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Mr. Smith. You understand the limitations under which the study was made, Mr. Wolverton?

Mr. WOLVERTON. No; I cannot understand the reasons for it.
Mr. Smith. I do not know the reasons.

Mr. WOLVERTON. I understand from your statement that there was a limitation. Am I correct?

Mr. Smith. The chairman of your committee explained what we were asked to do, a few moments.ago.

Mr. WOLVERTON. Yes. I appreciate that.
Mr. Smith. And that is what we have done.

Mr. WOLVERTON. Who requested the Treasury Department to study the bill and give their views?

Mr. SMITH. The President of the United States.
Mr. WOLVERTON. Did he limit you?

Mr. Smith. Yes, sir. The Chairman of your committee made that statement a few moments ago.

Mr. WOLVERTON. As to particular sections.

Mr. Smith. That statement by the chairman of your committee was made just a few moments ago.

Mr. WOLVERTON. Now, you have stated here this morning that you have submitted to the committee's counsel numerous suggestions and changes, most of which have been incorporated in this bill which has been introduced.

Have you with you, or are you able to testify from memory, what the suggestions were that you submitted to the committee's counsel; what ones were adopted and what ones were not, and why not?

Mr. Smith. There is no record of that, because the bill was studied, section by section, with the committee's counsel, and we sat around the table day after day and night after night discussing these sections with them.

Mr. WOLVERTON. Do you have any memoranda of that?
Mr. Smith. No, sir.

Mr. WOLVERTON. That will enable you to refresh your mind as to the suggestions and changes that were made by you with respect to this bill?

Mr. Smith. No, sir.

Mr. WOLVERTON. Do you have in mind the suggestions you made which were not incorporated in the bill?

Mr. Smith. No, sir. None of any consequence.

Mr. WOLVERTON. You mean, then, that every suggestion you made which was of consequence was adopted?

Mr. Smith. Yes, sir; that is true.

Mr. WOLVERTON. Then, why did you, in your statement, say that you hoped to have the privilege of submitting to the committee further suggestions that may occur to you after you have had more time to study the bill?

Mr. Smith. Well, in a measure as broad as this, new questions arise constantly. We found a disposition on the part of counsel for the committee to consider the various angles of this measure in the light of existing practices and relations, and if we think of anything later on we would like the privilege of suggesting it.

Mr. WOLVERTON. Well, you said that you had an opportunity to read this bill, as it was finally drafted.

Mr. Smith. Yes, sir.

Mr. WOLVERTON. And you stated that you might wish to submit further suggestions after you have had more time to study the bill.

Mr. SMITH. Yes, sir. Mr. WOLVERTON. What are they? Do you have anything in mind now that indicated then that there might be the possibility that you would want to submit different suggestions? In other words, what was there in the bill that you read that made you feel it might be necessary to make other or different suggestions?

Mr. Smith. We hear something that has come up since then. The question concerns the odd-lot dealer on the small exchanges throughout the country. I am not quite sure that the bill in its provisions gives the protection to the small exchanges that they should have. We are studying that. And if we can arrive at a conclusion, we wanted to submit it. We wanted to maintain this distribution system throughout the country, and it might be that we might have a small change to suggest in connection with that, for instance.

Mr. WOLVERTON. Do any others occur to you? Mr. Smith. I just happened to think about that. We might not We are studying that.

Mr. WOLVERTON. Did you, in your studies, give consideration to the provisions in this bill dealing with “pools”?

Mr. Smith. What part of the bill?
Mr. WOLVERTON. Any part of it that deals with pools.

Mr. Smith. Only in a very indirect way. That has to do with regulation of speculation, about which we were instructed not to concern ourselves.

Mr. WOLVERTON. Will this bill, in your opinion, be effective in restricting the operation of pools?

Mr. Smith. I cannot answer that question.
Mr. WOLVERTON. Are you in accord with the margin provisions?
Mr. Smith. I have stated, so far as-
Mr. WOLVERTON (continuing). As set forth in the bill?
Mr. Smith. That was definitely withdrawn from our consideration.
Mr. WOLVERTON. So, you have not given any consideration to it?
Mr. SMITH. You mean, in the rates?
Mr. WOLVERTON. The basis of margin requirements.
Mr. Smith. Which a broker may loan on the purchase price?
Mr. WOLVERTON. Yes.

