After a thorough examination of these two exchanges, it was determined that such exchanges were so organized as to be able to comply with the provisions of the Securities Exchange Act of 1934 and the rules and regulations thereunder. Accordingly, the Commission granted the Standard Stock Exchange of Spokane registration as a national securities exchange, effective October 1, 1935, and extended its temporary exemption from registration to that date, and granted the Chicago Curb Exchange registration, effective November 1, 1935, and extended its temporary exemption from registration to that date. During the year a new exchange was organized in Manila under the designation of Associated Stock Exchange (Manila, P. I.). The Acting Governor General of the Philippine Islands was requested to furnish information concerning such exchange, and on May 16, 1935, the exchange applied for exemption from registration. Upon request, the Governor General authorized the insular auditor in Manila to make an investigation of the exchange, in accordance with a questionnaire setting forth the scope of such investigation prepared by the Commission. Subsequently, this exchange dissolved. The following named constitute the exchanges granted temporary exemption from registration as national securities exchanges as of June 30, 1935: Associated Stock Exchange (Manila. Chago Curb Exchange Colorado Springs Stock Exchange Bolalu Stock Exchange Luisville Stock Exchange Miwankee Grain and Stock Exchange Reno Stock Exchange Richmond Stock Exchange Seattle Stock Exchange Standard Stock Exchange of Spokane, Wheeling Stock Exchange FORMULATION OF RULES FOR THE REGULATION OF TRADING A comprehensive survey was made of the activities of specialists, or traders, and odd-lot dealers on the New York Stock Exchange ad on the New York Curb Exchange, as well as an analysis of ading on other exchanges. On the basis of this study, suggested des for the regulation of trading on exchanges were formulated. ese rules were sent to all national securities exchanges, with the mmission's request or recommendation that they be adopted. As the close of the year, 16 exchanges had adopted such rules, either recommended or in modified form. It is not considered that these zgested rules shall represent the final regulations to be promulded regarding this matter. They are experimental in character may be changed if further study indicates a necessity therefor. Various phases of trading on exchanges were covered by these rules, including limitations on a member's trading while on or off the floor of an exchange; participation by members in joint accounts; reports of substantial joint accounts; handling of customers' discretionary accounts and discretionary orders; the use of puts, calls, and straddles by members; members acting in the dual capacity of brokers and dealers; the preservation of records or orders by members; successive transactions by members; registration of specialists and odd-lot dealers; limitation upon the dealings of specialists and odd-lot dealers; and short selling. To assist in the detection of violations of these trading rules, to study the effect of such rules on market activities and operations, and to assist the Commission in the formulation of further rules in connection with these subjects and correlated matters, various detailed report forms were devised to be filed by exchanges and members of exchanges. These reports disclosed, among other things, the extent of trading by members and partners for their own account as compared with the total volume of transactions on exchanges, and the effect of trading by specialists on quotations and the market action of the securities in which they specialize. Approximately 380 such reports are filed each week and a system has been devised for the expeditious analysis in order to detect manipulative practices or trading by members and to determine whether further rules are necessary to make exchanges free, open, and orderly market places for securities. These reports are also useful in accumulating material in connection with a study of the feasibility and advisability of the complete segregation or limitation of the functions of the dealer and broker, the results of which will be reported to the Congress pursuant to the mandate of section 11 (e) of the Securities Exchange Act of 1934. DETECTION OF EXCESSIVE TRADING AND MANIPULATIVE AND DECEPTIVE PRACTICES ON EXCHANGES Pursuant to sections 9 and 10 (b) of the Securities Exchange Act of 1934, trading activities on the major exchanges were under surveillance, and all transactions which appeared to be manipulative in character were promptly referred to the regional offices for investigation. The tape quotations of the New York Stock Exchange and the New York Curb Exchange were under continuous observation, and complete lists of daily transactions were required to be furnished by all exchanges. Transactions on the various exchanges were constantly scrutinized to detect trading in securities by members, which trading might be excessive in view of the financial resources of such members or in w of the market for such securities. Trading activities were also served for the purpose of detecting trading by specialists in the curities in which they specialize, which was not reasonably neces-ary to permit such specialists to maintain a fair and orderly market their securities, and for the purpose of uncovering violations of the other recommended rules for the trading on the exchanges above Settioned. In connection with the detection of manipulative practices, such wash sales, matched orders, pool operations, the "tipping" of pool operations, the dissemination of false or misleading information concerning securities, and other manipulative and deceptive eries, investigations into transactions in 67 securities were made turing the year. A system was devised for the accumulation of important informaa published or circulated concerning securities and their price movements. As it was important that such information be immeately available to aid in investigations and for other purposes, files were established on 838 individual companies, the securities of which were listed on registered or exempted