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Mr. PIERCE. I had in mind the descent of the archangel.

I rather resent the imputation that the New York Stock Exchange is nothing more than a gambling institution. Of about 45,000 clients, 29,000 are cash customers, speaking from the security market standpoint; 90 percent of our silk contracts are carried for the trade; 80 percent of our cotton contracts are carried for the trade.

I also resent the imputation that if the stock exchange adopted remedial rules that they would be rescinded as soon as Congress adjourned. Slightly to paraphrase Voltaire, I do not always agree with Mr. Whitney's ideas as to stock exchange control or those of his associates, but I will fight for his right to entertain them to the very end, because I am quite sure that he and his associates in the management of the exchange are thoroughly honest, believe thoroughly in the steps they have taken to protect the public, and I am sufficiently well acquainted with them to feel confident of my ground.

I do not know why the stock-exchange business should be considered sui generis. Apparently it is the idea of a good many people that we can succeed only by mulcting our customers. I know of no other case where a closer relationship obtains than between the exchange broker and the customer.

In this bill there is much that is good and much that is new, but the heck of it is that the good is not new and the new is not good.

I, some time ago, discussed with one of the men who I believe has been quite largely interested in the framing of the bill, its social aspects. I did not get to first base. After half an hour's argument, rather heated argument, he maintained that it was impossible for a Wall Street man to get the viewpoint of the man “in the sticks” as he put it, the man from the small country towns, the man from the small city. Considering the fact that I was born and lived nearly half my life in a town of 1,400 inhabitants down in Maine and prepared for college in a very small city and that that other bird probably had not for four consecutive weeks in his life been off the island of Manhattan, I figured that I was off of the reservation and was wasting

It is proper to get the picture to you gentlemen so that you will understand it, if you do not already know, that there is as much difference between the functions and operations of the different stock exchange houses as there is between the building of a Rolls Royce car and the building of a Ford car requiring mass production.

My firm happens to be one of perhaps 14 or 15 important "wire houses”, so-called. I would say that probably 75 percent of the stock, cotton, grain, silk, coffee, sugar businesses of this country is conveyed to the principal centers, such as for instance, New York for securities, Chicago and Winnipeg for grain, New York and New Orleans for cotton-by these 14 or 15 houses with perhaps a few others of their class.

We have and I am not advertising my business—there are others in the same business and it is important to get these particulars before you-we have membership in many exchanges—22, as a matter of fact-of all kinds, stock, cotton, grain both in this country and in Canada; hide, leather, silk, wool-even butter and eggs by the carload; we have branches in 37 cities; probably three times as many correspondents-member and nonmember-all connected by leased private wire which are under our own control for a large part of the day-so

my time.

long as the exchanges are in session-and those wires are handled by our own individual operators.

We give the same service to the man in San Antonio who wants to buy a bond; the farmer in Spokane, Washington, who wants to sell 5,000 bushels of wheat against his growing crop, or against his grain in the warehouse; to the wholesale grocer down in Boston, who wants a carload of eggs, as we do to the man in our branch office in Fortysecond Street, New York.

The man in the small city expects the same service as the man in New York, and he gets it—the odd-lot trader expects the same service as the round-lot trader, and he gets it.

In order to build up an organization of such kind, which has required generations of experience and experimentation, a great deal of money, time, and thought has had to be expended, and if this bill, which is good in some particulars—I do not object to any regulatory bill that regulates merely-a very great part of that organization will have to be scrapped and if it is scrapped you will have a bitter taste of bootlegging in the security market that will make the experience of the eighteenth amendment look like a pink tea.

The CHAIRMAN. Do you not think that $6 or $7 a quart whisky is going to make it look worse than it was during prohibition?

Mr. PIERCE. I think it will, and I do not know much about whisky.

Mr. Untermyer, Samuel Untermyer, who has been one of the strongest critics of the stock exchange for the 33 years during which I have been in the Street and who certainly knows the business from one end to the other, has stated that this bill is unworkable. He certainly is right, and he certainly knows what he is talking about.

According to press reports, Speaker Rainey has said on several occasions that during this session there would be no regulatory measures.

The CHAIRMAN. The President of the United States has said differently.

Mr. PIERCE. I beg your pardon.

The CHAIRMAN. The President of the United States has a different idea.

