that there should be an entire segregation; when a man is a broker, he should be nothing else.

Mr. WHITNEY. In the suggested

The CHAIRMAN. Of course, they are a little tenderfooted about coming down here and saying so in public, but they say so to me. Mr. WHITNEY. That may be because they have a special interest. The CHAIRMAN. It may be.

Mr. WHITNEY. I mean, they may have a special interest and their particular duties are not to look at the whole point of view, such as the stock exchange authorities must look at.

May I add in this suggested amendment, sir, it is left with the full power to the Commission to make such rules and recommendations as they may deem proper in this regard and in all regards as to segregation.

The fundamentals, Mr. Chairman, being that instead of having a fixed rule of law which can only be changed by an act of Congress, and cannot be changed if Congress is not in session-instead of having a fixed rule of law, we advocate the power being put in a commission to make these rules and regulations, which, if they are wrong, they can immediately change. If they are right, then these rules and regulations will stay in effect.

But we are fearful of the danger that may result of placing such rules and regulations with which we, as the authorities of the exchange, do not agree, into a law which cannot be changed, and in the meantime except by Congress-and in the meantime disaster, chaos, and panic may result, and the only person who is hurt is the public.

I suggest, therefore, that section 10 be amended to read as follows: SEC. 10. (a) It shall be unlawful for a member of a national securities exchange while on the trading premises of such exchange to act as a dealer and broker in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. (b) Subject to such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors, to insure compliance with the provisions of this subsection, the rules of a national securities exchange may provide for the registration of members with the privilege of acting as dealers, and any member so registered shall have the privilege of acting as a dealer and as a broker within the limitations of this subsection. It shall be unlawful for a member with the privilege of acting as a dealer who also acts as a broker to effect any transaction in a security by use of any facility of a national securities exchange or otherwise, (1) if in connection with any such transaction he directly or indirectly extends or maintains or arranges for the extension or maintenance of credit for a customer on any security (other than an exempted security) which was a part of a new issue offered to the public by him as a dealer or distributor within 6 months prior to such transaction or (2) unless, if the transaction is with a customer, he discloses to such customer in writing any interest he may have in connection with the security which is the subject matter of the transaction and offers the customer a reasonable time not exceeding 10 days to refuse the transaction after the disclosure if the disclosure is not made at the time of the taking of the order and confirmed in writing substantially simultaneously therewith.

Sections 11, 12, and 13, dealing with the registration requirements for listed securities, and so forth: Sections 11, 12, and 13 deal with the registration requirements for listed securities and the reports to be made by listed corporations. These provisions are among the most vital in the bill. I have already expressed our opposition to them. In view of the technical nature of these provisions and particularly of

those dealing with accounting, I have secured from Mr. J. M. B. Hoxsey, executive assistant to the committee on stock list of the New York Stock Exchange, a memorandum discussing these provisions and suggesting the changes which in the light of his experience he believes necessary. Mr. Hoxsey has been engaged in active business for many years and has had a very wide experience in analyzing corporate accounts and corporate affairs. Since he came to the exchange about 10 years ago it has been his sole duty to analyze corporate statements and consider corporate accounting from the point of view of developing for the benefit of stockholders and investors the most informative type of corporate reports. As Mr. Hoxsey's memorandum is quite lengthy, I shall not read it but I have had copies of it prepared which I will be very glad to submit to you.

In line with my attempt to make concrete suggestions, I am having these sections of the bill redrafted in order to carry out the recommendations made by Mr. Hoxsey and I shall submit copies of these proposed amendments as soon as they are prepared. I hope that will be today.

SEC. 18. Powers of Commission over exchanges. I have already suggested that certain provisions of section 7 should be transferred to section 18 which deals with the disciplinary powers of the Commission over exchanges. In order to carry out this suggestion and also to make clear that the Commission shall have power to require exchanges to adopt rules and regulations to prevent excessive speculation or unfair practices in security transactions, I suggest that subdivision (5) of section 18 be amended so as to read:

Sec. 18. The Commission is authorized

Leaving in subdivisions (1), (2), (3), and (4), subdivision (5).

