Mr. PECORA. The suggestion has been made here, Senator Carey, that the provisions of this bill be amended or modified so as to save present margin accounts. That has already been quite fully discussed before the committee, I think.

Mr. WHITNEY. Very briefly, I would like to say this in conclusion if I may. We feel, as stated, that the question of credit and the control of corporations lies without any stock exchange bill, and therefore what we have most particularly in mind affects the free and open market that we and other exchanges attempt to offer, and therefore the liquidity of such markets. Let us not forget that there are held, by the investors of the United States, in round figures, some 100 billion dollars worth of listed securities.

Senator GORE. Does it amount to that much now? I remember the figure when the crash came in 1929. It was about 90 billion. Mr. WHITNEY. I think there are listed

Senator GORE. That is the market value.

Mr. WHITNEY. There are 73 billions listed on the New York Stock Exchange alone, at the market value February 1.

Senator GORE. Of this year?

Mr. WHITNEY. Of this year.

Senator GORE. I saw a figure the other day of 37 billions.
Mr. WHITNEY. I think that is stocks, sir.

Senator GORE. Yes, sir.

Mr. WHITNEY. There are a large amount of bonds as well.
Senator GORE. You are including bonds as well?

Mr. WHITNEY. Yes; 73 billions. From our way of looking at it, and I think that of the framers of the bill, I presume that we must not disrupt the liquidity of our security markets. But from that point on there may be disagreement, and I am presuming that what Mr. Corcoran said the other day typifies the point of view of the other framers of the bill, in the main, subject to certain changes agreed upon or suggested.

He feels, however, that the margin requirements will not have a very serious affect upon the liquidity of the market; that only a diminution and not an entire strangulation of speculation will take place as a result of the imposed margins, or the suggested margins. He feels that the market, although there may be a broader element between the bid and offer in securities, will not be upset. We differ with that materially. We think the free and open market given by stock exchanges today will be ruined from the point of view of liquidity because, under the margin requirements here set forth speculation will be eliminated; and without speculation we de not know of any method of preserving a market. Instead of the rather regular, undisturbed market that Mr. Corcoran believes will exist if such a bill is enacted, we believe we will have panic and an absolute breakdown of the security markets of this country, naturally to the great detriment of those investors holding these listed securities.

Mr. Corcoran very, very kindly states that he does not believe that anybody can be an expert in stock-exchange technique, and he grants that he is an amateur; but he and the other drafters of the bill, although admitting little or no knowledge of stock-exchange practices

Mr. PECORA. Of the stock-exchange practices, did you say?
Mr. WHITNEY. Yes.

Mr. PECORA, I want to be modest, but I make no admiss that I have no knowledge of stock-exchange practices.

Mr. WHITNEY. All right, sir.

Mr. PECORA, I will say, however, in connection with that, that the principal knowledge I have acquired has been through the neizm of the evidence presented to this committee. I have learned a great deal about those practices.

Mr. WHITNEY. Not complete knowledge of stock-exchange prac tices.

Mr. PECORA. I am not a technician.

Mr. WHITNEY. Some of them acknowledge not very great knowl edge as technicians. On the other hand, we of the stock exchange. who have been lifetime students of this subject and claim to be technicians, differ in point of view. There are the two sides. Now, who is right?

The bill, as drawn, presumes that the drafters have the supreme knowledge of this subject, and grants to us no knowledge. I am perfectly willing to concede that neither side knows it all, and that neither will ever know it all. But I do feel that there is a middle course here, granting sufficient, or something, to both sides.

This bill is so rigid and inflexible in its provisions as, in our opinion, to absolutely hamstring and freeze security markets. We therefore suggest an authority which shall study, which shall have power to make regulations, but which, in itself, will not be hamstrung by the provisions of a bill which cannot be changed except by another act of Congress. We therefore suggest the middle course. If an authority is to set up, allow it to be flexible and mobile, and do not have it inflexible, so that if disaster does come, as we predict, it cannot be changed without another act of Congress.

