or ought to permit to be quoted, the stock of any corporation that has been placed in the hands of a receiver.

Mr. LOCKWOOD. Senator Fletcher, the practice of the New York Curb Exchange in that respect is as follows: We do not suspend from trading a security because of receivership. If a receiver be appointed we endeavor to secure at the earliest possible moment a statement from the receiver of the assets and liabilities, and if we do not get that within a reasonable time our practice is to suspend the stock for a while. If we do get the statement and it shows assets which may be available for stockholders, we feel in that situation, with the statement on file, a showing officially from the receiver of what the assets are, that the stock should be continued for the benefit of those who have been stockholders. But on the statement of facts that you gave, Mr. Chairman, there is no question but what the security should have been stricken from the list.

Senator ADAMS. I know from experience of a member of the committee who bought some stock in a company listed on the New York Stock Exchange, which is in the hands of a receiver, and he watched it from time to time, but it has now disappeared from the list, so that he does not know what has happened to his stock.

The CHAIRMAN. Might I suggest on the same point that we get the attitude of the New York Stock Exchange on that?

Senator ADAMS. Yes; I think we should have it.

Mr. REDMOND. Mr. Chairman, that is a problem which has given us concern for years. After all, we have no means by which we can get official notice of even the appointment of receivers promptly enough so as to put the public on notice of the fact. When we do get that information we publish a notice, which is sent to all members, that a receiver has been appointed. But there are many, many instances in which a company goes into receivership for the purpose of reorganization where there is a very real value for its stock. Now we endeavor to get the information so as to determine whether there is anything in the way of a residual value, and if there is to leave it on the list, and if there is not, to strike it from the list. Our great difficulty, however, is to get receivers or trustees in bankruptcy to give us any statement as to what assets are going to be available for stockholders.

We recently had a case involving a chain store, and quite frankly they said that dependent upon the decision of the Supreme Court in regard to whether the claims of landlords were valid claims in bankruptcy, the common stock was either valuable or worthless, and that they could not forecast the decision of the Supreme Court. That decision was handed down and the stock apparently has a substantial residual value.

I might add that that matter has been under discussion by the committee on stock list of the New York Stock Exchange for years. We have recently tried to get all corporations that are in receivership to give us the balance sheets of the receivers. We got it in one case and found it was more misrepresentation than no information at all, because the receiver issued a statement of his operating income without deductions of any kind whatsoever for depreciation and that one item alone turned what looked like a fine operating statement into red figures.

It is a very difficult problem, and one which I think the exchanges, both the New York Stock Exchange and the New York Curb Exchange, as well as others, realize requires great study, and possibly the cooperation of our courts in giving prompt information to the public as to appointment of receivers and trustees in bankruptcy. The CHAIRMAN. I thank you very much, Mr. Redmond. I think there may be chances in the case of a simple receivership of the stockholders getting something for their stock. I can see that, Mr. Redmond, or can see where that is possible, but when a receivership is followed by bankruptcy it seems to me that closes the door and there is no chance, or at least very little, for the stockholders receiving anything.

Mr. REDMOND. On that, Mr. Chairman, I am entirely with you, that we can draw a distinction between the appointment of an equity receiver and the appointment of a receiver in bankruptcy. But under bankruptcy now, and more particularly since the recent decision of the Supreme Court in the National Radiator case, apparently equity receiverships will be restricted to corporations having a public interest. Therefore, presumably, we will see more cases of bankruptcy than in the past. But even in bankruptcy there may be a residual value, as was the case in this chain-store matter.

The CHAIRMAN. I wanted to get the attitude of the exchanges in this matter.

Mr. LOCKWOOD. All exchanges seek to have on file for the benefit of prospective investors, or holders of securities, full information. Now, I think our general theory is this: That if we reach a situation where we can get no information the security should be suspended or stricken from the list.

The CHAIRMAN. It seems to me that ought to be done, or that some notice should be given to the public that the issuer is in the hands of a receiver. I think there should be something in the papers, where a stock is nearly up to a receivership, or a receivership is existing, or something of that kind, so as to notify prospective purchasers of the stock that it is not on the regular trading footing. Now, are there any questions by members of the committee? Senator KEAN. Mr. Chairman, I should like to ask a question or two of Mr. Lockwood.

