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tions of the entire banking system of the country and of many corporate practices.

The bill, however, exceeds its express purposes of exchange regulation and investor protection and in fact becomes by its far-reaching provisions a vehicle for the regimentation of credit and corporate practices through the medium of stock exchange regulation. To illustrate, it vests in the Federal Trade Commission the power to control collateral loans and interest rates; to prescribe the forms of reports, balance sheets and earning statements and methods of accounting in the appraisal or valuation of assets and liabilities, and in determining depreciation, and so forth, to be employed by corporations whose securities are registered on any exchange; it dictates the conduct of officers, directors, and stockholders of corporations; it requires annual and quarterly reports, balance sheets and profit-andloss statements (certified by independent public accountants) as well as monthly reports and statements of sales or gross income of all corporations whose securities are registered on any exchange; and gives absolute regulatory power over all securities, registered or unregistered. The Federal Trade Commission is given an indirect but potentially effective directional control over the investment of all capital.

If this proposal is carried out, the Federal Trade Commission can, through its control of so many of the varied phases of the financial and economic life of the country, restrict the operation of and

even destroy corporations that incur its displeasure. The Federal Trade Commission does not have to convict a corporation of any particular illegal transaction, but can regulate it out of existence by control of credit, restrictions on new financing, removal of its securities from exchanges, and so forth, without in any way justifying its motives or the soundness of its judgment.

Although the bill provides for judicial review by appeal to the courts from the decisions and orders of the Federal Trade Commission, it must be appreciated that many such orders and decisions of far-reaching and fundamental effect would be primarily administrative orders involving the discretion of the Commission and might thus not be subject to review by the Courts in a manner sufficient to present the full controversy for judicial review. Furthermore, immediate action, absolutely required by the very nature of the subjects involved, is impossible and delay will prove a denial of justice.

Furthermore, granting to the Federal Trade Commission the proposed broad control over financial matters further causes confusion and conflict in that it separates from the normal financial branches of the Government control over some of the most important phases of the financial and credit structure of the country. To so separate control of different parts of the financial system of the country in several independent branches with no coordination established between them, presents much possibility of confusion, conflict and disorder.

The CHAIRMAN. I believe I understood you to say you endorsed Mr. Whitney's suggestions in this paper that he filed here.

Mr. Hope. Yes, sir.

The CHAIRMAN. And, your main objection to the bill is that it is conferring too much power on the board or commission?

Mr. HOPE. That is one of them; I think that is the main one.

The CHAIRMAN. What is that?
Mr. HOPE. That is one.
The CHAIRMAN. That is one of your objections.
Mr. HOPE. Yes, sir.

The CHAIRMAN. And, your objection of course, goes to the Federal Trade Commission?

Mr. HOPE. Yes, sir.

The CHAIRMAN. Well, now, if you will note, Mr. Whitney suggests that we have an authority composed of 2 members to be appointed by the President, 2 Cabinet officers, and another Government official, which makes 5 members of this so-called "Authority of 7", and then the other 2 are to be named, 1 by the New York Stock Exchange in the manner suggested. That authority would probably act by majority vote. You have got five appointees of the President on the board and two outside. There would not be much difference between that kind of authority and any other of seven men?

Mr. HOPE. It seems to me
The CHAIRMAN (continuing). Named by the President.

Mr. HOPE. It seems to me there would, if he followed in any particulars the suggestions of Mr. Whitney as to taking those in the financial branches of the Government rather than those of the Federal Trade Commission.

The CHAIRMAN. Well, the Secretary of Commerce is not in the financial end of the Government, is he?

Mr. HOPE. No, sir; but the Secretary of the Treasury is.

The CHAIRMAN. The Secretary of the Treasury is, and then there is 1 other man who is; but that would be 2 out of the 7.

But, I want to call your attention to the powers that Mr. Whitney proposes to give to this authority.

This is in the fifth paragraph of this paper that Mr. Whitney presented:

We suggest that this coordinating authority be given plenary powers to control the amount of margins which members of exchanges must require and maintain on customers' accounts; and further, that it should have plenary power to require stock exchanges to adopt rules and regulations preventing not only dishonest practices but also all practices which unfairly influence the price of securities or unduly stimulate speculation.