Mr. Smith. It is not a margin arrangement. No; we have no opinion on that.

Mr. WOLVERTON. What is your opinion with respect to the provisions in the bill dealing with short selling?

Mr. Smith. About the same as they are about the pools.

Mr. WOLVERTON. What is your opinion with respect to the provisions of the bill as to listing requirements?

Mr. Smith. Same answer.
Mr. WOLVERTON. What is that?

The CHAIRMAN. I remember in our conversation Sunday night in reference to consideration of the liability sections,

Mr. Smith (interposing). He did not ask about that, Mr. Chairman.

The CHAIRMAN. I know. You did have some opinions as to what effect the liability sections in the original bill would have upon listings, , or withdrawal of listings.

Mr. Smith. We have on that subject; yes. That is not under the section that Congressman Wolverton was asking about.

Mr. WOLVERTON. What is the opinion of your department with respect to the reports and accounting methods required by this bill?

Mr. Smith. You are asking about the things that we were asked not to devote ourselves to.

Mr. WOLVERTON. Were you asked for an opinion as to whether the bill should be drawn on the theory that it should provide, by statute, rules, and regulations to govern the stock exchanges, or whether the stock exchanges should be permitted to regulate themselves with a reserve power in a Government agency to control?

Mr. Smith. No, sir; we were not. We were asked to consider certain parts of this bill, and that, of course, is not in this bill.

Mr. WOLVERTON. Well, Mr. Smith, your frankness—
Mr. Smith. My what?
Mr. WOLVERTON. I say, your frankness-
Mr. Smith. My frankness.

Mr. WOLVERTON. Your frankness in answering my questions encourages me to suggest, and with the hope, that the Department will be asked its opinion on the other important matters in the bill, so that we can have your opinion as frankly on all that is in the bill, as we have had your opinion, frankly, about some of the provisions that are in the bill.

Mr. MILLIGAN. Mr. Chairman.
The CHAIRMAN. Mr. Milligan.

Mr. Milligan. Mr. Smith, as I understand, the President of the United States has asked you to consider certain sections of this bill that apply to banking and the sale of Government securities and you did that under the direction of the President of the United States.

Mr. SMITH. Yes, sir.

Mr. MILLIGAN. And, you are here today prepared to answer any questions upon those sections that you have studied and are willing to give the opinions of the Treasury on those particular sections.

Mr. SMITH. Yes, sir.

Mr. Milligan. And I would suggest that you go through the bill and point out the sections that you were directed to study and give the opinions of the Treasury on those sections.

Mr. KENNEY. Mr. Chairman.

The CHAIRMAN. Mr. Smith, before you proceed Mr. Kenney has some questions.

Mr. KENNEY. Mr. Smith, I would like to clear up one matter in my mind. You stated that certain sections have the approval of the Treasury. I have marked these sections here.

Now, when you say that, do you mean that the Treasury approves of the sections so far as the interests of the Government are concerned, or do you mean that they have the approval of the Treasury as they affect business and financial interests of the country also?

Mr. Smith. Well, what was the first alternative so far as what?

Mr. KENNEY. So far as the interest of the Government is concerned, and by that I mean the market for Government securities.

Mr. Smith. Both elements were considered.

Mr. KENNEY. And you approve these sections, and when you say they were approved by the Treasury you approve them so far as the business and financial interests of the country were concerned; is that right?

Mr. SMITH. Yes, sir.
Mr. MARLAND. Mr. Chairman.
The CHAIRMAN. Mr. Marland wants to ask a question, Mr. Smith.
Mr. SMITH. Yes: Mr. Marland.

Mr. MARLAND. If the effect of this bill should be to materially limit trading in securities on stock exchanges, how would that affect the sale of Government securities; what effect would that have?

Mr. SMITH. How would it affect the sale of Government securities?
Mr. MARLAND. Yes, sir.
Mr. Smith. I do not understand the question.

Mr. MARLAND. Let us put it another way. If as a result of the passage of this bill there should be a decline in security prices, would that aid in the sale of Government securities?

Mr. Smith. What do you mean; do you mean stock prices?
Mr. MARLAND. Yes, sir.
Mr. SMITH. I do not think it would.

