Today it is still by far the second largest exchange in the country, approximating or exceeding in stocks alone the combined transactions taking place on all other exchanges in the country excepting only those on the New York Stock Exchange. It is indeed a national exchange. Further details of the history and operations of the exchange are contained in my memorandum which is filed herewith.

The New York Curb Exchange believes that it has adopted rules and regulations to prevent manipulative practices which, when all things are considered, are at the bottom of great swings in the market. It does not believe that any rules will obviate rises and falls in the price of securities, for stabilization in the last analysis depends upon economic conditions and public psychology. That these trends should not be fomented or augmented by its members is its purpose; 1928 and 1929 taught the exchanges of the country lessons which they have not failed to observe. It may be questioned whether or not in the light of previous experience any Federal commission or authority or any rules adopted by Congress based upon experience prior to 1929 would have been comprehensive enough in their scope to have done more than possibly retard the great orgy of speculation. The New York Curb Exchange recognizes, however, that Congress and the public are not prepared to leave unlimited control of exchange practices with the exchanges themselves, and welcomes in the interest of exchanges as well as of the investing public, the advice and help of a regulatory commission as well as the imposition of regulations which will be to the advantage of the public. The danger which has been made obvious in the discussions before this committee of regulations and rules which are destructive rather than constructive, leads it to approve the appointment of a coordinating and regulatory body such as was suggested by Mr. Whitney. Study of the admitted problems by an highly intelligent body, expert in the various branches of the subject, in advance of the imposition of drastic rules is of the utmost importance, and to the end that evils or dangers are shown to exist and may be obviated or minimized the exchange is in full sympathy.

A Federal commission on which the exchanges are represented has two great advantages over the Federal Trade Commission, first, that its obligation would be confined to exchange problems only and would not be one of many problems which the regulatory body was considering; second, the commission would not be bound by Congressional limitations but would be in a position to consider new problems and to act promptly and constructively in relation to those. In other words, it would be dynamic and not static.

The New York Curb Exchange for the reasons which have been presented to the committee by others in previous hearings, believes that many of the provisions of the present bill would be to the disadvantage of the public. For those reasons it is opposed to the bill in its present form.

It is my purpose this morning not to comment on other than section 10 and sections 11 and 12 of the bill, and in respect to section 10 only as it presents a problem different on the Curb Exchange from conditions on the New York Stock Exchange. It arises by reason of the fact that on our exchange, as well as on other exchanges throughout the country, a specialist in full lots is a specialist in odd lots. It is, accordingly, essential if owners and purchasers of odd

lots of our securities are to receive or pay a price fairly reflective of full lot values, that the specialist should not be prohibited in fulfilling his odd lot obligations from purchasing and selling other than on fixed orders, full lots of securities. On our exchange when a specialist executes an order in a full lot he becomes automatically bound to take all market orders on his book and all other orders in odd lots, which are with a differential charged for odd lot trading, below the price of the full lot.

A specialist must necessarily, accordingly, be so placed that he may immediately upon executing a full lot take or furnish all odd lots which the full lot elects. To that end he must necessarily be long or short of a sufficient number of stocks to meet the exigencies of the situation. It may be that the sale of a full lot will require him to take hundreds or thousands of shares in odd lots. To be prepared to do this and to make delivery promptly, he must make the necessary commitments.

Sections 11 and 12 will eliminate the Unlisted Department of the New York Curb Exchange, and absolutely destroy the exchange, as well as that of other important exchanges. The reason for this lies in the requirement that registration may be effected only on application by the company to an exchange itself as well as to the Federal Trade Commission and dealing may not take place upon an exchange and securities may not be bought and sold on an exchange unless they are registered.

A vast market exists in so-called "unlisted" securities. It may be asked why these securities will not be registered. There are many reasons. Corporate officials may not be concerned with dealings on an exchange the securities may be entirely distributed-refinancing is not in view. That a substantial market in the security exists on an exchange may be a matter of indifference to the company itself. In such a situation the result of this bill will be to compel the exchange to strike the security from the list. The security holders will thus be deprived of the market on which they have relied for determining their financial condition for liquidation of their securities. The bill leaves the continuance of an exchange market entirely to the companies and overlooks the interest of security holders and of the public generally, particularly in securities which are not fully listed. The fundamental reasons for an exchange market are that the public may deal on an organized, regulated exchange rather than in an unorganized, unregulated, outside market.

