statements, considered the character of the security and its earning record, the distribution of the issue and the market therein, and the security was admitted to unlisted trading only upon its approval.

With your approval, I will skip the next paragraph. No, I will read it all. Quite naturally, the exchange made mistakes both of commission and of omission. In the speculative period immediately approaching 1929, many securities were admitted to trading where an actual market in New York did not exist but where it was hoped that a market would develop. The exchange now appreciates that the existence of an active market here is fundamental and should in all cases be a prerequisite for admission of a security to unlisted trading. This requirement is now among those firmly insisted upon.

We have already called attention to the requirement that a company must have been in existence for a substantial number of years which is a prerequisite to the admission of a security to unlisted trading. While the requirement today, as earlier, is that a company, whose securities are so admitted, shall have a minimum corporate existence of 2 years, in actual practice the great majority of such companies have, prior to the admission of their securities, been in existence much longer. Recently a statistical test was made which very clearly illustrates this point. Taking at random the files of the companies lettered F to K, number 231 stocks, an examination showed that at the time of application, the average period of corporate existence of these companies had been 25.7 years, clearly showing the character and attention given to the nature of these securities before they are admitted to trading.

Companies which have weathered economic business stress and strain for so long a period not only invite confidence by reason of this factor but also furnish records of extended experience which may be studied by an investor before making his purchase. The unlisted securities are never new an untried, but must always have a record of actual performance behind them.

As we have already seen, all securities traded in on the exchange are officially listed; one on application of the company, the other on the application of a member. The factor not generally understood is the information required and the care exercised in the admission to dealing of any security. The belief prevails in some quarters due, undoubtedly, to the misleading phrase "unlisted", that any type of security will at any time, without examination and without information on file, be admitted under the caption "unlisted." That the contrary is the case will be made clear by a study of the application blanks, requirements and resolutions relating to the admission of securities to unlisted trading and by the record of treatment of listing applications.

During the spring of 1933, the attorney general of the State of New York conducted a public examination of the unlisted department of the New York Curb Exchange. This examination satisfied the exchange that the rules and regulations governing the admission of securities to so-called "unlisted trading" needed additional strengthening and enlarging and, at the conclusion of the examination, requirements were adopted which it is believed assure the public of a maximum of care in the admission of securities to unlisted trading.

The present requirements for admission to unlisted trading, supplemented by the resolutions which were adopted at the close of the

investigation above referred to, are available and will be furnished to any who are interested, as will the requirements for admission to "full" or formal listing.

A comparison of the respective requirements for "full" or formal listing and for "unlisted" trading, it is believed, will satisfy any reasonable person that adequate investigation is made of the unlisted securities before they are admitted to trading. While less data and information are obtained in support of an application for admission to unlisted trading than in support of an application for formal listing, any objection on this ground is more than offset by the fact that the unlisted security usually has a long record of actual performance. While performance is by no means the sole test in admitting a security, a bad record is always sufficient reason for rejecting it. That the standards applied by the New York Curb Exchange in the admission of unlisted securities have been sufficient, except in a relatively very few cases, is adequately established by its actual experience with these securities.

Mr. PETTENGILL. Mr. Chairman

The CHAIRMAN. Mr. Pettengill.

Mr. PETTENGILL. Can you tell us very briefly what is the difference between a formal listing and unlisted securities? Unlisted securities are traded in in certain cases?

Mr. GRUBB. That is quite correct, sir.

Mr. PETTENGILL. What is the difference?

Mr. GRUBB. With reference to our own particular case, sir, stocks that are admitted to unlisted trading are seasoned stocks, as was explained in this pamphlet, a little prior to this particular point.

The formally listed stocks are stocks of newer companies with the records that are probably not quite as old as companies we have on our floor, which are unlisted.

Mr. PETTENGILL. Unlisted are more seasoned securities?

Mr. GRUBB. That is quite correct.

Mr. WADSWORTH. May I interrupt there?

Mr. GRUBB. Yes, sir.

Mr. WADSWORTH. But, they are not formally listed really because the management, those responsible in the affairs of the corporation. do not care to do it?

