Mr. CORCORAN. Because there are plenty of men doing a dealers' business, without being members of the exchange, from whom his customers could buy.

Mr. MERRITT. They could not buy to so much of an advantage, of course. That is to say, the net cost to the man who is a member of the exchange is less than if he were not a member of the exchange.

Mr. CORCORAN. I have a suggestion to meet this temporary situation that you are talking about. I will come to that in just 1 minute. Mr. MERRITT. That is what I was going to ask, if you have anything to say on that.

Mr. CORCORAN. Yes; I will in just 1 minute.

What you are up against is a practical situation. You are going to have letters such as that which Mr. Merritt read, and you are going to have very good and honorable houses coming down from New York, and from all over the country, saying, "We agree with you in principle, but practically, we are in a jam.'

If you have to make some adjustment to that temporary situation, you might say that this provision will not come into effect until 1, or 2, or 3 years after the rest of the act goes into effect, in order to give houses organized on a combination basis an opportunity to reorganize their business to see if they cannot operate on this segregated basis with each kind of business commission, dealers' and underwriters', standing on its own bottom. The underwriting business has been a very, very profitable business, but, like all very profitable businesses, it is a feast-or-famine business, and right now it happens be going through a period of famine. You might say: "No dealer or underwriter can be a member of the exchange, but anyone who has been a dealer or underwriter and is a member of the exchange will be permitted by the rules of the exchange to enter into an arrangement whereby he will not pay the full commission when orders are executed for him through members who are on the exchange." What bond dealers are worrying about is that they will have to pay full brokerage commissions on their purchases.

That is, there might be an arrangement whereby, during a transition period, while this segregation is going into effect, the exchanges whose rules now provide that commissions cannot be split, might permit their members to split commissions on a very favorable basis with bond dealers, who would step off of the Exchange during the period while they are trying to work out the transition, and decide whether they want to be brokers or dealers.

Mr. MERRITT. May I interrupt you for a moment?

Mr. CORCORAN. Yes.

Mr. MERRITT. Do you think that this is a practical suggestion? I think I read it before:

I wonder if the proposed law cannot be so drawn that a distinction is made between bond dealers doing only a cash business in investment securities on a dealer and brokerage basis, and stock brokers doing a margin business on the exchange.

Mr. CORCORAN. I have heard that suggestion from the bond dealers before, and I will confess that I personally have not thought it out, all the way through. Of course, the difficulty with bonds is that there are all kinds of gradations, from bonds down through convertible bonds, down through stocks.

Mr. MERRITT. Yes.

Mr. CORCORAN. It might prove feasible, after thinking through the difference between a bond dealer, and a stock broker, to treat the bond dealer differently, particularly the dealer in the very high grade bonds. That differentiation is something to be thought out. I would not say "yes" or "no" to it now.

Mr. MERRITT (interposing). It occurred to me, at least, a situation of that sort might in some way under the law be left to the discretion of the governors of the exchange, under certain general rules.

Mr. CORCORAN. Well, I do not know.

Mr. MERRITT. I think you would say, of course, the governors of the Stock Exchange in New York are honest men; do not want to have any unfair practices; would you not?

Mr. CORCORAN. I certainly say that I think so; but I say that sometimes perfectly honest men differ on the appreciation of values.

Mr. MERRITT. Do you not think also that reformers are sometimes like a dog following the deer? They want to get the deer, anyhow? Mr. CORCORAN. That is true. That is why I am putting the other side of segregation to you today, so that you will not think I am trying to get the deer. So that you might say to combination brokers and dealers "You cannot stay on the exchange unless you want to be a broker on the exchange, execute orders for other men as a broker and have no other interests, but during the interim period, although exchanges now generally forbid splitting of the commissions, exchanges may permit you dealers and underwriters special favorable rates of commissions from the brokers through whom you will have to operate off the exchange."

A second requirement should be that broker-dealer-underwriters off the exchange should have to segregate the capital that goes into commission business from that employed in the others, so that their accounts with their brokerage customers will not be imperiled by their own operations taking positions in securities.

