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Section 20: The language of this section would seem to have no precedent in the annals of Congress. It provides, among other things, that whenever the commission shall be of the opinion that any person "is about to violate any provision of the act" and when any person is "about to engage in any acts or practices which constitute or will constitute a violation of the provisions of this act, or of any rule or regulation prescribed under authority thereof", the commission may proceed against such person in any United States court to enjoin him and prosecute him for having an intention which may be nothing more than suspicion or an inference. We see no reason for the delegation of such powers, and we strongly protest such language as is contained in this section.

Section 22: If the information required by the commission is to be made available to the public we believe that the only benefit to the public will be barred by the prohibitive cost of such information. We base this upon the cost of information furnished to the public by the Federal Trade Commission under the securities act, these costs varying, I understand, from $40 to $60 per issue of security.

Section 24: Lines 24 and 25, page 43, makes use of the words "false and misleading in any matter sufficiently important to influence the judgment of an average investor." It is our idea that the question of who is and what constitutes an average investor is one difficult of determination even by Congress. The liability under this clause is so unreasonable and the penalties so severe that instead of making the bill one of regulation it becomes an opening for persecution.

Section 27, subsection (b): Many exchanges hold listing contracts and agreements with corporations today. Many of these contracts have been in force for years, covering the listing requirements and agreements between the exchanges and the corporations. Consideration should be given to such long-standing contracts and relations.

Section 28: This section discriminates against brokers and dealers in favor of the individual, enabling the individual to purchase securities direct from foreign countries but forbidding a broker or dealer from making such purchases. This section will encourage investors to place their orders direct in foreign markets even in buying our own securities which may be listed or traded in in such foreign markets.

Section 29: We vigorously protest against a tax of any kind whatsoever being levied upon the exchanges, or the brokers engaged in business thereon, for the purpose outlined in this section. The business of buying and selling securities is already bearing a greater proportion than is its share in the way of Federal taxes; and the revenue derived by the Government, if it is necessary to have a regulatory measure, is more than ample to bear any expense for the enforcement of this act.

The general impression is that the national securities exchange act will only affect the New York Stock Exchange. I submit herewith tables showing that there are listed on stock exchanges outside of the city of New York 2,140,015,288 shares of stock and $10,690,816,255 par value of bonds, and that the volume of transactions for the past 5 years were respectively 750,549,338 shares and $199,663,557 par value of bonds as officially reported by these exchanges outside of New York.

(The three tables above referred to are as follows:)

The volume of transactions in par value of bonds listed on exchanges outside of New

York City

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The volume of transactions in shares of stock listed outside of New York City

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Number of shares of stock and par value of bonds listed on exchanges outside of New York City as of Feb. 19, 1934

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The present bill would seem to be predicated upon the mistaken premise that corporations and stock brokers will somehow contrive to continue their normal functions in spite of the drastic regulations imposed by this bill. I respectfully submit that on the contrary corporations will immediately, and in great numbers, remove their securities from listed trading to avoid the burdens the act seeks to impose, thereby not only failing to secure the results hoped for from the act but automatically throwing the market for these securities upon the street or over-the-counter market, depriving the corporations and their securities owners of the admitted benefits of a regulated listed market. In the same manner I am confident that many, if not the majority, of brokers, particularly those who are members of the local exchanges, will be unable, if not unwilling, to comply with the provisions of the act, and that as a result the local exchanges themselves may have to cease their functions.

The stringent provisions of this bill therefore would seem to defeat the very purposes it proposes to accomplish. It would without doubt seriously impair if not actually destroy the value of securities markets, thereby depriving the Federal Government and some of the States of the enormous revenues derived from taxation on the sales and transfers of securities, deprive thousands of employment, and deprive the commercial life of the Nation of those essential functions of the stock exchanges which no less a person than the President of the United States recognized in his message to the Congress when he said in part: "It is my belief that exchanges for dealing in securities and commodities are necessary and of definite value to our commercial and agricultural life."

The CHAIRMAN. Are there any questions?

Mr. LEA. You stated that you recognized there have been practices on the exchanges that deserve to be condemned.

Would you in a brief statement, with regard to those illegitimate practices, say what they are?

Mr. THOMPSON. I do not classify them as illegitimate.

Mr. LEA. Well, in whatever manner you want to classify them. Mr. THOMPSON. I am at a loss to give you the specific ones, except to speak in a general way of the practices that might be subject to condemnation. I would not say that the stock exchanges themselves are at fault and were entitled to the condemnation, but the conditions upon which we live, we go from day to day, have developed that, the practices of the exchanges, perhaps were not strict enough in many respects.

