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Mr. PIERCE. Yes, sir.

Mr. MARLAND. What percentage would you say of the Steel, for instance, or any other big corporation, is in brokers' names?

Mr. PIERCE. Oh, there is no way of guessing at that. One would have to look into the statistics. It might be 1 percent, or might be 5 percent, might be 15.

Mr. MARLAND. Sufficient to control the election of the corporate officers?

Mr. PIERCE. No, sir; save in few instances.

Mr. MARLAND. What is the practice of brokers in sending proxies at the request of officers of companies; sending proxies for the stock that is held in the street names?

Mr. PIERCE. Under the rules of the Stock Exchange, we may give proxies on the stock in your possession, registered in our name. I think that the practice of different brokers varies. It is our practice, if any contest is involved, to consult those customers of ours, even in respect of the stock standing in our name, carried for them, to ascertain to which side they would like us to give their proxy.

Mr. MARLAND. Have the stock-exchange officials ever given thought to any method of encouraging a greater interest among stockholders in the management of their corporations?

Mr. PIERCE. Not so far as I know, sir.

Mr. MARLAND. Another question I would like to ask, not in line with that: What percentage of the trading in stock during a month is for the account of customers and what percentage is for members' accounts?

Mr. PIERCE. I understand that has been given in the Pecora questionnaire. I have no information about it. So far as my particular house is concerned, 100 percent is for customers.

Mr. MARLAND. You mean your house never buys on its own account?

Mr. PIERCE. We do not.
Mr. MARLAND. Or the account of your members?

Mr. PIERCE. We have one or two members who at times buy on their own account, occasionally, very occasionally, and very moderately.

Mr. MARLAND. Probably you can tell us this: Has the stock exchange ever sought by questionnaire or otherwise to determine what proportion of the trading done during the day or month, or any period, is for customers' accounts and what percentage is for the account of the broker himself?

Mr. PIERCE. So far as I know, they have never attempted that until the Pecora questionnaire was prepared.

Mr. MARLAND. That would be establishable, would it not?
Mr. PIERCE. We ascertained it for Mr. Pecora.
Mr. MARLAND. You could do it any day, could you not?

Mr. PIERCE. If we set up the machinery, I should think we could without difficulty.

Mr. MARLAND. It never has been done, to your knowledge?

Mr. PIERCE. So far as I know, not until the Pecora questionnaire was returned.

Mr. MARLAND. Mr. Chairman, I would like to add this: We have had a great deal of discussion by the opponents of the bill of various sections of the bill. I think we have covered them all pretty well.

I think when we have a very capable witness, like this gentleman, it would be well to have his suggestion as to what legislation, if any, he thinks might be advisable and necessary. He has said he believes in regulation. I think that I would like to see the witnesses confine themselves to suggestions.

The CHAIRMAN. I told the witness in the beginning the committee would be very happy if he would make suggestions as to what regulations he thought were fair and we ought to have.

Mr. PIERCE. Well, if you will pardon me, Mr. Chairman, that is a rather large order.

The CHAIRMAN. The committee has a rather large order, Mr. Pierce, to try to execute. We are sitting here rather as a jury on this case.

Mr. PIERCE. I happen to be one of a committee

The CHAIRMAN. And we would like for you, even if you do not have the time this morning, and you will have the privilege when your remarks are sent to you for revision, to attach to them the suggestions you think would be proper, and we will be very happy if you will do that.

Mr. PIERCE. I will be very glad to do so, sir.
Mr. WOLVERTON. May I make an observation, Mr. Chairman?
The CHAIRMAN. Yes, Mr. Wolverton.

Mr. WOLVERTON. It seems to me, Mr. Pierce, three thoughts have been presented to this committee as to the form this proposed legislation should take. First, the bill which is before us now, under consideration; second, the suggestions made by Mr. Whitney day before yesterday; and third, the suggestions contained in the Roper or Dickinson report. It would be very helpful to me, and I think to the other members of the committee, if you would express your opinion with respect to the relative value of these three forms of suggested regulation.

Mr. PIERCE. I will be glad to undertake it. Gentlemen, I happen to be one of a committee of five, an unofficial committee, which was appointed by the association last November to sit with the law committee, which is the policy committee of the New York Stock Exchange. While the Dickinson committee was considering its recommendations, our committee, with Mr. Whitney, and Mr. Redmond, came over to Washington for an afternoon's conference. We spent the afternoon discussing five, as I recall it, features that the Dickinson committee considered essential.

