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Mr. HOLMES. In relation to section 7, which reads:

Sec. 7. It shall be unlawful for any member of a national securities exchange or person who transacts a business in securities through the medium of such member, directly or indirectly

(a) To borrow on any security registered on a national securities exchange rom any person other than a member bank of the Federal Reserve System;

Now, that section there would create a serious injury to mutual savings banks in the Commonwealth of Massachusetts, and I presume all other mutual savings banks.

Mr. DICKINSON. Are you referring, Mr. Holmes, to that phrase-
Mr. HOLMEs. Page 13, section 7 (a).

Mr. DICKINSON. Person who transacts a business in securities”. is that the phrase that you are referring to; because I want to say something about that.

Mr. Holmes. Well, it is page 13, section 7 (a).

Mr. DICKINSON. There is a phrase there reading, "person who transacts a business in securities through the medium of such member"

Mr. HOLMES. Paragraph (a).
Mr. DICKINSON. Paragraph (a).
Mr. HOLMES. At the top of page 14 of the bill.

Mr. DICKINSON. Well, might I just make an explanation of that phrase, because I am glad that you are reminded me of it.

In the present language of that phrase, it seems to me fraught with a high degree of uncertainty and it might very well apply to banks and insurance companies and investment companies, and people of that kind, so that there would be no possibility for them to borrow from a bank other than a member of the Federal Reserve System. However, I might say, by way of explanation, that I did not criticize that phrase yesterday, because Mr. Cohen and Mr. Corcoran, when they came to see me night before last, told me they had changed that phrase, or rather, had put a definition of it into section 2 which would take care of those difficulties, so that I do not think it necessary to refer to. what otherwise would, I think, be a very serious ambiguity in the present draft of the bill.

Mr. HOLMES. I wanted to hear particularly upon the point as to whether or not it would be a serious handicap to the mutual savings banks.

Mr. DICKINSON. They tell me they have put a definition of that phrase into section 2, which would limit it to brokers and dealers who were not themselves members of an exchange; but as the phrase stands now, I think it would create a very serious situation.

Mr. HOLMES. That is the point that I wanted brought out.
The CHAIRMAN. Are you through, Mr. Holmes?
Mr. HOLMES. Yes, sir.
The CHAIRMAN. Mr. Pettengill.

Mr. PETTENGILL. One more question. It seems to me, Mr. Secretary, there is an argument both for and against the exchange regulatory power being the same body as the body administering the Securities Act.

Now, it strikes me there is an argument against it in this respect. I would like to have your views on this. In the Securities Act, by statute, we go just as far as we can to tell the investing public of

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America that the body in charge of the administration of the Securities Act does not guarantee the soundness of the security, but only that it is honestly represented; whereas, with reference to this we assume a certain responsibility with reference to the soundness of the security in that we set up a regulatory body which is to eliminate price fuctuations influenced by fraud, pool transactions, and so forth. Therefore, it would seem to me there is some argument for segregating the two functions, otherwise, the public might get the impression that on the initial issue of securities, through the Securities Act, we are assuming a definite responsibility that they are sound which we have expressly said we are not assuming. I would like your

views on that. Mr. DICKINSON. I think that there is a great deal in what you say, Mr. Pettengill. As I stated to Mr. Wolverton a moment or two ago, I have not thought this problem out very thoroughly. I think it is perfectly true that if you give to the public the idea that the body which is passing on the securities initially is going to watch them all along through the course of their trading, and so on

Mr. PETTENGILL. That is the question.

Mr. DICKINSON (continuing). The public might get the idea that the Government is, as it were, taking the securities by the hand and leading them across the street and that they will be relieved from any personal obligation to look out for what they invest their money in.

Mr. PETTENGILL. Pretty soon in the public mind they will build up a legal obligation upon the moral responsibility they conceive, the same as they have with reference to the joint-stock land banks.

Mr. DICKINSON. Yes, sir.
Mr. COLE. Mr. Chairman-
The CHAIRMAN. Mr. Cole.

Mr. COLE. At this point, I would like to suggest that the Roper report be included in the record.

The CHAIRMAN. I think it was put in at the beginning of the hearings.

Mr. Dickinson, we are very much obliged to you, and I am sure we will bother you some more.

Mr. DICKINSON. Thank you, very much, Mr. Chairman.

Mr. HOLMES. Mr. Chairman, I would like to include in the record a communication from the Chamber of Commerce of Springfield, Mass.

Mr. BULWINKLE. I suggest, Mr. Chairman, that we not fill the record up with letters and telegrams from chambers of commerce.

The CHAIRMAN. I have a letter here from Mr. Maloney, enclosing the statement from Mr. E. Kent Hubbard, Manufacturers' Association of Connecticut, 50 Lewis Street, Hartford, Conn., which will be included in the record. Also a letter from the Eastern Broker Division of the Commercial Telegraphers' Union of North America, which will be included in the record.

