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At the other end of the scale are exchanges where the unlisted trading privilege is just a dodge to create a quotation.

The only intelligent resolution of the difficulty you can make at the present time is to give the Commission power to determine between the conditions on which unlisted securities are admitted to trading privileges; let the Commission pick out those exchanges on which the safeguards for unlisted trading privileges are now half decent, and let those exchanges continue for 1 year in those trading privileges the securities so privileged just before the act goes into effect for a year. In the meantime have the Commission study the problem and report to Congress by the opening of the next Congress. Congress will then have disinterested advice how to handle this problem of the unlisted trading privilege, and the exchanges will have had an intervening time in which possibly to work out the problem for themselves.

Mr. LEA. Well, now, as to the status of those unlisted securities that have the trading privilege after next January, assuming that Congress takes no further action than passing this bill as it is, what would be their status?

Mr. CORCORAN. This bill gives them sufferance until next March. That would give 3 months in which Congress can do something. If Congress does not act, they could no longer be traded under the privilege, and must simply have to list or go to the over-the-counter market.

Mr. LEA. They would then be denied the privilege of trading on the markets?

Mr. CORCORAN. And in that time, you are considering-
Mr. LEA. On the exchanges, of course.

Mr. CORCORAN. You will find that is covered in the first full sentence on page 35 of the bill. You consider them as if they were listed securities. The problem is a very difficult one, sir, because you have all gradations of requirements by exchanges for this curious animal called an “unlisted security” admitted to trading privileges.

Mr. LEA. So if a stock is listed on the exchange in New York, could it be sold on the Chicago exchange without listing in Chicago, under this bill?

Mr. CORCORAN. This bill, sir, says that if at the present time it is sold without listing in Chicago, say, on the Chicago Curb, it may continue so to be sold. That is, the bill preserves the status quo for a year while the problem is being worked out.

Now, the New York Stock Exchange makes corporations which list with it agree not to permit, so far as the corporation can, unlisted trading in the corporation's securities on other exchanges. The theory of the New York Curb is that if a security is listed on any exchange, any other exchange ought to be free to trade in it without the necessity of requiring the security to be listed on the second exchange.

Mr. LEA. Well, looking at it from the long-time viewpoint, say, take the situation 4 years from now, if this bill becomes a law, a stock is listed on the New York Stock Exchange, and somebody wants to list it for trading purposes on the Chicago exchange. Will that be permitted?

Mr. CORCORAN. The bill has nothing it in, sir, to prevent the security being so listed upon the Chicago exchange. Even if Congress should not act before next March 1, there is no prohibition against the stock being listed on the Chicago exchange if the issuer will list it as he listed it on the New York exchange, and if the issuer is permitted, by the rules of the New York Stock Exchange, to list on the Chicago exchange. They are cutting across this matter both the rules of the exchanges and the law.

The New York Stock Exchange does its level best to prevent the listing of any stock listed with it upon a second exchange, so that the market is concentrated on the New York big board.

The other exchanges, of course, fight the New York Stock Exchange on that point.

Mr. LEA. Well, if this bill becomes a law, will it permit the memers of the San Francisco Stock Exchange, for instance, to place on the San Francisco Stock Exchange, for trading purposes, a stock listed on the New York Stock Exchange?

Mr. CORCORAN. Unless the security had been admitted to unlisted trading privileges on the San Francisco Exchange on March 1 of this year; no. The present situation is kept in status quo. There could be no new unlisted stock traded in upon the San Francisco Exchange until the Commission's report and Congress' consequent decision. The problem is a very difficult one. The exchange does not have control over the issuing corporation when the security is not fully listed as it has when the security is fully listed. Someone from the outside, usually a broker, comes in and gives what the exchange considers adequate information. The exchange can check some of that information in Poor's and Moody's, but there is never a listing agreement between the corporation and the exchange, by which the exchange has a contract with that corporation, as there is in the case of listings on the New York Stock Exchange.

Mr. LEA. From the standpoint of the public, when a stock is shown as qualified by being registered on any listed exchange, in accordance with the regulations of the Federal Government, why should not the stock be sold on any listed exchange?

Mr. CORCORAN. We are talking now, sir, of a case where stock is listed, say, on the New York Stock Exchange, fully listed, and the problem is whether it can be traded in on any other exchange.

