Mr. PETTENGILL. Once a year, or twice a year?

Mr. O'BRIEN. Yes, sir.

Mr. PETTENGILL. And if they do not do that they are not acting within the public interest?

Mr. O'BRIEN. Well, you may say that; yes, sir. I do not think the situation in that particular regard is grave enough to warrant the apprehension that apparently exists regarding it.

The corporations listed on the exchange, I believe them to be well managed in the majority of cases, perhaps in all cases. We have had no quarrel with their statements.

Mr. PETTENGILL. What is your basis of your belief, if you have no audit to go on?

Mr. O'BRIEN. We have yearly audits, sir.

Mr. PETTENGILL. I beg your pardon.

Mr. O'BRIEN. We have audits once a year from these corporations. Mr. PETTENGILL. Are they independently audited?

Mr. O'BRIEN. Some are, some are not. Some have independent audits.

Mr. PETTENGILL. Well, after 3 or 4 years of fraud that has been shown to be going on over this country, are you not a little bit shy of company-audited accounts?

Mr. O'BRIEN. I may say we are. But, it is not the corporations themselves, I think, that are to blame for the result of what has happened in the last 4 years and that is not the reason for this agreement. I will agree to that. But, I would not think that any corporation would refuse ultimately to do as we have asked them to do. We just have not put pressure or a time limit on it and as I tell you, the response to that by the corporations has been surprisingly cooperative.

Mr. PETTENGILL. You say that you have not put pressure upon them to do it?

Mr. O'BRIEN. No, sir; simply suggested it, believing that that will get the results.

Mr. PETTENGILL. Well, if the new regulations are in the public interest and you have, as I believe thoroughly that you personally do, have a sincere desire to protect the public, then it seems to me that a little pressure would not be a bad thing right now.

Mr. O'BRIEN. Well, if I may say so, I do not think that time enough has elapsed to make that advisable. I think our success in getting over 200 corporations, who are not bound to give them to us, to accede to our request is a fine indication.

Mr. PETTENGILL. I say that is very credible with respect to those who did it.

Mr. O'BRIEN. Yes, sir.

Mr. PETTENGILL. I do not think it is entirely to the credit of the 200 corporations listed on your exchange, who in the course of a year have not yet done it.

Mr. O'BRIEN. That sounds logical, and is; but I do not believe that they are going to refuse. I believe that we will get complete, 100 percent, cooperation in that particular move.

Mr. PETTENGILL. Well, the reason I have made these question, Mr. O'Brien, is I would like to see these stock exchanges regulating themselves.

Mr. O'BRIEN. Yes, sir.

Mr. PETTENGILL. In the public interest.

Mr. O'BRIEN. Yes, sir.

Mr. PETTENGILL. But, your experience since March 21, 1933, does not indicate any self-regulation is very effective, because, from your own statement, it is only 50 percent effective.

Mr. O'BRIEN. Well, if that were not almost a voluntary thing on the part of the corporations, I would agree with you. I do believe that the corporations, by and large, whose securities are listed on our exchange are willing and anxious to cooperate in the public good. Some of them may be slower than others in complying with the regulations in connection with that decision; but I would not take that to be or take it that they feel they are unwilling or are not going to cooperate simply because they have not done it up to now.

Mr. PETTENGILL. On page 5 of those regulations, of May 17, 1933

Mr. O'BRIEN. Yes, sir.

Mr. PETTENGILL. Now, those regulations are in force now with respect to every man on the floor?

Mr. O'BRIEN. Yes, sir; or off of the floor.

Mr. PETTENGILL. There is nothing voluntary about his complying with them, is there?

Mr. O'BRIEN. No, sir.

Mr. PETTENGILL. Those would be obligatory?

Mr. O'BRIEN. They are bound by our rules. They cover our own members, over whom we have control.

Mr. PETTENGILL. That is right.

Mr. O'BRIEN. Yes.

Mr. PETTENGILL. Have you ever suspended a member?
Mr. O'BRIEN. Yes, sir.

Mr. PETTENGILL. How often has that happened?

Mr. O'BRIEN. It does not happen very often, Mr. Pettengill, and there is a simple answer to that: A man on the exchange has a means of livelihood in the membership that he has bought. He knows the rules and regulations of the exchange and self-preservation and interest of his own well-being, almost, prevents him from breaking rules so evidently open that we could expel him.