I am speaking now of our local exchanges. Many of our local exchanges have not had in the past as strict rules as the New York Stock Exchange. In fact, I should say that possibly during the last few years, there have been great strides in improvement in that direction. We were not required to have-I think that it is a fair statement to make- -we were not required to have as strict rules until greater business could be developed, and when that business had been developed on the exchanges, it abought about greater activity and the activity brought about requirements for protection in the interest of the public.

Mr. LEA. What I had in mind is the position of the committeethe position it is in necessarily in reference to this legislation. We can all agree that the stock exchanges perform a useful and necessary service, but in recent years it is without doubt that a very large number of stocks have passed through the exchanges which have proven to be substantially worthless resulting in tremendous losses to those who engaged in the stock market.

Now, our job here is not to injure legitimate business, but is to attempt to pick out those practices that deserve to be denounced and either prohibit them or place them under regulations so that the injury the public has heretofore suffered shall not be repeated so far as it is possible for us to do it. So it was with the idea of getting your constructive suggestions as to the evils, if we can place our fingers on what the evils are, that I asked that question, because then we are in a position to deal with them and that is what we are attempting to do.

Mr. THOMPSON. May I say to you, that I think public opinion itself has more or less determined in its own mind what some of the evils are. I will admit to you that with respect to the listing requirements upon many of our local exchanges that they have not been as strict in the past as they should have been. Some have been very strict and some have followed practically the lead of the New York Stock Exchange, which we regard as a model. Many have felt that in requiring corporations to follow the New York Stock Exchange listing requirements, law would be almost prohibitive for them to come in and list upon legal exchanges.

Then with reference to engraved certificates as one thing, and with respect to transfer agents and registrars as another, whereas in New York, they have a national market upon which there is a large volume of shares of each corporation, it is more feasible to put those requirements into effect than it would be in the smaller exchanges. Mr. LEA. But, if the Government assumes the regulation of stock exchanges, would not the primary purpose be that the listing shall be an assurance of the integrity and merit of the stocks?

Mr. THOMPSON. I think that that is quite true.

Mr. LEA. And that necessarily involves strict regulations as to listings and other improvements.

Mr. THOMPSON. We have, in many of our exchanges-I think practically all of them have improved their listing requirements to a considerable degree-the very thing you speak of. I am not saying so much as to the merit of the investment of the securities, which may be listed, as to the trueness and fair statement of what is presented.

Mr. LEA. In view of what has occurred though, these stocks that have passed through the exchanges in recent years, could you expect the Congress to be satisfied to accept these exchanges as the board shall determine the listings, with regard to those requirements?

Mr. THOMPSON. I think I should answer that the stock exchanges are probably more capable of determining that than any body which would be set up by the Government.

Mr. LEA. Unquestionably they are more capable.

Mr. THOMPSON. Yes.

Mr. LEA. But are they in the position to do that with justice to the public? If we are assuming to regulate this business as a public function to protect the public, should not the requirements be prescribed from the public viewpoint rather than from the viewpoint of the exchanges whose own members necessarily profit in these practices that have existed and which you say deserve to be condemned? Mr. THOMPSON. I think in theory I can go along with you a part of the way; but, after all, perhaps the difference between us is this, that if the public authority should say that it was a good thing to list the stock there would be more confidence on the part of the public to regard it as a good, sound, profitable investment.

The stock exchanges do not list from that standpoint. They list from the true statement of the corporation that is submitted and let the public judge for itself of the soundness of the investment.

Mr. LEA. Well, should not the listing of the exchange be in itself a degree of guarantee to the public of the merit and integrity of the issue?

Mr. THOMPSON. I do not want to say that; no, sir. I do not want to get in the position of guaranteeing the merit of anything.

Mr. LEA. I do not mean a guarantee from the standpoint of dollars and cents, but certainly a stock issue on the exchange has a credence in the public mind on account of being listed. You do not doubt that, do you?

Mr. THOMPSON. That is quite true.

Mr. LEA. It is probably so and it should be so, and the public should have a right to greater confidence than they now have in these listed securities.

Here a year or two ago it was claimed that 50 percent of the $50,000,000,000 worth of stocks that passed through the exchanges in a certain period were substantially worthless. Now, if that is true, and if we seek to regulate effectively, it cannot be a painless operation. Somebody will probably be hurt in order to prevent those comparatively worthless stocks passing along as legitimate stocks to the customers. So we have that function here. It cannot be a painless

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