I do not believe that Congress intends to deprive the public of the benefit of so-called unlisted markets that exist on many exchanges throughout the country.

Mr. MAPES. May I interrupt to ask if there is any considerable amount of securities listed on the exchange that is not listed by the management of the companies issuing the securities?

Mr. GRUBB. By that question, sir, do you mean that there are stocks traded in on outside markets that are not in any way listed or regulated anywhere?

Mr. MAPES. No. You say that whether the stock is listed or not depends upon the desire of the management and I am asking you if there are any stocks listed upon the exchanges that are not listed because of the initiative of the management of the corporations?

Mr. GRUBB. Well, yes, sir. I think the answer to that would be, yes; that there are some.

Mr. MAPES. Any considerable percentage of the total number? Mr. GRUBB. That I could not say, sir.

Mr. MAPES. It seems to me, that there is some point to your statement, and I wondered how important it was.

Mr. GRUBB. Well, it is important that the companies are regulated somewhere, and I am coming to that a little bit later.

sir.

I think that I can explain that point a little bit later in my brief,

May I continue, sir?

The CHAIRMAN. Yes.

Mr. GRUBB. These markets actually exist.

Mr. PETTENGILL. You are dealing in stocks on the Curb, that are not listed on the Curb?

Mr. GRUBB. All stocks are listed on the Curb, sir. There are stocks that are fully listed, and stocks that are admitted to trading under the listing requirements. Under the listing requirements, a copy of which you have before you, in that circular, sir

Mr. PETTENGILL. In answer to Mr. Mapes' question, I understood that you are dealing in some stocks as to which the management had not applied for listing.

Mr. GRUBB. Seventy five percent of them have not, I believe.
Mr. PETTENGILL. Have not?

Mr. GRUBB. No, sir.

Mr. PETTENGILL. Then, with reference to obtaining reports and so forth as to the financial standing of those companies, you have no knowledge direct to the committee, from the management, or directing officers, have you?

Mr. GRUBB. Well, we have the public to consider, investing public, with reference to the securities traded in. If I understand your question correctly, sir.

Mr. PETTENGILL. Well, sir, you have various listing requirements. Mr. GRUBB. Yes, sir.

Mr. PETTENGILL. Now, those listing requirements are a safeguard as to the trading in legitimate securities, are they not?

Mr. GRUBB. Yes, sir.

Mr. PETTENGILL. But when you are dealing in securities that are not listed and as to which the management of the company has not accepted any responsibility, are you protecting the public? What is your answer?

Mr. GRUBB. My answer to that is, those provisions are covered in our unlisted requirements.

Mr. PETTENGILL. Your unlisted requirements?

Mr. GRUBB. Yes, sir.

Mr. PETTENGILL. All right.

Mr. GRUBB. These markets actually exist. They play a most important part in the economic structure of the country. These are the markets to which the owner or purchaser of securities dealt in on such exchanges looks for sale or purchase. To deprive the public of the advantage of these exchange markets and to make it necessary for the owner or purchaser to look to unregulated outside markets for the sale or purchase of securities would be distinctly a backward step and not one looking to the benefit of the public at large.

Before elaborating further on our unlisted securities, I desire to call the attention of the committee to the fact that there are dealt in on the New York Curb Exchange a great number of so-called "American Depositary Receipts" for shares of stock in foreign companies. There are outstanding upward of 7,022,785 of such receipts. In the year 1933 nearly 4,414,953 shares represented by such receipts were dealt in on our exchange. Each of these stocks is listed on the London, Amesterdam, Paris, Berlin, or Milan Stock Exchange. It is inconceivable that the companies whose stocks are thus held in the form of receipts in this country would file the information required by the bill, or any information. Corporate reports and information are on file with the exchange as well as with the American depositary. In foreign bonds in 1933 upward of 74 million dollars worth were dealt in on our exchange. It would hardly be the purpose of Congress to force such securities from dealings on an exchange which represents the market therefor and to throw the holders of the American receipts and bonds into such outside market as might develop. It is respectfully submitted, accordingly, that in any event an exception should be made for such receipts for foreign stocks and for such foreign bonds as may be already outstanding.

