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the time and method of making settlements, payments and deliveries and the time of calculating margin requirements and the time and method of closing out undermargined accounts. The control of these matters by a commission which is entirely outside the control of the persons conducting the matters regulated is likely to cause extreme damage to the business. The possibility of the Commission preventing closing out of margin accounts for a certain length of time which might be alleged to be in the interest of the investors, has been hereinbefore discussed. The great danger of such requirements and the prevention of freedom of contract in respect to them cannot be overestimated. It should also be pointed out that under this same subdivision the Commission is given the right to fix interest rates and charges and may summarily suspend trading in any registered security or even close the exchange itself. The dangers from these blanket delegations of authority also cannot be overemphasized.

Section 28, page 47 of the bill, is entitled "Foreign Exchanges and gives the Commission power to restrict transactions on exchanges out of the United States. The effect of this section on American securities which have already been listed on the leading European and other exchanges should be carefully considered, for although the purpose of the section may be to prevent evasion of the bill by merely conducting the security transactions outside the exchange, the effect may be much greater.

Furthermore, this section applies only to brokers and dealers and, therefore, all individuals who are not brokers and do not come within the classification of dealers may conduct any of the prohibited transactions on foreign exchanges.

CONCLUSION

From the foregoing, the bills may be seen to have three fundamental characteristics of almost equal importance: (1) To regulate certain stock exchange practices; (2) to restrict and control the granting of credit and investment; and (3) to control many of the practices of the corporations themselves, their officers, directors, and stockholders.

All these important subjects are by these bills placed under the supervision and control of the Federal Trade Commission, whose functions were confined (as its name would indicate) to the administration and enforcement of the Sherman Anti-Trust Act, the Clayton Act, the Federal Trade Commission Act and related laws, all which concern trade and commercial practices. Its personnel has been chosen for these special purposes. To so suddenly invest this body, however efficient it may have been in its own field, with the broad and absolute control over the delicate financial mechanism of the banks, corporations, stock exchanges, and the general markets for securities, to say the least requires the most cautious consideration.

It should be further remembered that the Federal Trade Commission, in addition to its original duties, was, by the Securities Act of 1933, given control of the issuance of new securities. It thus has recently been given drastic control of new financing by the corporations of the country; but these bills now propose in addition to give it jurisdiction over the market for and trading in outstanding securities and also give it jurisdiction over many of the related credit transac

tions of the entire banking system of the country and of many corporate practices.

The bill, however, exceeds its express purposes of exchange regulation and investor protection and in fact becomes by its far-reaching provisions a vehicle for the regimentation of credit and corporate practices through the medium of stock exchange regulation. To illustrate, it vests in the Federal Trade Commission the power to control collateral loans and interest rates; to prescribe the forms of reports, balance sheets and earning statements and methods of accounting in the appraisal or valuation of assets and liabilities, and in determining depreciation, and so forth, to be employed by corporations whose securities are registered on any exchange; it dictates the conduct of officers, directors, and stockholders of corporations; it requires annual and quarterly reports, balance sheets and profit-andloss statements (certified by independent public accountants) as well as monthly reports and statements of sales or gross income of all corporations whose securities are registered on any exchange; and gives absolute regulatory power over all securities, registered or unregistered. The Federal Trade Commission is given an indirect but potentially effective directional control over the investment of all capital.

If this proposal is carried out, the Federal Trade Commission can, through its control of so many of the varied phases of the financial and economic life of the country, restrict the operation of and even destroy corporations that incur its displeasure. The Federal Trade Commission does not have to convict a corporation of any particular illegal transaction, but can regulate it out of existence by control of credit, restrictions on new financing, removal of its securities from exchanges, and so forth, without in any way justifying its motives or the soundness of its judgment.

Although the bill provides for judicial review by appeal to the courts from the decisions and orders of the Federal Trade Commission, it must be appreciated that many such orders and decisions of far-reaching and fundamental effect would be primarily administrative orders involving the discretion of the Commission and might thus not be subject to review by the Courts in a manner sufficient to present the full controversy for judicial review. Furthermore, immediate action, absolutely required by the very nature of the subjects involved, is impossible and delay will prove a denial of justice.

