedure would seem to me to be onstructive. But, to put the institutions now in a straight jacket and to say that the Government authority here in Washington may make, practically any rules it feels advisable, is going, it seems to me, away ahead of the thought of the day as to what should be done.

The CHAIRMAN. Yes; but do you think there would be any danger that when this division of the commission, or the commission, was about to make rules and regulations that the services of these interested parties would not be tempted; and they would be always available, and if they were reasonable men, Mr. Lockwood, it appears to me that they would see before they made the decisions, or the rules or regulations, all sides of the question, all information that they could get from all sides.

Mr. Lockwood. Would it not be possible, Mr. Chairman, to have such a commission which should study the problems, concerning which there seems offered so far no real settlement, that such commission should study during the period of a few months, the problems which remain to be considered, and then recommend to the Congress what further legislation should be necessary, not leaving in the commission, no matter how intelligent or how disinterested, or how patriotic, the power to hamper and restrict trading without further consideration and presentation to your body?

We have rules today and you have made rules today in your bill which the exchanges would recognize and would approve. It is the fear which has been expressed here by some that things might be

done under the powers of the bill without referring the specific rules and regulations to your body, which gives us pause.

Now, we are prepared to cooperate. I say that earnestly, we are prepared to cooperate and would approve the enactment of certain of the provisions of the bill which is now before us. We would like to have an opportunity to confer, to bring together, the many interests of the country which feel it is affected by this, and if possible, have the commission present to your Congress further recommendations for legislation.

The CHAIRMAN. Yes. Well, that is a good thought all right; but if we are to set up an authority of any sort, would you, as a representative of your exchange, be willing to confer upon it the powers that Mr. Whitney proposed to confer upon this coordinating authority?

Mr. Lockwood. Yes; generally speaking. The CHAIRMAN. All of the powers? Mr. Lockwood. The powers. At the same time, I perhaps differ in this respect, that it seems to me it might be better for this commission to make a report to Congress in respect to certain definite legislation and to let the Congress decide.

The CHAIRMAN. Well, the trouble about that is, that is what we have before us now, and that is what you are objecting to, Mr. Lockwood. You are objecting to specific regulation.

Mr. LOCKWOOD. But, that follows an official conference between the Government and the many parties interested and could be presented then as with the various views, and with the recommendations of the commission which would be based upon fact findings and not upon a general idea of abuses and their remedies.

The CHAIRMAN. Now, let me call your attention again to the suggestions of power that this coordinating authority of Mr. Whitney's would have

We suggest that this coordinating authority be given plenary power to control the amount of marginWell, now, that is what we are giving the commission

Such members of exchanges must require and maintain on customers' accounts; and further, that it should have plenary power to require stock exchanges to adopt rules and regulations preventing not only dishonest practices but also all practices which unfairly influence the price of securities or unduly stimulate speculation.

Without attempting to define, at this time, the scope of these powers, we believe that they should include the power to fix the requirements for the listing of securities; the control of pools, syndicates, and joint accounts and also options intended or used to influence market prices; the power to control the circulation of rumors or statements calculated to induce speculative activity, the use of advertising and the employment of customers' men or other employees who solicit business; to the end that all practices which may tend to create unfair prices may be eliminated.

Mr. Lockwood. Yes.

The CHAIRMAN. Now, are you willing for an authority such as that to be created? I am not talking about the name, or where located, that we would set up under this bill, to have that power?

Mr. Lockwood. If that authority had representation from those who were to be regulated, not a majority, but had representation, and I think that should also include the representatives of industrial companies.

The CHAIRMAN. Now, let me call your attention to this, Mr. Lockwood, and see how far you are afield there from the way we do regulate. It is written in the Interstate Commerce Act that the man owning stock in any railroad, or a director, cannot be an Interstate Commerce Commissioner. Mr. Lockwood. Yes.

The CHAIRMAN. The reason is very evident. But the Interstate Commerce Commission does sit for weeks listening to shippers' interests, railroads' interests, to locality interests, and all of that, before eventually vetoing a rate, or fixing a rate on its own motion.

Now, say that you are going to set up a governmental authority here in which you must have a representative of the New York Stock Exchange and an attorney for the curb exchange as a member, it would appear to me, although I will say that is very wise representation of these organizations and would appear to give them the good end of the bargain; but it is just doing something we have never done.

