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this bill would give the facts out to the public. The facts would go out as to that situation.

Mr. WOLVERTON. In other words, this bili, then, is no different in its fundamental principles or theories than the Securities Act of last year where the duty of the Government is to provide information and not express opinions?

Commissioner LANDIS. Yes.

Mr. WOLVERTON. As to whether such securities were good or bad as an investment?

Commissioner LANDIS. Yes.

Mr. WOLVERTON. Would that also be true with respect to the municipal bonds, Mr. Pettingill referred to?

Commissioner Landis. That, of course, is true. The question that immediately occurs to me-I may be thinking ahead, or thinking wrong as to your question--namely, is that the bill is not designed to express an approval or disapproval of municipal securities, but merely to insist that the facts with reference to them be brought out, and so to condition trading in these securities might not be such a burden upon the municipalities as would violate the constitutional doctrine of hands-off between the State governments and the municipalities, and the Federal Government. But I do not really know.

As I said, I have to think a question like that over and get up all of the authorities on that sort of thing very carefully, before I could arrive at a conclusion that I would respect with reference to that problem.

We had that same problem up in the Securities Act, where the exemption that is given to what might be called municipal bonds, and bonds of States and their instrumentalities, and is drawn according to a line that parallels the line that is drawn which makes taxexempt municipal bonds, State instrumentalities, and so on. In other words, every instrumentality of a State which, like a municipality, or a political subdivision of a State, was exempted from taxation, would be exempted from registration upon an issue of securities.

That is the line drawn in the Securities Act. If exempt from taxation they are also exempted from the necessity of registration under that act.

Mr. WOLVERTON. I have just a hazy recollection that some one expressed the opinion before us that if practices such as prevailed in the Cities Service, using that as an illustration, should be detected as a result of the reports that are required to be filed, that there was power in the Commission under the provisions of this bill to preclude trading in such securities.

Having that thought, and you apparently taking the opposite to it, is what creates the uncertainty in my mind as to the effectiveness of the provisions of this bill.

Commissioner LANDIS. Well, I think perhaps I can clear that up this way: What I had in mind in answer to your question assumed no manipulative practices in connection with the sale of that stock.

Mr. WOLVERTON. Yes, but right there, the facts which were given to us this morning by Judge Healy in connection with the Cities Service would indicate they were manipulative practices.

Commissioner LANDIS. That is exactly the point that I did not have in mind when I answered your question. I had assumed a free market, although the securities were admittedly bad.

Now, if you do not make that assumption, which we will say was not true in the Cities Service case, where there were manipulative practices being indulged in, then the Federal Government could step in here under section 8 to prevent the sale of that stock not because it is intrinsically bad, but because of the practices connected with the sale.

Mr. WOLVERTON. Is there any provision in this bill that would enable the Federal Trade Commission to take such stocks off the exchanges as listed stocks?

Commissioner Landis. Because manipulative practices were being indulged in there?

Mr. WOLVERTON. Yes.

Commissioner LANDIS. As I remember it, this section that has been called to my attention limits the right to taking off, to delisting the securities, to cases where the issuer of those securities has failed to comply with any provisions of this act or rules or regulations thereunder.

Now there you should have to relate the manipulative practices to the issuers in order to authorize delisting on that ground.

On the other hand, in subsection 4 there is a right of suspension when the public interest so requires, to suspend trading in any registered security for a period of not exceeding 10 days in order to act quickly under those circumstances. You might not be sure whether or not you can finally delist, but a period of suspension.

Mr. WOLVERTON. If that power exists in the Commission as a result of the provisions of this bill, then does it not at least indirectly, if not directly place an obligation on the Federal Trade Commission of passing its approval or disapproval upon stocks that are listed upon the exchanges?

Commissioner LANDIS. I do not think so, Mr. Wolverton. I do not think so.

Mr. WOLVERTON. Certainly you would not want it to be put in that position, as a governmental agency?

Commissioner LANDIS. No; I do not want to be put in that position. I think we have successfully escaped that position, in a large measure, with reference to the Securities Act. We have escaped being put in the position of approving or disapproving the stocks that are registered. We have been very active against any representations of that nature being made.

