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quarterly if inventories had to be taken which would be vital to arrive at a correct audit.

Mr. LEA. I did not intend to get off of the question of the expenses of those reports, at the present time.

Mr. WHITNEY. That is a vital element, sir, in this bill, for a listed corporation.

Mr. LEA. But, a corporation when it lists is required to give all of the information that this bill requires, is it not?

Mr. WHITNEY. No, sir.

Mr. LEA. Does not the National Securities Act require information as complete as this bill requires ?

Mr. Whitney. The Securities Act does not apply to a corporation's listing upon an exchange, unless it happens to be a new issue.

Mr. LEA. That is what I mean, on the original issue, the corporation would be compelled to give as much information as is required to be given by this bill.

Mr. WHITNEY. I would believe 'so, sir, though I am not prepared to talk in details of the Federal Securities Act, because I truly do not know them in such details.

Mr. LEA. So, after it is once registered under the new law, it is a question of bringing the information up to date, under this bill.

Mr. WHITNEY. Yes, sir.

Mr. LEA. Now, do you think it would be so difficult for a corporation to report? As a matter of fact, would not the normal business concern carry this information on its books anyway?

Mr. WHITNEY. In certain details; but, I must go back to the point of the independent audit demanded under this act, crarterly, and the other provisions of this act, which give to the Fedei... Trade Commission complete right as to further rules and regulations with reference to reports of every kind demanded, that may be demanded, by it, and also with regard to the way corporate accounting shall be set up as set forth in this act, and also allowed in further rules and regulations at the discretion of the Commission.

Now, I think this in many ways, sir, to the best of my knowledge, goes far beyond what is specifically now stated in the Federal Securities Act with regard to corporate reporting.

Mr. LEA. Possibly this bill may require reports more frequently than would be necessary; but you believe that if we are to have a regulatory system, that corporations whose stocks are on sale on the stock exchanges, should give reports from time to time?

Mr. WHITNEY. Of course, sir, and we demand them, but we advocate in that regard a Federal incorporation law that would be superimposed on State law.

Mr. LEA. I mean, a report to the Commission, assuming that we establish the regulatory system.

Mr. WHITNEY. If I understand you, I see no reason why the reports of such frequency should not be given to a commission as well, of course, as to the public.

Mr. LEA. How frequently do you think should be the practical length of time between reports required?

Mr. WHITNEY. Quarterly, sir; but not independently audited, because then they would be perfectly, in my opinion, worthless [to have them independently audited). If I may use it in the degree of an example, the American Telephone & Telegraph Co.--and on this I speak author

itatively—an independent audit of its first quarter of 1934 could not be put in the hands of the public or the Commission until July or August, and in the meantime, so far as current information is concerned, it would be worthless. But if not made a subject of an independent audit, and merely made as a report, being subject to change and correction, it could be promptly put out and would be worth while.

Mr. LEA. I suppose you would agree to the principle that the investor has the right to accurate and reasonable information concerning the stock that he purchases.

Mr. WHITNEY. Oh, yes, sir; that is one of the fundamental rules of the exchange.

Mr. LEA. And does that not necessarily follow, a report from time to time, within such time as a reasonable administration would permit?

Mr. WHITNEY. Yes, sir; but not independently audited.

We think that an annual independent audit is sufficient for all purposes, and the quarterly reports, where possible, should be filed and made public; but the quicker the better, and not to impose either the delay or the expense upon the corporation by enforcing an independent audit each time.

Mr. LEA. Suppose the legislation, instead of requiring the independent audit each time would leave it in the discretion of the Commission to say when it is necessary that the reports should be required to be independently audited? Would you be in favor of that?

Mr. WHITNEY. Then, sir, they would be adopting the present rules of the stock exchange and naturally I would agree. That is just what we now seek and demand.

Mr. WOLVERTON. Mr. Chairman-
The CHAIRMAN. Mr. Wolverton.
Mr. WOLVERTON. Mr. Whitney--
Mr. WHITNEY. Yes.

Mr. WOLVERTON. You have expressed the unqualified approval of giving information for the benefit of investors as to the financial standing of companies listed on the exchange.

Mr. WHITNEY. Absolutely, and as frequently as possible.