Mr. PETTENGILL. Then, what was the reason, if there was a reason, why you felt it more necessary on May 17, 1933, to put into force these much more stringent provisions?

Mr. O'BRIEN. Well, if you will notice in the provisions there we have added that with a reasonable cause to believe.

Now, if I may elaborate a moment: There may be a condition on the exchange, or with people outside of the exchange, buying and selling without any exchange of ownership, so far as they are concerned. It might be coming through one house to sell and another house to buy. The exchange would have no knowledge of that; but the brokers on the floor are handling the orders. The member of the firm, or the member of the exchange, through whose house the orders go, might come to us and say, "I did not know that such was the case.' But, if the Government committee decided from the evidence that they have, that he had reasonable cause to know, this provision gives us an opportunity to discipline him.

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Mr. PETTENGILL. Well, I notice that people seldom take action except when something has arisen which caused the action to take place, and I wondered what happened shortly before you adopted these rules on the part of some of your members which made it seem necessary or advisable for you to put these more stringent regulations into effect.

Mr. O'BRIEN. Frankly, I cannot recall any incident that happened about that time to bring it about.

Mr. PETTENGILL. Now, then, on your very last page, you have a very interesting statement:

I would make it obligatory that the securities exchanges govern themselves. That interests me very much. Who would do that? Where would the obligation come from? Who would make them govern themselves?

Mr. O'BRIEN. In my opinion, sir, I think there is a great public demand for regulation and that something should be done to the stock exchanges, or with them. Just what that something is there does not seem to be a very decided opinion, but believing that there will be a regulatory body of some sort to supervise the exchanges, we still believe that the exchanges should regulate themselves, subject to their supervision.

The greatest thing that we have in mind, or in my mind—I am talking for myself is that there should be flexibility. Now, on the one side, the people who wrote this bill-honest in their opinionsbelieve that certain things are wrong, certain transactions on the exchange. We believe they are not. We believe they are necessary to orderly markets.

Well, now, there is no, apparently, no way of bringing them together, the two sides agreeing. One is as positive as the other.

My thought is that if the rules put into effect by any coordinating board or any regulatory body would be flexible enough so that we could try out, if necessary, the things that they think are correct, to prevent abuses, and with the flexibility that those rules could be changed immediately if they were found not workable, if instead, of making them a permanent thing, that would be difficult to change. Mr. PETTENGILL. You would have no objection then to some legislation of national application governing all stock exchanges. Without agreeing to this bill, you have no objection to the general principle of something of a national application?

Mr. O'BRIEN. No, sir.

Mr. PETTENGILL. So that all exchanges will be affected and neither can chisel on the other or obtain business from each other by unsafe conduct?

Mr. O'BRIEN. May I interject there?

Mr. PETTENGILL. Yes.

Mr. O'BRIEN. The statement was made here the other day, and something was said in the hearing about competition between exchanges.

Mr. PETTENGILL. Does that exist?

Mr. O'BRIEN. I do not think that is a very important factor. The commission rates are the same on all exchanges. There is a minimum commission which must be charged and based on your distance from New York, if you are a member of the New York Exchange, your

commissions can be greater to offset costs of wire transportation and things of that kind.

Mr. PETTENGILL. Yes.

Mr. O'BRIEN. But, the only thing we are afraid of, Mr. Pettengill, is in the zeal to regulate the exchanges-and we do not deny that there is a right for it and reason for it in the public mind-that they tie us up so as to put us out of business. That we just do not want to happen.

Mr. PETTENGILL. You say that there has been in the past very little competition between exchanges, but if in a time of a bubble being blown up the governing bodies of one stock exchange began to require gradual stepping up of margins and another exchange did not do that, would not the business go to the exchange with the less strict margin requirements?

Mr. O'BRIEN. You have a wrong impression there, if I may correct it.

The governing board does not fix margins.

Mr. PETTENGILL. Yes. That has been the trouble in the past. Mr. O'BRIEN. If I may interrupt

Mr. PETTENGILL. I say, if they did do that, it would become binding upon everybody who traded on their exchanges, and if other exchanges did not do that, would not the business go to the exchange that made it easiest to gamble?

