Senator COUZENS. I am not disputing that, but I am saying out of 350 men who are specialists you can recall only one who violated what was proper ethics or rules of the stock exchange; is that correct?

Mr. WHITNEY. No, sir.

Senator COUZENS. Well, how many do you recall that have violated the ethics or the rules of the exchange?

Mr. WHITNEY. That I cannot say definitely, though Mr. Pecora has that in his record.

Mr. PECORA. The record we have is in substance to the following effect: That between January 1928 and October 1923, 24 members and 11 member firms of the New York Stock Exchange were suspended or expelled for reasons other than insolvency. Twentythree members were suspended under section 7 of article 17 of the constitution of the exchange, which provides for the suspension or expulsion of members who have been guilty of conduct or proceeding inconsistent with justice and equitable principles of trade.

And then there were other penalties imposed for infractions of rules or regulations of the exchange, including such rules and reglulations as involved the making of opening trades at prices not justified by market conditions, falsification of books and records for the evasion of income taxes, improper business methods in the handling of investment-trust stock, wash sales, falsification of answers to New York Stock Exchange questionnaire, placing dummy orders for unusual amount of shares in an effort to raise the bid price, supplying stock on contract which members owned without disclosing membership, failure to charge commissions.

Mr. WHITNEY. However, of those, sir, I think you have the direct answer as to how many of those were specialists, have you not, sir? Mr. PECORA. Yes, sir.

Mr. WHITNEY. I think that was what Senator Couzens had in mind.

Senator CouZENS. Yes.

Mr. PECORA. In addition there were penalties imposed on members for various other infractions, some of which might be specified now: Using profane language to an exchange employee [laughter]; using objectionable language to another member; unjustified remarks regarding another member's trading; throwing water on an exchange employee [laughter]—

Mr. WHITNEY. I don't think these are necessarily done by specialists, are they?

Mr. PECORA. No; they were members.

Senator COSTIGAN. Did these cases result in expulsion?

Mr. PECORA. Fines principally. Throwing torpedoes on exchange floor. [Laughter.]

Senator COUZENS. May I have the answer with regard to the specialists? I would like to get the cleared up. What have you on that? Mr. PECORA. It seems that between January 1, 1928, and September 1, 1933, specialists received warnings and disciplinary action in a total of 93 instances.

Senator COUZENS. Does that indicate whether that is 93 different specialists? If it is, it is a large percentage. If it is a repetition of the same specialists, why, there is something wrong with the exchange to permit such repetition.

Mr. PECORA. It appears that there was repetition.

Senator BULKLEY. In what period was that?

Mr. PECORA. Between January 1, 1928, and September 1, 1933.
Senator KEAN. Five years.

Mr. PECORA. For major infractions of rules there were 7 specialists expelled, 2 suspended, 3 censured, and 1 permitted to sell his membership.

Senator BULKLEY. Would a man invariably be expelled for buying stock for his own account when he had a customer's order at the same time?

Mr. WHITNEY. So far as I have ever known, Senator Bulkley. I have known no exceptions that I can think of.

Senator BULKLEY. Would he quite certainly be ejected?

Mr. WHITNEY. We believe so; yes.

Senator BULKLEY. The reason I ask that is the man that you told about a few minutes ago that bought 1,500 shares must have had some hope of getting out. Do you know how he figured it?

Mr. WHITNEY. No, I do not; but, naturally, anybody who is breaking rules or committing a crime has a hope that they are going to get away with it.

Senator BULKLEY. One thousand five hundred shares seems a rather large amount if you have confidence in catching him at even a hundred shares.

Mr. WHITNEY. It was a very active stock.

Senator CoSTIGAN. How about selling for their own account at the time that they are purchasing for a client?

Mr. WHITNEY. That is allowed, sir, if under certain rules. In other words, if they are selling for their own account where the client is purchasing, they must receive confirmation on the approval of that trade by the representative of the customer.

Senator CoSTIGAN. Was the case of a Miss Roberts, of New York, brought to your attention, Mr. Whitney?

Mr. WHITNEY. At various times, sir.

Senator CoSTIGAN. Was her complaint investigated and acted upon?

Mr. WHITNEY. Most thoroughly; yes.