Furthermore, granting to the Federal Trade Commission the proposed broad control over financial matters further causes confusion and conflict in that it separates from the normal financial branches of the Government control over some of the most important phases of the financial and credit structure of the country. To so separate control of different parts of the financial system of the country in several independent branches with no coordination established between them, presents much possibility of confusion, conflict and disorder.

The CHAIRMAN. I believe I understood you to say you endorsed Mr. Whitney's suggestions in this paper that he filed here.

Mr. HOPE. Yes, sir.

The CHAIRMAN. And, your main objection to the bill is that it is conferring too much power on the board or commission?

Mr. HOPE. That is one of them; I think that is the main one.

The CHAIRMAN. What is that?

Mr. HOPE. That is one.

The CHAIRMAN. That is one of your objections.

Mr. HOPE. Yes, sir.

The CHAIRMAN. And, your objection of course, goes to the Federal Trade Commission?

Mr. HOPE. Yes, sir.

The CHAIRMAN. Well, now, if you will note, Mr. Whitney suggests that we have an authority composed of 2 members to be appointed by the President, 2 Cabinet officers, and another Government official, which makes 5 members of this so-called "Authority of 7", and then the other 2 are to be named, 1 by the New York Stock Exchange in the manner suggested. That authority would probably act by majority vote. You have got five appointees of the President on the board and two outside. There would not be much difference between that kind of authority and any other of seven men?

Mr. HOPE. It seems to me

The CHAIRMAN (continuing). Named by the President.

Mr. HOPE. It seems to me there would, if he followed in any particulars the suggestions of Mr. Whitney as to taking those in the financial branches of the Government rather than those of the Federal Trade Commission.

The CHAIRMAN. Well, the Secretary of Commerce is not in the financial end of the Government, is he?

Mr. HOPE. No, sir; but the Secretary of the Treasury is.

The CHAIRMAN. The Secretary of the Treasury is, and then there is 1 other man who is; but that would be 2 out of the 7.

But, I want to call your attention to the powers that Mr. Whitney proposes to give to this authority.

This is in the fifth paragraph of this paper that Mr. Whitney presented:

We suggest that this coordinating authority be given plenary powers to control the amount of margins which members of exchanges must require and maintain on customers' accounts; and further, that it should have plenary power to require stock exchanges to adopt rules and regulations preventing not only dishonest practices but also all practices which unfairly influence the price of securities or unduly stimulate speculation.

Now, those are the powers you are giving to Mr. Whitney's authority.

Further:

Without attempting to define, at this time, the scope of these powers, we believe that they should include the power to fix the requirements for the listing of securities; the control of pools—

That means to prohibit them, if they desire

syndicates and joint accounts and also options intended or used to influence market prices; the power to control the circulation of rumors or statements calculated to induce speculative activity, the use of advertising and the employment of customers' men or other employees who solicit business; to the end that all practices which may tend to create unfair prices may be eliminated.

Now, when you talk about power given to a board, it appears to me that that board, without really well-defined powers would have much power in all probability as this bill is giving to the Federal Trade Commission or any other board, Federal Reserve Board, or committee formed of Cabinet officers, and you would endorse a bill written along the lines suggested by Mr. Whitney.

Mr. HOPE. Yes, sir.

Mr. KENNEY. Mr. Chairman

The CHAIRMAN. Mr. Kenney.

Mr. KENNEY. A coordinating committee has been suggested.
Mr. HOPE. Yes, sir.

Mr. KENNEY. Are you familiar with the railroad bill that sets up a railroad coordinator?

Mr. HOPE. No, sir.

Mr. KENNEY. Have you considered the advisability of giving the regulatory authority to a coordinator?

Mr. HOPE. As to who the man shall be?

Mr. KENNEY. What?

Mr. HOPE. As to the personnel, you mean?

Mr. KENNEY. Yes, as to the advisability of having an administrator of the regulatory authority.

Mr. HOPE. Well, I assume this is along that line, Mr. Whitney's suggestions.

Mr. KENNEY. You would prefer that committee to a coordinator, to one man who might have the responsibility in place of the committee?