Mr. Lockwood. That is true, but you are meeting, it seems to me, a situation which is in itself not nearly so clear and coordinated as is the railroad problem which it involves all of the citizens of the United States. At the same time

The CHAIRMAN. This may.
Mr. LOCKWOOD. I beg your pardon.

The CHAIRMAN. This may involve all of the citizens of the United States.

Mr. Lockwood. Yes. I mean in one particular function. Now, the exchange functions, we have seen here, extend through the various activities of the exchange into all of our economic structure. They are difficult problems. We know that we have tried to study what could be done in certain instances. We should like to have outside assistance. We have had it.

We have had it. We shall make recommendations. My own fear is, Mr. Chairman, that we might get here and we would get under the present bill a strait-jacket which might injure the public, not the exchanges entirely.

The CHAIRMAN. Well, of course, you understand, Mr. Lockwood, I have stated several times, that this bill was introduced as a basis of consideration and in the long run the committee will be called upon, in executive session, to write something. Mr. Lockwood. Yes.

The CHAIRMAN. And that is the reason we are giving you men the privilege of coming here to confer with us; but, frankly, I cannot see where the bill gives this commission authority or more power than Mr. Whitney is willing to give to it himself. And, before we get into that executive session, we would like to have, as briefly as you can give it to us, what are your suggestions as to what the legislation ought to be.

Mr. Lockwood. I think that you will appreciate this, which I would like to say to the committee, if it will listen to it. Our thesis here today is that it is better for the public to deal in securities if they be of a substantial class, if those securities are being bought and sold by the people of this country, it is better for them to be dealt in on an exchange than on an outside market. Now, that is a vital factor to us in this bill, because as it is now written, it means that the curb exchange will possibly have to go out of business. That is something that we feel should be considered, because you have an exchange which

is national. You have thousands and thousands, of people in this country who hold our securities, such as Standard Oil of Indiana, and many others who look to us for a market.

Now, we beg you not to consider us alone, but consider the economic results of that throwing us out of functioning.

The CHAIRMAN. I do not think that there is anybody here that intends to put the exchanges out of business.

Mr. MERRITT. I am going to suggest, Mr. Chairman, I think what is in Mr. Lockwood's mind, and I will ask if that is not true, that the stock exchanges differ from the railroads in that they have to meet sudden, very sudden crises that are liable to come up overnight and they have got to have some authority that can change regulations within certain margins. I think that this bill could provide for that.

Mr. LOCKWOOD. That is what I have in mind and am afraid that is liable not to happen under the commission.

Mr. MERRITT. It is a much livelier business than the railroad business.

Mr. LOCKWOOD. At times.

Mr. PETTENGILL. Mr. Chairman, we have passed statutes, have we not, directing the President to give representation to different interests on regulatory commissions. Is that not true? As I recall, that is true with the Federal Reserve Act, that it requires some members of the board to be chosen to represent certain interests.

The CHAIRMAN. The amendment passed some time ago with regard to agricultural interests, and so on.

Mr. PETTENGILL. Yes, sir.

Mr. Lockwood. That is certainly true, with regard to the N.R.A., is it not?

The CHAIRMAN. Well, you are going too strong for me now. We will have to adjourn now. Mr. GRUBB. May I put the rest of my brief in the record, Mr. Chairman?

The CHAIRMAN. Yes, you may, and we are very much obliged to you gentlemen.

(The remainder of the brief above referred to is as follows:)

Is the outside, the unregulated, the dealer market a fairer index of real values than the market on an exchange?

As against these conditions and the contention of companies and dealers, the curb exchange believes that the prices of its securities on its floor represent values obtainable and realizable at the moment; that it affords to the Nation generally a place where those who wish to sell have a far better chance of getting prices, fairer in the circumstances by reason of the wide dissemination of exchange quotations throughout the entire investment field of the country than if the same owners are confined to finding their purchasers through a more or less unknown group.

It is for these reasons that the exchange is not necessarily led to remove a security because the company objects. If it be shown that injury to the company or to its stockholders will result from a continuation of trading, trading will be suspended. There may be refinancing, when widely published quotations may interfere with plans; but even here it is difficult to see why the public should not know the actual prices which securities bring on a broad scale in an open market rather than to follow more or less ignorantly and blindly the optimistic hope of banks and officers of companies. This is the source of much of the difficulty between companies and outside dealers and the exchange.

It must be remembered in this connection that the exchange does not admit securities to unlisted dealing when primary distribution is taking place. But when the security is in the hands of the public, the market should be real and substantial; not confined to a few houses which specialize to their profit in the

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