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Commissioner Landis. I will be glad to supply you the figures more accurately.

Mr. HOLMES. I will appreciate having it.

Mr. Mapes. May I ask you one question there? What has been the cost of administering the Securities Act; can you tell us approximately?

Commissioner LANDIS. The cost is what the appropriation was; it was a quarter of a million dollars.

Mr. MAPES. A quarter of a million?
Commissioner LANDIS. Per year.
Mr. Mapes. Per year?
Commissioner LANDIS. Yes.
Mr. MAPES. What is the top salary paid by the Commission?

Commissioner LANDIS. The top salary is the chief of the Securities Division, who receives $8,000. Nobody else receives more than $6,500. Those are gross figures, not net; $8,000.

Mr. HOLMES. State divisions are not excluded from this act, and you would probably have issues, sometimes of fifty or a hundred thousand, in your municipal units, and that would increase your relative cost very much, for the over-counter bonds. Would the commission be in position to take that up immediately?

Commissioner LANDIS. Well, I think not, Mr. Holmes--those securities would ordinarily come outside of this act unless they came within section 14 of the act where there are certain regulations in that section of the over-the-counter market. Those regulations may exempt that type of security.

Mr. HOLMES. I was going to make that observation. For instance, you have municipal bonds, county bonds, and so on.

Commissioner LANDIS. Þes; but they are very seldom registered on the exchange.

Mr. HOLMES. Yes; I understand.

Commissioner LANDIS. I think they are not registered, but some steps should be taken

Mr. HOLMES (interposing). I do not profess to know how general the situation is in the inland sections of the country and the municipal divisions thereof, but in my own State, I believe at times the Massachusetts bonds have been registered.

Commissioner LANDIS. Yes.

Mr. HOLMES. I know in my own State of Massachusetts, if we had to register the bonds with the Commission it would frequently mean considerable expense.

Commissioner LANDIS. Yes.

Mr. HOLMES. I am just thinking of the inconvenience it would cause Massachusetts and its subdivisions, if they were going to issue any bonds, if they had to come down here and get permission of the Federal Trade Commission, or take it up with them.

Commissioner LANDIS. Well, no; that is not in this bill. That is under the Securities Act. Mr. HOLMES. I think this bill also covers it.

Commissioner LANDIS. This bill does not affect the situation except insofar as section 14 is concerned.

Mr. Holmes. If they are going to have to secure the approval of the Federal Trade Commission, or if they are going to be exempted like the Federal Government-the discretion is in the Federal Trade Commission, and that is going to be necessary under this act, is it not?

Commissioner Landis. No; not necessary. That question of issuing new securities, the matter of original issue, would ordinarily not come under the provisions of this bill; that would be regulated primarily by the Securities Act. And they are exempted specifically under the Securities Act.

Mr. Holmes. That was my understanding.
Commissioner LANDIS. That is a special exemption.

Mr. Holmes. My understanding was that they were not exempted under this bill.

Commissioner LANDIS. It may be desirable to do that. In that connection, a rule can easily be made exempting them.

Mr. Holmes. By the approval of the Commission?
Mr. LANDIS. By request to the Commission.

Mr. HOLMEs. That is what I meant, but you would have to come down here to get that permission, would you not?

Commissioner LANDIS. Of course, the conditions governing exemptions are set out in the bill; you have certain rights of exemption there.

The CHAIRMAN. Gentlemen, there is a good deal of confusion in the room and we cannot hear Mr. Landis' answer to Mr. Holmes' questions. All right, Mr. Holmes.

Mr. HOLMES. I grant that, Commissioner. But my point is thatbefore you can issue municipal bonds you will have to get the permission of the Federal Trade Commission, and that would be cumbersome, and would put an unnecessary expense on the municipality.

Commissioner LANDIS. Not under this act, and not under the securities act; not under this act unless the securities are registered on an exchange. And if they are not on the exchange they are covered by this act only insofar as section 14 is concerned. That is where the Federal Trade Commission may, by rule, require certain things to be done on over-the-counter markets.

It is obvious, however, that the Commission would not put a burden, an unnecessary burden upon financing of that character.

Mr. HOLMES. I may have interpreted it wrong.
Commissioner Landis. Yes.

Mr. Holmes. But my impression or interpretation of it was that you would have to actually get the approval from the Federal Trade Commission before you could issue those bonds.

Commissioner LANDIS. No, unless they come under 14; that applies to dealings off the exchange.