With your permission I would like to read what was said on this general subject by Oliver Wendell Holmes, the Justice, in his opinion in the case of Board of Trade v. Christie Grain & Stock Co. I am not presenting this from the standpoint of a constitutional argument at all. He says, in part [reading]:

People will endeavor to forecast the future and to make agreements according to their prophecy. Speculation of this kind by competent men is the selfadjustment of society to the probable. Its value is well known as a means of avoiding or mitigating catastrophes, equalizing prices, and providing for periods of want. It is true that the success of the strong induces imitation by the weak, and that incompetent persons bring themselves to ruin by undertaking to speculate in their turn. But legislatures and courts generally have recognized that the natural evolutions of a complex society are to be touched only with a very cautious hand, and that such coarse attempts at a remedy for the waste incident to every social function as a simple prohibition and laws to stop its being are harmful and vain.

Along this line, gentlemen, we have suggested an authority which, we believe, after study and proper consideration, will not be harmful and vain.

In closing perhaps I can remark that where we suggest this point of view, modern-day liberalism has become absolutely dogmatic in the suggestion of the bill proposed.

Senator GORE. On that point, we have heard a good deal about the social philosophy. Its limits are not very well fixed and defined in my mind, but suppose somebody had a social philosophy that envisaged an industrial democracy and economic set-up where the

Government would finance all industry so as to control all industry— in the general welfare, of course-and as an incident to that desired to destroy stock exchanges and dealings in securities to make it impossible to finance private industry from private resources. Do you think such social philosophy, if anybody entertained it, might probably be facilitated through legislation of this sort?

Mr. WHITNEY. It could be, sir; yes.

Mr. PECORA. Mr. Whitney, you said a few minutes ago that the approximate market value of securities listed on the New York Stock Exchange on February 1 of this year was $73,000,000,000.

Mr. WHITNEY. That is my memory.

Mr. PECORA. Could you get from the records of the stock exchange the approximate value of the securities listed on its board on the 1st of May 1929 and also on the 1st of December 1929?

Mr. WHITNEY. Yes, sir.

Mr. PECORA. I think that might be helpful too.

Senator GORE. The 1st of September 1929, as I remember it, it was about 90 billions. It went off 22 billions after the crash, and it got down to about 16 billions, did it not, Mr. Whitney, in June a year ago?

Mr. WHITNEY. I think, Senator, you have in mind stocks alone. Senator GORE. I am figuring on stocks alone.

Mr. WHITNEY. I think you are low.

Mr. PECORA. You might include in that March 1, 1933.

Senator GORE. As I remember, May 1, 1932, the aggregate value of stocks listed was 20 billions, and the 1st of July it was 16 billions. Then it turned up the 9th of July.

Mr. WHITNEY. I could not possibly attempt to refute you, sir. Your memory is wonderful and mine is very poor. I just do not remember.

Senator GORE. I am speaking from memory, and I may be wrong. Senator CAREY. You speak of setting up a commission. The commission proposed in your statement is really an ex officio commission. Do you not think that a commission made up of some men who have knowledge of stock exchange matters would be better than an ex

officio commission?

Mr. WHITNEY. My suggestion, as you know, includes amongst the seven, two men representing stock exchanges who, I presume, would be technicians in the business, and I think they could point out, or they certainly would have the right of pointing out, to the rest of the commission their attitude on stock exchange matters, and the effect of rules and regulations upon that business.

If, in spite of what they did say-if they said, "Don't do this ", and the commission did not take their advice, then, of course, it would be on the heads of the authority if the authority's judgment proved wrong. But the authority could move immediately to correct any mistaken point of view, or the mistaken imposition of rules that proved wrong; whereas, under this act, nobody, under the provisions as stated, could change it except Congress when it was in session.

Senator CAREY. I understand that; but what I was trying to bring out was this: A commission made up of officers who have other positions usually does not meet very often or pay very much atten

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tion to the business. We tried that with the Power Commission and afterward created a full-time Power Commission. I think if a commission were set up other than the Federal Trade Commission, it should be a commission not made up of ex-officio officers but made up of full-time officers who would be in a position to act, if they had to act, quickly. I am afraid your commission would be rather slow in moving.

Mr. WHITNEY. Any commission that could act quickly and promptly, and on which were represented the exchanges of the country, would be entirely satisfactory to the exchange, in my belief. Senator CAREY. Two or three Cabinet officers would not be available very often to meet with the commission.