Mr. WOLVERTON. The thought I have in my mind is this: If power is given that enables the Commission to delist a stock from the exchange, then so long as that power is not exercised, the Commission may be considered as indirectly approving the stock as a proper one to be listed and from which the inference might thereupon be taken by the investing public that it is safe to deal in that particular stock.

Commissioner LANDIS. Well, I should hesitate to take that view, or to even think that an implication of that type would arise.

Mr. WOLVERTON. It is not your thought then that the bill or the powers given the Commission could be construed that way?

Commissioner LANDIS. I do not think so. I do not think it would be construed any more that way than that the mere fact that a stock today is listed on the New York Stock Exchange gives you a guarantee of its qualities as a good investment.

Mr. WOLVERTON. I would like to bring up another subject at this time to bring to your attention, Mr. Landis, the brief that was filed by Thomas B. Gay, of Hunton, Williams, Anderson, Gay & Moore, counsel for the New York Stock Exchange. It refers to your statement previously made before this committee as it appears in the stenographic transcript on pages 2 and 3. I have thought it is only fair to you that it be brought to your attention so that you might have an opportunity to make an observation concerning it if you wish.

On page 2 of their brief they state:

Both means of accomplishing the desired objects are, therefore, predicated upon the power of the Congress over interstate commerce, or its control of the use of the mails. May either power be constitutionally exercised in the manner proposed? The purpose of this brief is to demonstrate that it may not.

In his testimony before the House Committee on Interstate Commerce, the Honorable J. M. Landis, Commissioner of the Federal Trade Commission, and one of the draftsmen of the bill, stated very frankly that:

"At the threshhold of this question, there seems to me to lie the question of national power over the exchanges. I think this committee has to meet that and face that before it can go any further.”

Then, to emphasize their thought, they place in italics these words

of yours:

The question is not free from doubt.

And on page 4 of their brief under the title “Constitutionality under the commerce clause":

Article I, section 8 of the Constitution of the United States confers upon the Congress power: "to regulate commerce with foreign nations and among the several States

Commissioner Landis, in his testimony before the House Committee on Interstate Commerce, testified in this connection that:

In order to spell out an appropriate power for Congress to deal with stock exchanges, you have to show the intimate relationship of these transactions on the exchange itself to interstate commerce."

Continuing they use your words:

I speak primarily of the interstate commerce power, because I do not believe that legislation of this type can be based effectively upon any other power than the Congressional power over interstate commerce.

They used those two extracts from your testimony as a basis for their brief, and it occurs to me that you might wish to make some statement in connection therewith I call your attention to the fact that in your first statement I read are these words:

At the threshold of this question.

I assume that you meant that as anyone would first look at the question, the constitutional question very naturally arises.

Commissioner LANDIS. Yes.

Mr. WOLVERTON. But after full consideration you are of the opinion, as you have expressed here today, that this act is constitutional?

Commissioner LANDIS. I am of that opinion. I said, just as you indicated, that when you think of a bill controlling the stock exchanges, you have to think first of the power. Can we do it? And that is what I meant by “at the threshold.” Secondly, I am of the opinion that it is the interstate commerce power that one must rely primarily upon to support the right of Congress to control these transactions on the exchanges.

And when I say the question is not free from doubt, by that, I mean I can understand an intelligent lawyer taking a different position.

Mr. PETTENGILL. When you say it is not free from doubt, you do not mean that it is not free from doubt in your own mind.

Commissioner LANDIS. No.

Mr. PETTENGILL. But that you recognize that an intelligent human being may take another view.

Commissioner LANDIS. Yes, that is right.

Mr. WOLVERTON. My recollection is that you stated when you appeared before that you did express the opinion that fundamentally in your opinion the constitutionality of the act would be based upon the interstate commerce clause.

Commissioner LANDIS. Yes, sir.

Mr. WOLVERTON. But you did state that the other matters that were set forth in section 2 were sort of props that could be leaned on if necessary:

Commissioner LANDIS. Yes, sir; that is exactly it.

Mr. HUDDLESTON. Mr. Landis, referring to the constitutionality of the bill. I have more doubts on some of the particular sections of the bill than I have of the bill as a whole. In short, let us say that the doctrine set forth in the Olsen case is applicable, and there is power to regulate the market, the market places. The thought that you expressed as to the "throat” as you called it before, through which the commerce flows. It does not seem to me by any means to follow that we do not go beyond the regulation of the market place when we attempt to deal with the activities of individuals, not necessarily connected with the market place at all, as we do in this bill.

