I thought there was some pleasure in gambling, and very little in speculating.

Mr. HUDDLESTON. That depends upon which side you came out on. Governor BLACK. They asked me that, too, and I told them that I had come out on both ends, and lost in the middle.

The CHAIRMAN. Mr. Marland.

Mr. MARLAND. Governor, I would like to ask your opinion on this. Do you believe the passage of this act as written will have any serious effect on stock-market values as they are at present?

Governor BLACK. I doubt it very much.

Mr. MARLAND. That seems to be greatly feared. You doubt it? Governor BLACK. Very much. I have heard "Wolf" cried so much about business in this country that I do not have much fear about it. We heard the same thing when we went off of the gold standard; you heard the same thing about the gold clause, and I felt the same way when they took our gold, but I was mistaken in all three things.

Mr. MARLAND. If it had the effect of causing a decline, how would that affect the future sales of Government securities; decline in the general stock-market securities?

Governor BLACK. Well, I heard Mr. Cassatt make his statement about that just now. Of course, there is a natural trend of bonds to follow in the wake of stocks, but if there was some special reason for stocks declining, such as you suggested, I am of the opinion investors would look to investment in government bonds, and we might anticipate a rise in the price instead of a fall.

Mr. BULWINKLE. Governor, do you think that the Federal Trade Commission, as it is constituted in this bill, is the proper commission or authority to give the workings of this to?

Governor BLACK. I think this should be regulated by a government commission. I would say that the Federal Trade Commission was established to insure fair practices and it thereby would certainly be the proper commission to refer this to.

Mr. BULWINKLE. You are of the opinion, then, that it is the proper

commission?

Governor BLACK. Yes.

Mr. LEA. Governor, we have an exchange at San Francisco that does business almost entirely, if not wholly, on unlisted securities. Would you think it better that that business be prohibited, or that the power to permit the sale of those unlisted securities, that is, the trading privilege, should be granted under control of the regulatory body?

Governor BLACK. Well, now, those securities are listed on that exchange?

Mr. LEA. They are listed only for trading purposes. They are not listed by the corporations whose stock is represented. They are given a trading privilege on the exchange on the initiation of a member of the exchange instead of on the initiation of the corporation whose stock is concerned.

Governor BLACK. Well, now, will you ask your question again, because I did not know there was such an exchange?

Mr. LEA. What I wanted to get was your judgment as to whether or not that class of business should be prohibited or should be permitted under the control of the regulatory body.

Governor BLACK. Well, your question is an entirely new one, but I would think if it were properly conducted under fair practices, that it ought to be permitted some way, because they are practically listed securities. If they are not listed by the corporations, they are listed, certainly, with the tacit approval of the corporation by members of that exchange. I take it that is true.

Mr. LEA. Thank you.

The CHAIRMAN. Governor Black, I think I express the feeling of the whole committee, that we appreciate deeply having a witness before us who is intelligent in answering questions and who does not dodge, and who presents the case in a fair way.

Governor BLACK. I appreciate that very much, Mr. Rayburn. It has been a pleasure to appear before your committee.

The CHAIRMAN. We have had too little of it in this hearing.

Governor BLACK. If anything occurs to me, I will be glad to give it to you.

Mr. BULWINKLE. Governor, just a minute, please. You said your studies and the studies of the Federal Reserve Board's staff were continuing.

Governor BLACK. That is right.

Mr. BULWINKLE. Now, have you or the staff got any additional information, or formulated any additional amendments? Governor BLACK. Up to the present time?

Mr. BULWINKLE. Yes.

Governor BLACK. Not up to the present moment; no, sir.

Mr. BULWINKLE. Have you in view any that you are going to give us?

Governor BLACK. None, unless they may be on some technical exchange operations. We are looking into them more fully. The trouble is that we are not, any of us, experts in stock exchanges.

Mr. Chairman, I came near omitting one thing that the board asked me to call the attention of the committee to and suggested a bill, which we recommended 2 years ago relative to fixing reserves of members banks, not by fixed numbers as they are now, 37, 10, and 13 percent, but upon the basis of velocity in the turn-over in the bank. I guess you remember that. I would like very much to leave a memorandum with the clerk on that.

The CHAIRMAN. I think that would come before the Committee on Banking and Currency.