Mr. GRUBB. You mean-yes, in a great many cases, that is so, sir. In other words, we do not get the complete information that we require and we want for formal listing from those companies.

Mr. WADSWORTH. But, on your own definition, a majority of them would be eligible for formal listing if the respective managements desired?

Mr. GRUBB. That is quite right, sir.

Mr. WADSWORTH. Why is it not desired?

Mr. GRUBB. Well, that is a difficult question to answer, in some respects. Some of them do not want to and cannot and will not answer our formal requirements.

Mr. WADSWORTH. And yet, you find out sufficiently about them to have confidence in them?

Mr. GRUBB. Yes, sir; that is quite true.

Mr. PETTENGILL. Is it a question of the fee involved?

Mr. GRUBB. With reference to the formal listing there is; yes. Our formal listing is $1,000, and with reference to unlisted securities, there

is a fee of $100 charged, which is paid by brokers who make application for the stock.

As a matter of fact, our biggest

Mr. WADSWORTH. Are most of them small companies? Mr. GRUBB. Which, in which respect, sir? Mr. WADSWORTH. The unlisted. Mr. GRUBB. No, sir; they are not. companies that we have on our exchange, as a matter of fact, are unlisted. For instance, all of the great, or a great many of the Standard Oil stocks, and some of the big utilities, and some of the big industrial stocks. Some of the best ones we have, and the ones that are most largely held by the investing public.

Mr. LEA. Do you mean are not listed at all, or are not listed on your exchange?

Mr. GRUBB. No, sir; I am speaking particularly with reference to unlisted stocks that are traded on our exchange in connection with that remark.

Mr. LEA. Standard Oil stocks are usually listed, are they not? Mr. GRUBB. I said that some of the Standard Oil Co. stocks; Standard Oil of Indiana.

Mr. WOLVERTON. Mr. Chairman

The CHAIRMAN. Mr. Wolverton.

Mr. WOLVERTON. Mr. Grubb, is there any difference as to the requirements for dealing in listed, and unlisted stocks, with respect to margin requirements, or any of the other usual requirements?

Mr. GRUBB. We do not on the exchange, in some cases, there would be-I think the answer to that is no, sir.

Mr. WOLVERTON. Well, take as an illustration, one stock that is listed and one stock which is referred to by you as unlisted. Mr. GRUBB. Yes, sir.

Mr. WOLVERTON. Would there be any difference in the margin requirements for either of those two stocks?

Mr. GRUBB. No, sir.

Mr. WOLVERTON. Well, much of your time has been taken up, it seems to me, in explaining that there is no difference, in fact, between listed and unlisted stocks, except the manner in which they are entered for trading in your market.

Why do you continue the use of a term, or a name that results in so much misunderstanding or requires an explanation that there is no material difference.

Mr. GRUBB. Well, I was attempting to set forth, as clearly as I can in this, why.

Mr. WOLVERTON. You have set it forth very clearly to me. Your statement is that the only difference between listed and unlisted stock is the manner in which the particular stock is admitted to trading on your exchange.

Mr. GRUBB. That is correct.

Mr. WOLVERTON. For instance, instead of the application being made by an officer of the corporation to have stock of that corporation listed, it is listed by reason of an application made by a member of your exchange who is a stockholder in that corporation.

Mr. GRUBB. Yes, sir.

Mr. WOLVERTON. Now, why do you continue to use the terms "listed" and "unlisted", when in fact there seems to be no difference

except, as I have indicated, and which requires the continual necessity to explain that there is no difference between the two.

Mr. GRUBB. The big point with us is that it is so uniformly misunderstood throughout the country, and it is not understood on the part of a great many people who just do not know what the situation really is.

Mr. WOLVERTON. Well, when an application has been made for the listing of a stock, by the officers of the company, then it is called a listed stock.

Mr. GRUBB. Yes, sir; fully listed.

Mr. WOLVERTON. If the application for listing is made by a stockholder of a company and who must be at the same time a member of your exchange, then it is termed an unlisted stock when admitted to trading on your exchange.

Mr. GRUBB. Yes, sir.

Mr. WOLVERTON. And yet such stock is in fact listed for the purpose of trading.

