« 이전계속 »
Now, the moment that happens, a new margin is required under the provisions of this bill. At that time the Federal Reserve Board, which is given the power to increase those margins, to make them more strict, is given no power to relax them, although the Federal Reserve Board is going to be faced with the necessity of making reasonable margin provisions such as will permit banks to compete with bootleg loans and other money markets which are beyond the control of Congress. That is a very real danger.
Mr. LEA. Well, in a word, what would you suggest in lieu of the margin provisions of this bill?
Mr. WITHINGTON. Mr. Lea, I suggest—and I hesitate to state that I agree with Mr. Whitney's suggestion for fear that it may carry the inference that I have been influenced by his suggestions, and if you will look at Mr. Collins' brief, president of the Boston Stock Exchange, in the hearings before this committee, it will appear that he made the first suggestion that the entire credit control with regard to the margins should be put in the Federal Reserve Board, which Board, it is believed, because of its familiarity with conditions and the necessity of having provisions which will permit banks to operate and not be in competition with bootleg loans, would have a better judgment than the arbitrary provision written into the law. Putting that check in the Federal Reserve, giving them uncontrolled check, is a tremendous concession to what has been in force for over 100 years, that is absolute contiol of margins by the exchanges themselves.
Now, the exchanges are willing to say, "We will put that in the hands of the Federal Trade Commission", and at best, if the Federal Trade Commission does not act at all, they are only committing the error of leaving the margins in the hands of the people who have had it for over a hundred years.
That does not seem to us a very serious possibility.
With regard to the matter of segregation, there, again, the Boston Exchange and the Chicago Exchange have a very vital interest.
We will take our chances before a commission. We will take our chances, Mr. Chairman, before any member of this committee and expect to be treated fairly when the responsibility is assumed by the person who is making the decision, having due regard paid to the reasons advanced for a particular practice.
Now, in the drafting of this bill, the original bill insisted on absolute segregation of broker and dealer capacities. Yesterday Mr. Smith pointed out that it is a vital thing, a necessary thing, to have this great distributing organization available for financing. And that has been written into the present bill. And yet, after 8 days of study, and 8 days of concentration and criticism, when the present bill was drafted dealing with segregation, Boston and Chicago Exchanges were forbidden from carrying on a service which is extended to the small investors in those communities, and without which the small investor would be deprived of the market privileges, that is, the odd-lot business.
There is no broker on the Boston or Chicago Exchanges that could live solely on odd-lot business. In New York, yes; but in the smaller places the odd-lot business which is carried on solely for the benefit of the little fellow, the small investor, who wants to buy a few shares of stock, would be impossible. He would be deprived of the service of those exchanges, because the broker could not make a living taking care of his orders, because, as you gentlemen know, the odd-lot dealer has to take, buy, or sell, the odd lot, when it is presented.
Mr. WOLVERTON. Mr. Chairman-
Mr. WOLVERTON. Mr. Worthington, you frequently refer to the Boston and Chicago Stock Exchanges. I assume that you do so because you are only authorized to speak for them; but it is not a fact that the statements that you are making with respect to them would apply as well to Philadelphia, Cleveland, Baltimore, San Francisco, and all of the other cities that have smaller exchanges?
Mr. WITHINGTON. Mr. Wolverton, when I came to Washington, I was entirely new in this sort of a problem. I have never been, before this occasion, counsel for the Boston Stock Exchange. Because of that fact and the fact that our committee is a cross-section of the security business, I think that I have perhaps enjoyed the confidence of more groups than any one else. These groups, because of long contact, had become suspicious that each group was trying to write into the bill some express provision which would take care of their situation, but I have come to the conclusion, after talking with all of those groups, that there can be no rule written in the section which is a hard and fast rule; that there must be opportunity and responsibility on the part of the people who are to make the decision to make a decision which they can change if it is wrong; but if it is right, they will be adhered to, approved by the exchanges.
When I say I represent others, I do not, but I have talked with others, and they are entirely in accord with me in that position, and again I say, the provision which Mr. Whitney wrote, by virtue of the very fact that unless this was insisted upon, trouble would result, was written with the approval and help of representatives of other exchanges in the belief that the rule should be applied equally to all and not as a special privilege to a few.
