The CHAIRMAN. Mr. Kenney.

Mr. KENNEY. Mr. Whitney, are you approaching this bill as a credit problem chiefly, or do you regard our problem primarily as moral?

Mr. WHITNEY. I think both, Mr. Kenney. I think both. If you will be specific. Of course, the margin requirements, in our opinion, are a credit problem. There are a great many other matters that come under the jurisdiction of the stock exchanges and in the operation of exchanges that touch closely on the moral element.

Mr. KENNEY. Well, fundamentally, it is a tremendous credit problem which we have before us.

Mr. WHITNEY. One part is a very tremendous credit problem.
Mr. KENNEY. You are in accord with that.

Mr. WHITNEY. Yes, sir.

Mr. KENNEY. And if we are dealing with the credit or financial structure, we should make that the great fundamental process, as I regard it. Do you agree with that?

Mr. WHITNEY. I do, absolutely, that that is one of the basic fundamentals. I do not wish to minimize its importance. There are other fundamentals in the bill and in this whole subject.

Mr. KENNEY. What I am trying to bring home is that, of course, this bill presents a moral problem, a problem of morality, but the larger view, as I see it, is the question of the financial structure of the country and the great credit problem which is involved here, and that, after all, it seems to me is the background of this whole bill, and the matters which should be brought prominently to the front.

Mr. WHITNEY. There is no question about that, sir. All operations of the stock exchanges, where securities are dealt in, involve the financial affairs of the Nation, and therefore the whole credit problem.

Mr. Chairman, I wish to reiterate what we have stated, I stated, when I was first here a month ago, that we are in accord with the general principles set forth here. It is in the details that we differ, and only in the details.

Mr. PETTENGILL. Mr. Chairman

The CHAIRMAN. Mr. Kenney, have you finished?

Mr. KENNEY. Yes.

The CHAIRMAN. Mr. Pettengill.

Mr. PETTENGILL. Mr. Whitney, I am interested in your views for the moment, not with respect to the exchanges or their members, but with respect to national recovery. It if be possible to look at that side of the picture, what in your general view would be the effect of the adoption of the bill as now in type, on national recovery? Mr. WHITNEY. Disastrous.

Mr. PETTENGILL. You think that it would be deflationary?

Mr. WHITNEY. Absolutely; just as sure of it as I am standing here. Mr. PETTENGILL. What leads you to that conclusion?

Mr. WHITNEY. I believe, sir, that the markets, the security markets of the Nation, will dry up.

Mr. PETTENGILL. Why?

Mr. WHITNEY. Why?

Mr. PETTENGILL. Yes.

Mr. WHITNEY. Because of the various points that I have referred to of what would be eliminated of the essential factors in such

markets; the effect of margins; the effect of segregation; the registration of securities.

I have not gone into these details, Mr. Pettengill, before the committee, because I did not want to bore them.

Mr. PETTENGILL. Yes.

Mr. WHITNEY. But we have had hundreds of letters from some of the most important corporations of this country that say if this bill is enacted, they will delist their stocks.

Now, with those factors and others, the market for securities in which a vast amount of the national wealth is now resided, will be gone, but people must have a place to liquidate or to buy and sell. It seems to me we have to go a very few years back, if not at the present time, and see the conditions of real estate and mortgages on real estate, and even in some instances in bank stocks, and other unlisted securities, to see what trouble and disaster can come in the taking away or the not having a market for such securities, or for such particular goods.

Mr. PETTENGILL. Do you think that the particular difficulty would be the delisting of stocks?

Mr. WHITNEY. I think that would be a very material point; yes. Mr. PETTENGILL. And, of course, Congress has no power to require a corporation to either list or delist?

Mr. WHITNEY. Not that I know of, sir.

Mr. PETTENGILL. As a general statement, if there were deflation of stocks-we will put it this way-in times of deflation of stocks, do bonds generally follow the down curve?

Mr. WHITNEY. Not necessarily, sir.

Mr. PETTENGILL. Not necessarily?

Mr. WHITNEY. No.

Mr. PETTENGILL. They might possibly affect, or make the bonds rise?

Mr. WHITNEY. I do not think so; no.