Mr. HOPE. One instead of seven?

Mr. KENNEY. Yes.

Mr. HOPE. We discussed that a while ago, but just only informally. Mr. KENNEY. The railroad bill has certain regional committees with power to do certain things but final authority is vested in the coordinator. Has anything like that occurred to you?

Mr. HOPE. I say that we discussed it some little time ago, in a little informal meeting, but not to any great degree. The idea was presented and received some approval by two or three fellow brokers.

I do not know that it has the approval of any of the membership of the board of governors. I know that it was discussed among a few brokers. I am not a governor. I am one of the men in the back

office.

Mr. KENNEY. Did a certain group among you suggest the idea of a coordinator?

Mr. HOPE. I have no authority to present it here as a suggestion. In answer to your suggestion, I would say that we have discussed it, two or three of us.

Mr. COOPER. Mr. Chairman

The CHAIRMAN. Mr. Cooper.

Mr. COOPER. You stated a moment ago, personally, you favored Mr. Whitney's suggestion with regard to a bill.

Mr. HOPE. Yes, sir; that which he proposed to you. Mr. COOPER. That which he proposed to us. Would that go as far as to give this board the power, as would be given to the Federal Trade Commission in sections 11, 12, and 13? If it did, I would be opposed to that. I am talking about industry and private capital,

and so forth.

Mr. HOPE. I am of the opinion, just from reading the recommendations of the stock exchange, that it does not. That is my idea of it, Mr. Cooper.

Mr. COOPER. It does not reach out into the regulation of private capital in business?

Mr. HOPE. That is my understanding.

Mr. COOPER. If it did, I would not favor that.

Mr. HOPE. I would not either, sir.

Mr. MARLAND. Mr. Chairman

The CHAIRMAN. Mr. Marland.

Mr. MARLAND. The question that I have in mind has been almost answered.

I was going to ask what authority is given the Federal Trade Commission under this bill before us that would not be granted to the stock exchange coordinating authority under Mr. Whitney's suggestion.

Mr. HOPE. I do not understand Mr. Whitney's suggestion does anything more than regulate the stock exchanges, sir.

Mr. MARLAND. And, you think that under his suggestion the coordinating authority would have just the same authority given to the Federal Trade Commission under this bill, so far as the stock exchange is concerned, or would it have less?

Mr. HOPE. From what little study I have given to this, I think it gives about the same authority over the stock exchanges. I have not read this as carefully as I have read the bill.

Mr. MARLAND. Mr. Whitney's suggestion gives the coordinating committee the same authority over the stock exchanges as the bill before us.

Mr. HOPE. Yes, sir; I think that is so.

Mr. MARLAND. Thank you.

The CHAIRMAN. Thank you, Mr. Hope.

STATEMENT OF EDWARD A. PIERCE, OF E. A. PIERCE & CO., NEW YORK, N.Y.

The CHAIRMAN. Mr. Pierce, you may qualify, giving your full name and representation to the reporter.

Mr. PIERCE. Edward A. Pierce, of E. A. Pierce & Co., New York. The CHAIRMAN. What is the business of that company, Mr. Pierce? Mr. PIERCE. Stock and commodity exchange business. Members of the New York stock and other stock exchanges and commodity exchanges of this country and Canada, 22 in all.

If the committee please, I would like to discuss the bill under consideration from the standpoint of its workability, or, if you will, its enforcability.

I come to you as one who is very greatly concerned over what may happen to our 45,000 customers-I come to you as one who is greatly concerned as to what may happen if this bill is enacted into lawwhat may happen to many of our 45,000 customers; our 2,000 employees; a business that has been built up, laboriously, over a period of 50 years, and always with regard to the ethical side. I suppose that if, under current conditions, the archangel Gabriel came down here and spoke today on the ethics of those connected with the stock and commodity exchange businesses he would be somewhat doubted. The CHAIRMAN. He would not be any inore here than any other place? What do you mean, Congress?

Mr. PIERCE. No, sir.

The CHAIRMAN. You say "if he came down here."
Mr. PIERCE. I mean the whole United States.
The CHAIRMAN. All right.

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