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investigation above referred to, are available and will be furnished to any who are interested, as will the requirements for admission to "full" or formal listing.

A comparison of the respective requirements for "full" or formal listing and for “unlisted" trading, it is believed, will satisfy any reasonable person that adequate investigation is made of the unlisted securities before they are admitted to trading. While less data and information are obtained in support of an application for admission to unlisted trading than in support of an application for formal listing, any objection on this ground is more than offset by the fact that the unlisted security usually has a long record of actual performance. While performance is by no means the sole test in admitting a security, a bad record is always sufficient reason for rejecting it. That the standards applied by the New York Curb Exchange in the admission of unlisted securities have been sufficient, except in a relatively very few cases, is adequately established by its actual experience with these securities.

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

Mr. PETTENGILL. Can you tell us very briefly what is the difference between a formal listing and unlisted securities? Unlisted securities are traded in in certain cases?

Mr. GRUBB. That is quite correct, sir.
Mr. PETTENGILL. What is the difference?

Mr. GRUBB. With reference to our own particular case, sir, stocks that are admitted to unlisted trading are seasoned stocks, as was explained in this pamphlet, a little prior to this particular point.

The formally listed stocks are stocks of newer companies with the records that are probably not quite as old as companies we have on our floor, which are unlisted.

Mr. PETTENGILL. Unlisted are more seasoned securities?
Mr. GRUBB. That is quite correct.
Mr. WADSWORTH. May I interrupt there?
Mr. GRUBB. Yes, sir.

Mr. WADSWORTH. But, they are not formally listed really because the management, those responsible in the affairs of the corporation do not care to do it?

Mr. GRUBB. You mean-yes, in a great many cases, that is so, sir, In other words, we do not get the complete information that we require and we want for formal listing from those companies.

Mr. WaDSWORTH. But, on your own definition, a majority of them would be eligible for formal listing if the respective managements desired?

Mr. GRUBB. That is quite right, sir.
Mr. WADSWORTH. Why is it not desired?

Mr. GRUBB. Well, that is a difficult question to answer, in some respects. Some of them do not want to and cannot and will not answer our formal requirements.

Mr. WADSWORTH. And yet, you find out sufficiently about them to have confidence in them?

Mr. Grubb. Yes, sir; that is quite true.
Mr. PETTENGILL. Is it a question of the fee involved?

Mr. GRUBB. With reference to the formal listing there is; yes. Our formal listing is $1,000, and with reference to unlisted securities, there

is a fee of $100 charged, which is paid by brokers who make application for the stock.

Mr. WADSWORTH. Are most of them small companies?
Mr. GRUBB. Which, in which respect, sir?
Mr. WADSWORTH. The unlisted.

Mr. GRUBB. No, sir; they are not. As a matter of fact, our biggest companies that we have on our exchange, as a matter of fact, are unlisted. For instance, all of the great, or a great many of the Standard Oil stocks, and some of the big utilities, and some of the big industrial stocks. Some of the best ones we have, and the ones that are most largely held by the investing public.

Mr. LEA. Do you mean are not listed at all, or are not listed on your exchange?

Mr. GRUBB. No, sir; I am speaking particularly with reference to unlisted stocks that are traded on our exchange in connection with that remark.

Mr. LEA. Standard Oil stocks are usually listed, are they not?

Mr. GRUBB. I said that some of the Standard Oil Co. stocks; Standard Oil of Indiana.

Mr. WOLVERTON. Mr. Chairman-
The CHAIRMAN. Mr. Wolverton.

Mr. WOLVERTON. Mr. Grubb, is there any difference as to the requirements for dealing in listed, and unlisted stocks, with respect to margin requirements, or any of the other usual requirements ?

Mr. GRUBB. We do not on the exchange, in some cases, there would be—I think the answer to that is no, sir.

Mr. WOLVERTON. Well, take as an illustration, one stock that is listed and one stock which is referred to by you as unlisted.

Mr. GRUBB. Yes, sir.

Mr. WOLVERTON. Would there be any difference in the margin requirements for either of those two stocks?

Mr. GRUBB. No, sir.

