done under the powers of the bill without referring the specific rules and regulations to your body, which gives us pause.

Now, we are prepared to cooperate. I say that earnestly, we are prepared to cooperate and would approve the enactment of certain of the provisions of the bill which is now before us. We would like

to have an opportunity to confer, to bring together, the many interests of the country which feel it is affected by this, and if possible, have the commission present to your Congress further recommendations for legislation.

The CHAIRMAN. Yes. Well, that is a good thought all right; but if we are to set up an authority of any sort, would you, as a representative of your exchange, be willing to confer upon it the powers that Mr. Whitney proposed to confer upon this coordinating authority?

Mr. LOCKWOOD. Yes; generally speaking.

The CHAIRMAN. All of the powers?

Mr. LOCKWOOD. The powers. At the same time, I perhaps differ in this respect, that it seems to me it might be better for this commission to make a report to Congress in respect to certain definite legislation and to let the Congress decide.

The CHAIRMAN. Well, the trouble about that is, that is what we have before us now, and that is what you are objecting to, Mr. Lockwood. You are objecting to specific regulation.

Mr. LockwOOD. But, that follows an official conference between the Government and the many parties interested and could be presented then as with the various views, and with the recommendations of the commission which would be based upon fact findings and not upon a general idea of abuses and their remedies.

The CHAIRMAN. Now, let me call your attention again to the suggestions of power that this coordinating authority of Mr. Whitney's would have

We suggest that this coordinating authority be given plenary power to control the amount of margin

Well, now, that is what we are giving the commission—

Such 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.

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, 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 tend to create unfair prices may be eliminated.

Mr. LockwOOD. Yes.

The CHAIRMAN. Now, are you willing for an authority such as that to be created? I am not talking about the name, or where located, that we would set up under this bill, to have that power?

Mr. LOCKWOOD. If that authority had representation from those who were to be regulated, not a majority, but had representation, and I think that should also include the representatives of industrial companies.

The CHAIRMAN. Now, let me call your attention to this, Mr. Lockwood, and see how far you are afield there from the way we do regulate. It is written in the Interstate Commerce Act that the man owning stock in any railroad, or a director, cannot be an Interstate Commerce Commissioner.

Mr. LockwOOD. Yes.

The CHAIRMAN. The reason is very evident. But the Interstate Commerce Commission does sit for weeks listening to shippers' interests, railroads' interests, to locality interests, and all of that, before eventually vetoing a rate, or fixing a rate on its own motion.

Now, say that you are going to set up a governmental authority here in which you must have a representative of the New York Stock Exchange and an attorney for the curb exchange as a member, it would appear to me, although I will say that is very wise representation of these organizations and would appear to give them the good end of the bargain; but it is just doing something we have never done. Mr. LOCKWOOD. That is true, but you are meeting, it seems to me, a situation which is in itself not nearly so clear and coordinated as is the railroad problem which it involves all of the citizens of the United States. At the same time

The CHAIRMAN. This may.

Mr. LOCKWOOD. I beg your pardon.

The CHAIRMAN. This may involve all of the citizens of the United States.

Mr. LOCKWOOD. Yes. I mean in one particular function. Now, the exchange functions, we have seen here, extend through the various activities of the exchange into all of our economic structure. They are difficult problems. We know that we have tried to study what could be done in certain instances. We should like to have outside assistance. We have had it. We shall make recommendations. My own fear is, Mr. Chairman, that we might get here and we would get under the present bill a strait-jacket which might injure the public, not the exchanges entirely.

The CHAIRMAN. Well, of course, you understand, Mr. Lockwood, I have stated several times, that this bill was introduced as a basis of consideration and in the long run the committee will be called upon, in executive session, to write something.

Mr. Lockwood. Yes.

The CHAIRMAN. And that is the reason we are giving you men the privilege of coming here to confer with us; but, frankly, I cannot see where the bill gives this commission authority or more power than Mr. Whitney is willing to give to it himself. And, before we get into that executive session, we would like to have, as briefly as you can give it to us, what are your suggestions as to what the legislation ought to be.