If you want the usual custom that takes place, as experience has shown, usually-and there may be many people in this room who disagree with me. This is just an opinion. Usually when stocks fall, bonds follow, but at some time thereafter, and it is usually the custom for bonds to recover before stocks will, that being somewhat evidenced because of the fact that they are the underlying obligations of the particular companies. That is, in the main, how markets work, and therefore, to answer you, that in deflation of stocks, if stocks fell, would bonds fall, perhaps not at the moment, but if it was sustained, presumably they would, because it would have an effect upon all industries.

Mr. PETTENGILL. The deflation you fear, following the passage of the bill as drawn, would come, I take it, one, from the delisting of stocks, and, two, from what you would consider the margin requirements being too high under present market conditions. Is that right?

Mr. WHITNEY. Yes, sir.

Mr. PETTENGILL. Would there be any other factor that mightMr. WHITNEY (interposing). No; I want to take that back. At the prevailing market prices, the margin requirements are not upsetting, but if there is a movement up, rising of prices, or a move down below the autumn price of 1933, then the margin requirements become excessive.

Mr. PETTENGILL. Then, as the market is today, you do not think the margin requirements of the bill alone would be deflationary? Mr. WHITNEY. No; not alone, sir.

Mr. PETTENGILL. Well, what other factors, then, outside of the delisting of stocks now on the exchanges would, in your judgment, cause deflation?

Mr. WHITNEY. I said three points, in particular: The margin requirements, the segregation and the registration.

I wish to make it clear, Mr. Pettengill

Mr. PETTENGILL. Now, with reference to margins, will they not affect the market immediately if the bill went into effect tomorrow, do you think they would tend to prevent recovery?

Mr. WHITNEY. Absolutely; and I think it would tend to prevent the purchase, vitally prevent the purchase of securities on margins, as they fell.

Mr. PETTENGILL. If there was a general decline, what would be the effect upon Government securities?

Mr. WHITNEY. If people lose confidence in the securities of industry, I have always felt, sir, that the Government's ability to pay out money for this purpose or that, is based on its ability to get money in taxes from industry, and if industry shows slack and poor business, the same will affect the Government and therefore Government securities.

Mr. PETTENGILL. There is a statement in the preamble in this bill, to the effect that national credit is intimately affected by the prices at which securities are sold on the exchanges. Do you agree with that general statement?

Mr. WHITNEY. The general statement; yes, sir.

Mr. PETTENGILL. That is all.

Mr. WOLVERTON. Mr. Chairman

The CHAIRMAN. Mr. Wolverton.

Mr. WOLVERTON. Mr. Whitney, you have stated that this bill, if enacted in its present form, would in your opinion be disastrous in its effect on our recovery program.

Mr. WHITNEY. Yes, sir.

Mr. WOLVERTON. You have stated in answer to Mr. Pettengill's questions that you were led to that conclusion because of the numerous replies you have received from large corporations of the country, that if this bill becomes effective they would delist their stocks from the exchange listings.

What reasons did they give?

Mr. WHITNEY. I wish to make it very clear that in answer to Mr. Pettengill I stated my reasons for my statement were based on, primarily, on margin requirements, as stated in the bill; on the segregation clause, and on the registration of securities, and as a part of the latter I cited the word from corporations that they would delist their stocks. Their reasons, sir, although not necessarily given in detail, were in the main to the effect that the requirements set forth in the bill as to reports, as to the forms and the general control exercised or that could be exercised by the Commission over them would be so onerous that they would prefer to have their securities delisted.

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Mr. WOLVERTON. Do the amendments which you have suggested or offered answer this criticism?

Mr. WHITNEY. It is our belief, Mr. Wolverton, they do, absolutely. Mr. WOLVERTON. If they should delist their stocks, would it have the effect of putting them into over-the-counter trading?

Mr. WHITNEY. Absolutely.

Mr. WOLVERTON. And would it then be your opinion that this bill should include the licensing of this over-the-counter business?

Mr. WHITNEY. My private opinion is, there is no ability to so handle over-the-counter business.

Mr. WOLVERTON. You mean no ability from the standpoint of practicability, or from the standpoint of legality?

Mr. WHITNEY. Both. In other words, the street market, where one individual meets another and wishes to trade and does tradewe have had many instances of it, sir, when the exchange has been closed, during the War and during the bank holiday last year. It just cannot be, from either practicability or legality, as we believe, or let me say, as I believe, cannot be controlled.

