Mr. PETTENGILL. Then, as the market is today, you do not think the margin requirements of the bill alone would be deflationary? Mr. WHITNEY. No; not alone, sir.

Mr. PETTENGILL. Well, what other factors, then, outside of the delisting of stocks now on the exchanges would, in your judgment, cause deflation?

Mr. WHITNEY. I said three points, in particular: The margin requirements, the segregation and the registration.

I wish to make it clear, Mr. Pettengill

Mr. PETTENGILL. Now, with reference to margins, will they not affect the market immediately if the bill went into effect tomorrow, do you think they would tend to prevent recovery?

Mr. WHITNEY. Absolutely; and I think it would tend to prevent the purchase, vitally prevent the purchase of securities on margins, as they fell.

Mr. PETTENGILL. If there was a general decline, what would be the effect upon Government securities?

Mr. WHITNEY. If people lose confidence in the securities of industry, I have always felt, sir, that the Government's ability to pay out money for this purpose or that, is based on its ability to get money in taxes from industry, and if industry shows slack and poor business, the same will affect the Government and therefore Government securities.

Mr. PETTENGILL. There is a statement in the preamble in this bill, to the effect that national credit is intimately affected by the prices at which securities are sold on the exchanges. Do you agree with that general statement?

Mr. WHITNEY. The general statement; yes, sir.

Mr. PETTENGILL. That is all.
Mr. WOLVERTON. Mr. Chairman-

The CHAIRMAN. Mr. Wolverton.

Mr. WOLVERTON. Mr. Whitney, you have stated that this bill, if enacted in its present form, would in your opinion be disastrous in its effect on our recovery program.

Mr. WHITNEY. Yes, sir.

Mr. WOLVERTON. You have stated in answer to Mr. Pettengill's questions that you were led to that conclusion because of the numerous replies you have received from large corporations of the country, that if this bill becomes effective they would delist their stocks from the exchange listings.

What reasons did they give?

Mr. WHITNEY. I wish to make it very clear that in answer to Mr. Pettengill I stated my reasons for my statement were based on, primarily, on margin requirements, as stated in the bill; on the segregation clause, and on the registration of securities, and as a part of the latter I cited the word from corporations that they would delist their stocks. Their reasons, sir, although not necessarily given in detail, were in the main to the effect that the requirements set forth in the bill as to reports, as to the forms and the general control exercised or that could be exercised by the Commission over them would be so onerous that they would prefer to have their securities delisted.

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Mr. WOLVERTON. Do the amendments which you have suggested or offered answer this criticism?

Mr. WHITNEY. It is our belief, Mr. Wolverton, they do, absolutely. Mr. WOLVERTON. If they should delist their stocks, would it have the effect of putting them into over-the-counter trading?

Mr. WHITNEY. Absolutely.

Mr. WOLVERTON. And would it then be your opinion that this bill should include the licensing of this over-the-counter business?

Mr. WHITNEY. My private opinion is, there is no ability to so handle over-the-counter business.

Mr. WOLVERTON. You mean no ability from the standpoint of practicability, or from the standpoint of legality?

Mr. WHITNEY. Both. In other words, the street market, where one individual meets another and wishes to trade and does tradewe have had many instances of it, sir, when the exchange has been closed, during the War and during the bank holiday last year. It just cannot be, from either practicability or legality, as we believe, or let me say, as I believe, cannot be controlled.

Mr. WOLVERTON. The reason I am asking the question in connection with what you have already testified to is the report of the Twentieth Century Fund, in which they state, quoting from that report and referring to over-the-counter markets:

They are a vast proportion and they would serve as a refuge for any business that might seek to escape the discipline of the exchanges and the more exacting that discipline is, the greater the temptation to escape from it.

I rather feel that confirms the statement you have made; but the report goes on to state:

To leave the over-the-counter markets out of the regulatory system would be to destroy the effects of regulating organized exchanges.

Do you agree with that statement?

Mr. WHITNEY. Yes, in general, I would; but not taking back what I said, that I thought their regulation was well nigh impossible. Mr. PETTENGILL. Like the eighteenth amendment?

Mr. WHITNEY. Very much so; and I stayed off of that, because I was criticized for making that reference in the Senate committee; but the street trader, bootlegger, is going to grow up and always has, gentlemen, when the organized exchanges have been closed.

