When President Roosevelt assumed office, he immediately had a committee organized under the Department of Commerce to study this question. It consisted of the following members: John Dickinson, Chairman; A. A. Berle, Jr.; Arthur H. Dean; J. M. Landis; and Henry J. Richardson.

This committee gave the subject matter very thorough study and their report to the Secretary of Commerce, the Honorable Daniel C. Roper, was submitted by the Secretary of Commerce to the President of the United States and, by him, submitted to you as Chairman of the Banking and Currency Committee on January 25, 1934.

The President offered his own good offices and that of the committee who had studied this question but, for some reason, apparently the report of the committee appeared to have been overlooked in drafting the present bill which departs widely from their recommendations.

It seemed to me that the report of the Dickinson committee was sound and did not go beyond what was necessary to be done in order to regulate Le stock exchanges and safeguard the rights of the public.

It proposed to put the exchanges under a Federal charter with authority in the Government through an administrative agency to impose on the stock exchanges a charter requiring minimum standards which would protect the public and the buyers of securities. It did not attempt to go beyond this but authorized sufficient penalties to compel the exchanges to administer their affairs in such a manner as to safeguard the public interest.

I do not believe it is a wise or sound practice to go beyond this. I do not think the Government of the United States should be charged with the responsibility of administering the stock exchanges or to deal with them further than to require them to observe the high standards which the Government would impose.

In the pending bill the draftsmen apparently thought it advisable not only to give to the Federal Trade Commission the power in effect to control the operation of the stock exchanges but to direct in detail such exchanges and the members thereof, and went very much further than this in giving the Federal Trade Commission power over all corporations whose stocks and bonds were listed upon such exchanges.

An example of what was thought advisable appears in the matter of proxies. Senate Bill 2693 requires a company sending out proxies to send a list of all stock holders to each stock holder. I am advised that the American Tel. an Tel. has over seven hundred thousand stock holders and that it is roughly estimated it would cost them nearly a million dollars to circularize the stock holders for proxies. Obviously, those drafting these provisions must have had no conception of this cost, and it demonstrates the unwisdom of giving such power as the bill proposes to any commission.

The powers given to the Commission in this bill, in my judgment, could easily result in a very great and unnecessary cost to the corporations involved and thereby cut down the income taxes which they could otherwise pay. Why should the American Tel. and Tel. have its income cut down by nine hundred thousand dollars for such a purpose as obtaining proxies?

Another very grave error, it seems to me, is the attempt by a legislative mandate to forbid a free flow of credit into brokers' loans by arbitrarily imposing a heavy restriction on margins.

The flexibility of margin accounts is a most important means of controlling credit and this control should be left free to some governmental agency that would expand the margins when inflation threatens and leave the margins uncontrolled except by the credit markets when there is no inflation or when, as at present, the flow of credit is paralyzed.

The control of margins and of the interest rate on brokers' loans is of supreme importance in preventing inflation of credit for stock market spectlation.

One of the most important means by which these brokers' loans are expanded almost without limit is the fact that the interest rate on call loans is uncontrolled and may go anywhere from five per cent up to twenty-five per cent. Your examination has shown that these high rates have attracted and caused to flow into this speculative market untold billions of dollars in the aggregate

of such call loans. The interest rate on such call loans, under no circumstances, should be permitted to go beyond a very low rate which would prevent any undue competition of such loans with loans by commercial banks for the accommodation of manufacturers and distributors.

The call loan is safe because it is well margined and convertible into cash in twenty-four hours. The banks now pay no percent, as a rule, on demand deposits and the demand deposits in brokers' loans are even better than demand deposits with commercial banks because the brokers' loans are margined heavily and capable of conversion always into cash on demand while a deposit in the bank is not margined and we have witnessed in America billions of such deposits that were not paid on demand and, in many cases, were lost to the depositors because they were not secured.

It is of supreme importance to control the flow of credit for speculative purposes in the stock exchanges because it was the collapse of such credits which resulted in the present great industrial depression, as I ventured to set forth in great detail, with many tables and charts, in my comments on the Goldsborough Bill for the stabilization of money in March, 1932, page 123.

