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dealings in and the guarantee of legitimate puts, calls, straddles, etc., eliminating puts, calls, straddles, etc., used for manipulative purposes.

We also call your attention to the last part of section 8, paragraph 9, third subdivision, reading as follows: Or if a member, directly or indirectly, to indorse or guarantee the performance of any put, call, straddle, option, or privilege in relation to any security registered on a national securities exchange. The terms put, call, straddle, option, or privilege as used in this paragraph shall not include any registered warrant, right or convertible security.

We submit that this wording should be clarified so that there can be no doubt that the foregoing subdivision was meant to refer to manipulative options only.

We further recommend that the National Securities Exchange Act of 1934 shall provide that the Federal Commission will have the power to require, after an appropriate hearing, that all "put-and-call” dealers and brokers conform with rules and regulations adopted by the Commission, and that the effective date of section 8, paragraph 9, be changed from August 1, 1934, to some later date. We therefore respectfully request that such change be made. Very truly yours,

THE COMMITTEE OF PUT-AND-CALL BROKERS
AND DEALERS IN THE CITY OF NEW YORK,

GEORGE A. LAMBELL. Chairman, The CHAIRMAN. We will recess until 2 o'clock.

(Thereupon, at 12:05 p.m., a recess was taken until 2 p.m., of the same day.)

AFTERNOON SESSION

The committee reassembled, pursuant to the taking of the recess, at 2 p.m., in the committee room, New House Office Building, Hon. Sam Rayburn (chairman) presiding.

The CHAIRMAN. The committee will come to order.

STATEMENT OF HON. JAMES M. LANDIS, COMMISSIONER, FED.

ERAL TRADE COMMISSION

The CHAIRMAN. Mr. Landis, I think that the committee would like to have your reaction to the bill H.R. 8720, in general, and specifically.

Commissioner Landis. Mr. Chairman, I have had an opportunity to examine this bill. I had the opportunity, to start with, to associate with a number of experts on this subject, who, at the suggestion of Senator Fletcher, started in on the work of drafting a stock-exchange bill. Those experts and myself have watched the hearings on this bill with a great deal of interest and have tried to give them a great deal of consideration and study. The result of that has been, in large measure, this bill.

Mr. BULWINKLE. Would you mind, Mr. Landis, inserting in the record—I do not care to have it done now—but put in the record who the experts were, and what their qualifications are.

Commissioner LANDIS. Yes; I shall be glad to do that. Would you want me to insert that later?

Mr. BULWINKLE. Yes. I want the qualifications of the experts.
Mr. MAPES. With the emphasis on the qualifications.
Mr. BULWINKLE. Yes; with the emphasis on their qualifications.
Commissioner LANDIS. I will do that.

As I was saying, this bill is the result of that work. I do not want to take the time of the committee in going through the bill with a great deal of particularity, the committee having already had an opportunity to do that. I simply want to point out that I think this bill more gen

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erally and as well as it can be done, meets the suggestions that I made to this committee some days ago that the desirable kind of a bill to write about the stock exchanges is a bill which will get the proper degree of flexible administration together with a formal enunciation by Congress of what its principles are. I think that is a very important thing, because it is important to any administrative agency to know very clearly what the congressional policy is. It is also important to an administrative agency to be able to look at that policy and mark it out without fear of pressure, without the fear of being wrong.

This bill, I think, achieves that kind of a balance. It is a nice degree of balance to achieve and with the degree of flexibility that has been introduced in this revised bill, in my judgment, the criterion that I said was a desirable criterion has been met.

The feature about this bill to which I suppose you would really like me to address myself is the position of the Federal Trade Commission in this bill.

The revised bill, as distinguished from the original bill, divides the administrative authority between the Federal Reserve Board and the Federal Trade Commission. The Federal Reserve Board having dealt for many years with the problem of credit is intrusted with that problem. The Federal Trade Commission, having dealt for some 8 to 9 months now with the problems of the securities administration and having dealt for many years with the problems of investigating corporations, is intrusted with the administration of those features of the bill.

Judge Healy this morning had an opportunity to present aspects of the Commission's control over marketing practices and corporate accounts and spoke from a wide experience in that field. I think he demonstrated the necessity for some such control.

