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Mr. DICKINSON. I agree with you.

Mr. MALONEY of Connecticut. It would slow up some the wheels of trade?

Mr. DICKINSON. I agree with you that section 10 would, in my opinion, operate as a very powerful leverage toward the further centralization of the control over the investment business of the country and would operate very severely against those local agencies that finance the localities throughout the country.

I may say also that I see very slight reason for section 10. The only evils which I can see that section 10 is aimed at are first, that if a man is doing a margin brokerage business in a small town and is also engaged in the business of dealing in securities, he may make bad investments as a dealer in securities which would impair his ability to meet his obligations to his margin customers; but that is equally true of a bank in its relation to its depositors. The bank may make bad investments and so be impaired in its ability to meet its obligations to its depositors.

The second evil is that the dealer operating in his own capacity as a dealer may sell some of his own stuff to his margin customers. Well, now, the rules of all of the first-class exchanges require that when a person engaged in this dual capacity deals with his customer he shall state to his customer, on his receipt or something of that kind, in what capacity he is dealing with him.

Mr. MALONEY of Connecticut. Do you not think that in that instance that is sufficient information?

Mr. DICKINSON. Yes.

Mr. MALONEY of Connecticut. Do you think, Mr. Secretary, as I do, that if we again went through such a crisis as we have suffered during the past 2 years, and the municipalities of the country were denied the services of these investment bankers, that the Government, the Federal Government, would be in a pretty serious situation?

Mr. DICKSON. I think that any degree of regulation which not merely regulates, but cripples the agency regulated, tends to throw upon the Federal Government the responsibility and the necessity for taking over the functions, to some degree, at least, that were previously performed by the agency that you are crippling. It creates à situation, I mean, within which the demand upon the Federal Government becomes so great, that the Federal Government cannot resist. Perhaps I do not make myself clear. What I mean is that if you cripple the private agencies to which our municipalities can resort for their credit needs, why then they will all come here to Washington, to the Federal Treasury.

Mr. MALONEY of Connecticut. Do you think it is a dangerous section, section 10?

Mr. DICKINSON. Well, I think it would have the consequence that you and I have agreed upon and I think those are undesirable consequences.

Mr. HOLMES. Mr. Chairman
The CHAIRMAN. Mr. Holmes.

Mr. HOLMES. May I ask about a condition such as this. Some 4 or 5 weeks ago the city of Worcester advertised for bids for $275,000 serial loans running about 10 years. Now, there were 12 houses jointly or individually appeared and bid on those bonds. Now,

naturally, they are investment houses or dealers. They bought these bonds from the city of Worcester to sell to investors.

Now, under this bill how could the city of Worcester dispose of its bonds under section 10?

Mr. DICKINSON. Well, of course, in the first place, it is highly probable that if these bonds were not available for collateral loans from banks and otherwise, their value would be somewhat impaired. Therefore, in order to make them available for such loans, under this bill, they would have to be listed or registered, and therefore the first thing that the city of Worcester would do would be to register these bonds under the provisions of section 11 (a), with the Federal Trade Commission which would then subject the city of Worcester to the requirements which section 18 (a) of the bill imposes, namely, a supervision of its accounts and accounting practices.

Having so registered these bonds, and subjected its finances in that way to the control of the Federal Trade Commission, it would then presumably market these bonds to a dealer and the dealer would buy them in the ordinary course of business, but that dealer would have to be a man who was not at the same time acting as a broker on the stock exchanges.

Mr. HOLMES. In other words, according to my own version of the bill, as written, it would place restriction and prevent the city of Worcester from continuing its own finances.

Mr. DickINSON. Well, I am not so fully assured about that, Mr. Holmes, because undoubtedly there are concerns in New York which are large enough to be able to go forward simply as dealers. There are a great many of them-well, I would not say a great manybut there are some of the large New York houses now which are not members of the stock exchange. They may be members of the stock exchange, but they do not act as brokers. They do not derive any income from brokerage activities. Now, the city of Worcester would have to go to those people rather than to local people.

Mr. HOLMES. Well as a matter of fact, they sold these at an advantageous price. They carry 376 interest rate.

