Mr. GRUBB. Yes, sir.

Mr. PETTENGILL. What is the present minimum margin?

Mr. GRUBB. Thirty percent on accounts of $5,000 and over, and 50 percent on debit balances of accounts less than $5,000.

Mr. PETTENGILL. The same as the New York Stock Exchange?

Mr. GRUBB. Yes, sir.

Mr. PETTENGILL. How long has that been in effect?

Mr. GRUBB. For 2 or 3 months.

Mr. KENNEY. The curb exchange deals in certain stocks upon which banks will not make loans?

Mr. GRUBB. Some of them, yes, sir; some that you have to pay cash for, of course. It all depends upon the character of the stock. Mr. KENNEY. Where bank loans are not available, do you have any other money market where customers may obtain credit to trade on margin?

Mr. GRUBB. We have a money post on our floor, sir, but of recent years it has been very inactive.

Mr. KENNEY. Do the brokers on the curb exchange ever finance their customers out of their own funds?

Mr. GRUBB. For trading purposes?

Mr. KENNEY. Yes.

Mr. GRUBB. You mean to customers?

Mr. KENNEY. Yes. If a customer wants to buy stock on the curb exchange, and the banks will not loan on the stock, how can the customer buy the stock on margin?

Mr. GRUBB. Well, there is very little margin business on our exchange, sir; very little, because you see a great number of our stocks sell for less than $10 a share at the present time, and there is not any bank, any bank, that will take stock of that category, practically, at all, and that necessarily means that a man buying, or trading in them pays cash, and that practically eliminates our margin equirements in that respect.

Mr. KENNEY. Do you require cash to be paid in every instance, or is there a way of obtaining margins?

Mr. GRUBB. If the broker can borrow money from the bank on securities; yes. In a great many instances, a great majority of the instances, they cannot, and the person buying the stock pays cash for it.

Mr. KENNEY. If he cannot pay cash and the banks will not loan on the collateral, is there any money market available for him? Mr. GRUBB. None that I know of.

Mr. PETTENGILL. One more question, Mr. Chairman.

The CHAIRMAN. Mr. Pettengill.

Mr. PETTENGILL. If the debit balance is $5,000 he must have a 50 percent margin?

Mr. GRUBB. Yes, sir.

Mr. PETTENGILL. Or $2,500.

Mr. GRUBB. Yes, sir.

Mr. PETTENGILL. If the debit balance is $5,100, then the 30 percent rule would apply, and in that case he would only have to put up $1,530.

Mr. GRUBB. But, that margin means that must be kept good, sir. Mr. PETTENGILL. Both margins, whether 50 percent or 30 percent, must be kept good.

Mr. GRUBB. Oh, yes, sir; but I mean, in other words

Mr. PETTENGILL. Therefore, a man can defeat the 50 percent margin to the tune of nearly $1,000, by making his commitment $100 larger.

Mr. GRUBB. Yes; in that rate he could, I suppose; but I mean, that would be the minimum on the exchange, and he has to keep right on that margin, right on the margin. That is to the broker's own self-interest to do that, sir.

Mr. LEA. Would it be substantially true that the broker's credit depends on his banking credit? In other words, the standard of credit is set by the bank rather than by the broker.

Mr. GRUBB. Well, yes. The answer to that, I think, is yes; because the banks scrutinize all loans very carefully.

Mr. LEA. And, the brokers are not disposed to go beyond the banks in extending credit?

sir.

Mr. GRUBB. No, sir. Maybe I did not understand that question,

Mr. LEA. The idea was this: Suppose we have a stock the banks would not loan money on. Are the brokers disposed to advance

credit on those stocks?

Mr. GRUBB. No, sir.

Mr. LEA. And, if the banks do advance credit on a stock, are the brokers disposed to grant more credit than the banks grant?

Mr. GRUBB. No, sir.

Mr. MARLAND. Mr. Chairman

The CHAIRMAN. Mr. Marland.

Mr. MARLAND. If I may interrupt you.

Mr. GRUBB. Yes, sir.

Mr. MARLAND. The curb exchange sometimes admits to listing stocks that cannot be listed on the big board?

Mr. GRUBB. Yes, sir. You mean, admitted to trading.

Mr. MARLAND. Yes.

Mr. GRUBB. Yes, sir.