Mr. WOLVERTON. Well, much of your time has been taken up, it seems to me, in explaining that there is no difference, in fact, between listed and unlisted stocks, except the manner in which they are entered for trading in your market.

Why do you continue the use of a term, or a name that results in so much misunderstanding or requires an explanation that there is no material difference.

Mr. GRUBB. Well, I was attempting to set forth, as clearly as I can in this, why.

Mr. WOLVERTON. You have set it forth very clearly to me. Your statement is that the only difference between listed and unlisted stock is the manner in which the particular stock is admitted to trading on your exchange.

Mr. GRUBB. That is correct.

Mr. WOLVERTON. For instance, instead of the application being made by an officer of the corporation to have stock of that corporation listed, it is listed by reason of an application made by a member of your exchange who is a stockholder in that corporation.

Mr. GRUBB. Yes, sir.

Mr. WOLVERTON. Now, why do you continue to use the terms “listed" and "unlisted”, when in fact there seems to be no difference

except, as I have indicated, and which requires the continual necessity to explain that there is no difference between the two.

Mr. GRUBB. The big point with us is that it is so uniformly misunderstood throughout the country, and it is not understood on the part of a great many people who just do not know what the situation really is.

Mr. WOLVERTON. Well, when an application has been made for the listing of a stock, by the officers of the company, then it is called a listed stock.

Mr. GRUBB. Yes, sir; fully listed.

Mr. WOLVERTON. If the application for listing is made by a stockholder of a company and who must be at the same time a member of your exchange, then it is termed an unlisted stock when admitted to trading on your exchange.

Mr. GRUBB. Yes, sir.

Mr. WOLVERTON. And yet such stock is in fact listed for the purpose of trading.

Mr. GRUBB. That is quite correct.
Mr. WOLVERTON. Why do you follow that system?

Mr. GRUBB. Because it does not answer entirely all of the specific facts as called for in our full listed requirements.

Mr. WOLVERTON. It merely seems to be a difference of wording. I am wondering why some other word or term is not used instead of the word unlisted.

Mr. LOCKWOOD. The word "unlisted” has come, in this country, to have a clear connotation that it was not a security which was listed on the application of the company itself, whereas the phrase "fully listed” is understood, particularly among the security blue sky commissions as representing a security which has been listed upon the application of the company,

It is true that no security is admitted to dealing upon the curb exchange unless it be officially listed. We have considered from time to time, using the phrase "member listing", but it seems to us that it might be unfair to try to get away, in that way, from what was thoroughly understood in many circles as being unlisted. It is simply a matter of historical nature and experience that we have always used the words "unlisted” and we felt that perhaps we would be placing ourselves in a false position if we used indiscriminately the word "listed."

Mr. WOLVERTON. Mr. Grubb has made it very plain to me, but what I cannot understand is when both listed and unlisted stocks, according to your naming of the stocks, are placed upon the same trading list, then why do you continue the use of the term unlisted with respect to a stock? It seems to me to be a misnomer?

Mr. LOCKWOOD. So that the public understands fully listed as meaning on application of the company itself.

Mr. WOLVERTON. Well, it seems to me that it would be a very simple matter to put an asterisk opposite the stock which you now term unlisted and thereby designate the difference which you state now exists.

Mr. LOCKWOOD. We do that, and we have endeavored to have the newspapers make the distinction in their reports of the transactions on the exchange of transactions in "fully listed”, so-called, and in

unlisted; but we have not been able to bring that about. It is a matter of trouble to the reporters.

Mr. WOLVERTON. Well, I do not want to pursue the thought any further. It may seem rather presumptuous on my part to make a suggestion to individuals who are identified with the business.

Mr. Lockwood. No, not a bit. We want it understood.
Mr. KENNEY. Mr. Chairman-
The CHAIRMAN. Mr. Kenney.
Mr. KENNEY. May I ask a question, Mr. Grubb?
Mr. GRUBB. Yes, sir.

Mr. KENNEY. You have referred to a public examination conducted
by the attorney general of the State of New York.
Mr. GRUBB. Yes, sir.
Mr. KENNEY. In the spring of 1933.
Mr. GRUBB. Yes, sir.
Mr. KENNEY. What was the occasion for that?