exchanges, or traded in over-the-counter markets. There were also established 116 files on various industries. As an aid in uncovering manipulative operations by corporate insiders", examinations were made of the reports of officers, directors, and beneficial owners of registered securities filed under section 16 of the Securities Exchange Act of 1934. Up to the close of the year, analyses were made of transactions of such officers, directors, and beneficial owners, in 61 securities. Ten field investigations were made as a result of such analyses. FORMULATION OF RULES FOR THE REGULATION OF PEGGING, FIXING, OR STABILIZING OPERATIONS BOTH ON EXCHANGES AND IN THE OVER-THE-COUNTER MARKETS Pursuant to sections 9 (a) (6), 10 (b) and 15 of the Securities Exchange Act of 1934, a careful survey was inaugurated by the Commission to determine the extent to which pegging, fixing, or stabilizing the prices of securities should, in the public interest, be permitted. Data concerning various types of pegging, fixing, or stabilizing operations employed in the past were compiled and analyzed as a preliminary to drafting rules and regulations on this subject. Statistics were assembled on the average price range of stabilizing operations and a comprehensive report was prepared describing the advantages and disadvantages and the uses and abuses of such operations. During the last week of Juné invitations were sent to representative banks, investment bankers, underwriters, stock exchange members and stock exchanges, as well as the Investment Bankers Association of America, Investment Bankers Code Committee, New York Securities Dealers Association, and Associated Stock Exchanges, informing them of conferences to be held with regard to pegging, fixing, or stabilizing operations. As an aid in facilitating discussions at these conferences, agenda of matters to be considered were prepared. FORMULATION OF RULES FOR THE REGULATION OF PUTS, CALLS, 1 STRADDLES, AND OTHER OPTIONS Under authority of section 9 (b) and (c) of the Securities Exchange Act of 1934, a study was made of transactions involving puts, calls, straddles, and other options. Conferences were held with put and call brokers, commission houses, and others interested in such options, to determine the extent to which such transactions should be permitted. The proposed program encompasses trading practices in connection with such options, the registration of put and call brokers and dealers, reports in connection with the granting or acquiring of options, the duration of options and the endorsement of options by exchange members. FORMULATION OF RULES FOR THE REGULATION OF SHORT A detailed analysis of the subject of short selling was made for the purpose of determining the extent to which such selling is economically justified and the extent to which it should be curbed. A rule was formulated which all exchanges were requested to adopt and which, it is anticipated, will preserve those features of short selling which are in the public interest. The subject of stop-loss orders was also studied with a view to determining the extent to which the preservation of such orders is in the public interest. No rules have yet been formulated on this subject. COOPERATION WITH THE FEDERAL RESERVE BOARD IN THE SUPERVISION OF ITS MARGIN REGULATIONS The Commission cooperated closely with the Federal Reserve Board in the formulation of its rules under section 7 of the Securities Exchange Act of 1934 governing the extension and maintenance of credit on registered securities. Many suggestions were made to the Federal Reserve Board for its consideration in the drafting of regulation T. For the purpose of supplementing the work of the Federal Reserve. board, a unit was organized to check up on margin accounts to certain whether they were being maintained in compliance with agulation T, and also to study the effect of such regulation on the tension of credits on registered securities. During the year since * effective date of such regulation, 197 firms were examined. The sults of these examinations were made available to the Federal Reserve Board for the purpose of indicating the practicability and Lectiveness of regulation T, as well as to reveal violations thereof. FORMULATION OF RULES RELATING TO BORROWINGS AND SOLVENCY OF, AND HYPOTHECATION OF CUSTOMERS' SECURITIES BY, EXCHANGE MEMBERS, BROKERS, AND DEALERS Considerable research was done preparatory to the formulation of rles under section 8 (b) of the Securities Exchange Act of 1934, efining brokers' aggregate indebtedness and net capital, and determining the proper ratio between the two. This work entailed a study f brokerage accounting, consideration of an appropriate form of port of financial condition to be filed periodically by brokers, either ith the exchange or the Commission, and involved several confernces with experts on accounting matters. Study was also devoted to the matter of hypothecation of cusners' securities and safeguards to be erected in connection with sch hypothecation. The subject included "earmarking" of customers' securities, escrowing of customers' surplus funds, comminging of customers' securities, and the extent to which customers' ecurities may be hypothecated by brokers. No rules have yet been. mulgated on the subject. SUPERVISION AND STUDY OF MATTERS RELATING TO UNLISTED TRADING PRIVILEGES IN SECURITIES ON EXCHANGES During the year 2,808 applications for continuance or extension of unlisted trading privileges in securities were submitted to the Commission pursuant to section 12 (f) of the act. Each application. as examined for the purpose of determining whether the subject. ecurity was eligible for unlisted trading privileges on the applicant range. Before any application could be granted, it was necessary determine that the subject security either had been admitted to isted trading privileges on the applicant exchange prior to March 1934. or had been registered on another national securities exchange. d had been listed thereon on March 1, 1934. Of the applications with the Commission, 2,776 were granted and 32 were denied. In the public interest, the Commission announced that it would ider objections to unlisted trading privileges in securities on |