the President himself could even check it. And the public support and buying orders of the Rockefeller family were swept away and had no effect.

No wonder there was a panic and the resulting years of decline and depression. Yet, at the same time, no banks, brokers, or large institutions failed, but later many failed as a result of it.

Once the panic had spent its force, the same New York stock brokers discharged thousands of employees and the first breadlines appeared in 1929 in Wall Street. In 3 years New York Stock Exchange member firms closed 500 offices, or more than 30 percent of the total.

The brokers in that short month had liquidated the greater portion of their $12,000,000,000 speculative borrowings, the very step that started the flood that followed, and continued right on up to the day that President Roosevelt issued his first Executive order that closed every bank in the land.

Speedy enactment of the Fletcher-Rayburn bill will return the securities markets to the investors. It will prohibit speculation by officers, directors, and large stockholders of corporations, and will put an end to inside rigging and manipulation which only benefits those in positions of confidence and power. Congressional investigations going on at the present time show the absolute unfairness of this practice.

The greatest evils which the Fletcher-Rayburn bill proposes to correct have been outlined, but many others exist which this legislation will eliminate.

The claim of the stock exchanges that they could self-discipline their members of tightening their rules, and thus correct the abuses, has been totally ineffective and without material result.

The experiences of May, June, and July 1933 and the speculative excesses followed by a well engineered collapse in July is too fresh in the minds of the American people. Had it gone much further, it could have easily halted the national recovery activity and program that was well under way; as it was the recovery was considerably slowed up.

The truth in Securities Act of 1933 has been acclaimed by individuals, institutions, estates, and investors everywhere as a great financial protective and safeguarding measure. However, it is not complete, and must be supplemented by the proposed National Securities Exchange Act of 1934, which will effectively regulate and control the vast markets, the proper administration of which is so vital to the financial life of our country.

All the damage has been done. Only good can result from the enactment of the Fletcher-Rayburn bill as presented to the House and Senate.

Senator Fletcher asserts that his bill represents a "middle-of-the-road" policy. Personally, through 20 years experience in the field of markets, prices, exchanges, and securities, I am convinced that it could have been made far more drastic. However, in its present form, had it have been the law in 1929, no such overextension of speculative credit and no forced panic could have occured. I am convinced that this is a safe and sound piece of legislation for this and future years. I expect to be called before the Senate or House Committee after the stock exchanges have been heard.

The claim that the National Securities Exchange Act will impair the liquidity of the markets is absurd. There is no pool speculation in the investment bond market. Bonds, bank and insurance stocks, stocks traded in over the counter, and listed issues on the so-called "out-of-town" stock exchanges, such as Philadelphia, Boston, Chicago, San Francisco, and others are not ordinarily carried on margin at all, and yet, by comparison these other market places have proven just as liquid as the New York Stock Exchange.

The adjustment of loans to meet the 60 percent minimum margin requirement will be spread out over more than 6 months and will affect less than a billion dollars. Compare this with 1929 when New York brokers demanded this sum overnight and kept it up for more than a month.

FEBRUARY 23, 1934.

STANLEY S. WOHL,

Executive Assistant in charge of Securities.

(Thereupon, at 11:48 a.m., an adjournment was taken until the following Tuesday, March 6, 1934, at 10 a.m.)

NATIONAL SECURITIES EXCHANGES-H.R. 7852

TUESDAY, MARCH 6, 1934

HOUSE OF REPRESENTATIVES,

COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D.C.

The committee met, pursuant to adjournment, at 10 a.m., in the committee room, New House Office Building, Hon. Sam Rayburn (chairman) presiding.

The CHAIRMAN. The committee will come to order.

STATEMENT OF HON. JOHN DICKINSON, ASSISTANT SECRETARY OF COMMERCE AND CHAIRMAN OF THE INTERDEPARTMENTAL COMMITTEE ON STOCK-EXCHANGE REGULATION

The CHAIRMAN. Mr. Dickinson, will you qualify by giving your name you are Assistant Secretary of Commerce-but also your relation to this study, for the record.

Mr. DICKINSON. Yes, sir. I am Assistant Secretary of Commerce. I was chairman of the committee appointed last summer by the Secretary of Commerce, Secretary Roper, which sometime ago made a report to Secretary Roper on the subject of stock-exchange regulation, and that report has been frequently referred to in the hearings before you as the "Roper report."