Mr. LOCKWOOD. I think that you will appreciate this, which I would like to say to the committee, if it will listen to it. Our thesis here today is that it is better for the public to deal in securities if they be of a substantial class, if those securities are being bought and sold by the people of this country, it is better for them to be dealt in on an exchange than on an outside market. Now, that is a vital factor to us in this bill, because as it is now written, it means that the curb exchange will possibly have to go out of business. That is something that we feel should be considered, because you have an exchange which

is national. You have thousands and thousands, of people in this country who hold our securities, such as Standard Oil of Indiana, and many others who look to us for a market.

Now, we beg you not to consider us alone, but consider the economic results of that throwing us out of functioning.

The CHAIRMAN. I do not think that there is anybody here that intends to put the exchanges out of business.

Mr. MERRITT. I am going to suggest, Mr. Chairman, I think what is in Mr. Lockwood's mind, and I will ask if that is not true, that the stock exchanges differ from the railroads in that they have to meet sudden, very sudden crises that are liable to come up overnight and they have got to have some authority that can change regulations within certain margins. I think that this bill could provide for that.

Mr. LOCKWOOD. That is what I have in mind and am afraid that is liable not to happen under the commission.

Mr. MERRITT. It is a much livelier business than the railroad business.

Mr. LockwoOD. At times.

Mr. PETTENGILL. Mr. Chairman, we have passed statutes, have we not, directing the President to give representation to different interests on regulatory commissions. Is that not true? As I recall, that is true with the Federal Reserve Act, that it requires some members of the board to be chosen to represent certain interests. The CHAIRMAN. The amendment passed some time ago with regard to agricultural interests, and so on.

Mr. PETTENGILL. Yes, sir.

Mr. LOCKWOOD. That is certainly true, with regard to the N.R.A., is it not?

The CHAIRMAN. Well, you are going too strong for me now.
We will have to adjourn now.

Mr. GRUBB. May I put the rest of my brief in the record, Mr. Chairman?

The CHAIRMAN. Yes, you may, and we are very much obliged to you gentlemen.

(The remainder of the brief above referred to is as follows:)

Is the outside, the unregulated, the dealer market a fairer index of real values than the market on an exchange?

As against these conditions and the contention of companies and dealers, the curb exchange believes that the prices of its securities on its floor represent values obtainable and realizable at the moment; that it affords to the Nation generally a place where those who wish to sell have a far better chance of getting prices, fairer in the circumstances by reason of the wide dissemination of exchange quotations throughout the entire investment field of the country than if the same owners are confined to finding their purchasers through a more or less unknown group.

It is for these reasons that the exchange is not necessarily led to remove a security because the company objects. If it be shown that injury to the company or to its stockholders will result from a continuation of trading, trading will be suspended. There may be refinancing, when widely published quotations may interfere with plans; but even here it is difficult to see why the public should not know the actual prices which securities bring on a broad scale in an open market rather than to follow more or less ignorantly and blindly the optimistic hope of banks and officers of companies. This is the source of much of the difficulty between companies and outside dealers and the exchange.

It must be remembered in this connection that the exchange does not admit securities to unlisted dealing when primary distribution is taking place. But when the security is in the hands of the public, the market should be real and substantial; not confined to a few houses which specialize to their profit in the

security. The owners are entitled to the widest possible field of purchasers-that is, the buyers of the Nation.

It is undoubtedly easy to maintain a market when it is difficult to learn prices, where owners do not know from daily observations of exchange transactions what prices are, the extent of the activity and the tendency of the market. They take everything for granted, and may wake up to a grievous surprise.