Mr. HOLMES. Well, there may be a bond issue in Worcester, Mass. Commissioner LANDIS. Yes.

Mr. HOLMES. Where the bonds are taken by one or more brokers who are also dealers. They have got to sell those bonds, and this bill prohibits the disposition of those bonds, if the bonds fall under

Commissioner LANDIS. No; there is nothing in this bill that would prevent the broker from selling the municipal bonds, unless the

Commission itself promulgated a rule under section 14 to govern those transactions.

Mr. HOLMES. I agree with you, but that is the point.
Commissioner LANDIS. Yes.
Mr. Holmes. But the municipality will be effected.
Commissioner Landis. Of course, there is a point to your remarks.
Mr. HOLMES. You can see my point.

Commissioner LANDIS. Yes; there is a point to your remarks on this bill. The Federal Trade Commission might step in there and do something very absurd, something that it should not do.

Mr. HOLMES. I do not think they that are going to do anything like that.

Commissioner LANDIS. But do you need that exemption?
Mr. HOLMES. They should be exempt?

Commissioner LANDIS. Of course, you want to guard your administrative agent against foolish action. I am quite aware of the fa that there is no exemption in this bill, and that there is one under the Securities Act. But under this bill the Federal Trade Commission may by regulation specifically exempt municipal bonds from the operation of any provision of this bill.

Mr. BULWINKLE. I would like to ask you a question.
Commissioner Landis. Yes.

Mr. BULWINKLE. You stated in answer to a question by Mr. Mapes that the cost of administering the Securities Act was the amount that had been appropriated?

Commissioner LANDIS. Yes.
Mr. BULWINKLE. A quarter of a million dollars?
Commissioner LANDIS. Yes.

Mr. BILWINKLE. How much was collected for registering securities; do you remember?

Commissioner LANDIS. Yes. I can give you those figures, a rough guess, of course. But the figures as I remember that were presented to the Subcommittee on Appropriations, were based on the amount already collected-and were about $170,000, while the cost of administration was $250,000.

The CHAIRMAN. Have you anything further you wish to add?
Commissioner LANDIS. I think that is all, Mr. Chairman.

The CHAIRMAN. Are there any further questions? We thank you very much, Commissioner Landis.

Commissioner LANDIS. Thank you.

The CHAIRMAN. Mr. Corcoran or Mr. Cohen, are you ready to close, or rest your case?

Mr. CORCORAN. I have told you, Mr. Rayburn, that there would be another witness, Mr. Dowling, professor of law at Columbia University who would be present and argue the particular question of the constitutionality, but I have received a wire from him this morning saying that because of difficulty in New York he has been prevented from coming down.

Instead of that we will fine two memoranda with you on Monday to make sure that every question of the constitutionality of this act is covered and discussed.

The CHAIRMAN. This closes our hearing.

(Thereupon, at 3:50 p.m., the committee adjourned.) PETITION ON BEHALF OF THE FLOOR TRADERS OF THE NEW YORK STOCK

EXCHANGE

WASHINGTON, D.C.,

Saturday, March 24, 1934. The Honorable Committee on Interstate and Foreign Commerce

of the House of Representatives, Washington, D.C. GENTLEMEN: The undersigned members of the New York Stock Exchange, representing some 60 members engaged in trading exclusively for their own account on the floor of the exchange, respectfully invite the attention of the committee to a provision in section 10 of the pending national securities exchange bill, the effect of which would, in our opinion, be the virtual paralysis of the activities of floor traders and substantial injury to the interests of the entire investing public of the United States.

The provision to which we refer is, in substance, that it shall be unlawful for any member of a stock exchange (except "odd-lot dealers" and "specialist dealers") to effect any transaction whatever for his own account while on the trading premises of the exchange. (Subsection (c).)

The exclusion of the floor trader from the privilege of trading on the premises would seem to indicate either that the language employed does not express the intention of the committee or that the functions of the floor trader are imperfectly understood.

The floor trader is a member of the exchange who acts exclusively as principal and, as a rule, only with his own capital. He has no customers and accepts no commission orders. He buys and sells securities for his own account, assuming the entire risk of profit or loss. He is not restricted to a fixed post nor to a limited number of securities. In the course of the day's trading the floor trader is to be found at various parts of the floor in competition with specialists and other traders, contributing in this manner to the maintenance of a fair market in all stocks. If he has, on the one hand, as compared with the investor off the floor of the exchange, the advantage of instant information concerning the technical position of the market, he is subject, on the other hand, to the disadvantage (in view of the exclusion of news tickers from the trading premises) of not being imme diately apprised of developments in the outside world of industry, finance, and politics.

