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Section 20: The language of this section would seem to have no precedent in the annals of Congress. It provides, among other things, that whenever the commission shall be of the opinion that any person is about to violate any provision of the act” and when any person is “about to engage in any acts or practices which constitute or will constitute a violation of the provisions of this act, or of any rule or regulation prescribed under authority thereof”, the commission may proceed against such person in any United States court to enjoin him and prosecute him for having an intention which may be nothing more than suspicion or an inference. We see no reason for the delegation of such powers, and we strongly protest such language as is contained in this section.

Section 22: If the information required by the commission is to be made available to the public we believe that the only benefit to the public will be barred by the prohibitive cost of such information. We base this upon the cost of information furnished to the public by the Federal Trade Commission under the securities act, these costs varying, I understand, from $40 to $60 per issue of security.

Section 24: Lines 24 and 25, page 43, makes use of the words "false and misleading in any matter sufficiently important to influence the judgment of an average investor." It is our idea that the question of who is and what constitutes an average investor is one difficult of determination even by Congress. The liability under this clause is so unreasonable and the penalties so severe that instead of making the bill one of regulation it becomes an opening for persecution.

Section 27, subsection (b): Many exchanges hold listing contracts and agreements with corporations today. Many of these contracts have been in force for years, covering the listing requirements and agreements between the exchanges and the corporations. Consideration should be given to such long-standing contracts and relations.

Section 28: This section discriminates against brokers and dealers in favor of the individual, enabling the individual to purchase securities direct from foreign countries but forbidding a broker or dealer from making such purchases. This section will encourage investors to place their orders direct in foreign markets even in buying our own securities which may be listed or traded in in such foreign markets.

Section 29: We vigorously protest against a tax of any kind whatsoever being levied upon the exchanges, or the brokers engaged in business thereon, for the purpose outlined in this section. The business of buying and selling securities is already bearing a greater proportion than is its share in the way of Federal taxes; and the revenue derived by the Government, if it is necessary to have a regulatory measure, is more than ample to bear any expense for the enforcement of this act.

The general impression is that the national securities exchange act will only affect the New York Stock Exchange. I submit herewith tables showing that there are listed on stock exchanges outside of the city of New York 2,140,015,288 shares of stock and $10,690,816,255 par value of bonds, and that the volume of transactions for the past 5 years were respectively 750,549,338 shares and $199,663,557 par value of bonds as officially reported by these exchanges outside of New York.

(The three tables above referred to are as follows:) The volume of transactions in par value of bonds listed on exchanges outside of New

York City

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Baltimore.
Boston..
Buffalo
Chicago Stock
Chicago Board of Trade (stock

departinent)
Chicago Curb.
Cincinnati.
Cleveland.
Detroit
Hartford.
Los Angeles Stock.
Los Angeles Curb..
Louisville
Minneapolis-St. Paul.
New Orleans.
Philadelphia.
Pittsburgh.
Richmond.
St. Louis
Salt Lake
San Francisco Stock
San Francisco Curb.
Seattle.
Washington..

$8,001, 200 $6, 417,500 $3,048, 100 $2, 140, 200 $2, 137, 500 $21,744, 500 11, 118, 745 5, 539, 376 3, 363, 800 1,911, 600 1, 169, 800 23, 103, 321 1, 747, 100 2, 240, 400 1, 524, 600 928, 900 797, 600 7, 238, 600 4,975, 500 27, 462,000 12, 480, 500 10, 597, 000 1, 433, 000 56, 948, 000

53, 500 281, 000 283, 500 193, 100 814, 100 956, 500 2, 538, 200 963, 675 73, 400 422, 500 30,000

4, 954, 275 68,000 220,000 134, 500 168, 500 1, 490, 100

621,000 883, 050 222, 250

71, 900 84, 000 2,751,300 (1) (1) (1) (1) (1)

(1) (1) (1) (1) (1) (1)

( 779, 500 2, 800, 500 623, 500 148, 000 151,000 4, 502, 500 (2) (2) (?) (2) (2)

