of the little fellow, the small investor, who wants to buy a few shares of stock, would be impossible. He would be deprived of the service. of those exchanges, because the broker could not make a living taking care of his orders, because, as you gentlemen know, the odd-lot dealer has to take, buy, or sell, the odd lot, when it is presented.

Mr. WOLVERTON. Mr. Chairman

The CHAIRMAN. Mr. Wolverton.

Mr. WOLVERTON. Mr. Worthington, you frequently refer to the Boston and Chicago Stock Exchanges. I assume that you do so because you are only authorized to speak for them; but it is not a fact that the statements that you are making with respect to them would apply as well to Philadelphia, Cleveland, Baltimore, San Francisco, and all of the other cities that have smaller exchanges?

Mr. WITHINGTON. Mr. Wolverton, when I came to Washington, I was entirely new in this sort of a problem. I have never been, before this occasion, counsel for the Boston Stock Exchange. Because of that fact and the fact that our committee is a cross-section of the security business, I think that I have perhaps enjoyed the confidence of more groups than any one else. These groups, because of long contact, had become suspicious that each group was trying to write into the bill some express provision which would take care of their situation, but I have come to the conclusion, after talking with all of those groups, that there can be no rule written in the section which is a hard and fast rule; that there must be opportunity and responsibility on the part of the people who are to make the decision to make a decision which they can change if it is wrong; but if it is right, they will be adhered to, approved by the exchanges.

When I say I represent others, I do not, but I have talked with others, and they are entirely in accord with me in that position, and again I say, the provision which Mr. Whitney wrote, by virtue of the very fact that unless this was insisted upon, trouble would result, was written with the approval and help of representatives of other exchanges in the belief that the rule should be applied equally to all and not as a special privilege to a few.

Mr. WOLVERTON. I asked the question because I did not want it to be assumed from your reference to Boston and Chicago, that they had a peculiar situation that in any way changed their status from those in other cities conducting a similar business.

Mr. WITHINGTON. I think it is fair to say that Boston-Chicago situation is the same situation which affects Buffalo, Detroit, St. Louis, New Orleans, Los Angeles, San Francisco, Denver, and all others. I feel certain of that fact.

Now, Mr. Chairman, I do not want to talk further about the matter segregation. If I have gone too far

The CHAIRMAN. You do not think that there ought to be any legislation with reference to segregation?

Mr. WITHINGTON. No, Mr. Chairman, I do not think that at all. I said that I believed there should be written into the law a permission of the broker-dealer activities, as provided in section 10 (d), but with regard to brokers acting as dealers on the floor of the exchange, the commission should be given full arbitrary and uncontrolled power to make rules which would control those exchanges and could be put in any time that the commission was satisfied that that function resulted in abuses, and not a useful purpose.

Mr. MAPES. Mr. Chairman

The CHAIRMAN. Mr. Mapes.

Mr. MAPES. If the commission that administers this law reached the conclusion that regulations ought to be formulated about as written in section 10 governing the activities of dealers and specialists and brokers, and so on, and made such regulations, the only advantage in your suggestion would be that the commission, if it found that the regulations did not work out well, could change them more quickly than Congress. That would be practically the only advantage?

Mr. WITHINGTON. Yes, Mr. Mapes; they would be in position where the responsibility was on them, and if the investing public was injured, they would not be in a position to say that it was Congress that legislated it into the law, and "we are helpless to change it." The other and final suggestion which I wish to make is the suggestion with regard to the general effect of legislation, of exchange regulation.

I sincerely wish that it were possible to approach it from an entirely different angle. I wish that the theories of the draftsmen and the proponents were not so widely and far apart from the views of the exchanges themselves, that we might sit down and approach it from another angle. I realize that that is impossible; but I do want to urge before this committee this fact, that after all is said and done, there are certain things that the country, Congress and the exchanges, are in accord with. There are certain manipulative illegal practices which should be legislated against, and Congress will find the exchanges as glad as anybody to see teeth put in a bill with regard to those manipulative practices.

I think that most of them are covered by section 8 of the bill. Unfortunately, I think many of them are worded in such a way as to be so general that no jury, as a practical matter would convict. I think that certain of them should be put down, branded as manipulative and illegal practices, and that the full force of the Federal Government with regard to the use of the mails, facilitites of interstate commerce, or the facilities of the exchanges, should be used to punish and to bring to a court of justice people who use such illegal devices. Unfortunately, as the bill is drafted, there is no distinction between those illegal, recognized illegal, practices and the mistake that a man makes through his clerk or a large organization with regard to some very small or minor matter, that may be the subject of a rule or a regulation of the Commission, if it is not covered in this act.

