I am wondering whether, under the language of this bill, you are not putting them out of business altogether.

The CHAIRMAN. Mr. Marland, before we get off of this margain question, I thought that you wished to discuss that.

As I understand, your position, Mr. Landis, it is this: that to leave this margin requirement entirely to the administrative body would at least at times make a most embarrassing and practically an intolerable situation for that board or commission.

Commissioner LANDIS. Yes; I am afraid so.

The CHAIRMAN. But that if something were put in the law, there is fixed, as I think Mr. Corcoran says, the bright line, or some standard with reasonable flexibility such as is contained in this bill on margins and so forth, it would bring about a better, a more satisfactory, and a more reasonable administration of the law.

Commissioner LANDIS. I think you have correctly stated my position, Mr. Chairman. It is just exactly that, when the show is running away and everybody is running away in the show at the same time, it is very hard to apply the brakes; it is very hard to be wise at that time. When in the last situation the market ran away, there was considerable criticism of the Government's not being active at that time and applying its brakes. But it is only a natural thing that that happened. Provided that that fixed line is low enough, that it does not operate as a hardship in normal times, there is no reason for making a minimum which is fixed and which will point out the margin requirement. Here it is low enough.

It was for that reason I introduced those figures in answer to Mr. Mapes's question, of 66.8.

The CHAIRMAN. Therefore, out of your experience with these matters, your judgment is that Congress, in the act, should fix this instead of leaving it entirely to the administrative body?

Commissioner LANDIS. Yes; that is my judgment.

Mr. MAPES. Mr. Chairman

The CHAIRMAN. Mr. Mapes.

Mr. MAPES. Mr. Commissioner, I should like to get your judgment on this feature of the marginal provision.

Is there anything to this point, that the marginal requirements in this bill may be so low that in a run-away market the administrative board might be embarrassed by the fact that Congress had fixed a low requirement and that the pressure brought to bear upon the Board would be to the effect that it was unreasonable in its requirements, because it required so much higher margin than Congress had suggested.

Commissioner LANDIS. That would be true, Mr. Mapes, if this margin requirement did not also have a double-action quality. It has been devised with just that in mind. We see this margin now operates at present levels of the market at about 66.8 of the current value. If you have a rise in those values, it will automatically run down from 66.8 and may run down to 50, or somewhere around there. It has an automatic effect of changing in a run-away market. Also, if the market were just gently dropping, instead of having 66.8 on your present levels it would rise. That is the way this thing would work.

Mr. MAPES. What do you think of this feature in connection with the marginal section? Suppose in the future some time there should be

another collapse of our credit and capital structure, the same as there has been during the last 4 years, and the brokers should be required to keep up the margins that this bill requires; would it not be necessary to sell out a good many accounts, and would not that have a deflationary effect upon credit generally?

Mr. LANDIS. Well, this bill does provide for a leeway of some 20 points.

Mr. MAPES. Yes.

Commissioner LANDIS. In that margin requirement?

Mr. MAPES. But when the collapse comes

Commissioner LANDIS. When a collapse comes, in values?
Mr. MAPES. Yes.

Commissioner LANDIS. You also have a provision in this bill which provides that the Federal Reserve Board can, under those circumstances, when we are faced with a grave national economic crisis of that nature, throw aside these fixed margins.

Mr. MAPES. Where is that?

Mr. PETTENGILL. On page 17.

Commissioner LANDIS. That is the second paragraph, page 17, beginning in line 3.

Mr. MAPES. Does that work both ways?

Commissioner LANDIS. Not necessarily; it would not necessarily work the other way, because the Federal Reserve Board can, without a finding of this nature raise the margin requirements. In raising the rates, it is not limited in the same way.

Mr. MARLAND. Mr. Chairman

The CHAIRMAN. Mr. Marland.

Mr. MARLAND. Have you finished with that subject?

The CHAIRMAN. Unless somebody else wants to ask a question on it. All right, Mr. Marland.

Mr. MARLAND. Well, there are two points, Mr. Commissioner, that I want to talk to you about.

