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on Banking and Currency by Mr. Bernheim. I do not want these criticisms, however, to obscure the fact that the Twentieth Century Fund staff--and I believe, the great inarticulate mass of voters in this distressed country of ours- believe in, and want to see enacted, the main purposes of this legislation. Amend the bill to eliminate its faults; but do not, I urge you, turn aside from your obligation to enact into law adequate and effective regulation of the markets.

If Congress were to wait for a perfect bill before passing legislation regulating securities exchanges, I am afraid that the country would never have the benefit of the type of legislation it demands and which the Democratic Party pledged itself to give. Acting upon this belief, I urge the prompt passage of this bill.

Mr. WOLVERTON. Mr. Chairman. The CHAIRMAN. Mr. Wolverton. Mr. WOLVERTON. In your prepared statement, a printed copy of which has been laid on our desks, you have used the following words: “I urge the amendment and prompt passage of this bill”, and in my copy the printed words "amendment and" are stricken out, by having a line drawn through them, so that it reads as you have stated, “I urge the prompt passage of this bill.” Does striking out the words: "amendment and" indicate that after a final consideration of the bill you were satisfied with its provisions and withdrew the suggestion that it should be amended?

Mr. CLARK. This statement, as it is written here, was prepared for presentation on March 14, at which time the amendments bad not been made to the bill as they now stand, and I do approve, with very minor suggestions, which are hardly worth while going into, the bill as it now

stands. Mr. WOLVERTON. That is what I wanted to know.

Mr. Mapes. Do you make any reference, specifically, in this prepared statement of yours, Mr. Clark, to H.R. 8720?

Mr. CLARK. That is the bill to which my remarks are directed.

Mr. Mapes. Do you make any specific reference to it, or any reference to any specific provisions in it?

Mr. CLARK. The statement as I would like to read it, lays down what in our opinion are the essentials of adequate securities markets regulations and draws the conclusion that the bill in its present form comes out those basic requirements.

Mr. Mapes. Had you seen the present bill when you prepared the statement?

Mr. CLARK. This statement was prepared on the basis of the bill as originally drafted.

Mr. MAPES. Had you seen H.R. 8720 when you prepared your statement?

Mr. CLARK. I read through H.R. 8720 during the last 2 days, with great care, and did not change this statement, except in that one respect I have just mentioned.

Mr. MAPES. Had you seen H.R. 8720 when you prepared that statement?

Mr. CLARK. H.R. 8720 is the bill originally drafted?
Mr. PETTENGILL. It is the new bill.
Mr. CLARK. I had not; no.

Mr. MAPES. And your statements are all general, and have no reference to any specific provisions in H.R. 8720; is that true?

Mr. CLARK. The statement that I made here would hold even more for H.R. 8720 than for the original bill.

Mr. Mapes. That is because it is so general that it would apply to most any stock exchange regulation bill, is that it? You make no reference to any specific provisions in H.R. 8720, in your statement, do you?

Mr. CLARK. I deal, in discussing the margin limitations with the subject matter of H.R. 8720.

Mr. MAPES. But you make no definite recommendations on that subject?

Mr. CLARK. Not in this statement, as written; no.

Mr. MERRITT. Well, are you in favor of the specific regulations provided in the bill; that is the only question.

Mr. Mapes. It looks to me as though both witnesses came here this morning to make stump speeches, one against, and the other for, any kind of stock exchange regulation.

Mr. CLARK. In that connection, Mr. Mapes, I have no desire to make a stump speech, and possibly my testimony would be most adequate if I should say that in my own personal opinion H.R. 8720 fulfills the essentials of adequate and effective market regulations. I would be glad to answer any questions.

The CHAIRMAN. I might say this, however, that any sort of margin requirements in legislation has been attacked. Mr. Clark has a discussion on the four essentials of adequate legislation", the limitation of credit for margin buying, and also with reference to adequate corporate reports and segregation of brokers and dealers.

Adequate corporation reports has been a subject of very severe criticism, as has the general proposition of segregation of brokers and dealers. That has been talked about a great deal, to a very great extent. He also had a discussion on prohibition of manipulative practices, which has been talked about, and he does make general observation on those, and I though perhaps we would like to hear that.