Mr. WOLVERTON. I asked the question because I did not want it to be assumed from your reference to Boston and Chicago, that they had a peculiar situation that in any way changed their status from those in other cities conducting a similar business.
Mr. WITHINGTON. I think it is fair to say that Boston-Chicago situation is the same situation which affects Buffalo, Detroit, St. Louis, New Orleans, Los Angeles, San Francisco, Denver, and all others. I feel certain of that fact.
Now, Mr. Chairman, I do not want to talk further about the matter segregation. If I have gone too far
The CHAIRMAN. You do not think that there ought to be any legislation with reference to segregation?
Mr. WITHINGTON. No, Mr. Chairman, I do not think that at all. I said that I believed there should be written into the law a permission of the broker-dealer activities, as provided in section 10 (d), but with regard to brokers acting as dealers on the floor of the exchange, the commission should be given full arbitrary and uncontrolled power to make rules which would control those exchanges and could be put in any time that the commission was satisfied that that function resulted in abuses, and not a useful purpose.
Mr. MAPES. Mr. Chairman-
Mr. MAPES. If the commission that administers this law reached the conclusion that regulations ought to be formulated about as written in section 10 governing the activities of dealers and specialists and brokers, and so on, and made such regulations, the only advantage in your suggestion would be that the commission, if it found that the regulations did not work out well, could change them more quickly than Congress. That would be practically the only advantage?
Mr. WITHINGTON. Yes, Mr. Mapes; they would be in position where the responsibility was on them, and if the investing public was injured, they would not be in a position to say that it was Congress that legislated it into the law, and “we are helpless to change it.”
The other and final suggestion which I wish to make is the suggestion with regard to the general effect of legislation, of exchange regulation.
I sincerely wish that it were possible to approach it from an entirely different angle. I wish that the theories of the draftsmen and the proponents were not so widely and far apart from the views of the exchanges themselves, that we might sit down and approach it from another angle. I realize that that is impossible; but I do want to urge before this committee this fact, that after all is said and done, there are certain things that the country, Congress and the exchanges, are in accord with. There are certain manipulative illegal practices which should be legislated against, and Congress will find the exchanges as glad as anybody to see teeth put in a bill with regard to those manipulative practices.
I think that most of them are covered by section 8 of the bill. Unfortunately, I think many of them are worded in such a way as to be so general that no jury, as a practical matter would convict. I think that certain of them should be put down, branded as manipulative and illegal practices, and that the full force of the Federal Government with regard to the use of the mails, facilitites of interstate commerce, or the facilities of the exchanges, should be used to punish and to bring to a court of justice people who use such illegal devices.
Unfortunately, as the bill is drafted, there is no distinction between those illegal, recognized illegal, practices and the mistake that a man makes through his clerk or a large organization with regard to some very small or minor matter, that may be the subject of a rule or a regulation of the Commission, if it is not covered in this act.
It seems to me, gentlemen, that with regard to those matters, they are matters which should be covered by disciplinary punishment; disciplinary punishment placed in the hands of the exchange, and if the exchanges will not exercise it, in the hands of the Commission; but it seems to me it is a very different thing, and a very difficult thing, to say that business, a necessary and a respected business-even though it is now indisrepute-should be so hedged about with criminal provisions that the man who is carrying on a necessary function is continually looking around to find out if the sheriff is outside of his door.
It seems to me there should be a marked distinction. There should be written into the law those things that we agree are morally wrong, but there should be a distinction, and that the discipline of the exchange and the Commission should be directed to violations of the trading practices, and if you have that-and, let me say this, that I am a practicing attorney. I try cases, and 'I know how hard it is to get a conviction from a jury where a law is so written that the crime is so indefinite and so general that the jury becomes convinced that, after all, this is nothing but an accident. There should be a marked distinction with regard to those matters.
Mr. LEA. I would like to ask you a question. As a spokesman for the small exchanges, what are the fundamental things, in your judg. ment, that should be borne in mind by the committee to protect the small exchanges, as contrasted with the large ones?
Mr. WITHINGTON. In the matter of segregation, first; but if the power is given to the Commission, frankly, we are not afraid that we will not get good treatment from the Commission, because I think there has been a tendency in the consideration of this legislation to give more consideration to the suggestions that come from the smaller exchanges than suggestions that come from the large exchanges in New York City.