Senator CoSTIGAN. What form of action?

Mr. WHITNEY. We did not grant her complaint.

Senator CoSTIGAN. There was in that instance, was there not, a judgment in one of the courts of New York which seemed to support her claim?

Mr. WHITNEY. A certain part of it in which she got judgment. Senator CoSTIGAN. You felt that the judgment did not justify her complaint?

Mr. WHITNEY. Did not justify any further action by the exchange; yes, sir.

Senator CoSTIGAN. I mention the case because it is already in our records.

Mr. WHITNEY. It is in your records, and very full letters have been written in regard to the case to Senators of the United States.

Senator CoSTIGAN. Mr. Whitney, do you claim that you can impose an order for the filing of frequent reports of corporations which have already listed their securities with the exchange? If you were to adopt a rule today would you regard it as retroactive?

175541-34-PT 15-30

Mr. WHITNEY. I believe we probably can; yes, Senator.

Senator CoSTIGAN. Have you ever attempted to issue that sort of a rule?

Mr. WHITNEY (after conferring with Mr. Redmond). Perhaps I do not quite understand your question. We have sought, and I think gained, from corporations the filing of reports in accordance with our views.

Senator COSTIGAN. By voluntary action on their part?

Mr. WHITNEY. By voluntary-well, it was not altogether voluntary.

Senator CoSTIGAN. Do you claim it was compulsory?

Mr. WHITNEY. We claimed that they must do it, because they were not meeting our requirements. If you have reference to whether a corporation signed an agreement with us in the past only to file annual reports and we wished to impose upon them the filing of quarterly reports, it is a question, but I do not believe we could enforce it. We have, however I think I said it here-been striving along that end, where we believe a corporation should so file, and we have met with a very tremendous acquiescence.

Senator CoSTIGAN. But you do recognize limitations on your power to deal with corporations?

Mr. WHITNEY. I think we have recognized certain limitations. Whether or not they are limitations that are subject to review by a court is perhaps another question.

Senator CoSTIGAN. Do you regard the rule of the exchange to enforce its regulations on corporations which have listed their securities as inadequate with respect to newly listed securities?

Mr. WHITNEY. No, sir.

Senator CoSTIGAN. You feel you have full power in such instances, do you?

Mr. WHITNEY. Yes, sir.

Senator COSTIGAN. In such cases if the corporations do not comply, what are your remedies?

Mr. WHITNEY. If they do not comply with their agreement with the exchange, our remedy is to strike the stock of the corporation from the list.

Senator COSTIGAN. Is that remedy not one which is apt to do considerable injustice to stockholders?

Mr. WHITNEY. It may do a great injustice, and for that reason we are very careful not to exercise it unless we think the provocation is entirely sufficient.

Senator COSTIGAN. Have you exercised it?

Mr. WHITNEY. We have suspended dealing; yes, sir. We have stricken in some cases. We have threatened to strike in various

cases.

Senator CoSTIGAN. What was the effect on the stocks in such instances? Were they depressed in price?

Mr. WHITNEY. In the cases of suspension we felt that the stock should not be traded in any longer until a thorough investigation had been made. Where they were stricken we felt there was due cause for striking. If I remember, those cases that come to my mind the stocks were selling at low prices at the time of the suspension or striking. Where we have threatened to strike at times the stocks were selling at very considerable prices.

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Senator COSTIGAN. Is it not your judgment that the Federal Government can more effectively apply penalties against individuals without injuring the stock holdings of outsiders in such cases?

Mr. WHITNEY. When you say dividuals or corporations?

66 individuals do you mean in

Senator CoSTIGAN. Or corporations.
Mr. WHITNEY. No, sir; I do not.

Senator CoSTIGAN. Or the officers of corporations?

Mr. WHITNEY. With respect to their own acts; yes. But with respect to the effect upon the public in regard to corporate acts, I think the exchange can act more promptly than can an administrative body.

Senator CoSTIGAN. It is your judgment that it can act more promptly?

Mr. WHITNEY. Yes, sir. And, therefore, in the interest of the public.

Senator CoSTIGAN. Did you also say more effectively?

Mr. WHITNEY. Yes, sir.