Mr. WOLVERTON. Do you

Mr. PETTENGILL. Pardon me, Mr. Wolverton.

Mr. WOLVERTON. Certainly. I do not desire to go further into the details of this report, but anyone interested will find them set forth at pages 168 and 169 of the report. I would like to have your opinion, but I realize the time will not permit us to go into that.

The CHAIRMAN. Mr. Whitney, how could the segregation provision of this bill have any influence on listing or delisting of securities, when it deals with broker-dealers, floor traders, specialists, and so forth?

Mr. WHITNEY. It has not got anything to do with it.

The CHAIRMAN. You said just a moment ago in reply to Mr. Wolverton, that one of the three things that would cause securities to be delisted was segregation.

Mr. WHITNEY. I beg your pardon. If I said that, that was quite incorrect. I said that the three things, primarily, that I thought

would lead to a deflationary market, bringing disaster to the country, were margin requirements contained in the bill, the segregation provisions of the bill, and the registration of securities.

Was I clear in what you understood me to say?

Mr. PETTENGILL. That is the way I understood it.

Mr. WHITNEY. I did not mean to give that impression. I apologize if I did.

The CHAIRMAN. I thought when you turned to Mr. Wolverton, that was the answer you made to him.

What is there in the margin requirements of the section that would cause the delisting of securities?

Mr. WHITNEY. Nothing, sir.

The CHAIRMAN. Then the delisting would come only under the regulatory provision?

Mr. WHITNEY. Of the registration of securities; yes.

The CHAIRMAN. Registration of securities?

Mr. WHITNEY. Yes, sir.

The CHAIRMAN. And you think that that provision is of such a nature that it would cause the delisting of securities?

Mr. WHITNEY. I am sure of it. And, I would prefer, howeverThe CHAIRMAN (interposing). Does a listed security have an advantage over an unlisted security?

Mr. WHITNEY. It has some; yes.

The CHAIRMAN. Well, is it material?

Mr. WHITNEY. At the present time I believe it is considered material, or else they would not list.

In that connection, I am sorry that the gentleman is not here to do it himself, but Mr. Corcoran the other day made a statement that was just not so, and I imagine that he made it because of lack of knowledge or just in error. He said that the New York Stock Exchange sought to prevent delisting of securities listed on that exchange, sought to prevent their being listed on other exchanges. That is not the fact. The rules of the exchange prevent securities listed on its exchange, and deals with its members, so in transacting business in such securities on any exchange in the city of New York. Quite on the contrary, we advocate the listing of New York stock securities on other exchanges, fully listed outside of the city of New York.

And I just tried to review my memory this morning, and asked the gentlemen from Chicago, and the president of the Association of Stock Exchanges, if I did not speak on that subject last June in Chicago, and they told me that I did.

We advocate, rather than try to prevent, the listing of listed securities on other exchanges outside of the city.

Mr. Corcoran, I think, is just misinformed.

Mr. MARLAND. Mr. Chairman, may I ask a question?

The CHAIRMAN. Mr. Marland.

Mr. MARLAND. Mr. Whitney, Mr. Tom K. Smith, assistant to the Secretary of the Treasury, yesterday made a statement in which he said that the Treasury was fully in accord with the four major objectives of this act.

You remember that the first was to establish Federal supervision over securities.

You are, or the New York Stock Exchange is, in accord with that? Mr. WHITNEY. Yes, sir.

Mr. MARLAND. With the four principles he enumerated?

Mr. WHITNEY. Well, if you will read them. Number 1 was supervision or regulation.

Mr. MARLAND (reading). “(1) To establish Federal supervision over securities exchanges.

Mr. WHITNEY. We advocate that.

Mr. MARLAND (reading). “(2) To prevent manipulation of security prices, and to protect the public against unfair practices.

Mr. WHITNEY. Where that is unfair; yes, sir.

Mr. MARLAND (reading). “(3) To prevent excessive fluctuations in security prices due to speculative influences."

Mr. WHITNEY. Yes, sir; if it can be done.

Mr. MARLAND (reading). "(4) To discourage the use of credit in the financing of excessive speculation in securities.

Mr. WHITNEY. Absolutely.

Mr. MARLAND. That is all.

