member, directly or indirectly, to extend or maintain credit to or for any person or to borrow any money, the repayment of which is secured by the pledge or hypothecation of any security, in contravention of such rules as may be established from time to time by the Federal Reserve Board for the purpose of preventing the excessive use of credit for speculation.

FEDERAL STOCK EXCHANGE COMMISSION

SEC. 5. There is hereby established a Federal Stock Exchange Commission to be composed of five members to be appointed by the President, by and with the advice and consent of the Senate. Not more than three of such appointed Commissioners shall be members of the same political party. No appointed Commissioner shall actively engage in any other business, vocation or employment than that of serving as Commissioner. Each appointed Commissioner shall receive a salary at the rate of $10,000 a year, payable in the same manner as the judges of the courts of the United States, and shall hold office for a term of six years, except that (1) any Commissioner appointed to fill a vacancy occurring prior to the expiration of the term for which his predecessor was appointed shall be appointed for the remainder of such term, and (2) the first Commissioners appointed shall continue in office for terms of two, three, four, five and six years, respectively, from the date of the taking effect of this Act, the term of each to be designated by the President, but their successors shall be appointed for terms of six years. The Commission shall choose a Chairman from its own membership. Any Commissioner may be removed by the President for inefficiency, neglect of duty or malfeasance in office. A vacancy on the Commission shall not impair the right of the remaining Commissioners to exercise all the powers of the Commission.

The Commission shall have an official seal which shall be judicially noticed. The Commission shall appoint a Secretary, who shall receive a salary payable in the same manner as the salaries of the Commissioners, and it shall have authority to employ and fix compensation of such attorneys, special experts, examiners, clerks and other employees as it may from time to time find necessary for the proper performance of its duties and as may from time to time be appropriated for by Congress. With the exception of a secretary and a clerk to each Commissioner, the attorneys and such special experts and examiners as the Commission may from time to time find necessary for the conduct of its work, all employees of the Commission shall be part of the classified civil service and shall enter the service under such rules and regulations as may be prescribed by the Commission and by the Civil Service Commission.

All of the expenses of the Commission, including all necessary expenses for transportation incurred by the Commissioners or by their employees under their orders, in making any investigation or upon official business in any other place than in the City of Washington shall be allowed and paid on presentation of itemized vouchers therefor approved by the Commission.

Until otherwise provided by law, the Commission may rent suitable offices for its use.

The general accounting office shall receive and examine all accounts of expenditures of the Commission.

The principal office of the Commission shall be in the City of Washington but it may meet and exercise all its powers at any other place, and the Commission may, by one or more of its members, or by such examiners as it may designate prosecute any inquiry necessary to its duties in any part of the United States.

LICENSING OF NATIONAL STOCK EXCHANGES

SEC. 6. (a) Any exchange may be licensed as a national stock exchange by filing with the Commission an application in such form as the Commission may prescribe containing all relevant information in regard to the history, organization, membership, and the rules and regulations of such exchange and a list of the securities in which dealings are permitted on such exchange. (b) Unless such application shall be withdrawn by such exchange, the Commission shall, within thirty days after the filing thereof or within such further period as may be agreed upon, grant a license to such exchange as a national stock exchange if it shall determine that the rules and regulations of such exchange are adequate to prevent unfair practices in security transactions and to protect investors; otherwise it shall enter an order, after appropriate notice

and opportunity for hearing, denying such application and stating the reasons therefor.

(c) Any national stock exchange may upon reasonable notice to the Commission surrender its license under this Act.

(d) Nothing in this Act shall be construed to prevent any national stock exchange from exercising any power vested in it by its constitution or its rules or regulations or from adopting and enforcing any rule or regulation not inconsistent with this Act or any effective order entered by the Commission thereunder.

TRANSACTIONS ON UNLICENSED EXCHANGES PROHIBITED

SEC. 7. Unless an exchange is licensed as a national stock exchange under this Act, it shall be unlawful for any person, directly or indirectly, to make use of the mails or any means or instrumentality of interstate commerce for the purpose of using any facility of such exchange to effect any transaction in a security on such exchange or to report any such transaction.

