Mr. MAPES. Do you think

Mr. SMITH (Continuing). In a measure of this kind.

Mr. MAPES. Do you think it is a desirable regulation of the stock exchanges?

Mr. SMITH. Now, wait, let me see what I think about it. First, I am going to say, of course, that certain undesirable consequences follow any measure as broad as this. We cannot get so comprehensive a measure through and not inconvenience someone. When you get a patient on the table for an operation there is bound to be some blood, and that is just what we feel about this. That is what we say in the

statement.

Mr. PETTENGILL. You say in the statement that it would minimize the dangers.

Mr. SMITH. Previous adverse effect. And this is based on the desire to eliminate the floor trader. Of course, you see what they are aiming at.

Mr. MAPES. Do you think that is a desirable provision?

Mr. SMITH. I am not able to answer that question. We have not the

Mr. MAPES. We have got to answer it.

Mr. SMITH. Yes. I am sorry but I have not, we have not made any studies on whether the floor trader should be eliminated or not. That is a question of control of stock exchanges.

Mr. MAPES. I have not been able to study this new draft as carefully as I should like, but I notice, I have put a question mark after this sentence, on page 17, line 21, "it shall be unlawful for odd-lot dealer to act as broker."

We

What are the arguments pro and con on that subject? Mr. SMITH. That is something I cannot answer. That comes under whoever you are consulting about stock-exchange procedure. did not think that the question of the odd-lot broker had anything very much to do with Government financing and banking and therefore did not consider it, because of the short time to study that part of the bill. I cannot answer, I am sorry to say.

Mr. MAPES. In other words, when you say that you approve of section 10

Mr. SMITH (interposing). I said

Mr. MAPES (continuing). You approve of it simply as not interfering with Government financing, and pass no judgment upon the desirability or undesirability of it so far as a proper regulation of the stock exchanges and of the business of the country is concerned, is that correct?

Mr. SMITH. That is not our opinion. Our opinion is, in general, and in principle, that this section is satisfactory to us. I do not think the question of the odd-lot broker has any general effect on what we are doing, or has any great bearing on it. That is our viewpoint.

Mr. MAPES. Do you think it will have any bearing on the public welfare in general?

Mr. SMITH. Yes, some. You can work it out now through stockexchange experts. The thing we are interested in in this section is preserving the broker-dealer.

This committee is probably consulting someone concerning stock exchanges and practices on the exchanges. We have learned some

thing about them in the past 10 days; there is a great deal more for us to learn, and the men whom you are consulting

Mr. MAPES. I am not trying to be controversial, but for one I should like to have before the committee the testimony of men like yourself who are willing to say that specific provisions in this bill are all right

Mr. SMITH (interposing). If you will ask me about anyone. We did not consider all.

Mr. MAPES (continuing). Or not.

Mr. SMITH. I will answer any definite question about definite proposition of the bill.

Mr. MAPES. Well, I am asking you about that one.

Mr. SMITH. That was not submitted to the Treasury for consideration.

Mr. MAPES. And you passed no judgment upon it?

Mr. SMITH. That is correct.

Mr. MAPES. The provision on page 30, Mr. Smith, relating to specialists acting as brokers, and as dealers.

Mr. SMITH. That section of the bill was submitted to us as being a part of the procedure to eliminate the floor trader and

Mr. MAPES. As I understood you, you do not express an opinion as to whether the floor trader should be eliminated or not.

Mr. SMITH. We are not expressing an opinion upon that phase of the bill.

Mr. MAPES. Mr. Smith

The CHAIRMAN. May I make a statement.

During the hearings here that lasted about 3 weeks, there constantly came up, and it was very properly brought up, that the committee would like to know from the Treasury and the Federal Reserve Board, what they thought about the provisions of the bill having to do with banks, banking credits, Government financing, and so forth, and I told the President that, and he communicated with Mr. Smith and with Governor Black and asked them to study the bill with reference to those sections and when Mr. Smith says that he was not asked to do things, other things, it was not that anybody who had anything to do with the drafting of the bill was not perfectly willing to submit anything to the Treasury or the Federal Reserve Board; but on the specific questions that had been raised by the committee, the President asked the Treasury and the Federal Řeserve Board to study this bill.