The floor trader performs indispensable services in the public interest by his contribution to the maintenance of a continuous and liquid market in which securities may be bought and sold at equitable prices.

It is obviously in the interest of the investor that the securities which he holds, and which he may desire to use as collateral for the financing of productive enterprises, shall have a continuous fair market value. On an exchange which was limited to the execution of commission house orders, there would inevitably be many occasions on which the divergence between the price bid and the price asked would be so extreme as to result in wide fluctuations. In the filling of the gap between bids and offers and the prevention of sudden and unreasonable Auctuations the interposition of the floor trader plays an outstanding part. Without the constant personal presence of the floor trader, ready to buy or sell instantly for his own account and on his own responsibility for small profits, the market would be characterized by excessively sharp rises and declines.

The initiative of the floor trader and his competition with specialists and other traders are at all times factors of the highest importance in the maintenance of fair market prices.

His services in this respect are particularly conspicuous on occasions of stress, when there is a great preponderance of either buying or selling orders from all parts of this country or from abroad. On such occasions the floor trader is preeminent in taking the initiative, in buying or selling as the situation may require. So highly are his services in this respect valued on the exchange that floor traders are frequently informed of an abnormal market situation by a governor of the exchange, acting in the public interest, with a view to assuring the execution of buying or selling orders at a fair price.

In view of the indispensable services performed by the floor trader, as above indicated, we earnestly trust that it is not the intention of the committee to eliminate the floor trader as such. We respectfully submit that the floor trader should be allowed to continue his operations substantially in accordance with the present practice. In this connection, we wish to signify our hearty endorsement of the

suggestion made to the committee by Mr. Richard Whitney, president of the New York Stock Exchange, with reference to the revision of section 10 of the bill. Respectfully,

HERBERT L. CARLEBACH, New York City.
ARTHUR K. HARRIS, New York City.
ROBERT CRAIG MONTGOMERY, Bronxville, New York.

MEMORANDUM SUBMITTED BY THE COMMITTEE OF PUT AND CALL DEALERS AND

BROKERS
Re section 8, paragraph 9 of the revised National Securities Act of 1934

This memorandum is submitted with no intention to suggest to the committee to change the intent of the provisions of section 8, paragraph 9. We aim solely to suggest to the committee that for the sake of the clarification of these paragraphs, some slight changes should be made.

We herewith take the liberty to suggest the classification of section 8, paragraph 9, which section is captioned: “Prohibition Against Manipulation of Security Prices."

We appreciate fully that paragraph 9 as it appears in the revised draft refers only to puts and calls for manipulative purposes, in which we have no interest. We deal only in puts, calls, and straddles, wh ch are openly offered and have a regular day to day market at standard prices and which are regularly quoted. Their main function is to insure against unlimited losses.

We submit that legitimate puts, calls, and straddles shall continue to be endorsed or guaranteed by stock-exchange houses in order to assure the purchaser that all conditions of the contract will be carried out. This guaranty is of great importance to the purchasers thereof because an insurance policy where there is even the slightest doubt regarding the compliance with its terms, is worse than valueless.

The members of the New York Stock Exchange are permitted to guarantee puts and calls only if adequate security is maintained by the writer. This, together with the guaranty or endorsement of a stock-exchange house, provides a complete safeguard to the investor.

We submit that the last six lines of section 8, paragraph 9, should be amended as follows:

"Or if a member, directly or indirectly, to endorse or guarantee in contravention of any such rules or regulations, the performance of such put, call, straddle, option, or privilege in relation to any security registered on any national securities exchange. The terms put, call, straddle, option or privilege, as used in this paragraph shall not include any options which are openly offered and competitively sold, and also shall not include any registered warrant, right or convertible security."

We are firmly convinced that your committee while wishing to prevent excessive speculation and to regulate unfair practices in security transactions, desires that dealings which are economically sound and which are to a large extent used for the protection of the investor, should not be legislated against. Therefore, we have made the above suggestions and stand ready at any time to furnish all the technical and expert advice at our command to assist in drafting the amendments herein suggested or any other regulations pertaining to puts and calls. Respectfully submitted.

GEO. A. LAMBELL, Chairman,
A. BRIDGENS,
S. J. CUNNINGHAM,
H. FILER,
C. FOLLETTE,

M. HESSLEIN,
Committee of Put and Call Brokers and Dealers in the City of New York.

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