REQUIREMENTS FOR LISTING OF SECURITIES ON NATIONAL STOCK EXCHANGES

SEC. 8. The Commission shall have power by order to direct any national stock exchange to adopt such requirements for the listing of securities or the admission of securities to trading thereon as the Commission may deem necessary to secure adequate information for the protection of investors.

UNFAIR PRACTICES UNLAWFUL; POWERS OF COMMISSION

SEC. 9. Unfair practices in security transactions upon national stock exchanges and by members thereof or persons acting through such members are hereby declared unlawful. For the purpose of preventing such unfair practices the Commission shall have power by order to require national stock exchanges to adopt such rules as the Commission may deem necessary for the protection of investors.

RIGHT OF COMMISSION TO INVESTIGATE

SEC. 10. Whenever the Commission shall have reason to believe that any person has violated or is violating any provision of this Act or has been or is employing any unfair practice in security transactions upon any national stock exchange or that such an exchange has failed to adopt or to enforce any rule or regulation which it shall have been required to adopt pursuant to this Act, the Commission either directly or through its duly authorized representatives, may make such investigation as it deems necessary and proper. For the purpose of any such investigation, the Commission may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence and require the production of any books, papers or other records which the Commission deems relevant or material to the investigation. If any person subpoenaed to attend any inquiry fails to comply with such subpoena without reasonable cause or shall, without reasonable cause, refuse to be sworn or to be examined or to answer a question or to produce any book, paper or other record when ordered so to do, he shall be guilty of a misdemeanor and punishable accordingly.

ORDERS OF COMMISSION

SEC. 11. Whenever the Commission shall determine, as a result of investigation or otherwise, that it is necessary that any national stock exchange should adopt any rule or regulation to prevent unfair practices in security transactions or for the protection of investors, the Commission may enter an order requiring any national stock exchange to adopt such rule or regulation. Any such order shall be effective on the tenth day after notice of the entry thereof shall have been mailed by registered mail to the national stock exchange affected thereby, provided, however, that if the Commission shall determine that an emergency exists requiring that such rule or regulation be adopted immediately, then such order shall become effective upon the entry thereof, provided telegraphic notice of the entry of such order shall be given to any national stock exchange affected thereby.

ENFORCEMENT OF ORDERS OF COMMISSION

SEC. 12. Whenever the Commission shall determine that any national stock exchange has violated or is violating any order or rule or regulation of the Commission, or has failed to exercise due diligence in enforcing compliance therewith by its members, the Commission may, in its discretion:

(1) After appropriate notice and opportunity for hearing, enter an order suspending for a period not exceeding twelve months or revoking altogether the license of any such national stock exchange; or

(2) After appropriate notice and opportunity for hearing, enter an order requiring any or all members of such national stock exchange to secure a license, on such terms and conditions as the Commission may reasonably deem necessary for the prevention of unfair practices in security transactions or for the protection of investors, as a condition of continuing to conduct business as a member of such national stock exchange.

APPLICATION FOR REVISION OF ORDERS OF COMMISSION

SEC. 13. Any person aggrieved by any order entered by the Commission may, at any time within thirty days after the effective date of such order, apply to the Commission for a revision of such order. The Commission shall fix a time for hearing on such application and shall afford such person a reasonable opportunity to show cause why such order should be modified or rescinded. The evidence in such proceeding shall be reduced to writing and the Commission, after due consideration, shall either affirm, modify or rescind such order. Any application for revision of an order entered by the Commission, other than an order made effective immediately because of an existing emergency, made by a national stock exchange before such order shall become effective, shall operate as a stay of such order. No member of a national stock exchange shall be entitled to apply for the revision of an order of the Commission directing such national stock exchange to adopt any rule or regulation.