The second is the final thing that I want to speak about, and that is these registration requirements. We have a situation in New England which is a very real situation. We have many textile concerns that have been in the control of New England families for many, many years. The people who have control of those corporations are not interested in having their securities listed. They have no real interest in it. It is only the minority stockholders who come in believing in the management, in the soundness of a long-time and experienced management of proven ability who want the securities listed and we have repeatedly in Boston been met with the diffiulty of people wanting to have securities of corporations listed on the exchanges but the corporation unwilling to come in and submit to the requirements even as they are written by the exchanges.
A cotton mill says "I do not want my stockholders all disturbed, because one quarter in 1932 is terrible", or next year they find that the first quarter shows a very great discrepancy although there may be reasons for it. They say there is only one real reflection of the business of that corporation, and that is a report on the basis of a year, and they say, “We do not care to come in with a report more than once a year. If the people do not believe in us and our management and background, and experience, when we have demonstrated the soundness of our company and our securities. We do not intend to come down and file statements, and be subjected to a lot of critical analysis.
Mr. LEA. What is your objection to the registration requirements in this bill as to the small exchange?
Mr. WITHINGTON. The objection is this, that after all is said and done, as has been so well pointed out, regulation by Congress is not very much use, if it is so stringent that in the short time the Federal Trade Commission finds they are holding bowls with broken bottoms, through which the milk has disappeared. Now, if you are going to have regulation, you want to have as many securities listed as possible. But let a good corporation in New England read the provisions of this bill and even though the bill provides that the Commission may require these things, they realize that the corporation is putting its head into the control of the Federal Trade Commission, that may go into the details of its business and prescribe its method of accounting, the writing off of depreciation and depletion, and they would not think of listing on the exchanges. If you force them to do that, you will force them into the position of having an over-the-counter business, and as to the over-the-counter business, gentlemen, if you regulate the over-the-counter business, it may be that theroists will write and tell you that Congress has power to control it, if they have power to control stock exchanges, but if Congress tries to control the overthe-counter business in the same way they are trying to regulate the exchanges, you will find a new over-the-counter business, or bootleg business, commonly known in our part of the woods as the bucket shops. That is a very real possibility.
I think that is all.
Mr. KENNEY. I would like to have you go back to the matter of margins for a moment.
Your organizations believe that the margin ought to be left to the regulatory body that might be set up under this act? Mr. WITHINGTON. I said, to the Federal Reserve Board. Mr. KENNEY. Yes. Mr. WITHINGTON. Because they are closest to the credit situation.
Mr. KENNEY. Well, assuming that this committee finally decides to keep margin requirements in the bill, what do you think would be a fair margin?
Mr. WITHINGTON. Mr. Kenney, I anticipated that that question would be asked, because there seems to be a determined purpose on the part of the draftsmen of this bill to write in some margin provisions, and I have urged the exchanges and several members of the exchanges to give me some rule and the answer, after we have sat down and studied the thing, is this, that you cannot prescribe a rule which applies to a bond, a sound bond, that will apply also to an equity security, and with regard to the equity securities, you cannot apply one rule to all of them, because there is such a varying degree of securities. It is a matter in which judgment, and experience in banking, banking judgment, for after all is all that the broker is, is required.
Mr. KENNEY. What has been the average margin requirement over the last 25 years?
Mr. WITHINGTON. You mean for the Boston Exchange, or others? Mr. KENNEY. For the exchanges generally. Mr. WITHINGTON. Well, Mr. Whitney, can you tell me? Over what period?
Mr. KENNEY. Twenty-five or ten years, if you please.
Mr. WHITNEY. If I may answer, as far as the New York Exchange is concerned, Mr. Kenney, in the period 1928–29, some brokerage houses raised their margin requirements as high as 60 and 75 percent to endeavor to stop speculation. The exchange itself at that time had a demand of 25 percent margin on all accounts that our broker held—30 percent margin on what the firm held; our partners. for their own accounts, 25 percent of the debit balance, I am talking about.
Mr. KENNEY. Now, Mr. Withington, do you regard it as more difficult to sell a stock with a higher margin requirement? In other words, is liquidity dependent upon the amount of cash required on a sale?