Mr. LEA. Yes; in other words, if a stock establishes its right to be presented to the public for purchase, when it once obtains a listing under the rules of the Federal Government which provides for that?

Mr. CORCORAN. That, sir, depends upon a consideration of whether the first exchange, the only one upon which the stock is fully listed, can really maintain control of the issuing corporation if the stock is traded in on a half a dozen other exchanges, too. The theory of the New York Stock Exchange is that it cannot keep adequate control of the situation if it does not have all of the trading in the stock concentrated through itself.

The claim of the other exchanges is that there is no reason why Detroit should not be able to trade in New York Stock Exchange stocks if Detroit wants to. There are so many intricacies involved in the relationship between the exchanges themselves and between the exchanges and the listed companies, that no adequate answer can be made to the problem in a limited time.

So the bill freezes the situation for a year, tells the Commission to study the problem and to put the problem up to the next Congress. The certain cut-off of March 1935 is provided to make certain that the Congress will consider the problem.

Mr. WOLVERTON. Mr. Chairman-
The CHAIRMAN. Mr. Wolverton.

Mr. WOLVERTON. Does this bill by its terms fix any requirement for the trading of a stock on the exchange other than the requirements that are now in force by the rules and regulations of the stock exchange?

Mr. CORCORAN. Which stock exchange; the New York Stock Exchange?

Mr. WOLVERTON. Yes; the New York Stock Exchange. We will take that exchange for the purpose of the first question.

Mr. CORCORAN. Yes; it does.
Mr. WOLVERTON. What are those requirements?

Mr. CORCORAN. It requires a more full reporting policy than is at present required by the exchanges. It puts the Commission in a position where it can require a fuller reporting policy on the part of the listed corporation than the New York Stock Exchange at the present time is in a position to require.

Mr. WOLVERTON. What section does that come under? Mr. CORCORAN. 11 and 12. Mr. WOLVERTON. What I have particularly in mind, and which I will use as an illustration, is the unfortunate situation that arose through trading in certain alcohol stocks, last summer. If I remember correctly, the investigation made by the Senate committee revealed that the listing of that stock was made possible because of failure on the part of stock exchange authorities to examine balance sheets of the corporation offering the stock for listing. It has been suggested that if the stock exchange authorities had considered such balance sheet they would not have permitted that situation to arise last June.

Now, is there anything in this bill providing additional requirements that would preclude that situation arising again?

Mr. CORCORAN. As I remember that was a case where the stock exchange did not look through the rigging of a subsidiary.

Mr. WOLVERTON. Yes.

Mr. CORCORAN. Through which options were washed. The stock exchange listing committee, had before it then, as I understand from Mr. Altoihul's testimony, plenty of information, but just did not see it.

Mr. WOLVERTON. That was the impression I had from the testimony.

Mr. CORCORAN. Under this bill the listing of those additional shares would have had to come through two bodies. It would have been submitted to the stock exchange, and it would also have been submitted to the Commission, down here, so that there would have been two checks.

There was nothing additional required to what the stock exchange had to do the job in connection with that American Alcohol case. The listing committee just slipped.

Mr. WOLVERTON. I'am interested from the standpoint of the investing public. What is there in this bill that would have prevented that situation, if this bill had been in effect at that time?

Mr. CORCORAN. A requirement, sir, that the listing applications come down to the Commission as well as to a listing committee on

the stock exchange, so that the slip probably would not have occurred in both places.

You are putting me a case where I cannot make much of a showing, for the reason that there was a case where the rules of the stock exchange required, and got the necessary information, but the stock exchange listing committee did not look at the information.

Mr. WOLVERTON. Yes, I understand that there was a slip some place or other.

Mr. CORCORAN. Yes.

Mr. WOLVERTON. It is for that reason that I am inquiring as to what has been provided in this particular bill to prevent any such possibility in the future.

Mr. CORCORAN. It provides a double check, sir.

Mr. WOLVERTON. Well, are you satisfied then that this bill, by its provisions, would have dealt effectively with that situation if it had been in effect at that time?

Mr. CORCORAN. It would certainly have decreased, sir, the risk that the situation could occur, because a second pair of eyes would have been going over the same papers. There is no way in the world, sir, whereby you can assure that men will not slip; but the listing application, the registration, would have had to pass two sets of eyes.