It seems to me, gentlemen, that with regard to those matters, they are matters which should be covered by disciplinary punishment; disciplinary punishment placed in the hands of the exchange, and if the exchanges will not exercise it, in the hands of the Commission; but it seems to me it is a very different thing, and a very difficult thing, to say that business, a necessary and a respected business-even though it is now indisrepute should be so hedged about with criminal provisions that the man who is carrying on a necessary function is continually looking around to find out if the sheriff is outside of his door.

There should

It seems to me there should be a marked distinction. be written into the law those things that we agree are morally wrong, but there should be a distinction, and that the discipline of the exchange and the Commission should be directed to violations of the

trading practices, and if you have that-and, let me say this, that I am a practicing attorney. I try cases, and I know how hard it is to get a conviction from a jury where a law is so written that the crime is so indefinite and so general that the jury becomes convinced that, after all, this is nothing but an accident. There should be a marked distinction with regard to those matters.

Mr. LEA. I would like to ask you a question. As a spokesman for the small exchanges, what are the fundamental things, in your judgment, that should be borne in mind by the committee to protect the small exchanges, as contrasted with the large ones?

Mr. WITHINGTON. In the matter of segregation, first; but if the power is given to the Commission, frankly, we are not afraid that we will not get good treatment from the Commission, because I think there has been a tendency in the consideration of this legislation to give more consideration to the suggestions that come from the smaller exchanges than suggestions that come from the large exchanges in New York City.

The second is the final thing that I want to speak about, and that is these registration requirements. We have a situation in New England which is a very real situation. We have many textile concerns that have been in the control of New England families for many, many years. The people who have control of those corporations are not interested in having their securities listed. They have no real interest in it. It is only the minority stockholders who come in believing in the management, in the soundness of a long-time and experienced management of proven ability who want the securities listed and we have repeatedly in Boston been met with the diffiulty of people wanting to have securities of corporations listed on the exchanges but the corporation unwilling to come in and submit to the requirements even as they are written by the exchanges.

A cotton mill says "I do not want my stockholders all disturbed, because one quarter in 1932 is terrible", or next year they find that the first quarter shows a very great discrepancy although there may be reasons for it. They say there is only one real reflection of the business of that corporation, and that is a report on the basis of a year, and they say, "We do not care to come in with a report more than once a year. If the people do not believe in us and our management and background, and experience, when we have demonstrated the soundness of our company and our securities. We do not intend to come down and file statements, and be subjected to a lot of critical analysis."

Mr. LEA. What is your objection to the registration requirements in this bill as to the small exchange?

Mr. WITHINGTON. The objection is this, that after all is said and done, as has been so well pointed out, regulation by Congress is not very much use, if it is so stringent that in the short time the Federal Trade Commission finds they are holding bowls with broken bottoms, through which the milk has disappeared. Now, if you are going to have regulation, you want to have as many securities listed as possible. But let a good corporation in New England read the provisions of this bill and even though the bill provides that the Commission may require these things, they realize that the corporation is putting its head into the control of the Federal Trade Commission, that may go into the details of its business and prescribe its method of accounting,

the writing off of depreciation and depletion, and they would not think of listing on the exchanges. If you force them to do that, you will force them into the position of having an over-the-counter business, and as to the over-the-counter business, gentlemen, if you regulate the over-the-counter business, it may be that theroists will write and tell you that Congress has power to control it, if they have power to control stock exchanges, but if Congress tries to control the overthe-counter business in the same way they are trying to regulate the exchanges, you will find a new over-the-counter business, or bootleg business, commonly known in our part of the woods as the bucket shops. That is a very real possibility.

I think that is all.

Mr. KENNEY. Mr. Chairman, I would like to ask a question.
The CHAIRMAN. Mr. Kenney.

Mr. KENNEY. I would like to have you go back to the matter of margins for a moment.

Your organizations believe that the margin ought to be left to the regulatory body that might be set up under this act?

Mr. WITHINGTON. I said, to the Federal Reserve Board.

Mr. KENNEY. Yes.

Mr. WITHINGTON. Because they are closest to the credit situation. Mr. KENNEY. Well, assuming that this committee finally decides to keep margin requirements in the bill, what do you think would be a fair margin?