As I said, I am heartily in accordance with your intent in regulating the specialist. On page 30, line 8, it says:

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

Now, I am afraid-I am not a lawyer-I am afraid that might be interpreted to put them out of business altogether, because of the very nature of their orders. Specialists receive orders, to buy at a certain price or less, or orders to sell at a certain price, or better. He has got to use his discretion on that. I am afraid that you are putting him out entirely in that language, and I think that we do not intend to do that.

Commissioner LANDIS. Well, if you do not intend to do that, of course, you want to correct it.

Mr. MARLAND. Do you fear my fear of that?

Commissioner LANDIS. The effect of that language, as I understand it, is not directed to limited orders, but to pure market orders.

Mr. MARLAND. That is it. We want to keep them from trading for some other discretionaries account or for his own account.

Commissioner LANDIS. Of course, he is prevented anyway from trading for his own account.

Mr. MARLAND. We want to keep him from trading for some customer from whom he has a discretionary order.

Commissioner LANDIS. The specialist broker's function here is limited to the matching of the various bid and asked orders that he has. Where he has absolute discretion on orders, you do not want him to handle them. You want those handled by an ordinary broker and not a specialist broker.

Mr. MARLAND. I hope that that language can be clarified, so that he would not be prohibited from handling a limited market order. Mr. CORCORAN. That was changed from market to discretionary order to make sure that he would not get a market order.

Mr. MARLAND. Do you share my theory in that?

Mr. CORCORAN. I do not share it, but it is perfectly all right to change it.

Mr. MARLAND. Someone might take that view of it.

Mr. CORCORAN. That has been changed already, after discussion. I am sure that he is not limited to market orders.

Mr. MARLAND. Another thing that I would like to ask or discuss with you is this: The chief objections I am receiving to this bill are coming from corporation heads. Their objections go to the annoyance and the burdensomness of the reports they may be required to file. I do not think any corporation official can fairly object to filing an annual report, certified to by a certified public accountant.

I think for the purpose of this bill it should be sufficient to have the quarterly reports certified to by the auditor or treasurer of the company, or officers of the company. I do not think it should be left as it is on page 36, that the Commission can require "such annual, quarterly, monthly, and/or other reports, the annual reports to be certified by an independent public accountant or otherwise, as the Commission may prescribe."

I think that is entirely too broad. The corporation officials fear that section more than they fear anything else in the bill.

Commissioner LANDIS. May I interject this, a moment, to point out the purpose that "and/or other reports" there implies? Mr. MARLAND. Yes.

Commissioner LANDIS. You will find this kind of a situation quite common: A corporation has operating units scattered all over the world. That corporation itself may not get quarterly reports. It will get some information, but it will not get quarterly reports. For that reason, you do not want to say to that corporation, which is not getting and cannot get quarterly reports, that it has to furnish quarterly reports. You want to have discretion in such a case. You want to say to that corporation, "File such information as in your situation you can be reasonably called upon to file."

Just exactly what that information is will differ, of course, from corporation to corporation, but it is because of that fact, that you cannot uniformly require quarterly reports. You want to be able to require them to file such type of report as is suitable to their business. That, as I understand it, is what "and/or other reports" means. Mr. MARLAND. I understand what you intend; but I know what the corporations fear and that is that your Commission may make them file reports monthly, or as Mr. Pettengill says here, even daily. Commissioner LANDIS. Of course not.

Mr. MARLAND. We know that you do not intend to do that, but under that provision of the law, you are given that authority and the corporation heads fear it, and I think that we should clear that up,

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Mr. Chairman. I think that if we do that we will meet a great deal of the opposition from industrial heads to the bill.

The CHAIRMAN. The trouble is, as shown from my correspondence, Mr. Marland, the telegrams that I have received on this bill-some of which are very insulting-have been from people who have never read this bill. I know that they have not down in my country, because they could not have read it from the time that it was introduced until they wrote these letters and telegrams, because it could not have been there. It has been on statements in the newspapers by people who are perfectly willing to and have misrepresented this bill, and I think deliberately.