The CHAIRMAN. You may proceed, Senator Kean.

Senator KEAN. Mr. Lockwood, you have practically the same rule in regard to short selling that the New York Stock Exchange has, I believe.

Mr. LOCKWOOD. We have, generally speaking, the identical rule, and the rules covering all securities traded in on the New York Curb Exchange are somewhat the same.

Senator KEAN. So that you have the right to ask your members for the names of customers who have sold stock short.

Mr. LOCKWOOD. We not only have that rule, but we do ask for it. Senator KEAN. Have you asked your members to make report on sales of stocks short. I mean on the New York Curb Exchange? Mr. LockwOOD. We have not.

Senator KEAN. Will you ask, for the benefit of this committee. that you be furnished with a report from them from the 1st of January of this year to the 9th of February on the sales of air stocks on vour board and of their customers?

Mr. LOCKWOOD. Sales or transactions? Do you mean reports on transactions?

Senator KEAN. Yes.

Mr. LOCKWOOD. Very good, sir.

Senator ADAMS. Mr. Lockwood, do you have any instances where the same stocks are listed both on the New York Stock Exchange and on the New York Curb Exchange?

Mr. LockwOOD. It is in our constitution that no securities shall be traded in on the New York Curb Exchange which are dealt in on the New York Stock Exchange.

Senator ADAMS. That would not apply to local exchanges in other cities, however, I take it?

Mr. LockwOOD. It does not.

The CHAIRMAN. Are there any other questions of Mr. Lockwood by members of the committee? [A pause, without response.] If not, we are very much obliged to you, Mr. Lockwood.

Mr. LOCKWOOD. And I wish to thank you gentlemen for hearing me. Senator ADAMS. Senator Kean, that request made by you does not apply to odd lots, does it?

Senator KEAN. No; I did not mean odd lots of air stocks.

Senator ADAMS. Did you gentlemen understand that?

Mr. GRUBB. Yes. I understood that it applied to the round numbers list only.

(Thereupon Mr. Grubb and Mr. Lockwood left the committee table.)

Senator GOLDSBOROUGH. Mr. Chairman, I have a letter from the Baltimore Chamber of Commerce, protesting against the passage of this bill in its present form and setting out reasons why they make the protest. I should like to have it made a part of the record. The CHAIRMAN. The committee reporter will make it a part of the record and return the letter to you, Senator Goldsborough. Senator GOLDSBOROUGH. I thank you.

BALTIMORE CHAMBER OF COMMERCE,

OFFICE OF THE SECRETARY,
Baltimore, March 5th, 1934.

Hon. PHILLIPS LEE GOLDSBOROUGH,

United States Senate, Washington, D.C.

DEAR SIR: At a meeting of the Board of Directors of the Baltimore Chamberof Commerce held Monday, March 5th, 1934, the following preamble and resolution was adopted, viz:

Whereas as National Securities Exchange Act of 1934, Bill S. 2693, was conceived with the laudable purpose of correcting certain admitted abuses existing in the various security markets, and

Whereas all right thinking Stock Exchange members and dealers in securities would welcome the correction of such abuses, yet this bill, as at present written, attempts an impracticable degree of regulations of credit agencies; Curtails the proper functions of banks;

Seriously restricts loans when credit expansion is desired and advocated as. a recovery measure;

Removes from availability money in banks not members of the Federal Reserve System in preventing them from lending on any security listed on a national securities exchange to any member of such exchange;

The restrictions placed on unlisted securities would place an extreme hardship on small corporations in financing or refinancing themselves: Therefore be it

Resolved, That the Baltimore Chamber of Commerce protests against the passage of bill S. 2693 in its present form; and be it further

175541-34-PT 15-46

STATEMENTS OF A WETSEL WETSEL ADVISORY SERVICE. INC. AND I I MITCHELL ESQ. ATTORNEY FOR ADVISORY SERVICE, INC., NEW YORK CITY

THE CHAIRMAN Mr. Wotsel, please state our name, are f dence and bentration.