Mr. WHITNEY. Mr. Chairman, there is a member of the governing committee, and also a specialist here, Mr. Raymond Sprague, and I would take particular pleasure if you would hear him tomorrow, if that is satisfactory to the committee.

Senator GORE. He is a specialist?

Mr. WHITNEY. He is a specialist on the exchange and active all the time there. If he is to appear tomorrow, may I say to the committee_that_naturally I hold myself at your entire disposal, as does counsel, and any of the staff of the exchange. We will answer questions or give of ourselves in any helpful way we can to the committee. We truly mean it.

I thank you for your courtesy to me.

The CHAIRMAN. We are very much obliged to you, Mr. Whitney. Senator Costigan had some questions he wanted to ask, but he is not here. Will you be here tomorrow?

Mr. WHITNEY. I will be anywhere you want me.

The CHAIRMAN. Mr. Gould, we will be glad to hear from you. Please state your name, residence, and occupation.

STATEMENT OF THEODORE GOULD, BALTIMORE, MD., MEMBER AND SECRETARY-TREASURER OF THE BALTIMORE STOCK

EXCHANGE

The CHAIRMAN. Mr. Gould, do you want to be heard on this bill? Mr. GOULD. Yes; if I may.

The CHAIRMAN. You may proceed in your own way.

Senator GOLDSBOROUGH. Mr. Gould, as I understand the situation, you want to speak more particularly to section 10 of the bill. Mr. GOULD. Yes, sir.

The CHAIRMAN. You may proceed.

Mr. GOULD. I represent the Baltimore Stock Exchange, which is a small exchange composed principally of small brokers and dealers. It is not our purpose to discuss the many objectionable features of this bill as now written but rather to call to your attention a few points which are vital to the small broker and dealer and to the small exchange.

Our exchange has had a long and honorable history. It was founded in 1838. From the time of the War between the States to the World War it aided materially in the reconstruction of the South. Much southern financing was done through Baltimore, and a ready market on our exchange was a factor in making capital willing to enter this field. At the present time the Baltimore Ex

change is principally a local market filling an important local need. Nearly all of its active listed securities are those of Maryland corporations, and they are largely held locally. Our market is a cash market, where buying and selling orders meet. We know, and Maryland corporations and investors feel, that we fill a vital need in the business life of our city.

We have 65 full members, only 11 of whom are also members of the New York Stock Exchange. Of the remaining 54, 40 actively conduct a general brokerage and dealer business.

Section 10 of the proposed bill would force our members to choose between two closely allied functions of their business; namely, the handling of brokerage orders in securities on the one hand and the purchase of securities and their resale to the investing public on the other. The bill would not permit one member to do both. We do not believe there exists or would exist in our community sufficient business in either of these two functions apart from the other to give our members a fair opportunity to earn a living for themselves and their employees.

They would not be able to maintain the statistical departments and other features which many of them have for the convenience of their customers. The small broker and dealer has an entirely different problem from that of the larger broker with many branches or from that of an underwriting house. He executes commission orders for his customers, and when he can buy a block of securities he considers sound at an attractive price he buys them for his own account and then undertakes to distribute them to the investing public, making a reasonable profit between a wholesale and retail situation.

There is no reason why he cannot fill both of these functions without detriment to the public interests. There have been times when there were no investors brave enough to buy good securities at any price, and when but for the willingness of some broker-dealer to take a commitment for such securities there would have been a situation where a seller who had to sell could not find a buyer at any price. We had a case recently where a block of bonds of one of the political subdivisions of the State of Maryland was held by a county bank upon which there was a run. The bank was enabled to dispose of these securities only because of the willingness of a broker-dealer to take them on for his own account and hold them for resale to investors when the skies had brightened.

If the local broker-dealer is required to confine himself solely to commission orders and is not permitted to aid in the making of a satisfactory market in local securities, it will be increasingly difficult for such local enterprises to finance and refinance their normal business requirements.

Another part of the bill, section 7, works, what we believe, additional undue hardships on the small broker. Many of our members handle no margin accounts, carry no inventory, and require little capital. They take no part in syndicates. They conduct a cash business as broker and dealer in listed and unlisted securities.

Should one of these members secure from a bank or insurance company an order for a quarter of a million Government bonds. upon which he can make one thirty-second of 1 percent, he would be unable to handle the order, if this bill becomes law. His capital