Commissioner LANDIS. Well, I think on that point, that I would disagree with you as a matter of fact, that all of these activities of individuals that are dealt with in this bill, which are not those individuals acting on the exchanges, is action by those individuals off the exchange which is so intimately related to the exchange that you can reach out to control that action.

Mr. HUDDLESTON. That is the whole question. Is it so intimately commingled that you can regulate it, or, stating it another way, in regulating the exchanges may you regulate these outside activities? Commissioner Landis. Yes.

Mr. HUDDLESTON. When a man is a member of the stock exchange, that does not mean, because you can regulate his activities as a member, or his activities in the market place, you may go out and regulate all his activities in life.

Commissioner LANDIS. No; of course not.

Mr. HUDDLESTON. Yet this bill assumes to do that. I do not mean to say all of the activities, but certain activities which have no necessary relation to his activities in the market place, such as members borrowing money from some outsider, possibly for some other purpose than to use it in the market place

Commissioner LANDIS (interposing). But, the theory of that is -
Mr. HUDDLESTON (continuing). And his lending of money-
Commissioner LANDIS. Yes?

Mr. HUDDLESTON. Outside of the market place, and not as an incident to his membership in the stock exchange to a man who does not intend to use it for any purpose on the stock exchange. So there are other questions. Take the question of proxies. The bill forbids

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an individual, not a member of the stock exchange, not an officer of the corporation whose stock is listed, but a citizen not engaged in interstate commerce, from asking for a proxy to vote the stock of an outsider because the stock is listed on the stock exchange. Certainly that has no relation to the trading in the market of that stock. As I say, I could give numerous illustrations of the same nature.

Now, I take it that the power of Congress to regulate is to regulate "interstate commerce.” It must be

commerce.You cannot regulate it if it is not "commerce.” It must be “interstate” or you cannot regulate it. Those things which are not commerce or which are not interstate in their nature and have no necessary or essential connection with interstate commerce are quite beyond the power of Congress. You agree with that?

Commissioner LANDIS. Yes; I agree with that general principle.

Mr. HUDDLESTON. Now then, we come to a question of fact. I think I can point out, as I say, numerous instances in here in which we are attempting to regulate activities or actions--I do not know just what word to use--but to regulate acts which have no necessary relation to interstate commerce.

Commissioner LANDIS. Let me take your two illustrations there. One, the illustration of loaning by members of the exchange on any stocks that they may carry. The constitutionality of that rests upon the contention that, as a matter of fact, in order to regulate the exchange you need to regulate the amount of credit that goes into the exchange. That credit that goes into the exchange goes in through the members of the exchange. You have to regulate all of their activities with reference to credit in order to be sure that they will not employ particular facilities that are not on the exchange as a means of evading the requirements. I think you could tie that thing up with the whole purpose of regulating the exchanges.

Mr. HUDDLESTON. There you can say that merely because a man is a broker he cannot lend a friend $5 to buy a basket of groceries?

Commissioner LANDIS. That would be going a little bit too far.

Mr. HUDDLESTON. No farther than it he wanted to buy a nonlisted stock from somebody else or something of that kind.

Commissioner LANDIS. But

Mr. Huddleston. But you cannot say because a man is broker that his activities with reference to stocks

Commissioner LANDIS (interposing). I can say this

Mr. HUDDLESTON (continuing). Although they are not stocks listed on the exchanges

Commissioner LANDIS. They can be regulated, because he can use the unlisted securities to defeat regulation.

Mr. HUDDLESTON. Regulate his dealing in that particular article of commerce-we will say a share of stock.

Commissioner LANDIS. Yes.

Mr. HUDDLESTON. Yet you say that you cannot regulate him if he is dealing in a commodity?

Commissioner LANDIS. Yes.

Mr. HuddLESTON. That is more than I can understand, because the question of credit is involved in both cases.

Commissioner LANDIS. The point that I should make there arises from a general principle. It is purely a question of fact as to whether it talls within the principle you enunciate or within a different

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