COURT REVIEW OF ORDERS

SEC. 14. (a) Any person aggrieved by an order of the Commission who shall have applied for a revision thereof, as provided in Sec. 13 of this Act, may, after such order shall have been affirmed or modified, or in the event that the Commission shall have made no determination on such application for revision within sixty days after such application, obtain a review of such order in the Circuit Court of Appeals of the United States, within any circuit wherein such person resides or has his principal place of business, or in the Court of Appeals of the District of Columbia, by filing in such court, within sixty days after such determination by the Commission or the expiration of such sixtyday period in which the Commission shall have made no determination on such application for revision, a written petition praying that the order of the Commission be modified or set aside in whole or in part. A copy of such petition shall be forthwith served upon the Commission, and thereupon the Commission shall certify and file with the court a transcript of the record upon which the order complained of was entered and upon which such application for revision was determined. No objection to an order of the Commission shall be considered by the court unless such objection shall have been urged before the Commission. The finding of the Commission as to the facts, if supported by the evidence, shall be conclusive. If either party shall apply to the court for leave to adduce additional evidence, and shall show to the satisfaction of the court that such additional evidence is material and that there were reasonable grounds for failure to adduce such evidence in the hearing before the Commission, the court may order such additional evidence to be taken before the Commission or in such other manner as the court may direct and to be presented to the court, upon such terms and conditions as the court may deem proper. The Commission may modify its findings as to the facts, by reason of the additional evidence so taken, and it shall file such modified or new findings, which if supported by the evidence shall be conclusive, and its recommendation, if any, for the modification or setting aside of the original order. The jurisdiction of the court shall be exclusive and its judgment and decree, affirming, modifying, or setting aside, in whole or in part, any order of the Commission, shall be final, subject to review by the Supreme Court of the United States upon certiorari or certification as provided

in Sections 239 and 240 of the Judicial Code, as amended (U.S.C., title 28, secs. 346 and 347).

(b) The commencement of proceedings under subsection (a) shall not, unless specifically ordered by the court, operate as a stay of the Commission's order.

JURISDICTION OF OFFENSES AND SUITS

SEC. 15. (a) The district courts of the United States, the United States court of any Territory, and the Supreme Court of the District of Columbia shall have jurisdiction of offenses and violations under this Act and of all suits in equity and actions at law brought to enforce any liability or duty created by this Act. Any such criminal proceeding may be brought in the district wherein any act or transaction constituting the offense or violation occurred. Any such civil suit or action may be brought in any such district or in the district wherein the defendant is found or is an inhabitant or transacts business, and process in such cause may be served in any other district in which the defendant is an inhabitant or wherein the defendant may be found. Judgments and decrees so rendered shall be subject to review as provided in Sections 128 and 240 of the Judicial Code, as amended (U.S.C., title 28, secs. 225 and 347). No costs shall be assessed for or against the Commission in any proceeding brought under this Act.

(b) In case of contumacy or refusal to obey a subpoena issued to any person, any of the United States courts, within the jurisdiction of which said person guilty of contumacy or refusal to obey is found or resides, upon application by the Commission may issue to such person an order requiring such person to appear before the Commission, or one of its examiners designated by it, there to produce documentary evidence if so ordered, or there to give evidence touching the matter in question; and any failure to obey such order of such court may be punished by said court as a contempt thereof.

(c) No person, who shall have been subpoenaed by the Commission, shall be excused from attending and testifying or from producing any book, paper, contract, agreement, and other record before the Commission, or any member thereof or any officer designated by it, or in any cause or proceeding instituted by the Commission, on the ground that the testimony or evidence, documentary or otherwise, required of him, may tend to incriminate him or subject him to a penalty or forfeiture; but no individual shall be prosecuted or subjected to any penalty or forfeiture for or on account of any transaction, matter, or thing concerning which he is compelled, after having claimed his privilege against self-incrimination, to testify or produce evidence, documentary or otherwise, except that such individual so testifying shall not be exempt from prosecution and punishment for perjury committed in so testifying.