Under this set-up the city of Worcester would not be allowed to finance itself or to sell its bonds under such conditions as it deemed advisable. I do not see where the city of Worcester can under those conditions ever attain that financial advantage under the registration of this bill.

Mr. DICKINSON. Well, bonds of the city of Worcester might be very highly regarded by some houses in a large financial center that were strong enough to be able to get along without doing a brokerage business. I do not know. That is a speculation.

Mr. HOLMES. I think that they are. I know they are. But, this would have the effect and the harm of prohibiting the municipality from financing itself or selling its bonds in the community.

Mr. Dickinson. Personally I regard the regulatory authority given to the Federal Trade Commission over municipal finances under section 19 as of great importance to the municipalities.

Mr. HOLMES. I appreciate that, Mr. Dickinson. I view with very much alarm that power, because from its inception, the Federal Trade Commission has certainly had certain defined duties in connection with legislation pertaining to the control of commerce and under that act, Congress declared unfair methods of competition unlawful and

directed the Commission to prevent persons, partnerships, and corporations from using unfair methods of competition in commerce.

During my thirty-odd years in dealing with municipal and trade organizations, in that work, I have never seen industry demoralized to such an extent as it has been during the last 4 or 5 years and still the Federal Trade Commission has not regulated it, regulated unfair competition and even cut-throat competition.

One other point, Mr. Chairman, while I am on this subject.

In my county, there are about 1,100 individual corporations and

Mr. DICKINSON. That is Worcester County? Mr. HOLMES. Worcester County. Mr. DICKINSON. I am well acquainted with it. Mr. HOLMES. And in my own city there are practically 600 individual concerns.

Now, I should say possibly, in all probability, out of these 1,100 industries, I doubt very much whether there are 25 concerns of a local nature that have their stock registered on any exchange whatsoever. These are mostly old New England concerns that have been there for generations. They have never resorted to registering their securities. Now, these securities not being listed, many of our banks are not going to be able to accept them as collateral, and our concerns are going to have difficulty in using those unlisted securities as collateral to help themselves in the various industries to finance their necessary operations from time to time, during the year and as I view this bill it would absolutely drive out of existence many of those small corporations in my section of the State, if this bill is put into effect, as drawn up at the present time.

Mr. DICKINSON. I think that, as it stands it would place a burden upon local financing under section 10, this segregation provision, just as that would drive many of the local financing houses out, so it would place a burden on the small industrial concern that was trying to finance itself by issues of securities locally.

Mr. HOLMES. Of course, that would have the same effect on industries small and large all over the United States. It would not be confined to my area.

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

Mr. KENNEY. Mr. Dickinson, of course, any bill to regulate stock exchanges will be aimed at evils.

Mr. DICKINSON. It should be so.
Mr. KENNEY. You agree with that?
Mr. DICKINSON. Yes, sir.

Mr. KENNEY. And, of course, in aiming at evils, we do so for the public good.

Mr. DICKINSON. Yes, sir.

Mr. KENNEY. Now, in your report you had something to say about the public good or general welfare of our people?

Mr. DICKINSON. Yes, sir.

Mr. KENNEY. I wonder if you would refer to that part of your report.

Mr. DICKINSON. Could you give me a little bit clearer guide, Mr. Kenney? I thought that we referred to the general welfare very frequently through the report.

Mr. KENNEY. It is where you say in words or in substance, that there is a widespread speculative urge on the part of our people.

Mr. DICKINSON. I remember that section. I do not know whether I can put my finger on it or not. Oh, yes; where we begin to discuss margin trading. Would you like to have me read that paragraph?

Mr. KENNEY. On page 15.
Mr. DICKINSON. Yes.
Mr. DICKINSON (reading):

It must always be recognized that the average man has an inherent instinct for gambling in some form or other. It has been recognized as a social evil, always inveighed against since early times. No method of combatting it has ever been completely successful. If abolished in one form, it seems always to crop out in another. In America the man of average income has perhaps turned to the stock exchange because of the prohibition of various forms of gambling. If the speculative temperament of our people could be turned into other channels, this instinct might be satisfied without the far-reaching economic consequences which come from widespread public speculation in the stock market.

Mr. KENNEY. Now, will you be good enough to tell us what you meant by that?