I have had my ideas as to stock-exchange regulations for a long time, as far back as when Mr. Whitney and Mr. Pecora were in knickerbockers, and I came over here as full of enthusiasm as a brindle pup, thinking I was going to have a chance to express some of my fine ideas.

Well, we found the committee, as a whole, some members of it, at least, very sympathetic, and while I have no criticism to make of the others, for God knows I believe they were thoroughly honest in their ideas about the thing, we felt that one of them, at least, believed that the stock exchange should be abolished altogether.

The CHAIRMAN. What committee are you talking about now?
Mr. PIERCE. The Dickinson committee.
Mr. KENNEY. That is the same thing as the Roper committee?

Mr. PIERCE. Yes, sir; now, I figured it would be mighty bad policy to put any more ammunition in the hands of a man like that, so I went back with my various points in my inside pocket.

Mr. BULWINKLE. Can we not hear some of those points right now, that you came over to suggest at that time?

Mr. PIERCE. Yes; in the desultory way I would have to give them, I do not think they would be of much value. Shall I undertake it?

Mr. BULWINKLE. Try and give us a few, anyhow.
Mr. PIERCE. I shall be glad to do anything if I may be of help.
Mr. BULWINKLE. Suppose you start. Let us see what they are

now.

Mr. PIERCE. I had my points listed and lettered, but the alphabet ran out, so I started numbering them.

Mr. BULWINKLE. Just before you proceed with them: You do not think there are that many abuses in the stock exchange that should have been corrected?

Mr. PIERCE. No; and I think that my ideas as to what may constitute abuses may be entirely different from that of the gentlemen who are running the stock exchange.

Mr. BULWINKLE. Let us have those suggestions.

Mr. PIERCE. Well, I think in the first place that the ineptitude of the stock-exchange management on many occasions in developing its public relationship has been very marked. One of our greatest troubles is that the country at large does not understand the stock exchange. I think that when we have in the rules of the stock exchange such a one, for instance, as that which stipulates that the value of a failed member's seat shall go first to the other members in respect of their claims, rather than to outside creditors, it is a very bad one from the standpoint of psychology.

Mr. PETTENGILL. Should it not all go outside?

Mr. PIERCE. I am not so sure that it should not. The stock exchange has a far better opportunity to keep track of its members' standing than outsiders have.

Mr. PETTENGILL. That is the question I asked Mr. Whitney the other day and he said that sometimes your members fail, due, so far as the governing board is concerned, because they have given fraudulent statements. The governing board inadvertently has therefore held out that person as a credible person to do business with, and I do not see why, when that man fails on account of fraud, why the value of his seat should not be distributed to his outside creditors, rather that, the stock exchange member pick over the bird first.

Mr. PIERCE. Well, so far as I am concerned, that is unanimous.
Mr. PETTENGILL. But it is not done that way.
Mr. PIERCE. I believe it is not, is it, Mr. Mason?
Mr. Mason. It is not.

Mr. PIERCE. I think if there is any one feature of the N.R.A. which is of greater value than all others, it is that which seeks to eliminate harmful competition.

I think that competition among stock-exchange members is not regulated as it should be. There are a few cut-rate apothecaries in our business who, in undertaking to develop business, especially in lean times, are offering very low rates of interest and various other indulgences that they should not, in my opinion.

As between members, the commission rate is a flexible one. It should be fixed to eliminate harmful competition. The interest rate should be fixed. Stock-exchange houses should pay no interest on credit balances. Now I come to a point, on which I find myself at variance or out of step with most stock-exchange people: I think that the minimum amount with which a margin account may be opened should be fairly substantial. Most stock-exchange people seem to think that the establishment of such a rule would be rather unpopular, because it would make it appear that the exchange were a place of business for big people only. That is all nonsense. A man with, say, two, or three, or four hundred dollars cannot operate in real estate, and there is no reason why he should. If he has no more money than that, he should put it in a savings bank. I used to think that building and loan associations were all right, but they don't seem so good now.

But, at any rate, it would better not be in a margin account.

I think that I could go on at considerable length, but I do not believe it would be advisable at this time. If you would like for me to follow this up, as I think one or two have suggested, I will be very glad to do so.