PENALTIES

SEC. 16. (a) Any person who wilfully violates any provision of section 3 or of section 7 of this Act, or who wilfully extends credit or borrows money in violation of section 4 of this Act, or who wilfully violates any order of the Commission entered pursuant to section 12 of this Act shall, upon conviction, be fined not more than $5,000 or imprisoned for not more than two years, or both;

(b) Any person who wilfully maintains credit for any person in violation of section 4 of this Act shall be liable to a penalty of not more than $1,000 for each such violation and in addition not more than $100 for each and every day of the continuance of such violation which shall accrue to the United States and may be recovered in a civil action brought by the United States.

SEPARABILITY OF PROVISIONS

SEC. 17. If any provision of this Act or part thereof, shall be held invalid, the remainder of this Act shall not be affected thereby.

EFFECTIVE DATE

SEC. 18. This Act shall become effective on October 1, 1934, except that applications for licenses by exchanges under this Act may be made to the Commission in accordance with its rules and regulations at any time on and after July 1, 1934: Provided that sections 3, 4 and 5 shall become effective immediately upon the enactment of this Act.

Senate Office Buildings, Washington, D.C.

DEAR SENATOR GOLDSBOROUGH: In reading the testimony of Mr. Samuel Untermyer on April 5, 1934, before the Committee on Banking and Currency I noticed on page 9 et seq. of the stenographic transcript certain inaccuracies with respect to the disposition of the proceeds of a membership in the Exchange upon the insolvency of a member.

Upon admission to membership, a member agrees that the proceeds from the sale of his seat, whether the sale results from his insolvency or otherwise, shall be available to satisfy the claims of members of the Exchange arising out of Exchange or Members' Contracts, as defined in Article XV of the Constitution of the Exchange and as allowed by the Committee on Admissions. Mr. Untermyer stated that this agreement embodied in the Constitution of the Exchange runs up against the law of the land". I am advised by counsel that such an agreement has been upheld by the Supreme Court of the United States as a valid equitable pledge.

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In answer ot your question Mr. Untermyer also stated that the proceeds from the sale of an insolvent's membership go to the members of the Exchange. Members have a preferred claim, as I have stated, only an Exchange and Members' Contracts allowed by the Committee on Admissions. Between July 1929 and the present date a total of seventeen Stock Exchange memberships were sold because their holders became insolvent. The total proceeds of all memberships amounted to $2,980,181.76. The sum of $866,271.78 or 29.1 per cent. of the total was paid to members of the Exchange upon claims allowed by the Committee on Admissions and $2,113,909.98 or 70.9 per cent. was paid to trustees or receivers of the insolvents. The Committee on Admissions disallowed members' claims totaling $1,394,494.49. Although a breakdown of these figures is not immediately available, I am quite confident that a substantial part of the 29.1 per cent. paid to members of the Exchange went to the customers of members for whose accounts the claims were presented to the Committee on Admissions. I am having prepared and shall forward to you when completed a breakdown of the figures with respect to two of the largest insolvencies, showing the proportion of allowed members' claims which were for the account of customers.

Members in accepting contracts for the purchase or sale of securities upon the floor of the Exchange, although in most cases acting as agents for customers, under the rules of the Exchange assume the liability of principals. Furthermore, it is an unwritten law of the Exchange that members must accept the best bid or offer regardless of the financial standing of the member making such bid or offer. These so-called compulsory contracts between members of the Exchange are essential in order that their customers may receive the best available prices in the open market. It, therefore, seems only fair that if members are forced to assume the liability of principals and are also forced to accept the financial responsibility of all other members of the Exchange, the business contracts entered into between members should be secured by the proceeds from the sale of the memberships. The pledge of particular assets to secure the performance of particular contracts follows a universal business practice. Upon this security rests the willingness of members to accept large commitments in security transactions for the accounts of their customers. Without this security members would be unwilling to execute orders for the purchase and sale of securities at great financial risk to themselves. The result would be to deprive investors of the free and open market which has preserved the liquidity of listed securities throughout the depression.

Faithfully yours,

RICHARD WHITNEY, President.

P.S.-I am enclosing copy of the Constitution of the Exchange, with particular reference to Article XV above referred to. R. W.