Mr. GRUBB. Well, at the time, we were not at all sure what the occasion was. They came in and they looked over our unlisted department from top to bottom and it was their opinion that there was certain factors that should be strengthened, with reference to our unlisted department, and you see on the resolution in front of you, sir, we adopted those regulations at that time.

Mr. KENNEY. That examination satisfied you that changes should be made?

Mr. GRUBB. No, sir; it did not. We had already put those changes into effect and the regulations that were made after the examination by the attorney general, were relatively of very minor importance.

Mr. KENNEY. All of the application blanks presented to us are of date subsequent to the examination of the attorney general.

Mr. GRUBB. We have been entirely

Mr. KENNEY. Do they recite many changes, as the result of this examination?

Mr. GRUBB. No, sir; very few.

Mr. LoCKWOOD. May I answer that again, because Mr. Grubb was not president of the exchange. As a matter of fact, he has been president for 2 weeks only.

That was a technical matter which concerned the committee on listing of which he was not a member.

The attorney general made this examination in order to determine what requirements were necessary with respect to unlisted trading.

We found in that examination that certain of our requirements would, in the interest of the public, wisely be strengthened. example, we had always insisted in our listed department, fully listed department, since 1921, insisted on audits of company reports by independent auditors. You remember that was more and more stressed throughout the country about a year and a half ago.

Mr. KENNEY. Annually?

Mr. Lockwood. Annually, periodical audits prepared by public accountants.

We made that requirement for admission to trading "in listed," So-called.

We made it a requirement that all statements filed with applications, should be examined by an independent certified public accountant representing the exchange.

45381--34-25

For

If we get an application for unlisted trading, again, so-called, we have before us the official audit or a copy of the official audit of an independent auditor of the company itself and the committee, the unlisted department, sends that audit to the certified public accountant representing the exchange who goes through the report and gives his own report to the committee as to what he thinks of the accounting methods, and breaks down, if necessary, the balance sheets, and the profit and loss statements.

We also put in an agreement that we would not audit to trading a stock unless 100,000 shares have been issued; 100,000 shares have been issued or $5,000,000 of bonds. In other words, the minimum of admission to trading to the exchange, on the exchange, would be companies of that size.

Furthermore, we provided that a security would not be admitted to unlisted trading without prior notice to the company itself in order that it might appear before us and present objections to the admission of trading upon our exchange.

If the committee after hearing those objections consider those are objections which would be against the interest of the public, the investing public, or against the interest of the company itself, the company will not be admitted.

If, however, the objections lie rather to indifference or because it is feared that the market on the exchange will perhaps interfere with prices in the outside market, then the committee will not feel that the wishes of the company are binding upon it.

Those are among the changes which were added following the examination of the attorney general.

We felt they were all fundamental for the protection and information of the investor. We sought to provide, in our exchange, records for the examination of any one who wished to purchase the securities thus admitted, records which were far more ample than they could normally find anywhere else. And, also, information which was based upon the accounting methods which have been generally approved.

That is not perhaps the accounting methods, but the system of having indpendent public accountants audit reports.

Mr. KENNEY. Mr. Chairman-
The CHAIRMAN. Mr. Kenney.

Mr. KENNEY. How does the curb exchange compare with the stock exchange with respect to the number of shares dealt in?

Mr. LOCKWOOD. I should say, roughly, about a quarter, a quarter to a fifth of the number of shares.

Mr. KENNEY. Does the curb exchange have specialists?
Mr. LOCKWOOD. Yes, sir.
Mr. KENNEY. That is all.
Mr. PETTENGILL. Mr. Chairman
The CHAIRMAN. Mr. Pettengill.

Mr. PETTENGILL. On the matter of margins, does the curb exchange have any rule with respect to margins, that is promulgated by its governing board?

Mr. GRUBB. Yes, sir.
Mr. PETTENGILL. As binding upon the brokers?
Mr. GRUBB. Yes, sir.
Mr. KENNEY. That are admitted to trading on the exchange?

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