Of course, if there is a thing here about a corporation that is unreasonable it should be corrected, but we must assume that this is to be administered by a reasonable board and they will not ask unreasonable things.

Mr. MARLAND. Of course, I would like to see it done.

The CHAIRMAN. But, we have got, if we are going to pass laws to be administered by boards or commissions, we have got to assumeand I do not think it is a violent assumption-that with matters touching business so vitally as this, that the board or commission will give a reasonable administration to the law.

Mr. MARLAND. Mr. Chairman

The CHAIRMAN. I do not blame you at all for expressing your fear and the fear of these business men, because, frankly, I have had as much fear about these things as anybody, and after we held hearings here for 3 weeks, this bill was materially changed, in such a manner that many of us thought that we had met practically every legitimate objection, but we found that we had not, and that is why we are conducting these hearings again.

You cannot take fear out of business men when they are being propagandized, truthfully, and falsely.

Mr. MARLAND. I recognize that, Mr. Chairman, but I also recognize that that fear exists there and I think if we are permitted to make a suggestion and ask whether it will be agreeable to the Commission, we might remove some of that fear that exists in some honest business men's minds at the present time.

I am wondering whether there would be any objection to changing the language on page 36 to something like this:

"Such annual reports by certified public accountants and such quarterly, or monthly reports to be certified by officers of the corporations, as the Commission may prescribe," giving the Commission the right to prescribe quarterly and monthly reports to be certified to by officers of the corporation, and annual reports to be certified to by certified public accountants.

Commissioner LANDIS. The language as it stands now only requires the annual report to be certified to by an outside auditor.

The other reports are not required to be certified. No one, who has a regard for the practicalities of the situation, would fail to recognize that you would not want to have them certified to by an outside accountant. You would want the quarterly reports in as quickly as possible, and you would know that it was going to hold up the quarterly report to have it certified.

Mr. MARLAND. Under that language, you could require the quarterly reports to be certified to by certified public accountants, or even monthly.

Commissioner LANDIS. I think that that would be a strained construction of it.

Mr. MARLAND. I may be mistaken about that, but that is the way I read it.

Mr. MAPES. Do you interpret this language to compel some sort of a report monthly?

Commissioner LANDIS. No; I do not interpret this language as compelling that.

Mr. MAPES. I do not think that that paragraph makes a complete sentence; but it seems to me that it might properly be interpreted to require some kind of reports quarterly and monthly, and that the annual reports must be certified to by an independent public

accountant.

If it does not require reports to be made quarterly and monthly, it does not even require them to be annually. If annual reports are made, they must be made by a certified public accountant, but with that exception, the annual reports and quarterly reports, and monthly reports are put together; is that not true?

Commissioner LANDIS. I see how your question arises. Your question arises from the problem as to whether those words "as the Commission may prescribe" goes back simply to "otherwise." Mr. MAPES. Yes.

Commissioner LANDIS. Or goes back to "such annual, quarterly, monthly and/or other reports."

Mr. MAPES. Do you not think that the language should be clarified?

Commissioner LANDIS. I think that is merely a matter of drafting. I think there would be no objection to clarifying it.

Mr. MERRITT. I think that it would clarify it, if it were made to read like this:

Such annual, quarterly, monthly and/or other reports as the Commission may require, the annual report to be certified by a public accountant or otherwise.

Commissioner LANDIS. You would also have to do something about the "or otherwise."

Mr. MERRITT. What is that?

Commissioner LANDIS. You would have to do something about the "or otherwise" so as to make it clear that the Commission is to determine how otherwise.

Mr. MERRITT. The Commissioner under the language I read would not be empowered to require independent audits of anything except annual reports, and as to that they would have discretion as to whether to require them or not.

Commissioner LANDIS. You see, you have this kind of a proposition arising in some of these companies with subsidiaries out in foreign countries. There may be a question as to whether you can get an independent public accountant in that country. Now, when this was taken up in connection with a corporation having a subsidiary in Germany, we met this condition. They said, "We cannot get an independent accountant in Germany."