I may say that the Department of Commerce has received a request from the Senate Committee on Banking and Finance for a departmental report on Senate bill 2692, which is the same bill as House bill 7852, that you are now considering. That departmental report on the bill is not yet ready for submission, and I simply want to make it clear that pending the submission of that report I am not speaking here officially for the Department of Commerce, but am speaking simply in the capacity in which I suppose I was invited to come here, namely, as chairman of the Roper committee.

I want to say at the outset that, personally, I am heartily in favor of action by the Federal Government at the present time to regulate securities exchanges. I think it not merely desirable, but necessary, and the desirability and necessity of such regulation is emphasized in the so-called "Roper report."

The conditions which have been disclosed in connection with the marketing of, and the trading in, securities illustrate the need for improvements in the interest of protecting the public against unfair practices, and also protecting the general economic health of the country against undue speculation, and those reforms deal with a problem which extends far beyond State lines, transcends State boundaries, is national in scope, and, in my opinion, and in the opinion of the committee, can only be dealt with by Federal action.

I have no difficulty in my own mind about the constitutionality of Federal regulation through the medium of the postal power and the power to regulate interstate commerce, in general in the manner which is followed in the bill which we have before us, although I would not care to underwrite the constitutionality of each and every detailed provision of that bill.

I have read the bill and I interpret it as having, among its purposes, those which I have mentioned and with which I heartily agree, namely, the protection of the public against unfair practices in the sale of securities and the trading in securities, and the protection of the national economic health against undue and unwholesome speculation.

Principles and purposes may be approached in many different ways and, from a practical standpoint, in any given instance, the application of a principle, or an attempt to achieve a purpose, has to be judged in the form or the complete detailed provisions in which they are embodied in that particular instance.

In such study as I have been able to give to the bill before you, I have therefore sought to get a picture in my own mind of what it does concretely, and I would like to mention a few of the details to you here, as I interpret them:

Section 6 (a) of the bill makes it unlawful for a broker or a dealer who operates on or through a licensed exchange to lend on securities. which are not listed on any licensed exchange. At the present time, unlisted securities include State and municipal securities, the stocks and bonds of most banks and insurance companies, and some sound industrial and a great many local securities.

Under section 6 (a) securities will have to be listed on a licensed exchange in order to become eligible as collateral for loans to or by brokers.

No doubt this provision was inserted to force trading on to the regulated exchanges, but the bill goes on to provide that in order to be listed, a security must be registered with the Federal Trade Commission, and if a company or any other issuer, municipalities, or otherwise, desires to so regulate its securities with the Federal Trade Commission in order that they may have the position and the privilege of listed securities, then, I want to point out some of the consequences to that issuing company, or municipality, which follow from the provisions of the bill.

In section 18 (b), it gives to the Federal Trade Commission as a condition of registration, the power to prescribe and supervise the accounting system of the registrants, including the valuation of property, the determination of operating income, depreciation and the like, and hence, at a good many vital points the determination of factors that affect very closely the financial policy of that issuing

company.

Now, if we read those provisions together, with the earlier provisions of the bill to which I have referred, it follows that in order to list its securities and have them eligible as collateral, the insurance companies and the banks and the municipalities whose securities are not now listed, as well as the public utilities, will become subject to the financial control of the Federal Trade Commission in respect to these accounting practices and the financial questions which depend upon them and the regulations of the Federal Trade Commission are

made by section 26 (a) to supersede all State laws and, accordingly, as I read these provisions, they mean that the regulation and authority of State insurance commissioners and banking commissioners, and public utility commissioners, at least insofar as they affect the accounting and financial practices of the companies, are superseded bt the regulatory power of the Federal Trade Commission.

The only regulatory power in these fields which is not overridden by the powers conferred on the Federal Trade Commission is that of the Interstate Commerce Commission, which is expressly excepted by the proviso of section 18 (b), to the effect that as to carriers subject to the Interstate Commerce Commission, the rules and regulations of the Federal Trade Commission, as to accounting matters, shall not be inconsistent with the requirements imposed by the Interstate Commerce Commission.

As a condition of the registration and listing of the securities of any issuer, the Federal Trade Commission is given power to demand any information which it may deem appropriate in the public interest, and is given power to make such information public.