Mr. WOLVERTON. Now, what provision is made to determine for the benefit of the investors the financial standing and stability of the members of the stock exchange?

Mr. WHITNEY. Since 1922, the business conduct committee has imposed upon members who have dealings with the public in the carrying of accounts, a questionnaire, which sets forth to that committee, the committee on business conduct, the details, detailed figures with relation to all of the financial conditions of those members. Those questionaires have from time to time been developed in detail and it is the effort of the business conduct committee to obtain the necessary information through its questionnaire, through its accountants that make separate independent audits of those members, and in imposing, in the filing of that questionnaire, the certificate of a certified accountant and auditor, and a certification of all partners of that firm as to its accuracy.

Mr. WOLVERTON. Is that given publicity?
Mr. WHITNEY. No, sir.

Mr. WOLVERTON. Ís, that audit or examination made by a committee of the stock exchange?

Mr. WHITNEY. Yes, sir; and its accountants.

Mr. WOLVERTON. Is there any examination made by the State authorities?

Mr. WHITNEY. Into individuals?
Mr. WOLVERTON. As members of the stock exchange.

Mr. WHITNEY. I can only speak for myself, sir, but I believe all members of the stock exchange in New York have to file income-tax returns, and they are looked into by officials of the State government and officials of the Federal Government.

Mr. WOLVERTON. I am not speaking from the standpoint of income. I am speaking from the standpoint of protection for the investing public that do business on the stock exchange through a member of that exchanges.

I have in mind that their business is somewhat similar to a banking business and I am inquiring whether an examination such as is now made of national banks, State banks, building and loan associations, and mortgage companies, is also made with reference to members of the stock exchange.

Mr. WHITNEY. As I remarked, there is no such State investigation made as is done by the business conduct committee, unless such members on the exchange do a banking business, and as you refer, coming under the State laws, and then as I understand it, they are under the supervision and investigation of the banking department.

Mr. WOLVERTON. Do you not think that the business now conducted by members of the stock exchange is so similar to a banking business, if we look at it from the standpoint of the investing public, that the public is entitled to know that the one with whom they are doing business is financially sound?

Mr. WHITNEY. There is no objection, sir, to any individual inquiring and receiving that information from the house or a copy of the questionnaire, if it is not given publicity, sir.

Mr. WOLVERTON. Well, if it is considered proper for the stock exchange itself to set up a body to determine the financial stability of the members, why should not the same principle apply by either Federal or State examinations in the interest of the investors?

Mr. WHITNEY. Well, I do not think, sir, though perhaps you have in mind another type of house than I have, I do not think their business is comparable to banking, but I do not see why the banking department should not make inquiry as to the financial condition and position of stock exchange houses.

Mr. WOLVERTON. Well, we will assume for the purpose of my question, that their business is not similar to that of the banking house; but you have stated that the stock exchange itself considers it advisable to have an examination made by itself as to the financial standing of its membership.

Now, what, in your judgment, would be the objection to having that examination made by an outside agency, a Federal or a State agency, rather than the exchange itself?

Mr. WHITNEY. I do not know, sir, that there is any particular objection. I think there is a grave objection to making those facts public. They are not a bank.

Mr. WOLVERTON, You think there would be any greater harm in making those facts public, than the facts that are now required to be made public with respect to banks?

Mr. WHITNEY. Yes, sir; because as I say, I do not think that the business of a stockbroker is comparable to a bank and there are elements of private business there; that is, the member's business interests, the partners' business, that I do not see wherein any good is arrived at or would be arrived at by giving that information to the public. The fact that authorities, State or Federal, had that knowledge, I do not see any objection to that whatever.

Mr. WOLVERTON. Then, you would object to a provision being placed in this bill that would require a Federal examination of members of the stock exchange similar in character to that which is now made for national banks?

Mr. WHITNEY. No, sir; unless it were to be made public.

Mr. WOLVERTON. You feel then that if that information could be obtained and kept for the use of the Government in its regulation of the stock market, it would be a perfectly proper thing to do?

Mr. WHITNEY. I cannot see what harm it would do, sir, and, I am frank to say, because I am afraid that I have missed your point, that I cannot see what benefit it would be; but if it were of benefit to the public, I cannot see any harm as long as it is not made public.