Mr. O'BRIEN. Well, that situation has never arisen to my knowledge. Margin requirements are largely governed by what you can borrow from your banks.

Now, any broker-I have been in the business for a long time

Mr. PETTENGILL. Excuse me there. The New York Stock Exchange now does that through its governing body, and provides for a 30 percent minimum. Do you not have one?

Mr. O'BRIEN. No, sir.

Mr. PETTENGILL. Do you believe in the principle of having a uniform minimum, binding on all brokers, on your floor?

Mr. O'BRIEN. On our floor?

Mr. PETTENGILL. Yes.

Mr. O'BRIEN. Yes, sir.

Mr. PETTENGILL. Then, why do you not have such a rule?
Mr. O'BRIEN. We have not found it necessary.

Now, in the constitution of the New York Stock Exchange it says you must have adequate margins. Well, adequate margins is what common sense or the bank requirement would be that would prompt you to ask a margin or deposit on a purchase.

Our margin requirement is based on what we can borrow from the banks, largely. In times of stress margins go up.

Out in Chicago, at various times, starting in 1928, the banks put a maximum price on certain stocks at which the market must be fixed. I think that any broker is anxious to safeguard his own business. I do not think that he is going to loan his money recklessly.

Mr. PETTENGILL. Well, there is a difference in adventuresomeness of men. That prevails among brokers as well as everybody else. And, one is apt to go on a thinner margin than another.

You heard the testimony of Mr. Pierce the other day?
Mr. O'BRIEN. Yes.

Mr. PETTENGILL. Of one of the big trade houses.

Mr. O'BRIEN. Yes, sir.

Mr. PETTENGILL. He wanted to stiffen up margins in 1929 but met resistance in doing so.

Do you not think, in times when the bubble is being blown up that some system of stepping up margins, the requirement being Nationwide in application and binding on everybody on every exchange would be a good thing?

Mr. O'BRIEN. I think it would be more workable, if I could offer. the suggestion, and I think that Mr. Pierce mentioned that, if any one stock starts up with a great deal of activity, that the banks, in cooperation with the exchanges, put a maximum price on which that stock can be figured at, for a loan.

Mr. PETTENGILL. I would agree with that, that there should perhaps be different margins in different stocks, but in a great bull movement, such as 1928 and 1929, it seems to me, if you are going to stop that, you have got to gradually step up your margins on all, otherwise, you are borrowing certain credit from one stock and putting that into the margins of another.

Mr. O'BRIEN. No; I do not agree with that, sir. I think that even in the bull market of 1929, all stocks did not go up. Some stocks did not go up and they are good sound stocks. Some plan might be worked out along the line you suggest. This is simply my idea, which may not be worth anything.

Mr. PETTENGILL. I think that there should be some way of putting the brakes on another runaway market. How are you going to go about it?

Mr. O'BRIEN. My thought is, just as I sat here listening to Mr. Pierce Saturday, I have had a similar thought in mind, if you take this market of last summer. Everybody wanted to buy beer stocks, or liquor stocks, or wanted to buy something with the commodity tinge, because the dollar was going to be cheap and the man who had a dollar knew that it would only be worth a dollar and he wanted to put it into the market. That is what brought that market about. Take National Distillers. That stock went from 21 to 124%. It took it a little time to get under way. But it gradually went up. I think if the banks had said, "We won't negotiate National Distillers at above $50 a share" in any loan that stock would have difficulty in going to 124%.

Mr. PETTENGILL. You believe that the banks could do that?

Mr. O'BRIEN. The banks, and the people that you borrow money from.

Mr. PETTENGILL. How about corporations sending their money into the call market to supply brokers' requirements, not going through the banks?

Mr. O'BRIEN. That would not stop it any way what they were doing in 1929, because the money rate was so high that anybody who had any money to loan wanted to get in the call market. That was a natural thing.

Mr. PETTENGILL. Yes; how would you stop it?

Mr. O'BRIEN. I understand that it has been stopped. That is just my information. Out our way the only money that we get is from the banks. I cannot speak for New York.

Mr. PETTENGILL. You have no money desk in your exchange?