Now, I would like to make one point clear: There has been some talk about the autocratic power of the Commission; about the power this bill gives the Commission to run all industries. The Commission has had considerable administrative experience in connection with the provisions of the Securities Act, and the Commission, in the exercise of those powers, always makes an effort to call in the men directly interested with a problem, in order to give them the fullest opportunity for hearing and presentation of their views before a rule or regulation affecting them is promulgated.

We have had, and I would like to emphasize this, we have had the advantage of a high degree of cooperation from lawyers and bankers who have been affected by our rules and regulations. We have spent days with them working out our rules and regulations, sending them drafts, getting their criticisms back on those drafts, before finally adopting a draft in that revised form. In such a way we have been able to take care of what we conceived to be the real criticisms that have been raised during that process.

In other words, I would like to give this impression, that you can expect sympathetic, informed, and intelligent administration from the Commission.

The other matters on this bill that I would like to say something about are the administrative features. I have worked over some of those features. Some of the men associated with the Commission have been working over them. They have been drawn, in a large measure, from the Securities, Act which in turn was drawn from the

Federal Trade Commission Act, so that the powers that the Commission ought to have in order to adequately to administer the policies of this bill, I think, are here.

Nor do I believe that there are powers here which it is unnecessary to give the Commission in order to effect adequate enforcement of this act.

Then as to the listing requirements, an additional degree of flexibility has been introduced. On the problem of supervising reports, methods of reports, again, there is a degree of flexibility.

Indeed, I do not know where flexibility is missing, where else it is desired

We must recognize this as a technical and a complicated problem—which is, I think, so obvious, after these days of hearingsthat it must be met in that fashion. I think it has.

And, I do not have any fault to find with this bill.

Mr. MAPES. Will you be good enough to express your judgment, particularly on the provisions relating to the marginal requirements of the bill?

Commissioner LANDIS. Yes, sir. I will be glad to do that. The administration of the margin provisions is handled not by the Federal Trade Commission, but by the Federal Reserve Board. Legislative minimums on margins are set.

Now, let me look at this problem from two standpoints. If you should ask me as to the administrative necessity for flexible requirements and whether I wanted them, I should unhesitatingly say no.". It is too much of a burden to carry from the standpoint of administration. If you get a runaway market, everything is moving in that direction. At that time to require an administrative board to buck these elements, the force of public opinion, and at the same time to buck whatever pressure may come from any side, is a tremendous task to place on any administrative board.

Mr. MAPES. I appreciate the force of that statement. Still, a fixed provision in the law is a fixed provision, and unchangeable.

Commissioner LANDIS. It is fixed; and on the other hand, the important question is, Where is it fixed?

It may interest you, Mr. Mapes, to know this. Yesterday there was laid before me a list of all of the stocks on the New York Stock Exchange and their margins calculated according to this margin provision. There was laid before me also a substantial list of the stocks on the New York Curb Exchange, and their margins calculated according to this provision. From that list were drawn stocks automatically selected in order to get a representative lot. Preferred stock was excluded. All stock that was selling below 10 was excluded. Then the way in which that margin requirement would work was computed. The result was 66.8 percent of the current market price would be available.

Now, that seemed to me a very desirable solution.

Mr. Mapes. Is it any answer to your statement, with regard to responsibility, and the pressure that is brought to bear upon an administrative agency with broad discretionary power to know that, I understand him, the chairman of the Federal Reserve Board was of the opinion that the marginal requirements might properly be left to the discretion of that board?

Commissioner LANDIS. That is why I said, Mr. Mapes, if I were speaking for myself. I cannot, of course, speak for the Federal Reserve Board, but speaking for myself, as I see administration out of my slight experience, I would like the aid of a rule of that type, which would hold me free against the elements of the type I mentioned rather than subjecting me to them.

Mr. MAPES. Would it be a proper question for me to ask if you have ever had any experience in working on stock exchanges, practical experience?

Commissioner LANDIS. What do you mean by "practical experience"? Of course, my entire experience has been legal. My experience has been from that angle. I have had no actual work in any broker's office; I have had no actual work in underwriting houses. I have dealt with many legal problems in connection with securities administration. But I have not even been on the floor of the exchange.

Mr. MAPES. So far as I am personally concerned, I should like to say that I am in full accord with your statement about the attitude of the Federal Trade Commission in undertaking any work of this kind. I should expect the Federal Trade Commission to exercise good judgment.