Mr. WOLVERTON. The reason I am asking the question in connection with what you have already testified to is the report of the Twentieth Century Fund, in which they state, quoting from that report and referring to over-the-counter markets:"

They are a vast proportion and they would serve as a refuge for any business that might seek to escape the discipline of the exchanges and the more exacting that discipline is, the greater the temptation to escape from it.

I rather feel that confirms the statement you have made; but the report goes on to state:

To leave the over-the-counter markets out of the regulatory system would be to destroy the effects of regulating organized exchanges.

Do you agree with that statement?

Mr. WHITNEY. Yes, in general, I would; but not taking back what I said, that I thought their regulation was well nigh impossible. Mr. PETTENGILL. Like the eighteenth amendment?

Mr. WHITNEY. Very much so; and I stayed off of that, because I was criticized for making that reference in the Senate committee; but the street trader, bootlegger, is going to grow up and always has, gentlemen, when the organized exchanges have been closed.

Mr. WOLVERTON. Do you

Mr. PETTENGILL. Pardon me, Mr. Wolverton.

Mr. WOLVERTON. Certainly. I do not desire to go further into the details of this report, but anyone interested will find them set forth at pages 168 and 169 of the report. I would like to have your opinion, but I realize the time will not permit us to go into that.

The CHAIRMAN. Mr. Whitney, how could the segregation provi sion of this bill have any influence on listing or delisting of securities, when it deals with broker-dealers, floor traders, specialists, and so forth?

Mr. WHITNEY. It has not got anything to do with it.

The CHAIRMAN. You said just a moment ago in reply to Mr. Wolverton, that one of the three things that would cause securities to be delisted was segregation.

Mr. WHITNEY. I beg your pardon. If I said that, that was quite incorrect. I said that the three things, primarily, that I thought

would lead to a deflationary market, bringing disaster to the country, were margin requirements contained in the bill, the segregation provisions of the bill, and the registration of securities.

Was I clear in what you understood me to say?

Mr. PETTENGILL. That is the way I understood it.

Mr. WHITNEY. I did not mean to give that impression. I apologize if I did.

The CHAIRMAN. I thought when you turned to Mr. Wolverton, that was the answer you made to him.

What is there in the margin requirements of the section that would cause the delisting of securities?

Mr. WHITNEY. Nothing, sir.

The CHAIRMAN. Then the delisting would come only under the regulatory provision?

Mr. WHITNEY. Of the registration of securities; yes.

The CHAIRMAN. Registration of securities?

Mr. WHITNEY. Yes, sir.

The CHAIRMAN. And you think that that provision is of such a nature that it would cause the delisting of securities?

Mr. WHITNEY. I am sure of it. And, I would prefer, howeverThe CHAIRMAN (interposing). Does a listed security have an advantage over an unlisted security?

Mr. WHITNEY. It has some; yes.

The CHAIRMAN. Well, is it material?

Mr. WHITNEY. At the present time I believe it is considered material, or else they would not list.

In that connection, I am sorry that the gentleman is not here to do it himself, but Mr. Corcoran the other day made a statement that was just not so, and I imagine that he made it because of lack of knowledge or just in error. He said that the New York Stock Exchange sought to prevent delisting of securities listed on that exchange, sought to prevent their being listed on other exchanges. That is not the fact. The rules of the exchange prevent securities listed on its exchange, and deals with its members, so in transacting business in such securities on any exchange in the city of New York. Quite on the contrary, we advocate the listing of New York stock securities on other exchanges, fully listed outside of the city of New York.

And I just tried to review my memory this morning, and asked the gentlemen from Chicago, and the president of the Association of Stock Exchanges, if I did not speak on that subject last June in Chicago, and they told me that I did.

We advocate, rather than try to prevent, the listing of listed securities on other exchanges outside of the city.

Mr. Corcoran, I think, is just misinformed.

Mr. MARLAND. Mr. Chairman, may I ask a question?

The CHAIRMAN. Mr. Marland.

Mr. MARLAND. Mr. Whitney, Mr. Tom K. Smith, assistant to the Secretary of the Treasury, yesterday made a statement in which he said that the Treasury was fully in accord with the four major objectives of this act.

You remember that the first was to establish Federal supervision over securities.