Mr. MARLAND. If there were a general decline in security prices, would that help the sale of Government securities?

Mr. Smith. No.

Mr. MARLAND. It would not have any effect on the sale of Government securities?

Mr. Smith. I think that unfortunate, adverse conditions in the country would.

Now, here is what we have said. We have studied these sections of the bill to ascertain whether they would have a needless adverse effect upon Government finance operations. The portions of the bill we have studied met that test.

Mr. MARLAND. But there are other sections of the bill which you have not been called upon to study?

Mr. Smith. I have no opinion on them. I have so stated.
Mr. MARLAND. They might have an effect.

Mr. Smith. Of course they might. We have no opinion to express as to those things.

Mr. MARLAND. I am asking your opinion on what effect the general decline in the market would have on the sale of Government securities.

Mr. Smith. I think it would, of course, have an adverse effect.
Mr. PETENGILL. Mr. Chairman.
The CHAIRMAN. Mr. Pettengill.

Mr. PETTENGILL. Mr. Smith, I know that you have worked under great pressure of time, and consequently you must not draw the inference of criticism, but it seems to me that even with respect to matters concerning which you say you particularly studied that your mimeographed statement is just filled with saving clauses. You say that you were directed particularly to study the provisions of the bill with regard to the governmental and financial structure of the Nation to ascertain whether certain of its provisions might have a needlessly adverse effect upon the Government's financing operations, or upon the financial structure of the country; and that you offered certain suggestions most of which have been incorporated. That implies that some have not. Then indeed

Mr. Smith. Well, may I answer your questions as you state them? Mr. PETTENGILL. Yes.

Mr. Smith. Of course, when you are studying a bill, its intimate details, as we did these sections, there are many sections where op

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tional language is suggested. And, often after discussion, our suggestions were not accepted.

Mr. PETTENGILL. Then, in the next sentence, where you say, “I believe, that for the most part, matters about which we were principally concerned, had been corrected by the exchanges."

Mr. SMITH. The answer to that is that you cannot operate without drawing blood, as I have said before. Of course, we cannot foresee all of the possibilities, all of the consequences of this act.

Mr. PETTENGILL. Éxactly. Neither can we.
Mr. SMITH. That is correct.

Mr. PETTENGILL. And our responsibility in this matter is as great as yours.

Mr. SMITH. Yes.

Mr. PETTENGILL. Certainly no responsible person would want to do anything that would adversely affect the financial structure of the Nation.

Now then, with reference to that statement of yours that it is "our belief that for the most part these matters have been corrected", do you still retain in your mind some suggestions which, as an individual, you would have us put in the bill?

Mr. Smith. Of any consequence?
Mr. PETTENGILL. Yes.
Mr. Smith. No, sir; I would not be here testifying if I did.

Mr. PETTENGILL. Well, of course, I do not know but what your views were representing some compromise that you felt

Mr. Smith. We could not compromise on matters of any importance.

Mr. PETTENGILL. Then, the next paragraph where you say that you think that the provisions of the bill have been so revised as to mimimize the dangers which you infer existed in the original draft of the bill with reference to the business recovery of the Nation. Now, the language “mimimize this danger”; does that imply that you think that there is still some danger?

Mr. Smith. Well, there is a certain degree of danger. It is a matter of degree. There is bound to be in a measure of such magnitude as this, and

Mr. PETTENGILL (interposing). Can you point out to us at this time any provisions of the bill which, in your judgment, do contain dangers to the financial recovery of the Nation?

Mr. Smith. I think none in the part we reviewed; none of any consequence. But when you are tampering with the stock exchanges of this country and the dealer-broker relations and banking relationsbank's relations with its customers, while we think we have interfered as little as possible with the banking business of this country, there is bound to be some interference. For instance, the bank of the future, in making its collateral loans, will be governed by the requirements of this law.

Mr. PETTENGILL. Do you think, sir, that the margin requirements in the bill will have the effect of depressing security prices?

Mr. Smith. I have explained several times that I did not consider this subject.

Mr. PETTENGILL. But, if it did have that effect, then with reference to Government securities, it would have an adverse effect; is that a fair statement?

Mr. Smith. That is a hypothetical thing again.

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