Now, those are the powers you are giving to Mr. Whitney's authority.


Without attempting to define, at this time, the scope of these powers, we believe that they should include the power to fix the requirements for the listing of securities; the control of pools

That means to prohibit them, if they desire syndicates and joint accounts and also options intended or used to influence market prices; the power to control the circulation of rumors or statements calculated to induce speculative activity, the use of advertising and the employment of customers' men or other employees who solicit business; to the end that all practices which may terd to create unfair prices may be eliminated.

Now, when you talk about power given to a board, it appears to me that that board, without really well-defined powers would have much power in all probability as this bill is giving to the Federal Trade Commission or any other board, Federal Reserve Board, or committee formed of Cabinet officers, and you would endorse a bill written along the lines suggested by Mr. Whitney.

Mr. HOPE. Yes, sir.
Mr. KENNEY. Mr. Chairman-
The CHAIRMAN. Mr. Kenney.
Mr. KENNEY. A coordinating committee has been suggested.
Mr. HOPE. Yes, sir.

Mr. KENNEY. Are you familiar with the railroad bill that sets up a railroad coordinator?

Mr. HOPE. No, sir.

Mr. KENNEY. Have you considered the advisability of giving the regulatory authority to a coordinator? Mr. HOPE. As to who the man shall be? Mr. KENNEY. What? Mr. HOPE. As to the personnel, you mean?

Mr. KENNEY. Yes, as to the advisability of having an administrator of the regulatory authority.

Mr. HOPE. Well, I assume this is along that line, Mr. Whitney's suggestions.

Mr. KENNEY. You would prefer that committee to a coordinator, to one man who might have the responsibility in place of the committee?

Mr. HOPE. One instead of seven?
Mr. KENNEY. Yes.
Mr. HOPE. We discussed that a while ago, but just only informally.

Mr. KENNEY. The railroad bill has certain regional committees with

power to do certain things but final authority is vested in the coordinator. Has anything like that occurred to you?

Mr. HOPE. I say that we discussed it some little time ago, in a little informal meeting, but not to any great degree. The idea was presented and received some approval by two or three fellow brokers.

I do not know that it has the approval of any of the membership of the board of governors. I know that it was discussed among a few brokers. I am not a governor. I am one of the men in the back office.

Mr. KENNEY. Did a certain group among you suggest the idea of a coordinator?

Mr. HOPE. I have no authority to present it here as a suggestion. In answer to your suggestion, I would say that we have discussed it, two or three of us.

Mr. COOPER. Mr. Chairman-
The CHAIRMAN. Mr. Cooper.

Mr. COOPER. You stated a moment ago, personally, you favored Mr. Whitney's suggestion with regard to a bill.

Mr. Hope. Yes, sir; that which he proposed to you.

Mr. COOPER. That which he proposed to us. Would that go as far as to give this board the power, as would be given to the Federal Trade Commission in sections 11, 12, and 13? If it did, I would be opposed to that. I am talking about industry and private capital, and so forth.

Mr. HOPE. I am of the opinion, just from reading the recommendations of the stock exchange, that it does not. That is my idea of it, Mr. Cooper.

Mr. COOPER. It does not reach out into the regulation of private capital in business?

Mr. Hope. That is my understanding.

Mr. COOPER. If it did, I would not favor that.
Mr. HOPE. I would not either, sir.
Mr. MARLAND. Mr. Chairman-
The CHAIRMAN. Mr. Marland.

Mr. MARLAND. The question that I have in mind has been almost answered.

I was going to ask what authority is given the Federal Trade Commission under this bill before us that would not be granted to the stock exchange coordinating authority under Mr. Whitney's suggestion.

Mr. HOPE. I do not understand Mr. Whitney's suggestion does anything more than regulate the stock exchanges, sir.

Mr. MARLAND. And, you think that under his suggestion the coordinating authority would have just the same authority given to the Federal Trade Commission under this bill, so far as the stock exchange is concerned, or would it have less?

Mr. HOPE. From what little study I have given to this, I think it gives about the same authority over the stock exchanges. I have not read this as carefully as I have read the bill.

