Federal Trade Commission Act, so that the powers that the Commission ought to have in order to adequately to administer the policies of this bill, I think, are here.

Nor do I believe that there are powers here which it is unnecessary to give the Commission in order to effect adequate enforcement of this act.

Then as to the listing requirements, an additional degree of flexibility has been introduced. On the problem of supervising reports, methods of reports, again, there is a degree of flexibility.

Indeed, I do not know where flexibility is missing, where else it is desired.

We must recognize this as a technical and a complicated problem-which is, I think, so obvious, after these days of hearingsthat it must be met in that fashion. I think it has.

And, I do not have any fault to find with this bill.

Mr. MAPES. Will you be good enough to express your judgment, particularly on the provisions relating to the marginal requirements of the bill?

Commissioner LANDIS. Yes, sir. I will be glad to do that. The administration of the margin provisions is handled not by the Federal Trade Commission, but by the Federal Reserve Board. Legislative minimums on margins are set.

Now, let me look at this problem from two standpoints. If you should ask me as to the administrative necessity for flexible requirements and whether I wanted them, I should unhesitatingly say "no." It is too much of a burden to carry from the standpoint of administration. If you get a runaway market, everything is moving in that direction. At that time to require an administrative board to buck these elements, the force of public opinion, and at the same time to buck whatever pressure may come from any side, is a tremendous task to place on any administrative board.

Mr. MAPES. I appreciate the force of that statement. Still, a fixed provision in the law is a fixed provision, and unchangeable. Commissioner LANDIS. It is fixed; and on the other hand, the important question is, Where is it fixed?

It may interest you, Mr. Mapes, to know this. Yesterday there was laid before me a list of all of the stocks on the New York Stock Exchange and their margins calculated according to this margin provision. There was laid before me also a substantial list of the stocks on the New York Curb Exchange, and their margins calculated according to this provision. From that list were drawn stocks automatically selected in order to get a representative lot. Preferred stock was excluded. All stock that was selling below 10 was excluded. Then the way in which that margin requirement would work was computed. The result was 66.8 percent of the current market price would be available.

Now, that seemed to me a very desirable solution.

Mr. MAPES. Is it any answer to your statement, with regard to responsibility, and the pressure that is brought to bear upon an administrative agency with broad discretionary power to know that, I understand him, the chairman of the Federal Reserve Board was of the opinion that the marginal requirements might properly be left to the discretion of that board?

Commissioner LANDIS. That is why I said, Mr. Mapes, if I were speaking for myself. I cannot, of course, speak for the Federal Reserve Board; but speaking for myself, as I see administration out of my slight experience, I would like the aid of a rule of that type, which would hold me free against the elements of the type I mentioned rather than subjecting me to them.

Mr. MAPES. Would it be a proper question for me to ask if you have ever had any experience in working on stock exchanges, practical experience?

Commissioner LANDIS. What do you mean by "practical experience"? Of course, my entire experience has been legal. My experience has been from that angle. I have had no actual work in any broker's office; I have had no actual work in underwriting houses. I have dealt with many legal problems in connection with securities. administration. But I have not even been on the floor of the exchange.

Mr. MAPES. So far as I am personally concerned, I should like to say that I am in full accord with your statement about the attitude of the Federal Trade Commission in undertaking any work of this kind. I should expect the Federal Trade Commission to exercise good judgment.

Commissioner LANDIS. I hope if it does not that you will take it away from them.

Mr. MAPES. We have the responsibility, of course, of writing the best kind of a law we can.

Commissioner LANDIS. Yes; obviously, and I was just trying to give you the picture as I see it.

The CHAIRMAN. Are you through, Mr. Mapes?

Mr. MAPES. Yes. That is all for the present, I may want to ask Commissioner Landis some other questions later on another subject. The CHAIRMAN. I thought that you were starting to discuss this margin provision.

Commissioner LANDIS. Well, I was discussing that in answer to Mr. Mapes' question.

The CHAIRMAN. Mr. Pettengill, you wish to ask some questions

now?

Mr. PETTENGILL. Yes, Mr. Chairman.

Mr. Landis, you were reported by some attorney from Richmond, Va., as having given an opinion with reference to the LaGuardia bill? Commissioner LANDIS. Yes.