Mr. PIERCE. Well, I do not share Speaker Rainey's opinion; but at any rate, if this bill is passed and no other stock-exchange legislation is passed, Speaker Rainey will still be right. It will not be regulation. It will be destruction. As a matter of fact, from my observation

Mr. KENNEY. Mr. Chairman-
The CHAIRMAN. Mr. Kenney.
Mr. KENNEY. Are you opposed to any regulation?

Mr. PIERCE. No, sir; I believe in regulation. I am on record to that effect.

The CHAIRMAN. We would like for you to tell us what sort of regulation.

Mr. PIERCE. Well, that is rather a broad subject, Mr. Chairman.

The CHAIRMAN. Yes; but it would get us somewhere, Mr. Pierce, if we could have your ideas.

. You have made some rather interesting, dogmatic, statements, but what we really would like to have is, out of your experience as a business man, knowing so much more about these things than we possible could know, give us some information with reference to the workings of this bill and the suggestions that you have to make as to regulation.

Now, that would be very helpful to us; but just statements that it will do this or it will not do that, without the reasons, is not giving us very much help.

Mr. PIERCE. Mr. Chairman, I will get to that, and God knows I want to be helpful.

The CHAIRMAN. We would like to have your help.

Mr. PIERCE. I think if you will ask Mr. Pecora he will tell you that for the last 2 months I have done everything I could to be helpful to him.

Let us take up section 6 of the bill. I think there can be no doubt in the world that from the standpoint of anybody, whether he be prejudiced against the New York Stock Exchange, stock exchanges in general, commodity exchanges in general, it would be extremely destructive.

I have had an analysis made of the accounts carried by our firm. Of those accounts in which there are unlisted securities, I find that the total value—the total money value-of both listed and unlisted issues is $45,927,000.

The total value of the unlisted securities is $6,173,000, which means that the percentage of unlisted securities is 13.45. That is not exactly correct, but it is approximately correct. It is sufficiently correct to illustrate the point that I seek to illustrate. For instance, an insurance stock may be listed on the Hartford Stock Exchange.

It is not good collateral in New York. We do not lend on it. It might just as well not be listed at any point. However, giving the other side the benefit of the doubt, we have broken down that unlisted lot, removing from it all those stocks listed on six of the more important exchanges except New York; namely, Boston, Philadelphia, Chicago, Detroit, San Francisco, and Los Angeles. Listed on those exchanges are shares in accounts of a value of $1,111,000. Deducting that lot from the total unlisted, we would still have a percentage of 11.03 of unlisted stocks in our accounts which under this bill would have to be liquidated.

Mark you, $6,100,000 less $1,100,000, and we are only one house.

The further away one gets from New York the greater the percentage of lending by brokers on unlisted stocks. The local house in Dubuque, Iowa, or Salt Lake City, Utah, is quite likely to lend on the stock of a good bank in such city, or of a local insurance company whose position is well known or even of some industrial which is not listed on any stock exchange.

Mr. PETTENGILL. Mr. Chairman-
The CHAIRMAN. Mr. Pettengill.

Mr. PETTENGILL. How many dollars worth of unlisted securities did you say

that
you

had? Mr. PIERCE. $6,173,000, with a possible modification of some few thousand dollars, perhaps in securities that are listed on other stock exchanges.

In order to get a cross section in respect of this particular feature
Mr. LEA. Mr. Chairman-
The CHAIRMAN. Mr. Lea.

Mr. LEA. Mr. Pierce, do you make that statement on the assumption that outstanding accounts would have to be liquidated, if this bill went into effect?

Mr. PIERCE. Yes; the bill precludes the possibility of carrying unlisted issues.

Mr. LEA. That is what I want to know, whether you are talking with reference to outstanding accounts, or future accounts after the bill might go into effect.

Mr. PIERCE. These are accounts, actually on our books.
Mr. MERRITT. Mr. Chairman
The CHAIRMAN. Mr. Merritt.

Mr. MERRITT. I suppose that these accounts that are in existence are not static.

Do

you average the same proportion of new accounts as you have of old?

Mr. PIERCE. It runs with great uniformity, and always has.
The effect, from the standpoint of these outstanding securities-

Mr. PETTENGILL. May I ask one more question? Is it your view that if the bill is passed, many listed stocks will be withdrawn from listing and increase the total unlisted stocks?

Mr. PIERCE. I would think there can be no doubt about it.

Mr. LEA. Is it not a disadvantage to these unlisted stocks to have collateral privileges withdrawn?