(5) If after appropriate request in writing to a national securities exchange that such exchange should effect on its own behalf specified changes in its rules and practices, and after appropriate notice and opportunity for hearing, the Commission determines that such exchange has not made the changes so requested, to require such exchange to adopt and enforce such rules and regulations as are necessary for the protection of investors or for the insuring of fair dealing in securities traded in upon such exchange. Without limiting the general power contained in this subsection, the Commission shall have power to require any national securities exchange to adopt rules and regulations with respect to

(a) Market letters, advertising or other publicity by its members and the solicitation of business by its members or their employees;

(b) Pool's syndicates and joint accounts formed for the purpose of stabilizing or otherwise influencing the market price of any security registered on a national securities exchange and also with respect to options, puts, calls, straddles or other similar privileges;

(c) The amount and nature of the capital employed in his business by a member of such national securities exchange carrying margin accounts and the ra'io which must be maintained of such capital to the liabilities of such member; (d) The short sale of any security upon such national securities exchange; (e) The acceptance and execution of stop-loss orders by members of such national securities exchange;

(f) The hypothecation of securities carried for the account of any customer by a member of such national securities exchange or the lending of such securities without the written consent of such customer or the use of such securities for delivery on any contract in which such member is, airectly or indirectly, interested;

(g) The fixing of a fair settlement price in respect of any contracts in any security registered on such national securities exchange which has been cornered or of which any person or persons have acquired such a control that such security cannot be obtained for delivery on existing contracts except at prices or on terms arbitrarily dictated by such person or persons;

(h) The books and records to be maintained by members of such national securities exchange and the right of such exchange to require, periodically or otherwise, reports in regard to the transactions and affairs of the members of such national securities exchange and the duty of such members to permit the officers or representatives of such national securities exchange or of the Commission to examine such books and records.

The CHAIRMAN. What is your objection to the bill? You have just completed reading your suggestions as to paragraph 5, section 18. Mr. WHITNEY. Yes, sir.

The CHAIRMAN. What is the difference; where is the difference between that and paragraph 5 in the bill?

Mr. WHITNEY. The difference is, our suggestion as against what is contained in the bill is that there is a change from the operation of the exchanges given to the commission, to a regulatory power. In other words, the commission cannot come in and operate an exchange and appoint its officers or committees, in that way; but it can suspend totally or for a period of time any exchange that does not conform w th its rules and regulations. That is the material point, with some minor details.

The CHAIRMAN. You mean that you do not want that authority given the Commission?

Mr. WHITNEY. Not that it may operate, but that it may regulate. The CHAIRMAN. Yes; you are willing to give the Commission entire authority over the margins?

Mr. WHITNEY. No, sir; to the Federal Reserve Board.

The CHAIRMAN. Well, whatever agency has it, or deals with it. Mr. WHITNEY. Yes, sir.

The CHAIRMAN. Why would you not trust the Commission just as well on this as you would on margins? Is not the subject of margins pretty vital?

Mr. WHITNEY. Very vital. I do not think it is a question of trust. It is a question of opinion.

The CHAIRMAN. I say that you trust the Commission, or the authority, whatever it is, to have sole power over margins. It appears to me that as to these regulatory matters that the same authority, or any other authority, that is entrusted with them, might be just as well trusted to do the proper and wise thing about this thing as it would about other matters.

Mr. WHITNEY. Mr. Chairman, they are given full power, except for that distinction, and ability to operate, as against regulate. We believe that stock exchanges belong to their members and the Commission may regulate by putting those exchanges or members out of business, but they may not operate, and as to the Federal Reserve Board, that is the authority now which, under the Flass-Steagall Act, controls credit conditions, and we advocate a continuation of and amplification of that policy.

As I was saying, in some respects these suggestions go further than anything contained in the bill. If they are adopted, a large part of section 7, and the whole of sections 9 and 16 should be eliminated, and this is more or less in answer, Mr. Chairman, to what your inquiry was.

These provisions give the Commission ample power to require exchanges to adopt rules for the prevention of excessive speculation and unfair practices in security transactions. To correct these abuses it is not necessary to give the Commission power to prescribe

the method of electing officers and committees, the hours of trading, the time and method of making settlements, payments and deliveries by members and customers, and so forth. To exercise such powers is not to supervise or regulate exchanges but is actually to operate them.

And, briefly, in regard to other provisions in the bill. There are many other provisions of the bill which should be amended or qualified. This is true of section 8, which describes manipulative transactions in very broad terms; of section 13, which makes the solicitation of proxies a crime; of section 15, which prohibits officers, directors, and principal stockholders of listed corporations from buying and selling equity securities of such corporations within any 6 months' period; of section 25, which imposes excessive criminal penalties; and of section 30, which imposes registration fees on national securities exchanges. I mention these sections only in passing because of the limitation of time. They are of very grave importance, but are less so than those which I have chosen to discuss in more detail. I trust some means may be found to convert them and other sections which I have not mentioned into fair and temperate legislation.