Mr. PETTENGILL. Were you correctly quoted?

Commissioner LANDIS. Yes; I was correctly quoted, Mr. Pettengill. I gave an opinion in 1932 to the firm of Carter, Ledyard & Milburn, New York, who were counsel for the New York Stock Exchange, on the constitutionality of the LaGuardia bill. That opinion was placed in the record. I think that that bill is unconstitutional, and I thought so then and I think so now. I think that this bill is constitutional. The two bills are different.

Mr. PETTENGILL. I just wanted to know.

Commissioner LANDIS. Mr. Gay was entirely fair and entirely correct in his statement of my position.

Mr. PETTENGILL. As I remember, the LaGuardia bill was based on the control of the post-office clause, was it not?

Commissioner LANDIS. That may have been one of the bases. The chief basis was this: The argument of the LaGuardia bill, proceeded upon the ground that the commodities of certain corporations moved in interstate commerce and therefore trading in the securities of those corporations could be controlled, whether or not they were traded in in interstate or intrastate commerce, because they were so closely related to interstate commerce as to allow the Federal Government to intervene.

My point at that time was that I did not think that regulation on that basis was constitutional. I said at that time that I thought that a regulation of the exchanges might be constitutionally drawn upon other bases. I said that in 1932.

Early this year, in February, before this bill was introduced, at the time the LaGuardia bill was revived by Senator Capper, Senator Fletcher sent me a copy of that bill, and I said to the Senator that I hoped that that policy would not be followed in the pending stockexchange regulation, because I believe that that bill would not meet the tests of constitutionality. Further I thought that there were wide holes, practical holes in such a theory. For example: Take a holding company. The holding company is not shipping its goods in interstate commerce. A holding company is simply holding stock of other companies who may in turn be sending their goods in interstate commerce. It is hard to consider them as engaged in interstate commerce because of that connection. Thus you would not have control over the trading in stocks of holding companies, which are a large item of the list of any large exchange. For these reasons, I felt that it would be unwise to follow that theory and that you would have to work out the constitutional basis for regulating stock exchanges upon a different and sounder theory than that.

Mr. WOLVERTON. Right at that point, Mr. Landis. The opinion you rendered on February 22, 1932, to Carter, Ledyard & Milburn, with respect to the constitutionality of H.R. 4, the LaGuardia bill, to regulate the short selling of securities on the exchanges, has been presented to the committee with the thought of impressing us with the idea that the opinion you expressed there that such bill was unconstitutional is contrary to the opinion that you are now expressing with respect to this present bill. I will quote what you said in that opinion. The words are these:

I have confined myself to a consideration of the constitutionality of the LaGuardia bill, for I am as yet unconvinced that a bill could not be drafted to regulate security transactions on stock exchanges which would be constitutional. The LaGuardia bill, however, bottoms itself upon a theory and conception of interstate commerce that I am not prepared to accept.

In other words, it indicates to my mind that you thought that a bill could be drawn that would be constitutional and consequently the opinion you now express with respect to this bill, drawn upon a different basis than the LaGuardia bill is not contrary to the opinion you rendered to Carter, Ledyard & Milburn.

Commissioner LANDIS. That is what I hoped would be the inference, Mr. Wolverton. Thank you for reading that.

Mr. MARLAND. Mr. Chairman

The CHAIRMAN. Mr. Marland.

Mr. MARLAND. I, for a long time, have thought that we needed. some regulation of the operations of the specialists on stock exchanges.

I am wondering whether, under the language of this bill, you are not putting them out of business altogether.

The CHAIRMAN. Mr. Marland, before we get off of this margain question, I thought that you wished to discuss that.

As I understand, your position, Mr. Landis, it is this: that to leave this margin requirement entirely to the administrative body would at least at times make a most embarrassing and practically an intolerable situation for that board or commission.

Commissioner LANDIS. Yes; I am afraid so.

The CHAIRMAN. But that if something were put in the law, there is fixed, as I think Mr. Corcoran says, the bright line, or some standard with reasonable flexibility such as is contained in this bill on margins and so forth, it would bring about a better, a more satisfactory, and a more reasonable administration of the law.