The CHAIRMAN. We are much obliged to you, Mr. Whitney.
Mr. WHITNEY. Thank you, Mr. Chairman and gentlemen.
The CHAIRMAN. We will hear Mr. Lothrop Withington.

STATEMENT OF LOTHROP WITHINGTON, REPRESENTING A COMMITTEE OF NEW ENGLAND SECURITY DEALERS, BROKERS, AND DEALER-BROKERS

Mr. WITHINGTON. Mr. Chairman and members of the committee, my name is Lothrop Withington. I am not a security dealer or broker, but I am an attorney representing a committee of New England security dealers, brokers, and dealer-brokers.

In that respect, I think New England is perhaps unique in its representation, by a committee that has all of the different phases of security interests in its membership.

I speak this morning through the courtesy of this committee, not only for New England but by the courtesy and permission of the Chicago Exchange, for Chicago, because the principal matters in which Boston and Chicago are interested are fundamentally the same. Chicago is the largest exchange outside of New York City, and Boston has the largest exchange, next to Chicago, outside of New York City.

The consideration which most vitally concerns us from the New England and the Chicago aspect is the fact that we believe there is a general misapprehension with regard to the real and sincere desire of exchanges for regulation. I have yet to find any exchange that has not only reached the conclusion that they are going to be regulated, but welcomes regulation, if it is a regulation which will make them better market places and will eliminate practices which have brought down a national condemnation upon exchanges-abuses which should be corrected.

In this connection, I believe, and I want to approach this matter with the belief that this committee is not interested in unduly restricting exchanges or interferring with their legitimate functions, but is interested solely in the regulation of exchanges by laws which will Dermit the widest, freest, and fairest market for securities.

And, gentlemen, in that respect, may I say that in New England we are fearful that the only liquid form of wealth that is left, the security wealth of this Nation, may be by unfortunate legislation put in the same category that real estate is at the present time.

I understand that there are at the present time some 31⁄2 to 4 billion dollars loaned by banks in the United States upon securities. We are not so much concerned with the fear that banks will lose by enforced liquidation of those security loans, as we in New England and Chicago, are concerned with the fear that individuals who own securities throughout this country will become affected by the fact that banks cannot liquidate those loans, and therefore the values of those securities will disappear.

The CHAIRMAN. Just what specific provision of this bill will force that liquidation?

Mr. WITHINGTON. Mr. Chairman, the first provision of the bill which I think forces that liquidation, is the provision with regard to margins, with regard to the suggestion that it be placed

The CHAIRMAN. You are talking about loans that are already in existence?

Mr. WITHINGTON. Mr. Chairman, I am talking about loans that are in existence as affected by the values of securities as they appear in the quotations of the markets of this country.

Unless those loans are so far under water that there is no use of liquidation, if there is not, and adequate market to absorb the liquidation of those securities, then those loans cease to be good loans and the values of the securities generally are certainly affected, because the loan values have disappeared.

The CHAIRMAN. What is there in this bill that will force the banker to call that loan?

Mr. WITHINGTON. If the values of securities disappear in quotations on the exchanges, those loans would have to be liquidated by banks, and as they saw the values decrease

The CHAIRMAN. They would have to be?

Mr. WITHINGTON. Well, if they could be liquidated.

The CHAIRMAN. I am not talking about that. We are not running the banks. We have nothing to do with when a bank can call its loan or tells a fellow that he has got to pay, or who is to tell them when; but is there anything in this bill that forces a man out who is in now, who has a loan now?

Mr. WITHINGTON. Yes, Mr. Chairman. If the value of the securities which are held in the portfolio of the bank as collateral for loans, values, as they appear on the market places and exchanges of the country, if they show a downward tendency, it is bound to result in the liquidation of loans on securities, and the throwing on the market of additional securities is going to further force the market down.

Mr. LEA. That statement, I take it, is based upon the assumption that the enactment of this bill would reduce the market prices of securities. Is that the idea?

Mr. WITHINGTON. Yes, Mr. Lea.

Mr. LEA. Well, why would this margin requirement force a decrease in the market prices of stocks?

Mr. WITHINGTON. Because, I am informed-I will have to take the statement of gentlemen who are more and better informed on those matters than I-that unless there is a certain amount of specu