Governor BLACK. Probably I had better submit it to them because we think that would be a benefit now.

The CHAIRMAN. We are very much obliged to you, Governor. The CHAIRMAN. Mr. Corning, you have someone who wished to be heard?

Mr. CORNING. Yes; Mr. Chairman. Mr. Gibbons.
The CHAIRMAN. We will hear Mr. Gibbons.

STATEMENT OF GEORGE B. GIBBONS, MUNICIPAL BOND DEALER, 49 WALL STREET, NEW YORK, N.Y.

The CHAIRMAN. Will you qualify by giving your full name and your business?

Mr. GIBBONS. George B. Gibbons. I am a municipal bond dealer, 49 Wall Street, New York City.

The municipal bond dealers in New York City appointed a committee, and appointed me as chairman to bring some points before your committee. You have been kind enough to let us do that, and these are the points. In going over this bill, it has seemed to us very clearly that it was designed to correct speculative abuses on stock exchanges. We cannot see, after very careful examination, where that applies to municipal bonds or just why they should be in the bill. For instance, they are not speculative in any manner, except possibly, Government bonds, because there are not enough of them, as a rule, of any one particular maturity or kind, or rate of interest, to speculate in them.

Now, the purchasers of municipal bonds, are, in a good many instances, insurance companies, trust funds, savings banks, local banks. Once they are bought they stay bought, as a rule, until sold for need, and to list them on the exchanges would not do them any good at all. In fact, it would do them some harm.

Now, the abuses that apply to other securities such as washed sales does not apply to State and municipal bonds. There are not enough of them available. If you did have a wash sale, or if you sold short, you could not buy them back. And, you do not buy them with your customer's money. You buy them with your own. You buy them with your own. And, by having these State and municipal bonds under the provisions of this bill would be very harmful in their price and desirability, and availability for collateral for loans. They would either have to be listed or they would have to be exempted, or they would not be available as collateral and for ready sale.

The very fact that the Federal Trade Commission has the power to exempt a municipal bond or refuses to exempt it, would be à continual depressing thought on that bond.

A man might buy a bond, or an institution might buy a bond, and after they bought it find it was not exempted, or the exemption was withdrawn. It affects the value and he would be unable to sell it readily.

I have a telegram here from a man who is financial officer of the State of New York, Mr. Morris Tremaine, State Comptroller. He is the custodian of $180,000,000 municipal bonds issued by 600 different municipal subdivisions of New York State, and here is what he says with regard to it.

[Western Union]

GEORGE B. GIBBONS,

ALBANY, N.Y., Mar. 23, 1934.

New Willard Hotel, Washington, D.C. You are authorized to use this telegram before any Governmental committee and file it as a matter of record. I firmly believe that the listing of municipal bonds on any stock exchange would be injurious to the credit of our municipalities and serious harm would come from such listing for the reason that manipulation of prices on an exchange for this type of security is far more likely than if they were traded in over the counter. Printed prices for small issues of securities such as some of them are could be used as a basis of soliciting orders above a natural market. Depressing prices could also be done through public quotations; at the present time there are 15 issues of New York City bonds listed on the New York Stock Exchange but trades in these issues are very seldom recorded. The State of New York has more than a hundred and eighty million dollars of its investment funds in over 600 municipalities of this State. The State annually invests upward of $15,000,000 in municipal securities of this State and I believe, as the State's chief fiscal officer, that it would not be helpful to the great majority of these municipalities to have their securities listed on any

exchange at the present time. A banker doing service for these municipalities is ready and willing to support the market for the securities that he has sold to his customers. I can see no gain from listing these securities and this is demonstrated by the active trading in New York City bonds in over-the-counter market as compared to the exchange where they are listed. Several banks took their securities off the New York Stock Exchange because of the possibility of manipulation and the consequent effect on credit of banks. I believe this same rule might be a serious menace to the holders of municipal securities if listed on the exchange; therefore, I strongly recommend, as far as the State of New York is concerned, that they neither be listed nor come under the supervision of the Federal Trade Commission. It is the business of New York State to manage its own municipalities and their finances.

Respectfully submitted.

MORRIS S. TREMAINE,
State Comptroller.

I might say here, very few men, officials, that is, county, State treasurers, and comptrollers, the mayors and comptrollers of cities throughout the country, county officials, and other municipal officials know that municipal bonds come under the provisions of this stock exchange bill, which is primarily being enacted to prevent speculation.