Let me turn from these general powers over listers given to the Federal Trade Commission and refer to certain provisions of the bill connected with banking and credit. By sections 6 (b) and 6 (c), the Federal Trade Commission is given power to fix the loan value of securities, and these loan values so fixed will apply by section 6 (c) to loans from banks as well as loans by brokers, where the security is carried on credit.

By section 7 brokers and dealers who operate on or through a licensed exchange are forbidden to borrow on any security from anyone at all, except a member bank of the Federal Reserve System.

By section 7 the Federal Trade Commission is authorized to limit the aggregate indebtedness of every broker or dealer who operates on or through exchanges in relation to the net assets, subject to a maximum percentage which is fixed by the act itself.

By section 11 the Federal Trade Commission is authorized to regulate the lending of funds by any registrant or lister to or for any broker or dealer, and this applies where the registrant is a bank, unless it is a member bank of the Federal Reserve System.

It is thus apparent that the provisions of this bill touch a good many more matters than the direct registration of stock-exchange practices, and give to the Federal Trade Commission a very considerable range of power over banking and credit matters, on the one hand, as well as over industrial management, in the financial field, on the other hand.

Turning to those provisions of the bill which deal immediately and directly with stock exchanges, the bill contains a number of specific prohibitions to which I would invite your attention. First, there is, of course, the well-known flat 60-percent margin provision, which is tempered, of course, by the permission to loan up to 80 percent of the lowest price of the security during the preceding 3 years.

Secondly, there are the provisions of section 8 (a), subdivision 9, regarding puts, calls, and options, which in their present form are so expressed as in effect to prohibit trading on an exchange in convertible bonds and stock-purchase warrants.

Section 10 prohibits members of licensed exchanges or brokers who operate through such members, to act as dealers or underwriters in

securities, and thus squarely segregates and divorces the two, requiring a segregation between the business of dealing as a broker on a commission, on the one hand, and the business of buying and selling securities, on the other hand.

This same section, by its various provisions, prohibits specialists from executing market orders, and when you read that provision in conjunction with the provision which prohibits the specialist from trading on his own account as a dealer, the substance of it is to eliminate the so-called "specialist" from the exchanges.

I have referred to these particular provisions of the bill because they constitute these last ones that I have been referring to express statutory prohibitions on a point where there is some room for a difference of opinion as to the desirability of a flat statutory prohibition in contrast with some discretionary authority to forbid the abuse of a useful practice for improper purposes.

The bill contains a number of prohibitions of practices as to which it is entirely clear that the practice should be absolutely prohibited and which are properly prohibited by its provisions, namely, wash sales and fictious transactions of that kind, matched orders, pools for rigging the market, dissemination of false information, rumors concerning the market, and other practices which are wholly bad and which are properly covered by absolute prohibitions.

I have signaled out for mention these particular provisions of the bill that I have referred to in order to indicate the type of regulation that it applies directly to stock-exchange practices, and also the extent to which it is apparently thought necessary that it should go beyond the regulation of stock-exchange practices, by establishing some control through the Federal Trade Commission over the flow of credit into the security market and over the corporate financial practices of those companies whose securities are traded in.

In these two fields of control over credit and control over the corporate financial practices of the corporations whose securities are traded in, the bill relies on very wide discretionary powers to be exercised by the Federal Trade Commission, while within the field of stock-market practices it relies more directly on flat prohibitions.

I want to refer in a little more detail to the apparent object of the bill and what seem to me to be its probable results in the field of credit control. Here it confers on the Federal Trade Commission a considerable degree of authority in a field which has hitherto been wholly within the regulatory power of the Federal Reserve Board and the banking authorities of the Government, and in which the recent legislation has sought to follow the line leaving that control to the Federal Reserve Board and the banking authorities.

I refer to section 3 of the Glass-Steagall Act of June 15, last, which gives to the Federal Reserve Board power to suspend the use of the credit facilities of the Federal Reserve System by any bank which makes an excessive use of its credit for speculative trading in the security markets, and also to section 7 of the Glass-Steagall Act, which again authorizes the Federal Reserve Board to exercise power in this field by fixing the amount of bank funds which may be represented by loans on stock or bond collateral.

The Federal Trade Commission has not hitherto operated within this field of credit control, and in spite of the very wide range and scope of the present functions of the Federal Trade Commission,