Mr. WOLVERTON. Well, it would seem to me that if you consider that it is advisable to make an examination for the protection of the investing public, then it would seem that the investigation should be made by an outside agency.

Mr. WHITNEY. And I have agreed with you, sir, on the same basis; but not making it public, as we do not.

Mr. WOLVERTON. But you only disagree with me as to the extent that it should be made public.

Mr. WHITNEY. Yes, sir.

Mr. WOLVERTON. In other words, the public should not know the standing of the house with which they are doing business?

Mr. WHITNEY. I did not say that, sir. We very freely answer any individual that inquires of the business conduct committee as to the standing of a house, and there is no objection to a house giving its entire financial statement to inquirers, but that it should be mandatory that their full financial position should be made public, through advertising as to national banks, I cannot agree, because I do not think that they are comparable.

Mr. WOLVERTON. Well, let us approach it this way: You agree it is an advisable thing to have an examination of the members, as to the financial standing of the members of the Stock Exchange?

Mr. WHITNEY. By the stock exchange, certainly.
Mr. WOLVERTON. Yes.
Mr. WHITNEY. Yes, sir.

Mr. WOLVERTON. And now, you state that the information can be obtained by an individual inquiring for it?

Mr. WHITNEY. If the firm wishes to give it.

Mr. WOLVERTON. If that can be done by an inquiry, then why should it not be done voluntarily?

Mr. WHITNEY. Because I do not think that there is any necessity for it because of the various phases of the business not relating to that member's business with an individual that may be conducted by a member, not relating at all to their contact with their customers and the business with them, are really of any interest to the other as it is a private business.

Mr. WOLVERTON. Then, I would have to become a client of that member before, in your opinion, I would be in a position to ask for information as to the financial standing of the person with whom I was doing business?

Mr. WHITNEY. If anybody writes in to the stock exchange, he is answered as to the standing of that particular house.

I have no knowledge to refute my belief that if any individual went to a house and asked as to their financial, general financial standing, that if they saw fit, they would give it to them. They do not have to; but they may. That is within their discretion.

Mr. WOLVERTON. Then, if it is the co.nmon practice to give that information to one who would make inquiry, then what objection would there be to publishing it to the world?

Mr. WHITNEY. I did not say, I do not wish it to be implied, it is common practice for a house to give inquirers information. But the stock exchange will make answers as to a house's standing, or an individual member.

Mr. WOLVERTON. So if I inquire, I may get information and I may not.

Mr. WHITNEY. Yes, sir; and then at your discretion, you can go elsewhere.

Mr. WOLVERTON. Now, if it is advisable for the stock exchange, as an association, to require information as to the standing of the members to be given to an auditing committee, then why would it not be just as proper for that information to be given to the public as to the members of the stock exchange themselves?

Mr. WHITNEY. It is not given to the members of the stock exchange other than to the individual members of the business conduct committee, and only then when a review of a particular case is had.

If the members meet certain regiurements, no one has the information except the chief accountant of the exchange, if he wishes to look into it; but it is not given to any others.

Mr. WOLVERTON. What harm could result by giving such information publicity?

Mr. WHITNEY. I think it is giving private information that cannot have any bearing or have any necessity in the public interest, and I cannot see the justice of giving the private affairs of an individual out, or of firms, any more than, as I understand, the Government issues statements as to the private affairs of individuals.

Mr. WOLVERTON. You have spoken of the advantage of the stock market as a place where individuals, investors, particularly, and not speculators alone, can buy and sell securities.

Is there any way that the public could take advantage of the facilities of the stock exchange that you speak so highly of, and which are so necessary without doing that business through the members of the stock exchange?

Mr. WHITNEY. Yes; but, nevertheless, to answer you, we will grant that he car.not.

Mr. WOLVERTON. In the final analysis, the transaction must be carried by a member of the stock exchange.

Mr. WHITNEY. It must be purchased by a member, or sold; correct.

Mr. WOLVERTON. Now, then, if I, as a part of the public wish to utilize the facilities of the stock exchange, I must go it through your membership. Then why am I not entitled to have information as to

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