I shall now read such paragraphs from my memorandum as will bring to the committee, I hope, a general understanding of unlisted exchange markets.

Mr. PETTENGILL. Do you not think the American public is entitled to a little better information for its protection than it has had with reference to dealing in foreign bonds and stocks?

Mr. GRUBB. Well, we have gone into that very thoroughly, and I think you will see at the bottom of their unlisted, our requirements for unlisted trading, the points that you bring up with reference to the foreign bonds and securities, those stocks, I believe, are all formally listed on all foreign exchanges.

Mr. PETTENGILL. Well, I do not want to interrupt you further, except that your argument is that you should do nothing with reference to foreign stocks or bonds. But my observation is that the American public has taken a sufficient burning in those matters, and ought not to have to again, and are entitled to a certain amount of honest information and protection which ought to be given to them. I cannot yield to you on the point that they are not entitled to any protection.

Mr. GRUBB. Well, there is one point, sir; that I might bring out. I believe that there is one explanation. When England went off of the gold basis, we had certain foreign securities on our exchange. Of course, when they went off of the gold basis, since they have gone off of the gold basis we have not listed any securities since that time.

Another point is that foreign securities in this country are not put on here in this country until fully, as we think, distributed among the investors in this country before they are listed.

Mr. PETTENGILL. How is distribution made in this country?
Mr. GRUBB. Not until they are thouroughly distributed.

Mr. PETTENGILL. By investment houses, before they get on the curb?

Mr. GRUBB. Yes, sir.

Mr. PETTENGILL. The curb does not help in the distribution?

Mr. GRUBB. Only when we see the possibility that a market can arise and should be there, for the purpose of the investing public. Mr. WADSWORTH. Do these foreign securities include foreign government and municipal securities?

Mr. GRUBB. Yes. I think that the answer to that is yes.

Mr. WADSWORTH. Like the city of Bordeaux or the city of Aisnes? Mr. GRUBB. They are on the stock exchange; most of those are on the stock exchange.

Mr. WADSWORTH. They are on the stock exchange?

Mr. GRUBB. Yes, sir.

Mr. WADSWORTH. But you do include municipal issues?

Mr. GRUBB. I think so, yes; some.

Mr. HUDDLESTON. May I ask, Did you say that all securities traded in on the exchange must be listed?

Mr. GRUBB. Yes, sir. One form of the securities is formally listed, according to our requirements, and our requirements in that respect are very similar to those of the stock exchange.

Mr. HUDDLESTON. You say one form?

Mr. GRUBB. Yes. Another form is what we call unlisted securities, which I explain very fully in this brief that I am coming to.

The question is often asked, "What are 'unlisted securities'; what does it mean when a security is 'admitted to unlisted trading'?" The purpose of this review is to attempt to answer these questions in an endeavor to bring about a more accurate understanding of certain of the functions of the New York Curb Exchange and particularly of its so-called "unlisted department."

The officers and governors of the exchange are frequently surprised at the amount of misinformation or the entire lack of any information which exists with respect to this important department. This is not the result of anything inherently difficult about the unlisted department or of any concealment of the facts by the exchange; but is due, so it is believed, in part, to a general impression on the part of the public that there is something mysterious in the technical machinery and operation of security markets, and, in part, to lack of interest, particularly in good times.

Of late, much criticism has been leveled at security markets, including markets on the recognized exchanges. No doubt some of this has been justified, although, so far as affects the exchanges, it may be noted that most of the charges, in connection with recent disclosures have been against outsiders who have attempted to misuse exchange or other markets, rather than against the exchanges or their members as such. The exchanges have made mistakes, but it is a matter of comment that with all the evidence of dishonesty or of overreaching disclosed, no proof has been brought forth of misconduct by the exchanges themselves.

This exchange, in common with others, has been criticized for certain practices; but, for the most part, these criticisms apply to alleged manipulation, pools, and trading practices generally and are not affected by any differences between "fully" listed and "unlisted" securities. So far as the unlisted department or securities therein is concerned, practically no criticism has come from the investing public. The objections received respecting this department, very generally, have been from competitor markets, or, in some instances, from