"BROKERS' LOANS AND INDUSTRIAL DEPRESSION "

For the purpose of making it perfectly clear that the present industrial depression was due to the inflation of credit on brokers' loans, as obtained from the Bureau of Research of the Federal Reserve Board, the figures show that the inflation of credit for speculative purposes on stock exchanges were responsible directly for a rise in the average of quotations of the stocks from sixty in 1922 to 225 in 1929 to 35 in 1932 and that the change in the value of such stocks listed on the New York Stock Exchange went through the same identical changes in almost identical percentages.

For your information, I submit these tables:

No. 1.-The fluctuation of common-stock prices according to the index numbers of the Standard Statistics Co.

1926=100

No. II-The total market values of all stocks (in billions) listed on the New York Stock Exchange, showing the changes which took place from January 1925 to February 1934

Exhibit III is a rough draft of brokers' loans on the New York Stock

You will observe that the common stock prices quoted in 1921 at 55 rose te 100 in 1926 and to 225 in September, 1929, and fell again to 35 in July, 1932 and that the values of the stocks listed on the New York Stock Exchange increased from January 1925 from twenty seven billions to forty pine billions in 1928 up to eighty-nine and seven-tenths billions in September, 1929, and fell to fifteen and six-tenths billions in July 1932.

Observing that the brokers' loans on January. 1921, were $1,790,000,000 and that these loans increased in 1926 to $3.513.000.000 and to September, 193 to $8,549,000,000, and fell to a low point on July 30, 1932 to $242.000.000 will be obvious that the increase in stock market quotations and the stock market values went up with brokers' loans and went down with brokers' loans There is nothing surprising about this because it is merely an example of the law of supply and demand. In other words, when these brokers' leans wen at the peak, it means that there was a super abundance of money availab for speculation and stocks and bonds. As a consequence, the parchick power of such money and the exchange value of such stocks went up. Whet this was reversed and the brokers' loans in 1932 fell to one-half billions, there was a great scarcity of money for speculation on the stock exchange and ar over supply of stock certificates seeking a market. As a consequence, the vale of such money went up and the value of the stock went down.

It is therefore of supreme importance that the Country should realize that the Constitutional requirement imposed on the Congress of "coining mozey mi regulating the value thereof " makes it necessary to regulate the flow of ender for speculative purposes on the stock exchanges.

It should be clearly perceived and understood at all times that the destru of the value of the securities of the Country meant almost universal back TS that it resulted in enormous increases in the purchasing power of money so that even on the necessaries of life such as commodities in the wholesale mart the purchasing power of money ran an index of sixty in May. 1920 to 1

February, 1933, an increase of 278 per cent. This increase in the purchasing power of money in relation to commodities is the least of the evils for the purchasing power of money in terms of investments such as stocks increased on an average of over three hundred per cent and in many cases to over a thousand per cent, and in terms of real estate, the increased purchasing power of money was quite as great in many cases.

When it comes to preventing the inflation of credit and the control of the margins on the stock exchanges and the control of the interest rate, it seems to me that it could be safely left with the United States Treasury, the Federal Reserve Board and Federal Reserve banks, under a legislative instruction, or could be put in the hands of an independent monetary board but the power must belong in the hands of the Government somewhere where it can be used in a disinterested manner for stabilizing the purchasing power of money and preventing the repetition of the unspeakable tragedy which has afflicted this Country during the last four years and a half.

This Administration is pledged to restore the general commodity index to normal and to restore to the Country a dollar of the same purchasing power as when the debts were created.

It has yet to be properly accomplished, and is the most important duty now resting upon the Government. When the commodity index is restored to normal and the purchasing power of money is reduced to normal, the Country will find relief.

By reducing the purchasing power to normal, I do not mean to normal in terms of commodity values only but to normal in terms of securities and properties of all kinds, and stocks and bonds. This can only be done by the exercise of the power of the Government of the United States, and against this remedial process which is so vitally important to the great body of the Country, there are those who are vigorously resisting it and using arguments which may mislead the Administration into a dangerous postponement of the relief which has been so generously promised.

Relief from this condition was the issue of 1932. The relief was promised to the Country by the Democratic leaders. The Country has trusted to such leadership and the responsibility rests upon the Party in power. The Country is looking with eager eyes and hopeful hearts for a speedy restoration to a normal condition. The Congress has granted the power and is now engaged in other processes which should be helpful.

Yours most respectfully,

ROBERT L. OWEN.

COMMITTEE EXHIBIT NO. 110, FEBRUARY 26, 1934

To All Members:

NEW YORK STOCK EXCHANGE,

OFFICE OF THE PRESIDENT,
New York, February 14, 1934.