(The matter referred to is as follows:)

CONGRESS OF THE UNITED STATES,

HOUSE OF REPRESENTATIVES,

Washington, D.C., March 2, 1934. Hon. Sam RAYBURN,

House Office Building, Washington, D.C. My Dear CONGRESSMAN: In accordance with a request that I have just received from Mr. E. Kent Hubbard, Manufacturers Association of Connecticut, 50 Lewis Street, Hartford, Conn.,' I am asking that the attached statement concerning S. 2693 and H.R. 7852 be incorporated in the record of the hearings on the House bill. Sincerely yours,

FRANCIS MALONEY.

Stock ExchaNGE BILLS-S. 2693 AND H.R. 7852

S. 2693 and H.R. 7852, the first introduced by Senator Fletcher and the second by Representative Rayburn, are identical and cover 49 pages. S. 2693 would provide for the registrat on of National Securities Exchanges, operating in interstate and foreign commerce, and through the mails, and is intended to "prevent inequitable and unfair practices on such exchanges.

On its face, the bill is intended to regulate stock exchanges, but the bill inciudes many provisions which directly and seriously affect manufacturing establishments. The measure is largely devoted to placing in the hands of the Federal Trade Commission most unusual powers of supervision and control over stockholders and managements of industrial corporations. The Federal Trade Commission would have complete control of the listing and permission to trade in securities of corporations upon any exchange. The Commission, under the bill, is empowered to set up its own rules and regulations and exercises wide authority through the imposition of penalties.

Section 1 cites the act as the “National Securities Exchange Act of 1934".

Section 2 attempts to point out the method used in transactions in securities and the practices which allegedly led to abuses.

Section 3 contains definitions of the terms used in the act.

Sections 4, 5, 6, 7, 8, 9, and 10 define the conduct of the brokers and dealers on exchanges in connection with the methods of trade. Among other things, it is provided that exchanges may not employ the mails or any of the other facilities of interstate commerce to report security transactions until such exchange has been registered with the Commission.

Section 11 relates to the registration requirements for securities. No trade can be made on any security exchange unless the security involved is registered. The Commission may require the filing of any and all sorts of information and documents. The Commission, upon certification, causes the registration to become effective 30 days after approval. An undertaking on behalf of officers, directors, and stockholders to comply with the provisions of the act and all rules and regulations of the Commission is mandatory. No funds may be lent to the money market of any exchange or to any person dealing in securities, except under the Commission's rules and orders, unless the registered corporation is a member of the Federal Reserve System. As a further condition of registration, the Commission requires information in regard to the organization's financial structure and the nature of the business; particulars regarding the terms, position, rights, and privileges of the various classes of securities outstanding; particulars regarding terms in which securities have been or are to be offered to the public, particulars regarding the directors, officers, and principal security holders and underwriters, their remuneration and their interests in the securities and material contracts with the issuer and affiliates; particulars regarding remuneration to others than officers and directors exceeding $20,000 per year; particulars regarding bonus and profit-sharing arrangements; particulars regarding management and service contracts; particulars regarding all options in respect to securities existing or to be created; particulars regarding material contracts not made in the ordinary course of business and material patents; balance sheets for preceding years, certified by independent public accountants; profit and loss statements for preceding years, certified by independent public accountants; and such other information as the Commission may, by rules and regulations, require as necessary and appropriate in the public interest or for the protection of investors; copies of articles of incorporation, bylaws and other documents of the issuer and affiliates which the Commission, by rules and regulations, may require as necessary in the public interest or for the protection of investors.

America that the body in charge of the administration of the Securities Act does not guarantee the soundness of the security, but only that it is honestly represented; whereas, with reference to this we assume a certain responsibility with reference to the soundness of the security in that we set up a regulatory body which is to eliminate price fluctuations influenced by fraud, pool transactions, and so forth. Therefore, it would seem to me there is some argument for segregating the two functions, otherwise, the public might get the impression that on the initial issue of securities, through the Securities Act, we are assuming a definite responsibility that they are sound which we have expressly said we are not assuming. I would like your views on that.

Mr. DICKINSON. I think that there is a great deal in what you say, Mr. Pettengill. As I stated to Mr. Wolverton a moment or two ago, I have not thought this problem out very thoroughly. I think it is perfectly true that if you give to the public the idea that the body which is passing on the securities initially is going to watch them all along through the course of their trading, and so on

Mr. PETTENGILL. That is the question.

Mr. DICKINSON (continuing). The public might get the idea that the Government is, as it were, taking the securities by the hand and leading them across the street and that they will be relieved from any personal obligation to look out for what they invest their money in.

