Fortunately for the proponents of this bill, Mr. Pecora throws the "alcohol pool bomb ", showing that the old game of rigging the market and trimming the suckers is still in high favor.

Before wasting telegrams, pool-room clients ought to read Collier's, February 24, "Sour Mash", by Flynn. It might change their minds regarding the virtues of the New York Stock Exchange and its agents elsewhere.

49 FOURTH, SAN FRANCISCO, CALIF.

S. L. BERNSTEIN.

STOCK EXCHANGE PRACTICES

TUESDAY, MARCH 6, 1934

UNITED STATES SENATE,

COMMITTEE ON BANKING AND CURRENCY, Washington, D.C. The committee met at 10:30 a.m., pursuant to adjournment on yesterday, in room 301 of the Senate Office Building, Senator Duncan U. Fletcher presiding.

Present: Senators Fletcher (chairman), Goldsborough, and Kean. Present also: Ferdinand Pecora, counsel to the committee; Julius Silver and David Saperstein, associate counsel to the committee; and Frank J. Meehan, chief statistician to the committee; Roland L. Redmond, counsel to the New York Stock Exchange; also R. E. Desvernine, counsel to Association of Stock Exchange Firms.

The CHAIRMAN. The committee will come to order. Is Mr. Babbage present?

Mr. BABBAGE. Yes, Mr. Chairman.

The CHAIRMAN. Please come forward to the committee table.

STATEMENT OF RICHARD G. BABBAGE, NEW YORK CITY, ATTORNEY AT LAW, REPRESENTING THE REAL ESTATE BOARD OF NEW YORK

The CHAIRMAN. Mr. Babbage, please state your name, residence, and business.

Mr. BABBAGE. My name is Richard G. Babbage. My residence is 555 Park Avenue, New York City. My profession is that of lawyer, and I represent in this hearing the Real Estate Board of New York, of 12 East Forty-first Street.

The CHAIRMAN. We will be very glad to have your views about the bill under consideration, S. 2693. Just proceed in your own way.

Mr. BABBAGE. The Real Estate Board of New York is a corporation organized under the laws of the State of New York, having its place of business at 12 East Forty-first Street, New York City. Its membership of 2,348 is made up of owners of New York City real estate and of management agents and brokers. It is the representative real-estate association of the Borough of Manhattan in said city.

As a result of an investigation, we find that the stock-exchange tenants occupy at least 5,000,000 square feet of space in the city of New York. At an average price of $3 per square foot, this would produce a rental of $15,000,000. In this space there are employed

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over 35,000 employees, who, it is reasonable to suppose, receive an average salary of $1,500 a year, which would make the aggregate salaries amount to $52,500,000.

Another great class interested in this real estate are those who hold the mortgage securities issued against it. It is impossible to state the number, but these securities are held by savings banks, lifeinsurance companies, and individuals in all walks of life.

Anything that affects the value of real estate affects these owners and holders of mortgages. A serious vacating of space at the present time might cause the rentals to be insufficient to carry the properties.

That, Mr. Chairman, is what I base my request on to appear before you, because anything that would destroy the industry in securities in New York would very gravely affect our real estate, and we owners of real estate are passing through a period of depression when a change of that kind might have a very, very serious result. The real-estate board having given consideration to the provisions of the proposed bill is of the opinion that the act would greatly deflate the securities industry, if it would not destroy it. All the interests, therefore, represented by the real-estate board would sustain a very serious loss in connection with the devaluation of their properties.

We do not contend that the stock exchange does not need regulation but we do contend that it is unnecessary to pass a law which would be so serious in its effects that it might destroy that organization. We have the impression on reading the act that its draftsman was not so much concerned over curing the evils in the exchange alone but was seeking to bring around governmental operation of the industry and of the listed corporations, and to make it so difficult and expensive for them to carry on business that the industry would be dissipated. An act of this character should be drafted by some unprejudiced person. It is to be hoped that the act, when amended, will be the result of a competent, intelligent, and sympathetic draftsmanship and will be confined to its alleged purpose of curing the evils instead of fixing absolute governmental control upon the stock exchange and the corporations listed on it. The provisions making it difficult and dangerius to do business under the act and imposing unnecessary expense should be eliminated.

The different provisions of the act have been subject to so much discussion that I shall not attempt to take them up again with the committee. To sustain the foregoing statements, I will call attention, however, to one or two of them, which, I think, illustrate the general character of the act..

The provision in relation to proxies is so written that it would be practically impossible to hold a corporate meeting under it. The requirement for filing a statement with a list of stockholders and the later requirement that you are to send a copy of that statement to every stockholder from whom you desire a proxy, is entirely impracticable and out of line with all corporate practice. It is elementary that the purposes of the meeting are stated in the notice of meeting and that the proxies should enable persons holding them to vote for any question that can be legally brought before the meeting. It is necessary in order to obtain a quorum that some system of obtaining proxies should be adopted.

The other provisions, forbidding the disclosure of any confidential information, which is intended to prevent officers of corporations from giving to some favored few information which may affect the value of the stock, will do away with the great improvement which has taken place of late years in relation to the contact of officers of corporations with their stockholders. This contact should be encouraged and, in my opinion, the stockholder should be furnished with all information in relation to the corporation's activities that he may desire. Under this provision, however, the officers of a corporation, especially those against whom the section is aimed, will find a ready excuse for not furnishing a stockholder with information, except through public statements, while the confidential information is carried in some indirect way to the favored few. Any information that an officer may give in relation to his company is liable to have some bearing upon the value of its stock and might, therefore, be held to be confidential.

The provision in relation to registration is also extremely onerous. Why should a corporation agree to comply with the law? It has to comply with the law, if the law be constitutional. The documentary evidence which will have to be produced in connection with the registration of a corporation would incur a heavy burden especially as the officers of today would become responsible if there were any inaccuracies in the accounts of past generations. It is a very serious thing for a corporation to agree to comply with any rules that a public body may hereafter promulgate.

We, therefore, call these matters to the attention of the committee and the serious damage which may be done to the interests represented by us, and we trust that the committee in its wisdom may confine the proposed bill to remedying such evils as may exist but not to approve in its final form an act which will be so rigid and severe that the industry of our public exchanges will be crippled or destroyed.

I feel very strongly, Mr. Chairman and gentlemen of the committee, in relation to that disclosure of confidential information. I think it is extremely necessary that stockholders be given access to their corporation, to their directors and officers, in order to obtain all information they may wish to know about in regard to their company, and any law which would cause an officer to say that he could not give information because he was forbidden by law to do so, or that he feared to do so because of what he construed the law to be, would be very unfortunate indeed.

The CHAIRMAN. You say that stock exchange tenants occupy so much space, and that the rental from such tenants amounts to about 15 million dollars a year?

Mr. BABBAGE. Yes, sir.

The CHAIRMAN. What property is included in that?

Mr. BABBAGE. That means all the different office buildings in New York City.

The CHAIRMAN. Owned by the stock exchange as well?

Mr. BABBAGE. No; not owned by the stock exchange. But stockexchange firms rent their quarters in the different office buildings? The CHAIRMAN. You mean stock-exchange members?

Mr. BABBAGE. Yes, sir.