Mr. WITHINGTON. Mr. Kenney, I anticipated that that question would be asked, because there seems to be a determined purpose on the part of the draftsmen of this bill to write in some margin provisions, and I have urged the exchanges and several members of the exchanges to give me some rule and the answer, after we have sat down and studied the thing, is this, that you cannot prescribe a rule which applies to a bond, a sound bond, that will apply also to an equity security, and with regard to the equity securities, you cannot apply one rule to all of them, because there is such a varying degree of securities. It is a matter in which judgment, and experience in banking, banking judgment, for after all is all that the broker is, is required. Mr. KENNEY. What has been the average margin requirement over the last 25 years?

Mr. WITHINGTON. You mean for the Boston Exchange, or others? Mr. KENNEY. For the exchanges generally.

Mr. WITHINGTON. Well, Mr. Whitney, can you tell me? Over what period?

Mr. KENNEY. Twenty-five or ten years, if you please.

Mr. WHITNEY. If I may answer, as far as the New York Exchange is concerned, Mr. Kenney, in the period 1928-29, some brokerage houses raised their margin requirements as high as 60 and 75 percent to endeavor to stop speculation. The exchange itself at that time had a demand of 25 percent margin on all accounts that our broker held-30 percent margin on what the firm held; our partners. for their own accounts, 25 percent of the debit balance, I am talking about.

Mr. KENNEY. Now, Mr. Withington, do you regard it as more difficult to sell a stock with a higher margin requirement? In other words, is liquidity dependent upon the amount of cash required on a sale?

Mr. WITHINGTON. There is not the slightest difference of opinion on that. I am not speaking as an expert.

Mr. KENNEY. And that is true as a general proposition.

Mr. WITHINGTON. As a general proposition.

Mr. MERRITT. Mr. Chairman

The CHAIRMAN. We have got to hear one other witness. Mr. Merritt, and then Mr. Marland. You may go ahead, Mr. Merritt. Mr. MERRITT. I want to ask you whether you have prepared any specific amendment, or specific suggestion to cover your suggestions? Mr. WITHINGTON. Mr. Merritt, I want to make it clear: The suggestions, the specific suggestions that are contained in Mr. Whitney's proposals are not Mr. Whitney's proposals, at all. They are the proposals that are submitted after we had the opportunity of looking over the specific suggestions and saying that we believe that certain fundamental principles should be observed. This question of the Federal Reserve, as I say, suggestion was suggested by Boston before it was ever suggested by Mr. Whitney.

Mr. MERRITT. What I had in mind, particularly, because I come from New England myself, was whether the suggestion about odd lots, and so on, regarding the dealers covered by Mr. Whitney's brief

Mr. WITHINGTON. So far as Mr. Whitney is concerned, that does not affect the New York Stock Exchange, but Mr. Halstead, of the Chicago Exchange and I, in looking over that section, insisted that provision should be made to take care of that situation. With regard to these suggestions, I understand the significance that will attach to my approval of Mr. Whitney's suggestion, the significance that it carries, that I have been swayed by his suggestions. I deny it, and I have not the reputation of being swayed by Mr. Whitney or the New York Stock Exchange in any manner whatsoever. Mr. MERRITT. I would like to say, in my own behalf, that it would not affect my judgment. I think it is a good thing if Mr. Whitney had suggested it.

Mr. WITHINGTON. Well, that is a relief, because the one thing that I have been warned against is that I must not show any agreement with the New York Stock Exchange, but I must accept them when their suggestions are sound.

Mr. MAPES. What you are saying is that the suggestions of Mr. Whitney are the consensus of opinion of the representatives of the stock exchanges?

Mr. WITHINGTON. They are the combined opinion of the members who sat until near 3 o'clock last night trying to draw fair suggestions to make a workable bill out of the present bill.

Mr. MERRITT. The good and the bad, all together?

Mr. WITHINGTON. We say that we will take the decision of a commission, even a commission made up of Mr. Corcoran.

Mr. MARLAND. Mr. Chairman

The CHAIRMAN. Mr. Marland.

Mr. MARLAND. Am I correct in assuming that the exchanges you represent would favor some legislation to establish Federal supervision over securities exchanges?

Mr. WITHINGTON. Not only favor it, but welcome it, thinking that they can get back into the favor of the public, which has grown to have a distrust of exchanges.