A third safeguard should require that these combination brokerdealers disclose to their customers in what capacity they were operating in each transaction. Suppose a dealer who also acts as a broker receives an order from you to buy a certain stock. He may either buy is for you as a broker on the exchange or he may have it on his shelf as dealer's merchandise and pass it on to you as a merchant.

In many cases where the dealers have had securities of the kind ordered on their shelves, they have taken them off the shelves but charged the customer a brokerage commission, which they had never actually incurred.

Therefore the third safeguard should be that on all confirmations which a broker-dealer sends out he disclose to his customer whether he had sold the shares to the customer as a dealer or whether he executed an order for the customer as a broker and itemize the entries and the commissions on the confirmation slip. That brings us to the problem of the specialist.

Mr. MARLAND. Mr. Chairman, may I ask a question?

The CHAIRMAN. Mr. Marland.

Mr. MARLAND. Before the witness passes the point, I want to ask him this: Mr. Corcoran, has the New York Stock Exchange ever attempted to determine what percentage of the number of shares

traded in on the day were actually purchases by the investing public and what percentage was simply floor trading?

Mr. CORCORAN. I do not know, sir. As I told you, I do not know. Mr. MARLAND. They have never published any such information? Mr. CORCORAN. You may remember that you asked Mr. Thomas that question the other day. Mr. Thomas is as near an export on stock-exchange trading as we have here in Washington and he said he did not know. As I told you the other day, I have heard figures quoted by Mr. John Flynn, of Senator Fletcher's investigating committee, that during last year one half of all of the buying and selling on the exchange was done by floor traders for their own account. I have only Mr. Flynn's authority for that statement. He has made a special study of the floor trader. Whether they are right or wrong, I just do not know.

Mr. MARLAND. Does your experience lead you to believe that the percentage is even greater than that?

Mr. CORCORAN. I just cannot tell, sir.

Mr. MARLAND. On the great days, when 4 or 5 million shares are traded, is it not quite likely, from your own experience, that 75 or 80 percent of that is floor trading and not purchases by the investing public?

Mr. CORCORAN. I have heard it said, sir, but I just do not know. Mr. MARLAND. Well, no one knows. There have been no figures compiled by the stock exchange. The stock exchange has never authorized those, have they?

Mr. CORCORAN. No.

Mr. MARLAND. They have never authorized the compilation of such figures, so that we do not know. When we see a 4,000,000 or 5,000,000 share day, we do not know whether that represents purchases, or purchases on the floor and gambling.

Mr. CORCORAN. Or whether it is floor trading in and out.

Mr. MARLAND. You could ascertain, could you not, for the benefit of the committee, whether the stock exchange has ever compiled or attempted to compile such a statement?

Mr. CORCORAN. We will try to find that out for you, sir. Why do you not ask Mr. Whitney when he comes down here tomorrow? He ought to know that, sir. I should think that he would be able to give you the answer right off hand. I will try to find out for

you, sir.

Mr. MARLAND. Well, you would know if there had been any such figures compiled.

Mr. CORCORAN. I should think so, because I follow this business pretty closely; but I just do not know.

When we come to the problem of the specialist, I do not think anybody not on the stock exchange disagrees that something has to be done to make the specialist in effect just a clerk who matches orders.

The specialist has always been a special broker who takes care of 1, 2, or 3 stocks. If you send your broker an order at market, he normally executes it himself for you. But if you send in an order at a fixed price, your broker cannot stand around the post waiting for a corresponding order to come in from some other broker wanting to buy or sell at that price, so your broker turns over your order to a so-called "specialist" who keeps a book in which he enters all orders not at market. If you have put in an order to buy at 90, when an

order to sell at 90 comes, the specialist matches them and makes the sale.

The difficulty has been, of course, that the system gives the specialist an inside look at all orders. He knows at every minute just exactly what the buy orders and the sell orders on the books are. Because therefore he plays poker with the privilege of looking at all of the cards, he has been in a very advantageous personal position with respect to the securities for which he is specialist and he has been a very important cog in any pool operation. If you could get a specialist to run your pool for you, it was very much easier. The specialist would also be a good fellow occasionally and pass his book around to his friends for a look at it, and anybody who is operating in a particular stock who knows what the general public will do, at what point it is willing to buy and at what point it is willing to sell, has a very, very easy

game.