Mr. MAPES. Let me say, in view of what I have said, Mr. Chairman, that I read Mr. Clark's Twentieth Century report, on this subject, with a great deal of interest and profit, and I shall read this statement with interest, but we have had these general statements before the Committee for some weeks now, and I am getting anxious to have people point out specific paragraphs and provisions in this bill, and give us concrete criticism of those specific provisions.

Mr. CLARK. What is your pleasure, Mr. Chairman?
Mr. MARLAND. Mr. Chairman.
The CHAIRMAN. Mr. Marland.

Mr. Marland. There is one paragraph in this bill that has been bothering me. That is the section that relates to the operation of specialists. Have you that before you? It is on page 30, beginning with line 8.

Mr. CLARK. Yes; I have that before me.

Mr. MARLAND. "It shall be unlawful for any specialist registered as a broker (1) to effect on the exchange any transaction on a discretionary order."

Now, the question is this: Are not nearly all orders received by specialists to some extent, discretionary orders? Would that not bar all operations of specialists?

Mr. CLARK. Well, that is not my opinion of the situation, but I am not familiar enough with the details of the specialist's operations to want to give an answer on that point, as a professional.

Mr. MARLAND. Then, you would not be in a position to approve that particular section?

Mr. CLARK. The section of the bill which I heartily approve of, as it is in line with the conclusions I have here as to security markets, is that the functions of broker and dealer should be segregated. Insofar as the segregation in question fulfills that principle, I am in favor of it.

Mr. MARLAND. Mr. Chairman, I do not like to take the time of the committee, but I would like to have enlightenment on that particular subject.

This section reads: It shall be unlawful for any specialist registered as a stockbroker (1) to effect on the exchange any transaction of a discretionary order.

As that reads it would stop the dealing of the specialists entirely, because probably 90 percent of the orders received by specialists are orders to be executed at the market, at a certain price, or better.

Now, that surely leaves that order somewhat within the discretion of the specialist.

Is it intended by the drafters of this bill to do what I think that section says? Is that what you want to do?

Mr. CLARK. I would be glad to get the information for the Committee, to get an opinion on that question, within a few hours, from the staff of the Security Markets Survey Staff.

Mr. Mapes. I would like to ask the gentleman a question. The CHAIRMAN. Mr. Mapes. Mr. MAPES. It was testified here yesterday by the representative of the Boston and Chicago stock exchanges, that the provision in this bill on page 27, lines 21 and 22, that says it shall be unlawful for odd-lot dealers to act as a broker, would make it impossible for anyone to act as an odd-lot dealer on any stock exchange outside of the New York City exchanges.

Are you in favor of that provision?
Mr. CLARK. Yes; I am.

Mr. Mapes. What is the argument? I would like to know what the argument for and against odd-lot dealers is.

Mr. CLARK. You mean for their exemption?

Mr. MAPES. Why do you think that the odd-lot dealers should not be allowed to act as brokers?

Mr. CLARK. On the general principle that a broker who has & personal business interest to serve, as an active trader, cannot perform the disinterested service to his client that can be performed if those functions are segregated and separated.

Mr. Mapes. Do you think that these exchanges outside of New York City should be deprived of the services of the odd-lot dealer?

Mr. CLARK. I do not; no.

Mr. MAPES. Do you agree with the statement that was made here yesterday that this provision would put out of business the odd-lot dealers on exchanges outside of the New York exchanges?

Mr. CLARK. I do not see why that should follow; no. And I was interested in the statment, and I did not see that it was amplified in such a way as to prove it.

Mr. Mapes. Do you feel that you have sufficient information on the subject to be justified in disputing the statement that was made yesterday?

Mr. CLARK. Well, my understanding of the functions of the oddlot dealer is such that my opinion is that they should not be allowed to act as brokers, but they should be allowed to continue their business in the exchanges.

Mr. MAPES. Well, that hardly answers my question.

I understand you to say that the provision I have referred to would not do away with the odd-lot dealer on the exchanges outside of the New York City exchanges? Is your statement based upon sufficient information on the subject to warrant you making it in view of the testimony here yesterday?

Mr. CLARK. Well, that is my opinion; yes, sir.

Mr. MAPES. That you have sufficient information to justify your conclusion?

Mr. CLARK. That is my opinion.
Mr. MAPES. In view of the statement made here yesterday?
Mr. CLARK. That is my opinion; yes.