Mr. SMITH. And, of course, we did.

The CHAIRMAN. I understand what Mr. Smith is stating to the committee, which is entirely a frank statement and entirely a true statement, that is, after they studied this bill for 8 days, with reference to those particular things, that it is satisfactory to the Treasury, so far as they are concerned, and that he did not go into a great many of the technicalities of the bill, because he was not asked to.

Mr. SMITH. That is correct, and I cannot express an opinion about anything that we did not study.

The CHAIRMAN. Exactly. And, there has not been any other condition, Mr. Smith.

Mr. SMITH. No, sir; absolutely not.

Mr. CHAIRMAN. And, it was not, Mr. Smith

Mr. SMITH. No; absolutely not.

The CHAIRMAN (continuing). That the sections of this bill that you have no practical knowledge that you disapprove them any more than you approve them.

Mr. SMITH. That is correct.

Mr. MAPES. I think I understand the position of Mr. Smith, Mr. Chairman.

The CHAIRMAN. Well, what I said was not in criticism of your statement at all. I just wanted to bring that out.

Mr. MAPES. I am in a good deal of the same position as Mr. Smith. I quite approve of the general purposes sought to be accomplished by this legislation, but in enacting it into law we have got to study individual and specific provisions and I was endeavoring to find out, to get Mr. Smith's judgment on some of the specific provisions.

Mr. SMITH. You happen to be asking about the ones we did not study.

Mr. MAPES. You said that you studied section 10.

Mr. SMITH. We did study part of section 10.

Mr. MAPES. In view of your general statements I have got to ask specific questions in order to get specific knowledge.

Mr. SMITH. I will be glad to answer.

Mr. MAPES. I say again I do not want to be controversial at all. Mr. SMITH. Surely. That is all right. It is a part of this life. Mr. MAPES. Let me ask you, did you study section 11?

Mr. SMITH. We did not.

Mr. MAPES. Mr. Smith, there is a provision in lines 23 and 24, giving the Federal Reserve Board apparently power to regulate loans to members of the stock exchanges.

Mr. SMITH. Well, that is an independent transaction, previously announced in connection with another question.

Mr. MAPES. That is quite independent of banks, is it not, and I wonder just why that was put in.

Mr. SMITH. I could not tell you why it was put in. It was in there when the bill was presented to us.

Mr. MAPES. Do you think

Mr. SMITH (interposing). We offered no objection to it.

Mr. MAPES. You did not object to it?

Mr. SMITH. No, sir.

Mr. MAPES. You did not suggest it yourself?

Mr. SMITH. No, sir. I think that it was in there when the bill was presented. We did not make any suggestions concerning 11, I think. Mr. MAPES. That seems to permit the Federal Reserve Board to go outside its banking connections.

Mr. SMITH. What was the last question?

Mr. MAPES. I say, a hasty reading of that seems to indicate that it authorizes the Federal Reserve Board to go outside of its banking connections in regulating loans.

Mr. SMITH. Well, the section as drafted was satisfactory to us. I mean that provision of the section. We did not consider the regulatory part of it at all.

Mr. MAPES. You see the following language reads:

Provided, That the provisions of this paragraph in regard to lending shall not apply to a member bank of the Federal Reserve System.

That particular provision seens to authorize the Federal Reserve ard to make the regulations for brokers' loans.

Mr. SMITH. Loans at the post.

Mr. MAPES (Continuing). Independent of the banks.

Mr. SMITH. We went through that section and it did not arouse, or bring forth any suggestions on our part.

Mr. MAPES. What is the purpose of that particular provision?
Mr. SMITH. I will read it over. I cannot remember it.

The CHAIRMAN. I might say the purpose of that, in bringing the Federal Reserve in there, is because it does have to do with lending. Mr. SMITH. It is the lending of the issuer.

The CHAIRMAN. And there was expressed here, especially by the opponents to the bill, and by those favorable to it, that upon anything that had to do with banks or bank credits and Government financing in anywise, before the Commission should make a final order, that they should at least have the approval of the Treasury and/or the Federal Reserve Board.

Mr. KENNEY. Mr. Chairman.