Mr. MARLAND. Ádmitted to full listing?

Mr. GRUBB. Full listing.

Mr. MARLAND. Yes, sir.

Mr. GRUBB. Yes, sir. I imagine that that is possible in some instances.

Mr. MARLAND. Are there not certain types of stocks, that the New York Stock Exchange will not admit to listing and that you do have listed?

Mr. GRUBB. Yes, sir; we are a primary market.

Mr. MARLAND. You list investment trusts on the curb?

Mr. GRUBB. Yes, sir.

Mr. MARLAND. The New York Stock Exchange has some rule against listing of investment trusts, does it not?

Mr. GRUBB. I do not think so, sir.

Mr. MARLAND. You list real estate corporations on the curb, do you?

Mr. GRUBB. That, I will have to check, sir. I am not fully familiar with the question as to whether we list real estate corporations or not.

Mr. MARLAND. And, the New York Stock Exchange does not list real estate corporations?

Mr. GRUBB. That, sir I am not familiar with. I can check it. Mr. MARLAND. You said in answer to a question by Mr. Kenney, a moment ago, that you have specialists on the curb. Mr. GRUBB. Yes, sir.

Mr. MARLAND. In your prepared statement, do you describe the functions of the specialist?

Mr. GRUBB. Yes, sir. With respect to our odd-lot situation, which is different in a great degree from the stock exchange. That is explained in this first pamphlet.

Mr. MARLAND. I would like to ask one question with regard to operations of specialists. I have heard no explanation of it.

Mr. GRUBB. I will be very glad to have you ask it, sir.

Mr. MARLAND. Well, we will assume that a specialist in the exchange receives two orders to execute at the opening of the market, 1 to sell 100 shares of X stock at the market, not less than 5. Mr. GRUBB. A limited order, you mean, sir?

Mr. MARLAND. To sell 100 shares at the market.

Mr. GRUBB. I beg your pardon.

Mr. MARLAND. At 5, or better.

Mr. GRUBB. Well, yes.

That is a common order.

Mr. MARLAND. At a certain price or better.

Mr. GRUBB. Yes, surely.

Mr. MARLAND. And then he has another order to buy 100 shares of the same stock at the market.

Mr. GRUBB. Yes, sir.

Mr. MARLAND. At 51⁄2 or better.

Mr. GRUBB. Yes, sir.

Mr. MARLAND. At 51⁄2, not more than 51⁄2.

Mr. GRUBB. Yes, sir.

Mr. MARLAND. What does he do in a case like that?

Mr. GRUBB. Well, he has two market orders. He naturally simply executes the orders.

Mr. MARLAND. Which order does he execute?

Mr. GRUBB. Well, both; the margin is the same, substantially the same figure, at the same time, at opening.

Mr. MARLAND. Well, what does he do?

Mr. GRUBB. Well, he has an order to buy.

Mr. MARLAND. Yes, sir.

Mr. GRUBB. It seems to me, sir-I beg your pardon.

Mr. MARLAND. Go ahead.

Mr. GRUBB. He has an order to buy 100 shares at the market and he has an order to sell 100 shares at 5 or better, which in this case, you say, would be a market order. Therefore, those orders simply match, and he gives

Mr. MARLAND. He is a broker. He has an order to sell at 5 or better, and has an order to buy at 5%, or better. Now, what does he do?

Mr. GRUBB. Well, it all depends. If those are the only two orders he has, he might depend on his odd-lot situation, so far as our curb is concerned.

Mr. MARLAND. If those are the only two orders he has, what does he do?

Mr. GRUBB. Open the stock at a fair price.

Mr. MARLAND. Using his judgment?

Mr. GRUBB. Yes, sir.

Mr. MARLAND. Well, what do you do, or what would the specialist do, if he had those two orders?

Mr. GRUBB. Well, I would take it, in the case, it would depend upon how the stock closed the night before, and how the stock was on the beginning, with reference to actual orders, and I would open as near as the stock closed last night.

Mr. MARLAND. Would you let the buyer have this stock at 5 or the seller get 51⁄2?

Mr. GRUBB. I think that I would split the difference and get 54, and that would be fair to both of them.

Mr. MARLAND. So, as a specialist, it is entirely at your option, and in your judgment, as to what price the buyer should pay and what price the seller is going to get.