Wr Vaser. My name is A. V. Vetsel I reside in Your Toes City I am president of the Wetset Advisory Service, with fe : de Comster Brilding. The organization that I head is in nie jenitent nvestment Counseling organization. We are tients ul over the United States, as well as in Canada and foreT COULINS, Neemre throngh various mediums, one being a weekiv uletin I which we fizensa general market conditions, and the outlook is te et and make wich -neetic peommendations for purchases ales se we think onditions warrant.

One other thannel through which we serve the pubiles 7management of their funds. We have the entire funds before I Tuch to make recommendations on.

THE CHAIRMAN. What is that fund lerved from!

Mr. Veruri. Their capital. They give us the entire list of thei securities which they have, and such cash as they have. They pine a certain fund, which may be $100,000 capital. They may, at the fume they come with us, own securities in the sum, say, of $50,000. and have 350,000 cash. We take charge of the entire find.

The CHAIRMAN. What do you charge for your services and wha

are they naveri on?

Mr. Weret. Our weekly bulletin seils at $60 a year. The supervisory service or management service, as we call it, has a sliding wale of fees. The basic rate is 1 percent of the entire capital per

annum.

The CRAWAN. For the benefit of investors or for the benefit of those who have scurities to well?

Mr. WETSPL. I am glad you raised that point, because our interest is solely that of the investor. We have no securities whatever to SL. and do not own any securities. We act in no capacity whatever abroker, or go-between, between buyer and seller, except so far as on? judgment goes, as to whether stock should be bought or held or sold The CHAIRMAN. We will be glad to have your views about this pending bill now.

Senator KEAN. Before you start, Mr. Chairman, if I may, you charge them for the bulletin $60 and 1 percent!

Mr. WETSEL. No. That is an entirely separate service.
Senator KRAN. That is a separate service.

Mr. WETSEL. Yes.

Senator KEAN. So that, if I give you $100,000 or $10,000, your charge is 1 percent per year for managing that?

Mr. WETSEL. That is true on $100,000 or over. On anything less than $100,000 and down to $10,000-we do not take any less than $10,000-we charge 1 percent up to $50,000, one quarter of 1 percent from that up to $100,000, and then 10 percent of net realized profits. Senator KEAN. Do you call profits interest?

Mr. WETSEL. No. Deductions are made, of course, in computing profits, for 6 percent interest on the entire fund. All commissions and all other charges are deducted before profits are computed.

I might say at this point that the only excuse we have for being in business is that we have made a study for many years of the causes and effects of price movements. Any conclusions we arrive at as to whether a stock should be bought or held are based upon our experience in connection with the causes and effects of move

ments.

I have prepared a statement here to save the time of the committee. I will not read it all.

Senator KEAN. Have you copies of it?

Mr. WETSEL. Yes. Any conclusions we have drawn concerning the bill that is now under discussion are also based upon our experience as to causes and effects of price movements.

With your kind permission at this point I would like to introduce Mr. J. G. Mitchell, who is our attorney. I think he can discuss these high lights probably a little more intelligently than I can. have prepared a statement, but I think he is probably more capable of discussing these points.

The CHAIRMAN. Very well, Mr. Mitchell.

Senator GOLDSBOROUGH. May we have a copy of the statement? Mr. WETSEL. Yes.

Mr. MICHELL. My comments will be very brief. Mr. Wetsel has stated here a number of principles which are drawn from his experience, and which I will only just refer to in that way.

Senator KEAN. What is the name of your corporation?

Mr. WETSEL. A. W. Wetsel Advisory Service.

Mr. MITCHELL. As Mr. Wetsel has intimated, the approach is entirely from the standpoint of the investor. If the investor succeeds, the service succeeds. Otherwise both lose.

There are two elements in the bill with which, from that standpoint, we are particularly concerned. One is with reference to

marginal requirements.

The CHAIRMAN. That is section 6.

Mr. MITCHELL. Section 6, Senator.

It would seem, from a reading of that section, that the real purpose of the bill is to maintain a certain flexibility, but it would appear to us that that objective has not entirely been reached, and there is an element of uncertainty still there. Our thought was that, whereas there is a limit of loan there of 40 percent, which must be extended and maintained, one of the effects would be, in practice, to have a lower loan value, and, despite the fact that section 9 prohibits stop-loss orders, there would, in practice, have to be a stop-loss order against every deposit of collateral. In a declining market the possibilities of liquidation would be enhanced by this arbitrary marginal restriction.