Senator COSTIAN. Then your recommendation of supervisory Federal power has no relation to the problems we are discussing? Mr. WHITNEY. Yes; it has.

Senator CoSTIGAN. You prefer to leave those to the stock exchange? Mr. WHITNEY. Well, Senator, we, I think, have taken this in three parts, this bill. One, that relating to the stock exchanges, the other relating to the use of credit, and the third referring to the imposition of rules and regulations upon the corporations of this country. The latter two we believe outside, and should be outside, of any stock exchange bill. On the first we have made the recommendations as you are aware.

Senator CoSTIGAN. It is my understanding—and I trust Mr. Pecora will check with respect to this-that during the recent hearings of the committee there has been testimony indicating questionable action in the forms of pools and other manipulations, some of which have involved exchange firms and exchange members, such as E. F. Hutton & Co., W. E. Hutton & Co., Ben Smith, Redmond & Co., Ames Bros., Kuhn, Loeb & Co., and Charles Wright. If I am correctly advised and I have not been in attendance at all the meetings, and, therefore, speak with these qualifications-may I ask what action the New York Stock Exchange has taken, now that these charges have been made public, to indicate its approval of such conduct?

Mr. WHITNEY. I think in the case of E. F. Hutton & Co. the matters are under advisement. I am not aware that there were practices indulged in by any of the others that were contrary to the rules of the exchange.

Senator CoSTIGAN. Is it true that the constitution of the New York Stock Exchange forbids information being given to its members? Mr. WHITNEY. In what regard, sir?

Senator CoSTIGAN. My information is that Mr. Redmond testified the other day that there was some prohibition in the constitution against divulging information to members of the exchange.

Mr. REDMOND. I don't think so, Senator.

Senator CoSTIGAN. Am I incorrectly advised as to that, Mr. Redmond?

Mr. PECORA. Perhaps, Senator, at this time you have in mind what Mr. Redmond said the other day with regard to the treasurer's report of the exchange.

Mr. REDMOND. The constitution provides specifically that the financial statement of the exchange shall be furnished to the finance committee and to the governing committee of the exchange. That is the constitutional provision.

Mr. WHITNEY. And they being elected by the members.

Mr. REDMOND. Yes.

Senator CoSTIGAN. Are there special reasons for keeping such information confidential?

Mr. REDMOND. Senator Costigan, to my best knowledge that provision has been in the constitution of the exchange for a great many years. What its original purpose was I cannot pretend to state. But it has been in the constitution and has been signed by, I think, probably every member of the exchange who is a member today. It is a very ancient provision of the constitution.

Senator COSTIGAN. May I repeat the question, as to whether there are any reasons known to you or Mr. Whitney why that clause should remain in the constitution?

Mr. WHITNEY. I will answer "no." I don't know what Mr. Redmond will answer.

Mr. REDMOND. I thought you were asking me what reasons there were at the time of its adoption, Senator. I frankly do not know those.

Senator CoSTIGAN. In organized circles there might be thought to be some analogy between such a provision and what has been rather depreciatingly referred to as "yellow-dog contracts ", an imposition on members of conditions which keep them from free action with respect to matters of importance or deemed important by them.

Mr. WHITNEY. I imagine the business life of a member is pretty important to him, and yet he signs that into the hands of the governing committee willingly on joining the exchange.

Mr. PECORA. He has no alternative if he wants to become a member?

Mr. WHITNEY. He has not, sir, but he does not have to become a member.

Senator CoSTIGAN. I think that is all, Mr. Chairman.

Senator KEAN. Mr. Whitney, on the exchange a man goes up to a specialist-and there may be two at the same time-and it may be a question of buying a hundred shares at an eighth, and he gives the hundred shares to that man instead of giving it to that man. Now, of course, that man makes a complaint, does he not, or is very apt to, that he has not been fairly treated?

Mr. WHITNEY. You mean if two men are bidding at an eighth for stock in the crowd?

Senator KEAN. Yes.

Mr. WHITNEY. And someone comes in there and sells a hundred at an eighth?

Senator KEAN. Yes.

Mr. WHITNEY. Then the seller has no jurisdiction as to who will buy that 100 shares. The other two, as I think is commonly known in brokerage circles, "match" to see who gets the purchase.