(?) 44, 000 22, 000 19, 000 4,000 8,000

97,000 778, 500 110, 100 127, 100 18, 950 15, 600 1,050, 550 2, 834, 000 2,941, 000 2, 075,000 1, 661, 000 2, 438,000 11,949,000 6, 057, 074 5,882, 125 11, 089, 222 3,948, 602 1, 560, 188 28, 537, 211

115, 000 284, 000 100,000 43,000 119,000 661, 000

265, 100 527, 500 817, 300 502, 100 519, 500 2, 021, 000

2,661, 500 2, 244, 000 910,000 194,000 161, 000 5, 530,000 (1) (1) (9) (1) (1)

(0) 3, 384, 500 2, 457, 500 2, 381,000 1, 530,000 854, 500 10, 607, 500

767, 500 2, 533, 500 1,938, 500 349, 000 423, 000 6,011, 500 1, 151, 200

800, 400
170, 200 3,000 (2)

2, 124, 800 2, 395, 200 1, 603, 200 1, 624, 200 1,011, 200 1, 122, 100 7, 755, 900 48, 911, 719 67, 407, 851 44,009, 247 25, 553, 852 13,780, 888 199,663, 557

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Total..

1 No bonds listed. 2 No bonds.

The volume of transactions in shares of stock listed outside of New York City

1929

1930

1931

1932

1933

Total

1, 312, 270 25, 075, 468

4,832, 045 82, 216,000

743, 565 15, 413, 305

2, 865, 925 69, 747, 500

510, 773 350, 350 12, 462, 142 10, 299, 561

1,531, 004 610,078
34, 404, 200 15, 642.000

Baltimore..
Boston...
Buffalo
Chicago Stock
Chicago Board of Trade

(stock department)
Chicago Curb..
Cincinnati
Cleveland.
Detroit.
Hartford
Los Angeles Stock.
Los Angeles Curb.
Louisville
Minneapolis-St. Paul.
New Orleans.
Philadelphia.
Pittsburgh.
Richmond.
St. Louis.
Salt Lake
San Francisco Stock
San Francisco Curb.
Seattle
Washington..

890, 775
6, 613, 261
1, 643, 130
2, 007, 110
11, 434, 665

3, 250, 000 15, 406, 993 37, 775, 806

23, 700 730, 424

345, 000 35, 520, 785 5, 328, 923

22, 315
1, 318, 000
30, 455, 056
19, 188, 822
12,983, 565

481, 718
99, 831

1, 466, 185
6, 017, 935

762, 533

779, 056 5, 065, 720 2, 300,000 9, 171, 442 11, 082, 275

30, 500 559, 252

128, CCO 27, 234, 794 3, 542, 446

29, 621

548, 000
19, 429, 889
15, 262, 932
4. 840, 286
293, 955
57, 093

1, 667, 147
3,855, 194

527, 392

519, 460 3,843, 225 1, 680. COO 5, 450, 543 8, 310, 729

1, 250 487. 074

116, OCC 10, 589, 837 1, 625, 014

21, 717

380,000 10, 315, 075

9,875, 057
2, 470, 066

145, 231
41, 543

1, 155, 643

840, 200
321, 867

407, 463
2, 775, 956
1, 100, OCO
3,068, 749
3, 106, 501

1.000 323. 062

52, 000 6, 592, 342 1, 551, 958

14, 014

165, 000
3, 468, 292
7,058, 715
1, 401, 017

15, 393
9,035

635, 753 3, 552, 711 13, 672, 390 76, 922, 866

274, 377 10, 113, 129 18, 288, 000 220, 297, 700 1, 657, 024 6, 836, 774 3, 136, 400 20, 522, 930

288, 127 3, 543, 049

488, 281 4, 201. 370 4, 092, 518 27, 212, 084 1, 800,000 10, 130,000 3, 228, 819 36, 328, 546 5, 922, 176 66, 197. 487