Mr. WOLVERTON. But is there no additional requirement set up before the stock can be listed than previously existed?

Mr. CORCORAN. The listing requirements for the Commission are set out on page 32.

Mr. WOLVERTON. Do they provide anything in addition to what the rules and regulations of the stock exchange require?

Mr. CORCORAN. I am not absolutely sure, sir, because how much the Commission would ask for under any one of these headings on page 32 would depend upon the circumstances of a particular case. The stock exchange is in a position now where, theoretically, it has the power when an application comes to it to ask for just as much information as the Commission could ask for. It is a question of how far the Commission would follow up its power and demand more information.

Mr. WOLVERTON. But does this bill lay down any fundamental principles for listing of stocks which is not already in effect by the rules and regulations of the stock exchange?

Mr. CORCORAN. No; I do not think so, sir, except that it does require—now, we are talking about the initial listing?

Mr. WOLVERTON. Yes,

Mr. CORCORAN. It does lay down considerably advanced requirement for the reporting policy of the listing corporation after the listing has been made, in that it puts the Commission in a power where it can demand not only annual statements with an audit, but other unaudited statements down to quarterly and monthly reports.

Mr. WOLVERTON. Is there any power given in this bill that will permit the regulating agency, which is the Federal Trade Commission, to fix in the future rules and regulations with regard to listings?

Mr. CORCORAN. Yes. The Commission is put in a position where, if it thinks that the rules and regulations of any stock exchange with respect to listing requirements are too lax, it can call the rules to the stock exchange's attention and ask the exchange to change the rules. If the stock exchange does not change the rules, the Commission can, after notice and hearing, determine that the rules shall be changed, and if the stock exchange does not put the change into effect, the Commission can step in and itselt put them into effect.

Mr. WOLVERTON. Then, the theory underlying the bill is similar to that which was contained in the Dickinson report, that the exchange should be permitted to regulate itself as long as it does so properly, and if it does not, then the reserve power exists in the Federal Trade Commission to do so?

Mr. CORCORAN. Well, I do not understand that the Dickinson report went so far as to specifically say that if an exchange did not change its rules, the Commission was in a position to step in and change the rules for the exchange. On the point of enforcement by the Commission in that respect, the report was very vague with the intimation that about all the regulatory authority would be permitted to do would be to suspend the license of the exchange.

Mr. WOLVERTON. Well, that would be the most practical way in which the Commission could enforce its own rules as to what should be done by the stock exchange.

Mr. CORCORAN. That is a rather impractical way, sir; I hardly think a commission would dare to suspend the New York Stock Exchange if the New York Stock Exchange put its back up and said, “We won't change this small rule, and if you want to go ahead and try to suspend us and bring about the catastrophic consequences because we will not, just go ahead and see what you can do.”'

Mr. WOLVERTON. The thought I have in connection with this matter was confirmed by Mr. Dickinson when he was before the committee. I put the question to him in some such words as these:

Is it your thought that stock exchanges should be permitted to regulate themselves with a big stick held in reserve by the Federal Trade Commission?

And he said, “That states it succinctly."

Mr. CORCORAN. I am so glad that Mr. Dickinson agrees with us about something

Mr. WOLVERTON. Well, do you agree with that?

Mr. CORCORAN. I did not hear Mr. Dickinson. I know what the theory is.

Mr. WOLVERTON. Has this bill been drawn on that theory?

Mr. CORCORAN. This bill has been drawn on the theory that if after a request by the commission an exchange will not change its rules, the commission can without having to suspend the license of the exchange, after a decent hearing, just walk in and change the rules.

Mr. WOLVERTON. So, at the present time you sort of freeze the situation by permitting the stock exchange to regulate itself, subject to the

Mr. CORCORAN. We permit it to do that as far as possible; yes.

Mr. WOLVERTON (continuing). Subject to the right to dictate changes that should be made?

Mr. CORCORAN. Yes, sir; certainly.

Mr. WOLVERTON. Mr. Chairman, there is one other thought that I have in mind, and I hope the witness may have an opportunity this morning to speak concerning it. I think it is very important. It is the question that has been raised by different representatives who have come here from the cities of Boston, Philadelphia, Chicago,

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