It is our belief that the bonds of States and political subdivisions and agencies thereof should be eliminated from the National Securities Exchange Act of 1934.

This bill is aimed to correct speculative abuses which do not exist in sale and distribution of municipal bonds. State and municipal securities have no rightful place in the bill and no useful purpose is served by including them in the bill. The inclusion of State and municipal bonds in the bill does not confer any benefit on the holders of municipal bonds nor on the municipalities issuing them on the contrary it imposes a very distinct hardship on both the municipalities and the purchasers of their bonds and will seriously affect their value

as investments.

The exemption of the municipal bond will not add to its present value and the refusal to exempt bonds from the provisions of the bill would hurt its value.

Mr. MERRITT. What was that you said just now? Will you repeat what you said about the bonds. Something about abuses?

Mr. GIBBONS. No, I said that the very fact that exemption had been refused would cause the bond to decline.

Mr. MERRITT. Oh, yes.

Mr. GIBBONS. Now then, from this bill you have exempted bonds of the United States Government and if being exempted is helpful to bonds of the United States Government, municipalities and States ought to have the same help. And, if it is harmful to have Government bonds included, it would be harmful to have State bonds included, and municipal bonds included. They all belong to the same family.

Mr. MERRITT. There is a great distinction between values of municipal bonds.

Mr. GIBBONS. There is a great distinction, and all that this bill would do would not do anything to help them, but rather on the contrary to hurt them.

Mr. MERRITT. One idea of the bill is to protect the investor against buying poor bonds, whether municipal or otherwise.

Mr. GIBBONS. Well, how can you stop them from buying them?

Mr. MERRITT. I do not know. I was going to ask. I did not want to interrupt you now. I would like to ask some questions when you get through. That is all.

Mr. GIBBONS. If it is of benefit to a bond to be exempted, the municipalities certainly need all of the help that they can get these days, and the States do, in their finances.

Now, the Government is getting that. It has the strongest credit of all and it is of help to them and they are getting it. It is helpful to have the Government bonds exempted and would even be more helpful to the States and municipalities.

Mr. MERRITT. They need the help.

Mr. GIBBONS. They certainly do need the help, and it does not help them any to throw anything in their way, and it is our sincere belief that this would be a hindrance.

Mr. MERRITT. As a matter of fact it has been rather too easy for municipalities to borrow money of later years, has it not?

Mr. GIBBONS. It is easy again now. It is easy and hard, by turns. Those with good credit can borrow now, and it is because their bonds are exempted and sell at high prices, but there is no guarantee that they will be exempted in the future, when the investor has already bought. In other words, the Government might exempt a bond today. It might increase its value, and by this time next year it might withdraw the exemption, and the investor would have them. There would be no safeguard for the future, and it would hurt the prices that they are getting now.

There is one other point that I would like to make.

The CHAIRMAN. Right along that line. The Government of the United States is not threatened with bankruptcy, is it? It has always paid its bills.

Mr. GIBBONS. It always has, sir.

The CHAIRMAN. Now, there is lodged in this bill authority to exempt any bonds that it wants to. You have read that.

Mr. GIBBONS. So I understand, sir; yes. I have read it.

The CHAIRMAN. Do you think it would be wise to have a blanket exemption, when there has been passed through the House a municipal bankruptcy act and I think probably passed the Senate, for us to say in this bill that we would exempt every municipal bond from the provisions of the bill?

Mr. GIBBONS. From the provisions of this bill?

The CHAIRMAN. Yes.

Mr. GIBBONS. Yes; I think it would be better than to have it included, and have the good ones always threatened with that. The CHAIRMAN. Well, the good ones can get credit.

Mr. GIBBONS. What is that, sir?

The CHAIRMAN. The good ones can always get credit.

Mr. GIBBONS. If you have something like a $200,000 bond issue of a municipality, you have got to have that exempted, before you can buy it, or before a man can sell it.

The CHAIRMAN. If the city is in good shape, financially, they can borrow money and if they are not in good shape, they cannot. If they were all in good shape, they would not be asking for this bankruptcy act, would they?

Mr. GIBBONS. Some of them are not. That is very true. But, suppose that a city was in perfectly good financial condition, or say,