Commissioner Landis. I hope if it does not that you will take it away from them.

Mr. MAPES. We have the responsibility, of course, of writing the best kind of a law we can.

Commissioner LANDIS. Yes; obviously, and I was just trying to give you the picture as I see it.

The CHAIRMAN. Are you through, Mr. Mapes?

Mr. MAPES. Yes. That is all for the present, I may want to ask Commissioner Landis some other questions later on another subject.

The CHAIRMAN. I thought that you were starting to discuss this margin provision.

Commissioner LANDIS. Well, I was discussing that in answer to Mr. Mapes' question.

The CHAIRMAN. Mr. Pettengill, you wish to ask some questions now?

Mr. PETTENGILL. Yes, Mr. Chairman.

Mr. Landis, you were reported by some attorney from Richmond, Va., as having given an opinion with reference to the LaGuardia bill?

Commissioner LANDIS. "Yes.
Mr. PETTENGILL. Were you correctly quoted?

Commissioner LANDIs. Yes; I was correctly quoted, Mr. Pettengill. I gave an opinion in 1932 to the firm of Carter, Ledyard & Milburn, New York, who were counsel for the New York Stock Exchange, on the constitutionality of the LaGuardia bill. That opinion was placed in the record. I think that that bill is unconstitutional, and I thought so then and I think so now. I think that this bill is constitutional. The two bills are different. Mr. PETTENGILL. I just wanted to know.

Commissioner LANDIS. Mr. Gay was entirely fair and entirely correct in his statement of my position.

Mr. PETTENGILL. As I remember, the LaGuardia bill was based on the control of the post-office clause, was it not?

Commissioner LANDIS. That may have been one of the bases. The chief basis was this: The argument of the LaGuardia bill, proceeded upon the ground that the commodities of certain corporations moved in interstate commerce and therefore trading in the securities of those corporations could be controlled, whether or not they were traded in in interstate or intrastate commerce, because they were so closely related to interstate commerce as to allow the Federal Government to intervene.

My point at that time was that I did not think that regulation on that basis was constitutional. I said at that time that I thought that a regulation of the exchanges might be constitutionally drawn upon other bases. I said that in 1932.

Early this year, in February, before this bill was introduced, at the time the LaGuardia bill was revived by Senator Capper, Senator Fletcher sent me a copy of that bill, and I said to the Senator that I hoped that that policy would not be followed in the pending stockexchange regulation, because I believe that that bill would not meet the tests of constitutionality. Further I thought that there were wide holes, practical holes in such a theory. For example: Take a holding company. The holding company is not shipping its goods in interstate commerce. A holding company is simply holding stock of other companies who may in turn be sending their goods in interstate commerce. It is hard to consider them as engaged in interstate commerce because of that connection. Thus you would not have control over the trading in stocks of holding companies, which are a large item of the list of any large exchange. For these reasons, I felt that it would be unwise to follow that theory and that you would have to work out the constitutional basis for regulating stock exchanges upon a different and sounder theory than that.

Mr. WOLVERTON. Right at that point, Mr. Landis. The opinion you rendered on February 22, 1932, to Carter, Ledyard & Milburn, with respect to the constitutionality of H.R. 4, the LaGuardia bill, to regulate the short selling of securities on the exchanges, has been presented to the committee with the thought of impressing us with the idea that the opinion you expressed there that such bill was unconstitutional is contrary to the opinion that you are now expressing with respect to this present bill. I will quote what you said in that opinion. The words are these:

I have confined myself to a consideration of the constitutionality of the LaGuardia bill, for I am as yet unconvinced that a bill could not be drafted to regulate security transactions on stock exchanges which would be constitutional. The LaGuardia bill, however, bottoms itself upon a theory and conception of interstate commerce that I am not prepared to accept.

In other words, it indicates to my mind that you thought that a bill could be drawn that would be constitutional and consequently the opinion you now express with respect to this bill, drawn upon a different basis than the LaGuardia bill is not contrary to the opinion you rendered to Carter, Ledyard & Milburn.

Commissioner Landis. That is what I hoped would be the inference, Mr. Wolverton. Thank you for reading that.

Mr. MARLAND. Mr. Chairman-
The CHAIRMAN. Mr. Marland.

Mr. MARLAND. I, for a long time, have thought that we needed some regulation of the operations of the specialists on stock exchanges.

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