Mr. PIERCE. In what sense, please, sir, to the public?
Mr. LEA. From a market sense.
Mr. PIERCE. You mean from the standpoint of the public?
Mr. LEA. Yes; from the standpoint of the buyer.
Mr. PIERCE. Oh, there can be no doubt about that.

Mr. LEA. Then, why would corporations with listed stock want it to become unlisted?

Mr. PIERCE. We may be talking at cross purposes. You are speaking from the standpoint of the public.

Mr. LEA. I am speaking from the standpoint of the man who wants to sell, or the man who wants to own it.

Mr. Marland's or Mr. Pettengill's question was to assume that there are a lot of little stocks going to become unlisted, and that will at the same time

Mr. PETTINGILL. I was asking his opinion.

Mr. LEA. At the same time, I am speaking about a much more disturbing situation as to the unlisted stocks.

Mr. PIERCE. Yes, sir.

Mr. LEA. So what I want to know is why the listed stock is going to voluntarily become a nonlisted stock in view of the penalization that exists against the unlisted stock.

Mr. PIERCE. Well, from my study of this bill, if I had control of a corporation whose stock was listed, and if I had to live up to the regulations of this bill, my stocks certainly would become unlisted.

Mr. LEA. Your stocks would become what?
Mr. PIERCE. Unlisted.
Mr. LEA. You want to escape regulation; is that what you want?
Mr. PIERCE. No; I would escape a lot of trouble and expense.

Mr. LEA. In what way? Would not the depreciation of the value of your stocks by becoming unlisted be greater than any possiblo losses you would suffer by complying with this bill?

Mr. PIERCE. I think there are many executives of corporations who are not in the least interested in the market value of their stocks. I do not say that that is a fact in the majority of cases, but it is in Mr. LEA. But, the public are very much interested in that question.

some cases.

Mr. PIERCE. Well, on this mundane sphere of ours, the average stockholder does not have a great deal to say.

Mr. LEA. Mr. Pierce, so far as listing of these stocks is concerned, are there any particular difficulties about fixing the value of an unlisted stock for the purpose of sale?

Mr. PIERCE. There is great difficulty.

Mr. LEA. Well, are they, the 'unlisted stocks, commonly accepted for collateral purposes?

Mr. PIERCE. They are not.

Mr. LEA. Would there be any particular hardship then in denying that privilege by this bill?

Mr. PIERCE. There would.
Mr. LEA. In what respect?

Mr. PIERCE. In this respect: There are in the unlisted department of the New York Curb, for instance, a few stocks which are considered by all banks and brokers as excellent collateral. Such stocks as the stocks of some of the Standard Oil issues, for example. The banks, New York banks, take those issues quite readily, as readily as they will General Motors, or United States Steel.

Mr. LEA. Just for the moment, without pledging myself, I do not see sufficient reason for denying the use of these unlisted stocks for collateral, but I would like to know the reasons for it, and what the effect would be if we come to adopt the provisions of this bill.

Mr. PIERCE. Well, the banks are our hosts, generally speaking, and we are quite willing to lend, freely, on the collateral on which the banks will lend freely to us.

Mr. LEA. But is not the situation of the broker somewhat different from the banks? He does not have the deliberate opportunity to investigate the collateral, does he, that the banks exercise?

Mr. PIERCE. Well, judging from the results, I would say that we have done about as well as the banks in the last 4

years. Mr. LEA. I am not trying to express a viewpoint. I am trying to get yours.

Mr. PIERCE. That is mine, sir, and I do not mean to be facetious.
Mr. MARLAND. Mr. Chairman-
The CHAIRMAN. Mr. Marland.

Mr. MARLAND. Mr. Pierce, you said that a stockholder does not have much to say about the corporation.

Mr. PIERCE. Yes.
Mr. MARLAND. Why does he not?

Mr. PIERCE. Well, that is rather a broad statement, sir. I might state the incidental stockholder

Mr. MARLAND. Why does he not? What is there in the situation to prohibit the stockholders from having much to say about the corporation?

Mr. PIERCE. Inherently, I suppose, there is not; but as a practical matter I would say he is about in the position of the average voter. If New York City gets a bad form of government, or Philadelphia, or any other city, theoretically it is the fault of the voters.

Mr. MARLAND. In many of our large corporations, is it not a fact, quite a large percentage of the stock is in what you call “street names", broker's names?

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