Mr. MAPES. That seems to me to say that an issuer, before borrowing money from a broker, even on the floor of the exchange, must comply with the regulations of the Federal Reserve Board.

Mr. SMITH. As I recall now, that provision of the bill was to prevent dumping outside money in the call market.

Mr. MAPES. Yes.

Mr. SMITH. And met with our approval. This is a long bill, and sometimes we do not recall all of its provisions.

Mr. MAPES. Yes; I appreciate that, Mr. Smith. Did you examine the provisions with regard to proxies?

Mr. SMITH. We have no suggestions to offer concerning that. That is a part of the regulatory powers of the bill about which we were not supposed to offer an opinion.

Mr. MAPES. That is all I want to ask.

The CHAIRMAN. Mr. Wolverton.

Mr. WOLVERTON. Mr. Smith, does the Treasury Department approve this bill or not?

Mr. SMITH. That, I thought-I should say that has been covered by previous questions.

Mr. WOLVERTON. Well, is your answer that it does or does not, in whole or in part?

Mr. SMITH. The Treasury approves the part of the bill that was submitted for our consideration. We were not asked to

Mr. WOLVERTON. Did the Treasury see this bill before it had been completed in final draft as it now appears before this committee as H.R. 8720?

Mr. SMITH. Did I?

Mr. WOLVERTON. Yes.

Mr. SMITH. Yes, sir.

Mr. WOLVERTON. Did you have an opportunity to read it?

Mr. SMITH. Yes, sir.

Mr. WOLVERTON. Do you favor it or not?

Mr. SMITH. As I have explained before, I am not in a position to answer that question at all.

Mr. WOLVERTON. Why not?

Mr. SMITH. I represent the Treasury here, and in that capacity I am answering questions as to things that have been submitted to us.

Mr. WOLVERTON. You mean you were sent here with instructions not to give an opinion on this bill?

Mr. SMITH. No, sir.

Mr. WOLVERTON. Except as to certain particulars?

Mr. SMITH. No, sir; but I prefer not to, because I am representing the Treasury.

Mr. WOLVERTON. Well, this bill has a very wide scope. Mr. SMITH. That does not mean one thing or another. It simply means that I am voicing the opinion of the Treasury as approved by the Secretary of the Treasury, and that is what we are saying.

Mr. WOLVERTON. Then, there is no misunderstanding upon my part that the Treasury does not wish to be considered here today as approving this bill?

Mr. SMITH. Now, wait a minute, or as disapproving it.

Mr. WOLVERTON. Then, what was the use of coming?

Mr. SMITH. Well, we were invited by your chairman to answer certain questions as to things that were submitted to us.

Mr. WOLVERTON. You do not mean that you were asked to come here to answer only certain questions?

Mr. SMITH. About certain sections, parts of the bill, matters that have been submitted to us.

Mr. WOLVERTON. So that, notwithstanding the fact that you have read this bill through and have asked that you be given a further opportunity to present your views, you do not wish today to do so?

Mr. SMITH. We have been asked to come here to answer your questions, about certain parts of the bill that were submitted for our consideration, and about those I shall be glad to attempt to answer your questions, for the Treasury. I am sorry that I cannot answer anything else.

Mr. WOLVERTON. You have stated that the major objectives of this National Securities Exchange Act are:

(1) To establish Federal supervision over securities exchanges.

(2) To prevent manipulation of security prices, etc.

(3) To prevent excessive fluctuations in security prices, etc.

(4) To discourage the use of credit

And so forth.

And you have stated that with these general objectives, the Treasury is in full accord?

Mr. SMITH. Yes, sir.

Mr. WOLVERTON. Are you in accord with the means that have been provided in this bill to carry out those general objectives?

Mr. SMITH. The parts that have been submitted to us are satisfactory.

Mr. WOLVERTON. Well, notwithstanding the fact that you are in full accord with the objectives of the bill, do you mean to say that you are not interested in that

Mr. SMITH. Your committee has not submitted those things for our consideration.

Mr. WOLVERTON. I beg your pardon?

Mr. SMITH. Your committee did not submit those things for our consideration.

Mr. WOLVERTON. Well

Mr. SMITH. How can we pass on them until they ask us about them? It cannot be done.