You have already received or you will find enclosed herewith a copy of a Bill introduced in Congress on February 9th entitled "National Securities Exchange Act of 1934."

This Bill is the most important legislation affecting the Stock Exchange and its listed Corporations which has ever been introduced in Congress. It contains sweeping and drastic provisions which affect seriously the business of all members and which may have very disastrous consequences to the stock market resulting in great prejudice to the interests of investors throughout the country.

I call your particular attention to subdivision (a) Section 6 which prohibits members extending credit upon securities unless they are registered upon a national securities exchange. This will make all unlisted securities worthless for margin purposes and consequently will discriminate against small or local enterprises which are not listed on any exchange. Subdivision (b) of this section fixes minimum margins which, depending upon conditions, can vary between 25 per cent and 150 per cent. At the present time the latter provision will be applicable in the case of practically all stocks, on account of the low prices reached by securities within the last three years, but not now prevailing.

These two provisions, operating together, will undoubtedly require the liquidation of a substantial number of customers' accounts.

Subdivision (c) of Section 6 makes these margin requirements applicable to all banks lending money against securities registered on a national exchange which were purchased within thirty days. thereby controlling the use of credi: now exercised under the law by the Federal Reserve System.

Section 7 places an arbitrary limit upon the amount which members n borrow and vests in the Federal Trade Commission unlimited power to further reduce the amount prescribed by the Bill.

Section 8, dealing with the manipulation of security prices, contains man vague and general prohibitions which may eliminate honest and legitimate a well as illegitimate practices. It further imposes drastic civil penalties which while purporting to allow people who have been injured to recover damage will actually permit persons who may claim that they have been injured by manipulation when in fact they have not suffered any loss, to recover vast suns which will be in the nature of penalties.

Section 9 prohibits all short selling unless the Federal Trade Commissio shall permit this practice by specific rules and regulations. It likewise prehibits stop-loss orders.

Section 10 prohibits a member from acting as a dealer in or underwriter of any securities whether they be registered on a national exchange or not. This section will prevent all "over-the-counter" dealer activities by members ever in local or unlisted securities, and will also completely destroy the odd-la business.

Sections 11, 12, 13, 15, 17 and 18 (a) and (b) require all corporations whose securities are listed on a national exchange to file registration state ments with the Federal Trade Commission and to supply it with an unlimite. amount of financial and other information. They likewise impose severe civil penalties upon the directors, officers and principal stockholders of any corpor tion whose securities are listed on a national exchange, and Section 24 ade criminal penalties which may amount to fines of $25,000 and ten years imprise ment. In this connection I direct your particular attention to Section 17 These powers are so extensive that they might be used to control the manage ment of all listed companies and, inasmuch as information secured by the Federal Trade Commission must be made public, vital statistics in regard to American industry may be made available to foreign competitors, which, naturally, would be highly detrimental to the best interests of the country. Section 14 purports to control "over-the-counter" market activities in unlisted as well as listed securities. The constitutionality of this section doubtful because the Federal government has no power to control the intra state activities of persons dealing in unlisted securities who do not use the United States mails. The obvious purpose of this section is to give the Federal Trade Commission power to control all dealings in unlisted securities and thereby to impose upon small local enterprises, which are not of the character to warran listing upon an exchange, the same obligations to furnish information and submit to regulation by the Federal Trade Commission as the bill specifical imposes upon listed corporations. If this section should be upheld by the courts, and Section 10, which prohibits a member of any national exchange a ing as a dealer in securities, is not amended, the market for unlisted securitie will be completely destroyed.

Tert

Section 16 gives the Federal Trade Commission power to examine all recor of every exchange and of every member thereof, and to send its representative to make such examinations as the Commission may determine. All expenses such examinations, including the compensation of the employees of the Co mission, must be paid by the exchange or member whose records are und review. This gives the Commission, irrespective of whether such examination are reasonable or necessary, arbitrary power to dictate the extent of t examinations and the expense of them.

Section 18 (c) gives the Federal Trade Commission power to control t management and operation of stock exchanges. In effect, it vests in the Fede Trade Commission all the powers normally exercised by the Governing Co mittee of the Exchange and, in addition, would allow it to amend the constit tion of the Exchange at will. The full effect of this section is not appare