Finally, I wish to state as emphatically as I can that it is my belief, based upon my experience, that the adoption of the bill in its present form would seriously disrupt our organized security markets and American business. It is impossible to forecast what the result would be if the markets for listed securities were destroyed. It is certain that such an event would bring untold loss to individual security owners and indefinite delay to the present recovery program. In addition, it would also tend to drive the security business of the country away from the organized stock exchanges and into the unorganized over-the-counter markets which exist in every financial center. Proper and orderly regulation of security practices is possible when transactions take place on stock exchanges, but it is almost impossible to regulate unorganized over-the-counter markets. The stock exchanges of the entire country have been charged with opposing the bills pending before this committee for the sole purpose of avoiding any form of Federal regulation. In all good faith, the New York Stock Exchange authorized me, when I appeared before this committee a month ago today, to make a definite proposal looking toward the adoption of a sound regulatory law. Today not only the New York Stock Exchange but the other leading exchanges of the country, to whom I have referred, suggest to this committee amendments for the pending bill so as to make it a workable and not a destructive statute. The purpose of the exchanges in making these suggestions is to preserve for the benefit of the American people the safeguards which exist today by reason of the public character of transactions on organized stock exchanges.

We are in the process of recovery. If normal economic conditions are to be restored business must be revived. The securities dealt in on American stock exchanges represent a large part of the liquid capital of the Nation. The market value on March 1, 1934, of the securities listed on the New York Stock Exchange alone exceeded 73 billion dollars, or substantially one quarter of the estimated total wealth of the entire Nation. This is no time for hasty or ill-considered legislation which might freeze such a large part of the liquid resources of the country.

The New York Stock Exchange and, I am sure, every other exchange in the country, stand ready to furnish your committee with all the technical and expert advice at their command and to assist in drafting amendments to the pending bill or in drafting a new bill, which will give whatever administrative authority may be chosen, full power to prevent excessive speculation and to regulate unfair practices in security transactions. They are, however, gentlemen, united in opposing legislation which may destroy the security markets of the Nation.

The CHAIRMAN. With the amendments that you have suggested, would you support this bill?

Mr. WHITNEY. I beg your pardon?

The CHAIRMAN. With the amendments you have suggested, would the bill have your support?

Mr. WHITNEY. We believe that with the amendments, sir, this bill could be made workable and not destructive. However, as I have said, we are not in agreement with the fundamentals contained in other parts of the bill, which I have not gone into, sir, because of the lack of time, or at least, as I thought so, this morning, but we believe

The CHAIRMAN. Sometime, Mr. Whitney-I think that you were on the stand 2 days before this morning-you said that your exchange was for regulation.

Mr. WHITNEY. Yes, sir.

The CHAIRMAN. And yet we have not been able to get at least, you have not gotten over to me, just exactly what kind of regulation you would want, and this morning you have presented amendments that you would like to have to this bill, and yet you say that even if they were adopted you would not be for the bill.

Mr. WHITNEY. I said, sir, we thought with the amendments the bill would be workable and not destructive; but there are further matters in the bill which we do not agree with.

We have never, sir, been a party, to my knowledge, to any drawing of any bill that has been presented to either House of Congress. We stand ready, in any way, to sit down for as long as may be requested, and with our experts to give such help and advice as may be asked of us, and I think there is no question but if such a request were made of us that we could readily show you exactly what we would support in the form of a regulatory bill.

We do advocate, Mr. Chairman, a regulatory bill along workable lines.

The CHAIRMAN. Well, of course, that is just as general and as wide as the earth. That does not give us any information, Mr. Whitney, about what your exchange stands for.

Mr. WHITNEY. We have stated in the record, Mr. Chairman

The CHAIRMAN. You talk about a workable bill. I do not know what that is.

Mr. WHITNEY. Mr. Chairman, we stand able and ready to give that. You do not wish me to go into the details and the technicalities of a bill here on my feet. I would not be able to do so, anyway. We stand ready to do anything that you want in this regard to meet your requests.

The CHAIRMAN. Any questions?

Mr. KENNEY. Mr. Chairman