Mr. PETTENGILL. Pretty soon in the public mind they will build up a legal obligation upon the moral responsibility they conceive, the same as they have with reference to the joint-stock land banks.

Mr. DICKINSON. Yes, sir.
Mr. COLE. Mr. Chairman-
The CHAIRMAN. Mr. Cole.

Mr. COLE. At this point, I would like to suggest that the Roper report be included in the record.

The CHAIRMAN. I think it was put in at the beginning of the hearings.

Mr. Dickinson, we are very much obliged to you, and I am sure we will bother you some more.

Mr. DICKINSON. Thank you, very much, Mr. Chairman.

Mr. HOLMES. Mr. Chairman, I would like to include in the record a communication from the Chamber of Commerce of Springfield, Mass.

Mr. BULWINKLE. I suggest, Mr. Chairman, that we not fill the record up with letters and telegrams from chambers of commerce.

The CHAIRMAN. I have a letter here from Mr. Maloney, enclosing the statement from Mr. E. Kent Hubbard, Manufacturers' Association of Connecticut, 50 Lewis Street, Hartford, Conn., which will be included in the record. Also a letter from the Eastern Broker Division of the Commercial Telegraphers' Union of North America, which will be included in the record.

(The matter referred to is as follows:)

CONGRESS OF THE UNITED STATES,

HOUSE OF REPRESENTATIVES,

Washington, D.C., March 2, 1934. Hon. SAM RAYBURN,

House Office Building, Washington, D.C. MY DEAR CONGRESSMAN: In accordance with a request that I have just received from Mr. E. Kent Hubbard, Manufacturers Association of Connecticut, 50 Lewis Street, Hartford, Conn., I am asking that the attached statement concerning S. 2693 and H.R. 7852 be incorporated in the record of the hearings on the House bill. Sincerely yours,

FRANCIS MALONEY.

STOCK EXCHANGE Bills–S. 2693 AND H.R. 7852

S. 2693 and H.R. 7852, the first introduced by Senator Fletcher and the second by Representative Rayburn, are identical and cover 49 pages. S. 2693 would provide for the registrat on of National Securities Exchanges, operating in interstate and foreign commerce, and through the mails, and is intended to "prevent inequitable and unfair practices on such exchanges.

On its face, the bill is intended to regulate stock exchanges, but the bill inciudes many provisions which directly and seriously affect manufacturing establishments, The measure is largely devoted to placing in the hands of the Federal Trade Commission most unusual powers of supervision and control over stockholders and managements of industrial corporations. The Federal Trade Commission would have complete control of the listing and permission to trade in securities of corporations upon any exchange. The Commission, under the bill, is empowered to set up its own rules and regulations and exercises wide authority through the imposition of penalties.

Section 1 cites the act as the “National Securities Exchange Act of 1934”.

Section 2 attempts to point out the method used in transactions in securities and the practices which allegedly led to abuses.

Section 3 contains definitions of the terms used in the act.

Sections 4, 5, 6, 7, 8, 9, and 10 define the conduct of the brokers and dealers on exchanges in connection with the methods of trade. Among other things, it is provided that exchanges may not employ the mails or any of the other facilities of interstate commerce to report security transactions until such exchange has been registered with the Commission.

Section 11 relates to the registration requirements for securities. No trade can be made on any security exchange unless the security involved is registered. The Commission may require the filing of any and all sorts of information and documents. The Commission, upon certification, causes the registration to become effective 30 days after approval. An undertaking on behalf officers, directors, and stockholders to comply with the provisions of the act and all rules and regulations of the Commission is mandatory. No funds may be lent to the money market of any exchange or to any person dealing in securities, except under the Commission's rules and orders, unless the registered corporation is a member of the Federal Reserve System. As a further condition of registration, the Commission requires information in regard to the organization's financial structure and the nature of the business; particulars regarding the terms, position, rights, and privileges of the various classes of securities outstanding; particulars regarding terms in which securities have been or are to be offered to the public, particulars regarding the directors, officers, and principal security holders and underwriters, their remuneration and their interests in the securities and material contracts with the issuer and affiliates; particulars regarding remuneration to others than officers and directors exceeding $20,000 per year; particulars regarding bonus and profit-sharing arrangements; particulars regarding management and service contracts; particulars regarding all options in respect to securities existing or to be created; particulars regarding material contracts not made in the ordinary course of business and material patents; balance sheets for preceding years, certified by independent public accountants; profit and loss statements for preceding years, certified by independent public accountants; and such other information as the Commission may, by rules and regulations, require as necessary and appropriate in the public interest or for the protection of investors; copies of articles of incorporation, bylaws and other documents of the issuer and alliliates which the Commission, by rules and regulations, may require as necessary in the public interest or for the protection of investors.

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