700 57, 150 363, 162 2, 462, 974

95,000 736, 000) 7, 614, 522 87.552, 250 2, 409, 566 14, 457, 907

12, 377 100, 016

145,000 2, 336,000 8, 637, 020 72, 305, 322 8, 129, 554 59, 515. ONO 2,099, 054 23,793, S3 415

936, 712 11, 433 218, 935

Total

298, 985, 602

197, 402, 209 110.829, 673

60, 330, 186 83,001, 668 750, 519, 338

Number of shares of stock and par value of bonds listed on exchanges outside of New

York City as of Feb. 19, 1934

Exchange

Shares

Par value bonds

$593, 317, 018 3, 542, 913, 710

126, 000, 000 1, 049, 903, 000

1, 578, 400 337, 278, 587 140, 353, 000 26, 937, 650

396, 500,000

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14, 397, 097 298, 767, 489

33, 401, 000 253, 174, 589

63, 265, 198 165, 241, 937 39, 224, 286 28, 299, 810 118, 691, 000

16, 602, 191 180, 549, 744

43, 402, 851 143, 255, 000 5, 009, 758

147,000 134, 377, 531 60, 213, 161

2, 309, 312 10, 761, 000 118, 482, 946 156, 150, 366 224, 700, 000

4, 686, 682 19, 905, 340

4, 153, 500 11, 360, 000 233, 000, 000 2, 224, 328, 626

74, 925,000 90, 041, 714 122, 774, 000

990, 814, 500 554,000,000

27, 454, 600 142, 182, 950

Total

2, 140, 015, 288

810, 690, 816, 255

I No bonds listed.

The present bill would seem to be predicated upon the mistaken premise that corporations and stock brokers will somehow contrive to continue their normal functions in spite of the drastic regulations imposed by this bill. I respectfully submit that on the contrary corporations will immediately, and in great numbers, remove their securities from listed trading to avoid the burdens the act seeks to impose, thereby not only failing to secure the results hoped for from the act but automatically throwing the market for these securities upon the street or over-the-counter market, depriving the corporations and their securities owners of the admitted benefits of a regulated listed market. In the same manner I am confident that many, if not the majority, of brokers, particularly those who are members of the local exchanges, will be unable, if not unwilling, to comply with the provisions of the act, and that as a result the local exchanges themselves may have to cease their functions.

The stringent provisions of this bill therefore would seem to defeat the very purposes it proposes to accomplish. It would without doubt seriously impair if not actually destroy the value of securities markets, thereby depriving the Federal Government and some of the States of the enormous revenues derived from taxation on the sales and transfers of securities, deprive thousands of employment, and deprive the commercial life of the Nation of those essential functions of the stock exchanges which no less a person than the President of the United States recognized in his message to the Congress when he said in part: "It is my belief that exchanges for dealing in securities and commodities are necessary and of definite value to our commercial and agricultural life.”

The CHAIRMAN. Are there any questions?

Mr. LEA. You stated that you recognized there have been practices on the exchanges that deserve to be condemned.

Would you in a brief statement, with regard to those illegitimate practices, say what they are?

Mr. THOMPSON. I do not classify them as illegitimate.
Mr. LEA. Well, in whatever manner you want to classify them.

Mr. THOMPSON. I am at a loss to give you the specific ones, except to speak in a general way of the practices that might be subject to condemnation. I would not say that the stock exchanges themselves are at fault and were entitled to the condemnation, but the conditions upon which we live, we go from day to day, have developed that, the practices of the exchanges, perhaps were not strict enough in many respects.

I am speaking now of our local exchanges. Many of our local exchanges have not had in the past as strict rules as the New York Stock Exchange. In fact, I should say that possibly during the last few years, there have been great strides in improvement in that direction. We were not required to have-I think that it is a fair statement to make-we were not required to have as strict rules until greater business could be developed, and when that business had been developed on the exchanges, it abought about greater activity and the activity brought about requirements for protection in the interest of the public.