Mr. Dickinson. Well, I was thinking about horse racing, for one thing. I notice that Virginia is apparently coming into line on that subject. That was what Ì had in mind.

Mr. KENNEY. You mean by that, that you would divert certain persons who engage in trading in stock markets, divert them from the stock markets to horse racing?

Mr. DICKINSON. Well, I meant, sir, if it was easier and more available to turn, for the small man to turn to certain forms of betting, like horse racing, that he probably would indulge his appetite for speculation in that way rather than build up a large irresponsible group of people who go into stock markets on $50 or $75, or something of that kind.

Mr. KENNEY. Did it ever occur to you that there might be a preferable and more wholesome way for these people to spend small sums for a chance to better their condition?

Mr. DICKINSON. Well, it did, Mr. Kenney, after I read some of the remarks that you have made before this committee.

Mr. KENNEY. What do you think about the idea?

Mr. DICKINSON. I think the principle is very sound, and it if could properly be applied, I would think that we might help this situation along some.

Mr. KENNEY. And you do not think you would be opposed to a lottery conducted under the auspices of the National Government?

Mr. DICKINSON. Not in principle.
Mr. COOPER. Mr. Chairman-
The CHAIRMAN. Mr. Cooper.

Mr. COOPER. Mr. Dickinson, during this hearing most of the discussion has been confined to the regulation of the stock exchanges.

We notice that it is for the regulation of securities and unfair practices on stock exchanges, and other purposes, and I am very much interested in the "other purposes”, and I think it is highly important that we should look at this legislation from the standpoint of what its effect is going to be on private capital and corporations, banks, and business. Now, of course, I believe every member of this committee is in favor of fair and just regulation of stock exchanges; but in that respect, do you believe it is necessary to require corporations,

business, and banks, to furnish to the Commission all of the information which is required in sections 11 and 12, and what would be the effect on business if they have to do it?

Mr. DICKINSON. Mr. Cooper, it seems to me that the regulations should go, so far as necessary, in order to meet the evils that are intended to be cured by the regulations.

Now, I would like, therefore, to refer again to that provision of the Roper report which I summarized at the beginning of my testimony here this morning, namely, the listing requirements. We there propose, roughly, that the statute should provide that as a condition of being listed on a licensed stock exchange, every corporation should submit certain information and make it public; it should submit annual balance sheets and income accounts certified to by independent public accountants, and it should file these papers with the stock exchange authorities and transmit them to the security holders; that it should publish quarterly reports; that it should not engage in pool operations in its own stock; that it should require its officers not to engage in pool operations in its own stock or to sell short; that it should make available to the stock exchange within 48 hours after the granting of any option upon its stock, the terms of that option; that it should also make available within 48 hours the terms of any agreement looking toward the pegging of the price of its securities; and that it should file at the close of each quarter a statement of the operations of its officers in its own securities, which statement should be available to every stockholder.

Mr. COOPER. With whom would you have them file that report?

Mr. DICKINSON. In the first instance, these reports would be filed with the governing board of the stock exchange. There is provision that some of them should be made public and that all of them should be made available to public inspection, and that means, of course, they would also be available to the inspection of the Federal regulatory authority.

Mr. COOPER. I do not know whether it is a fair question to ask you or not, but I would like to inquire if your committee would be willing to submit to this committee a draft of the bill or what you think ought to be in the bill along the lines that you have been speaking about for the last 2 days.

Mr. DICKINSON. Well, sir, speaking only for myself, I would say that our committee would hold itself out to perform whatever services the committee, acting as a committee, might think would be of assistance to it and might care to ask us to perform; but that is another matter.

Mr. COOPER. That is all.
Mr. PETTENGILL. Mr. Chairman
The CHAIRMAN. Mr. Pettengill.

Mr. PETTENGILL. You stated yesterday, Mr. Secretary, as I recall your testimony, that the enactment of this bill as written would cause the liquidation of $350,000,000 of securities now unlisted and about $650,000,000 of other securities to meet the margin requirements over the existing requirements.

Mr. DICKINSON. T'he figure as to the margin requirement was, in my recollection, about $500,000,000, rather than $600,000,000-it was $550,000,000.

Mr. PETTENGILL. $550,000,000.

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