Now, the New York Stock Exchange

Mr. MARLAND. Mr. Chairman, if I may interrupt.

The CHAIRMAN. Mr. Marland.

Mr. CORCORAN. Yes.

Mr. MARLAND. Do you think that it would be an advantage to have publicity?

Mr. CORCORAN. Decidedly; yes.

Mr. MARLAND. The rule that was passed or the order that was made by the stock exchange was to the effect that a specialist could not show his books.

Mr. CORCORAN. It has just been made, unfortunately.

Mr. MARLAND. Is that beneficial to the public?

Mr. CORCORAN. That he cannot show his books?

Mr. MARLAND. Yes.

Mr. CORCORAN. It is.

Mr. MARLAND. Do you want that information to be held exclusive? Mr. CORCORAN. Yes.

Mr. MARLAND. To the operator?

Mr. CORCORAN. No. He should not be permitted to operate, either. I mean, as this bill is drawn, the specialist not only cannot show his books, but he cannot act as anything except a broker. He cannot trade for his own account.

Mr. MARLAND. Why, Mr. Corcoran, if a customer is in the market for stock, for a large block of stock, why should he not be permitted to ask his brokers to ascertain what there was on the books for sale, and why should not the broker be able to find from the specialist, what there is for sale? It is done in every other business. Why should the specialist be prohibited from telling what orders he has for certain stocks?

Mr. CORCORAN. Well, it would not be so bad if he had to tell everybody.

Mr. MARLAND. That is what I mean, to tell everybody.

Mr. CORCORAN. We have a provision in here that says practically that. It says the specialist cannot disclose to any other person information in regard to orders placed with him that is not available to all members of the exchange. That is the way the bill now reads.

Mr. MARLAND. Well, that is very good so far as it goes, but why not provide that the specialist must upon request furnish information, to

the public as to the orders to buy, and to sell; why should it not be perfectly open and aboveboard?

Mr. CORCORAN. It all depends upon whether you think the public is willing to have its offers to buy and sell known to everybody else. On European exchanges, all of these things are cleared through a clerk of the exchange. There is nothing mysterious about them.

Y

If you think that the American people want to have their orders made public to buy and sell, it certainly will make for better publicity if all of the orders are published.

Mr. MARLAND. And more intelligent trading, will it not?

Mr. CORCORAN. Yes. You will shatter all of the traditions of the stock market practices, if you do.

Mr. MARLAND. But, the public would be able to more intelligently buy and sell stock.

Mr. CORCORAN. That is true.

Mr. MARLAND. If what the specialist knows they are permitted to know.

Mr. CORCORAN. That is, if they knew what bid and asked prices in addition to the last sale?

Mr. MARLAND. That is right.

Mr. CORCORAN. That is true.

One of the most amazing things about the stock exchange management is that the specialist rule which they announced the other day is just about four years late. It is an amazing thing that it was only the other day the stock exchange ruled that a specialist could not trade in options in stocks in which he was a specialist, and that he could not show his books to anybody except the governing committee. Now, if we may go over to the particular problem, of which you hear so much discussion, the registration of securities, in which you are particularly interested, Mr. Cooper.

These provisions are a part of the protection against the naked speculation and unwarranted and destructive speculation the President condemns in his message. The rest of the provisions of this bill, apart from those providing for administration, relate to the protection of corporate outsiders from the corporate insiders. One of the factors that will prevent speculation from being as bad as it is or has been, is the assurance that the average investor who buys into the market has at least a chance to know what he is buying into and has some protection after buying from being double-crossed on the inside by men who know more about the stock than he does.

Now, if we may make the order a little easier to follow, before we take up the registration requirement for securities, jump over to section 15, to "Transactions by Directors, Officers, and Principal Stockholders." A principal stockholder is defined as a person who owns more than 5 percent of any class of stock.

On page 28, section 15 (a), requires every director, officer, or principal holder of any securities listed on an exchange to file with the exchange and with the commission a statement of how many shares he owns and to file that statement at the end of each month to show whether there has been any change in his position during the month. That is to prevent the insider from taking advantage of information to sell or buy shares ahead of the release of information to the public. about the company.

(a) Requires him to show what his holdings are.