Mr. GRUBB. That is quite correct.

Mr. WOLVERTON. Why do you follow that system?

Mr. GRUBB. Because it does not answer entirely all of the specific facts as called for in our full listed requirements.

Mr. WOLVERTON. It merely seems to be a difference of wording. I am wondering why some other word or term is not used instead of the word unlisted.

Mr. LOCKWOOD. The word "unlisted" has come, in this country, to have a clear connotation that it was not a security which was listed on the application of the company itself, whereas the phrase "fully listed" is understood, particularly among the security blue sky commissions as representing a security which has been listed upon the application of the company.

It is true that no security is admitted to dealing upon the curb exchange unless it be officially listed. We have considered from time to time, using the phrase "member listing", but it seems to us that it might be unfair to try to get away, in that way, from what was thoroughly understood in many circles as being unlisted. It is simply a matter of historical nature and experience that we have always used the words "unlisted" and we felt that perhaps we would be placing ourselves in a false position if we used indiscriminately the word "listed."

Mr. WOLVERTON. Mr. Grubb has made it very plain to me, but what I cannot understand is when both listed and unlisted stocks, according to your naming of the stocks, are placed upon the same trading list, then why do you continue the use of the term unlisted with respect to a stock? It seems to me to be a misnomer?

Mr. LOCKWOOD. So that the public understands fully listed as meaning on application of the company itself.

Mr. WOLVERTON. Well, it seems to me that it would be a very simple matter to put an asterisk opposite the stock which you now term unlisted and thereby designate the difference which you state now exists.

Mr. LOCKWOOD. We do that, and we have endeavored to have the newspapers make the distinction in their reports of the transactions on the exchange of transactions in "fully listed", so-called, and in

unlisted; but we have not been able to bring that about. It is a matter of trouble to the reporters.

Mr. WOLVERTON. Well, I do not want to pursue the thought any further. It may seem rather presumptuous on my part to make a suggestion to individuals who are identified with the business.

Mr. LOCKWOOD. No, not a bit. We want it understood.

Mr. KENNEY. Mr. Chairman

The CHAIRMAN. Mr. Kenney.

Mr. KENNEY. May I ask a question, Mr. Grubb?

Mr. GRUBB. Yes, sir.

Mr. KENNEY. You have referred to a public examination conducted by the attorney general of the State of New York.

Mr. GRUBB. Yes, sir.

Mr. KENNEY. In the spring of 1933.

Mr. GRUBB. Yes, sir.

Mr. KENNEY. What was the occasion for that?

Mr. GRUBB. Well, at the time, we were not at all sure what the occasion was. They came in and they looked over our unlisted department from top to bottom and it was their opinion that there was certain factors that should be strengthened, with reference to our unlisted department, and you see on the resolution in front of you, sir, we adopted those regulations at that time.

Mr. KENNEY. That examination satisfied you that changes should be made?

Mr. GRUBB. No, sir; it did not. We had already put those changes into effect and the regulations that were made after the examination by the attorney general, were relatively of very minor importance. Mr. KENNEY. All of the application blanks presented to us are of date subsequent to the examination of the attorney general. Mr. GRUBB. We have been entirely

Mr. KENNEY. Do they recite many changes, as the result of this examination?

Mr. GRUBB. No, sir; very few.

Mr. LOCKWOOD. May I answer that again, because Mr. Grubb was not president of the exchange. As a matter of fact, he has been president for 2 weeks only.

That was a technical matter which concerned the committee on listing of which he was not a member.

The attorney general made this examination in order to determine what requirements were necessary with respect to unlisted trading. We found in that examination that certain of our requirements would, in the interest of the public, wisely be strengthened. For example, we had always insisted in our listed department, fully listed department, since 1921, insisted on audits of company reports by independent auditors. You remember that was more and more stressed throughout the country about a year and a half ago. Mr. KENNEY. Annually?

Mr. LOCKWOOD. Annually, periodical audits prepared by public

accountants.

We made that requirement for admission to trading “in listed," so-called.

We made it a requirement that all statements filed with applications, should be examined by an independent certified public accountant representing the exchange.

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