The CHAIRMAN. We will be very glad to have any suggestions you may wish to make as to such regulation as you, out of your experience, think should come. We will be very glad to have it as an addition to the remarks you have made today.

Mr. PIERCE. Shall I continue?
Mr. BULWINKLE. Mr. Chairman-
The CHAIRMAN. Mr. Bulwinkle wants to ask a question.

Mr. BULWINKLE. I want to ask you, Mr. Pierce, have many of the so-called abuses, or abuses of the stock exchange, been corrected during the last few years?

Mr. PIERCE. I think, and I feel, just as confident as I am that I am standing here, that whenever the stock exchange recognizes an abuse, it does the very best it can to correct it. It has made its mistakes. Who has not? There can be no doubt about that.

Mr. BULWINKLE. A great many have been corrected in the last few years, have they not?

Mr. PIERCE. Well, my dear sir, developments since 1929 have disclosed many conditions that would not have been disclosed under ordinary circumstances.

Mr. BULWINKLE. And a great part of your corrections have been made within the last 6 or 8 months?

Mr. PIERCE. I would not think so.
Mr. BULWINKLE. All right, sir; go ahead.

Mr. PIERCE. Now, in respect to this section 6, on lending on unlisted securities, does it not seem incongruous that members of the New York Stock Exchange, or others, could lend money on old rubber boots if they cared to, but they cannot lend on such stocks, we will say, as Holyoke (Mass.) Water Power 12 percent stock, selling at around 180. I happen to have here a list that I picked up day before yesterday of high grade stocks, of utilities, insurance companies, industrials, banks, that are deelt in somewhat largely around Boston. The list contains probably 200 issues, mostly good stocks; seasoned stocks. I find that a prominent house over there will advance money on 39 of them. That is nearly 20 percent, and yet not one of them would be eligible under section 6.

Mr. WADSWORTH. Because they are not listed?

Mr. PIERCE. Because they are not listed. Some of the good old insurance stocks, some of the good bank stocks in Boston, some of the good water power companies down through New England, seasoned stocks.

Mr. PETTENGILL. As against the advantages of being eligible for collateral and disadvantage as to the cost of being listed, it is not plain to me which outweighs the other.

Mr. PIERCE. The cost of being listed?

Mr. PETTENGILL. Yes. You have said many listed stocks will become unlisted if this bill passes.

Mr. PIERCE. That is my opinion.
Mr. PETTENGILL. And lose their collateral value.
Mr. PIERCE. Yes.

Mr. PETTENGILL. Which, as Mr. Lea pointed out a while ago, is certainly worth something to somebody.

Mr. PIERCE. Yes.

Mr. PETTENGILL. Now, why is it, in your opinion, that the disadvantage of listing is greater than the advantage of being on the list and being available to collateral?

Mr. PIERCE. The trouble and expense of listing. As I understand it, this bill calls for quarterly audited reports. My firm has an audit and questionnaire return prepared twice a year, once by outside accountants and once by our own auditor. Our audit last June cost us $68,000, and $68,000 in these days is a plenty of anybody's money.

Our audit in December would have probably cost us slightly more. I would say that the two audits would have run something over $140,000.

We are one stock-exchange house. What would it cost some of these big corporations to prepare quarterly reports, if it would cost us $140,000 a year to prepare semiannual reports?

Mr. LEA. Mr. Pierce, would you see any reason for requiring an independent audit quarterly in the absence of any new issue of stock of the corporation which is already listed on the exchange?

Mr. PIERCE. No, sir; I do not see how much damage could be done in 3 months.

Mr. LEA. If that requirement was eliminated from this bill, you think it might meet the approval of corporations that might not otherwise list their stocks?

Mr. PIERCE. It might.

Under subparagraph (b) of section 6, brokers are limited to the lending of 40 percent on listed securities. I take it that you gentlemen are interested in the possible deflationary feature of this bill or proposed act.

In our New York office the total number of margin accounts is 2,412—in our New York office, mark you. The operations of our various other offices are largely cleared through or centered in New York—so when I speak of 2,412 accounts here, and have spoken of 45,000 hitherto, there is not necessarily any inconsistency involved.

In the 2,412 margin accounts in New York the total value of the listed securities is $39,857,000. The approximate values of securities to be sold to bring the equity in line with the related provision of the bill would be $13,132,560. In other words, about a third of the total.

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