Mr. GRUBB. In that case, we would have a question of doing the fair thing to both the buyer and the seller.

Mr. MARLAND. The whole matter would be left to your judgment as a specialist, is that correct?

Mr. GRUBB. In that case; yes, sir.

Mr. MARLAND. That is all.

Mr. GRUBB. May I continue, sir?

The CHAIRMAN. Yes; go ahead.

Mr. GRUBB. It is true that a requirement for company listing is that the company must agree with the exchange to maintain certain standards of accounting and to furnish the exchange with information in respect to options and other material corporate purposes. Thus the exchange exercises control, important to stockholders and to the investing public, over certain company activities. At the same time, the seeming defect in the case of securities admitted without company agreement is more technical than real. Insofar as new applications for unlisted trading are concerned, the companies must have established and continue the practice of periodic audits by an independent public accountant. An official statement must be furnished as to options outstanding. With the securities already admitted, these factors are not enforceable. But public opinion and conceivably statutory provisions may well compel corporate compliance with these requirements. Moreover, many of the companies whose securities are admitted to unlisted trading cooperate with the exchange to a high degree both in the furnishing of information and in the acceptance of suggestions from the exchange. Those which are listed upon other recognized exchanges will be held by such exchanges to a strict observance of exchange rules. Those who are unlisted anywhere, so long as they may be traded in over the counter or unlisted on an exchange, present rather a legislative than an exchange problem. If corporations generally were compelled to follow certain specified rules of accounting and to publish or to file with public authorities full information of corporate activities, the public would be in a position to judge much more intelligently corporate structures, earnings, and acts. That is what the present bill undertakes, except that it confines the filing of information to fully listed securities only. So long as companies may be organized with unlimited charter privileges and so long as these securities may be bought and sold, it is a protection to the public to have them dealt in upon an exchange.

Markets existed therein before such securities were admitted to trading, and such markets would necessarily spring up again if such privileges were denied. When dealt in upon an exchange, the security enjoys a publicity which tends to lead the issuing company to follow the trend of public opinion. Moreover, the market action in any stock from day to day is under the supervision of the committee of arrangements and in the event of any movement injurious to the public, prompt action in calling for transcripts of members' accounts or in the proper case of suspending trading in the security is an effective control and remedy.

The theory of the exchange in the maintenance of its unlisted department may be stated as follows: When an active market in a security, which meets the qualifications, exists in New York, the public is better served by having that security dealt in on an exchange. The purchaser or seller on an exchange deals through a broker member acting as agent who makes contracts for his customer with other members, likewise acting as agents. A specified commission only is charged; the transaction is immediately made public by means of the ticker; purchases and sales appear throughout the country in the daily papers; each transaction is open to investigation and verification; each member is subject to the rules and discipline embodied in the constitution and rules of the exchange.

By way of contrast to transactions taking place on an organized exchange, a transaction outside of the exchange is generally conducted between the customer and one acting as a dealer or principal; that is, for himself. There is no specified rate of commission. Indeed, the dealer pays what he feels inclined to pay and sells for what he can get. The spread is often notoriously wide. The opportunity of verifying the transaction is not comparable to that on an exchange where the officers or a committee may call upon members to produce all records and to explain any transaction.

Moreover, quotations of the outside market are not as accurate and complete as those on an exchange and are given very little publicity. Indeed, outside of the great cities, it is doubted if the price range in securities other than those dealt in on the New York Stock Exchange or the New York Curb Exchange is given any notice whatsoever. Most newspapers carry transactions on these two exchanges, but no reports of outside markets. Where a security is not dealt in on an exchange, one who wishes to buy or sell the security may not turn to the morning paper and see the record of the actual transactions of the day before and the closing "bid and asked"; he must apply to an outside dealer to inquire what he will give or what the customer must pay for the security in question. This situation must necessarily leave the customer more or less at the mercy of the dealer; it leaves him largely out of touch with realities.

There is, insofar as we know, no practice generally among dealers to have in their files extensive information in respect to the companies whose securities they are prepared to buy or sell. It is true that some brokers and investment houses dealing in securities in the outside. market have organized statistical departments with information on file. In general, however, this applies only to the greater cities. As against this, the New York Curb Exchange has a very large amount of information on file which information is open for inspection by the public.