Mr. LEA. What I had in mind is the position of the committee the position it is in necessarily in reference to this legislation. We can all agree that the stock exchanges perform a useful and necessary service, but in recent years it is without doubt that a very large number of stocks have passed through the exchanges which have proven to be substantially worthless resulting in tremendous losses to those who engaged in the stock market.

Now, our job here is not to injure legitimate business, but is to attempt to pick out those practices that deserve to be denounced and either prohibit them or place them under regulations so that the injury the public has heretofore suffered shall not be repeated so far as it is possible for us to do it. So it was with the idea of getting your constructive suggestions as to the evils, if we can place our fingers on what the evils are, that I asked that question, because then we are in a position to deal with them and that is what we are attempting to do.

Mr. Thompson. May I say to you, that I think public opinion itself has more or less determined in its own mind what some of the evils are. I will admit to you that with respect to the listing requirements upon many of our local exchanges that they have not been as strict in the past as they should have been. Some have been very strict and some have followed practically the lead of the New York Stock Exchange, which we regard as a model. Many have felt that in requiring corporations to follow the New York Stock Exchange listing requirements, law would be almost prohibitive for them to come in and list upon legal exchanges.

Then with reference to engraved certificates as one thing, and with respect to transfer agents and registrars as another, whereas in New York, they have a national market upon which there is a large volume of shares of each corporation, it is more feasible to put those requirements into effect than it would be in the smaller exchanges.

Mr. LEA. But, if the Government assumes the regulation of stock exchanges, would not the primary purpose be that the listing shall be an assurance of the integrity and merit of the stocks?

Mr. THOMPSON. I think that that is quite true.

Mr. LEA. And that necessarily involves strict regulations as to listings and other improvements.

Mr. THOMPSON. We have, in many of our exchanges—I think practically all of them have improved their listing requirements to a considerable degree—the very thing you speak of. I am not saying so much as to the merit of the investment of the securities, which may be listed, as to the trueness and fair statement of what is presented.

Mr. LEA. In view of what has occurred though, these stocks that have passed through the exchanges in recent years, could you expect the Congress to be satisfied to accept these exchanges as the board shall determine the listings, with regard to those requirements?

Mr. THOMPSON. I think I should answer that the stock exchanges are probably more capable of determining that than any body which would be set up by the Government.

Mr. LEA. Unquestionably they are more capable.
Mr. THOMPSON. Yes.

Mr. LEA. But are they in the position to do that with justice to the public? If we are assuming to regulate this business as a public function to protect the public, should not the requirements be prescribed from the public viewpoint rather than from the viewpoint of the exchanges whose own members necessarily profit in these practices that have existed and which you say deserve to be condemned?

Mr. THOMPSON. I think in theory I can go along with you a part of the way; but, after all, perhaps the difference between us is this, that if the public authority should say that it was a good thing to list the stock there would be more confidence on the part of the public to regard it as a good, sound, profitable investment.

The stock exchanges do not list from that standpoint. They list from the true statement of the corporation that is submitted and let the public judge for itself of the soundness of the investment.

Mr. LEA. Well, should not the listing of the exchange be in itself a degree of guarantee to the public of the merit and integrity of the issue?

Mr. THOMPSON. I do not want to say that; no, sir. I do not want to get in the position of guaranteeing the merit of anything.

Mr. LEA. I do not mean a guarantee from the standpoint of dollars and cents, but certainly a stock issue on the exchange has a credence in the public mind on account of being listed. You do not doubt that, do you?

Mr. THOMPSON. That is quite true.

Mr. LEA. It is probably so and it should be so, and the public should have a right to greater confidence than they now have in these listed securities.

Here a year or two ago it was claimed that 50 percent of the $50,000,000,000 worth of stocks that passed through the exchanges in a certain period were substantially worthless. Now, if that is true, and if we seek to regulate effectively, it cannot be a painless operation. Somebody will probably be hurt in order to prevent those comparatively worthless stocks passing along as legitimate stocks to the customers. So we have that function here. It cannot be a painless

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