Mr. MARLAND. Mr. Whitney's suggestion gives the coordinating committee the same authority over the stock exchanges as the bill before us.

Mr. HOPE. Yes, sir; I think that is so.
Mr. MARLAND. Thank you.
The CHAIRMAN. Thank you, Mr. Hope.



The Chairman. Mr. Pierce, you may qualify, giving your full name and representation to the reporter.

Mr. PIERCE. Edward A. Pierce, of E. A. Pierce & Co., New York. The CHAIRMAN. What is the business of that company, Mr. Pierce? Mr. PIERCE. Stock and commodity exchange business. Members of the New York stock and other stock exchanges and commodity exchanges of this country and Canada, 22 in all.

If the committee please, I would like to discuss the bill under consideration from the standpoint of its workability, or, if you will, its enforcability.

I come to you as one who is very greatly concerned over what may happen to our 45,000 customers- I come to you as one who is greatly concerned as to what may happen—if this bill is enacted into lawwhat may happen to many of our 45,000 customers; our 2,000 employees; a business that has been built up, laboriously, over a period of 50 years, and always with regard to the ethical side. I suppose that if, under current conditions, the archangel Gabriel came down here and spoke today on the ethics of those connected with the stock and commodity exchange businesses he would be somewhat doubted.

The CHAIRMAN. He would noi be any inore here than any other place? What do you mean, Congress?

Mr. PIERCE. No, sir.
The CHAIRMAN. You say “if he came down here."
Mr. PIERCE. I mean the whole United States.
The CHAIRMAN. All right.

Mr. PIERCE. I had in mind the descent of the archangel.

I rather resent the imputation that the New York Stock Exchange is nothing more than a gambling institution. Of about 45,000 clients, 29,000 are cash customers, speaking from the security market standpoint; 90 percent of our silk contracts are carried for the trade; 80 percent of our cotton contracts are carried for the trade.

I also resent the imputation that if the stock exchange adopted remedial rules that they would be rescinded as soon as Congress adjourned. Slightly to paraphrase Voltaire, I do not always agree with Mr. Whitney's ideas as to stock exchange control or those of his associates, but I will fight for his right to entertain them to the very end, because I am quite sure that he and his associates in the management of the exchange are thoroughly honest, believe thoroughly in the steps they have taken to protect the public, and I am sufficiently well acquainted with them to feel confident of my ground.

I do not know why the stock-exchange business should be considered sui generis. Apparently it is the idea of a good many people that we can succeed only by mulcting our customers. I know of no other case where a closer relationship obtains than between the exchange broker and the customer.

In this bill there is much that is good and much that is new, but the heck of it is that the good is not new and the new is not good.

I, some time ago, discussed with one of the men who I believe has been quite largely interested in the framing of the bill, its social aspects. I did not get to first base. After half an hour's argument, rather heated argument, he maintained that it was impossible for a Wall Street man to get the viewpoint of the man "in the sticks” as he put it, the man from the small country towns, the man from the small city. Considering the fact that I was born and lived nearly half my life in a town of 1,400 inhabitants down in Maine and prepared for college in á very small city and that that other bird probably had not for four consecutive weeks in his life been off the island of Manhattan, I figured that I was off of the reservation and was wasting my time.

It is proper to get the picture to you gentlemen so that you will understand it, if you do not already know, that there is as much difference between the functions and operations of the different stock exchange houses as there is between the building of a Rolls Royce car and the building of a Ford car requiring mass production.

My firm happens to be one of perhaps 14 or 15 important "wire houses”, so-called. I would say that probably 75 percent of the stock, cotton, grain, silk, coffee, sugar businesses of this country is conveyed to the principal centers, such as for instance, New York for securities, Chicago and Winnipeg for grain, New York and New Orleans for cotton-by these 14 or 15 houses with perhaps a few others of their class.

We have—and I am not advertising my business—there are others in the same business and it is important to get these particulars before you-we have membership in many exchanges--22, as a matter of fact-of all kinds, stock, cotton, grain both in this country and in Canada; hide, leather, silk, wool-even butter and eggs by the carload; we have branches in 37 cities; probably three times as many correspondents-member and nonmember-all connected by leased private wire which are under our own control for a large part of the day-so

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