Mr. MAPES. This legislation, so far as the investing public is concerned, is largely for the purpose of protecting the small investor, and is it not true that the small investor is one who, for the most part, buys less than 100 shares of stock? And therefore his order has to go through the odd-lot dealer. Is that true?

Mr. CLARK. Yes; but it is usually the practice, as you know, that orders are handled through brokers, and the brokers deal with the odd-lot dealer.

Mr, MAPES. Yes.

Mr. CLARK. And the odd-lot dealer acts as a buyer or as a seller on the exchange, of full-lot orders, and splits them up into odd lots.

Mr. MAPES. It is your judgment then, that the information in that respect the committee received yesterday, was not correct?

Mr. CLARK. That is my judgment.
Mr. MERRITT. May I ask a question?
The CHAIRMAN. Yes.

Mr. MERRITT. Take, for instance, the city of Hartford. The private bankers there deal in odd lots. Do you know enough about the business of the city of Hartford to say that there is sufficient of that business there to support a man on that business in Hartford?

Mr. CLARK. In the city of Hartford ?

Mr. MERRITT. Yes; do you know enought about Hartford, to know that?

Mr. CLARK. I have never studied the Hartford situation.
Mr. MERRITT. You are making a statement as if you had.

The CHAIRMAN. Mr. Clark, I would like for you to go ahead with your statement.

Mr. MAPES. Mr. Chairman, may I ask a question? The CHAIRMAN. Yes. Mr. MAPES. Just to amplify this particular subject. I would like to have your judgment about the suggestion that was made here yesterday that the segregation provision of this bill be left to regulations to be formulated by the Commission, and then if some of them prove in practice to be undesirable or unduly limiting the Commission can change them rather than to set them up in the law

and be obliged to go through the slow process of amendment or repeal of the law by Congress. What is your judgment about that suggestion?

Mr. CLARK. I believe that certain minimum requirements of practices should be written into the bill and then allow for a certain area of discretion, area of activity, on the part of the Federal regulatory body.

Mr. MAPES. Yes.

Mr. CLARK. And I understand that is the intention of the bill here, because in one section the Commission is directed to make a study of its feasibility.

Mr. MERRITT. Yes; but section 10 lays down very definite propositions about specialists, brokers, and dealers, and odd-lot dealers.

Now, in view of the statements which were made here yesterday, would you feel, as a member of this committee, justified in writing & provision in the law that would prevent odd-lot dealers from acting as brokers and running the risk of putting odd-lot dealers off of all of the exchanges outside of New York City?

Mr. CLARK. Well, if I might be so bold as to make a suggestion of what I would do if I were a member of the committee

Mr. MAPES. I should like to have you do that.

Mr. CLARK. I would be opposed to giving to a Federal regulative authority full discretion to lay down rules and regulations for the segregation of broker and dealer functions.

Mr. MAPES. Your position, then, would be that section 10 should be written into the law as it stands?

Mr. CLARK. Yes.
Mr. MAPES. Is that correct?

Mr. CLARK. Yes; especially in view of the last paragraph of that section.

Mr. MAPES. The last paragraph cannot change the specific provisions of the law, and you are in favor of writing into the law the definite affirmative provisions that you find in section 10?

Mr. CLARK. Yes.

The CHAIRMAN. We would like to hear you on this margin provision, Mr. Clark.

Mr. CLARK. What is that?

The CHAIRMAN. We would like for you to proceed with your statement, especially on margins.

Mr. CLARK. If an act passed by Congress were immutable and irrevocable, I should, perhaps, not

urge the prompt passage of this bill. But, since any law passed by Congress can be amended or even repealed whenever this seems advisable in the light of experience, I see no reason why Congress should hesitate to pass a bill, as long as it deems it sound in principle and of benefit to the Nation as a whole, merely because it does not, in every detail, satisfy every critic.

I have read the testimony in opposition to the Fletcher-Rayburn bill given by witnesses both before this committee and before the Senate Committee on Banking and Currency. I find that many of the most eminent have done lip service to the general principle of regulation of securities exchanges. In virtually every case, however, the witness has objected to the particular kind of regulation provided in the Fletcher-Rayburn bill. An examination of the objections by these witnesses, and the counter proposals some of them have made,

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