Commissioner LANDIS. I think you have correctly stated my position, Mr. Chairman. It is just exactly that, when the show is running away and everybody is running away in the show at the same time, it is very hard to apply the brakes; it is very hard to be wise at that time. When in the last situation the market ran away, there was considerable criticism of the Government's not being active at that time and applying its brakes. But it is only a natural thing that that happened. Provided that that fixed line is low enough, that it does not operate as a hardship in normal times, there is no reason for making a minimum which is fixed and which will point out the margin requirement. Here it is low enough.

It was for that reason I introduced those figures in answer to Mr. Mapes's question, of 66.8.

The CHAIRMAN. Therefore, out of your experience with these matters, your judgment is that Congress, in the act, should fix this instead of leaving it entirely to the administrative body?

Commissioner LANDIS. Yes; that is my judgment.

Mr. MAPES. Mr. Chairman

The CHAIRMAN. Mr. Mapes.

Mr. MAPES. Mr. Commissioner, I should like to get your judgment on this feature of the marginal provision.

Is there anything to this point, that the marginal requirements in this bill may be so low that in a run-away market the administrative board might be embarrassed by the fact that Congress had fixed a low requirement and that the pressure brought to bear upon the Board would be to the effect that it was unreasonable in its requirements, because it required so much higher margin than Congress had suggested.

Commissioner LANDIS. That would be true, Mr. Mapes, if this margin requirement did not also have a double-action quality. It has been devised with just that in mind. We see this margin now operates at present levels of the market at about 66.8 of the current value. If you have a rise in those values, it will automatically run down from 66.8 and may run down to 50, or somewhere around there. It has an automatic effect of changing in a run-away market. Also, if the market were just gently dropping, instead of having 66.8 on your present levels it would rise. That is the way this thing would work.

Mr. MAPES. What do you think of this feature in connection with the marginal section? Suppose in the future some time there should be

another collapse of our credit and capital structure, the same as there has been during the last 4 years, and the brokers should be required to keep up the margins that this bill requires; would it not be necessary to sell out a good many accounts, and would not that have a deflationary effect upon credit generally?

Mr. LANDIS. Well, this bill does provide for a leeway of some 20 points.

Mr. MAPES. Yes.

Commissioner LANDIS. In that margin requirement?

Mr. MAPES. But when the collapse comes

Commissioner LANDIS. When a collapse comes in values?
Mr. MAPES. Yes.

Commissioner LANDIS. You also have a provision in this bill which provides that the Federal Reserve Board can, under those circumstances, when we are faced with a grave national economic crisis of that nature, throw aside these fixed margins.

Mr. MAPES. Where is that?

Mr. PETTENGILL. On page 17.

Commissioner LANDIS. That is the second paragraph, page 17, beginning in line 3.

Mr. MAPES. Does that work both ways?

Commissioner LANDIS. Not necessarily; it would not necessarily work the other way, because the Federal Reserve Board can, without a finding of this nature raise the margin requirements. In raising the rates, it is not limited in the same way.

Mr. MARLAND. Mr. Chairman

The CHAIRMAN. Mr. Marland.

Mr. MARLAND. Have you finished with that subject?

The CHAIRMAN. Unless somebody else wants to ask a question on it. All right, Mr. Marland.

Mr. MARLAND. Well, there are two points, Mr. Commissioner, that I want to talk to you about.

As I said, I am heartily in accordance with your intent in regulating the specialist. On page 30, line 8, it says:

It shall be unlawful for any specialist registered as a broker (1) to effect on the exchange any transaction on a discretionary order.

Now, I am afraid-I am not a lawyer-I am afraid that might be interpreted to put them out of business altogether, because of the very nature of their orders. Specialists receive orders, to buy at a certain price or less, or orders to sell at a certain price, or better. He has got to use his discretion on that. I am afraid that you are putting him out entirely in that language, and I think that we do not intend to do that.

Commissioner LANDIS. Well, if you do not intend to do that, of course, you want to correct it.

Mr. MARLAND. Do you fear my fear of that?

Commissioner LANDIS. The effect of that language, as I understand it, is not directed to limited orders, but to pure market orders.

Mr. MARLAND. That is it. We want to keep them from trading for some other discretionaries account or for his own account.

Commissioner LANDIS. Of course, he is prevented anyway from trading for his own account.

Mr. MARLAND. We want to keep him from trading for some customer from whom he has a discretionary order.