Complaints are sometimes made that markets on the New York Curb Exchange, as well as on exchanges generally, by reason of publicity, particularly in a declining market, have disturbed holders of securities and have induced sales that might otherwise not have taken place. It is undoubtedly true that knowledge of declining prices makes for unsettlement and sales and that an advancing market induces purchases. We believe, however, that it is preferable for the public to face conditions rather than to hold on to or to purchase on a foundation of ignorance.

Stock exchanges both in their early days and in the more recent past, have not been free from criticism, much of it justified. On the whole, however, it is believed that the exchanges have come in for much unwarranted denunciation merely because they are organized and constitute focal points towards which the searchlight of public opinion may be directed in much the same way as Wall Street has always been blamed for all of the dishonesty and overreaching which from time to time are "turned up" in the financial world. It is easy to point to something definite and concrete, and difficult to lay hold of that which is unorganized.

But the problems of recent years have been less questions of listing and of the safeguards surrounding the admission of securities to trading than of protecting the public against its own speculative fervor and against the machinations of the unscrupulous. These are largely trading problems induced, not alone by the unscrupulous or by greed, whether specific or Nation-wide, but by national and international policies for which the stock exchanges as well as the individual investor are not solely responsible.

Criticism of the exchange comes from exchanges in other parts of the country which feel and, in the past at least with justification, that the action of the New York Curb Exchange in admitting a security to unlisted trading, where it is already listed upon another exchange, is unfair. There are many such exchanges, each of which fulfills an important and valuable function. They provide the facilities for the purchase and sale in their various centers of securities, when an active market exists in such centers. However, the grounds for such criticism have to a very large degree been removed and in the future, no security will be admitted to unlisted trading upon the New York Curb Exchange merely because an active market in the security exists on some other exchange or elsewhere in the country. Today the basic principle is that there must be an active market in the security in the section of the country which the New York Curb Exchange particularly serves and especially in New York. For the reasons heretofore advanced, it is believed that the Curb Exchange is justified in permitting a market on its floor where an actual market in the security exists here.

A security is listed upon a local out-of-town exchange because the security issued by a company which is a local enterprise or because the security is known locally. The issuing corporation recognizes this. Transactions in the stock are at first limited to those in the neighborhood who are familiar with the industry. There is little general distribution; but as the local market becomes active, investors in other financial centers take notice. They give orders which are executed “over the wire" or "over the counter." The former are to the advantage of the members of the exchange of listing as well as to the company which is securing a broader field for its securities and for its products. But there comes a time when a substantial number of stockholders, for example, live in or about New York. The same condition may prevail in any other financial community. There is a center of interest other than in the original community. It is at this point, when the market is active in New York, that the Curb Exchange believes that it is in a position to render service to the New York holders or purchasers of the stock to enable them to buy or sell on an exchange in New York and to complete the transaction here rather than in the distant city. Application is made to admit the security to trading. The application must be by a regular member of the exchange, himself a stockholder. There must be sufficient distribution in and around New York to warrant the belief that an active market exists in New York. The authorized issue must not be less than 100,000 shares. There must be submitted balance sheets and profit and loss statements covering a period of not less than 2 years immediately preceding the date of application. There must be furnished the history and description of the business from its 45381-34-26

inception to date, a tabulated record of dividends on all classes of stock from initial payment to date, a tabulation showing fully the funded indebtedness and an official copy of the latest annual report of the corporation in the form as issued to its stockholders.

All the pertinent factors are then considered by the listing department and are passed upon by the committee. If approved, the application goes to the board of governors which must be satisfied before giving its vise. If it be accepted as a Curb stock, the public throughout the country becomes aware of the security by reason of newspaper reports of transactions. It may attract investors in many quarters who do not base their decisions to buy solely upon the merit of the security but also because of the market upon the curb which gives it a banking value. Here in New York are banking facilities to care for the largest transactions. Here is the financial center. It may be that the members of the exchange of issue may lose orders. The curb members will certainly profit. On the other hand, the wider knowledge of the security may increase the business on the home exchange. In any event, it would seem inconceivable that a company, by listing upon a small exchange might prevent a security, no matter how important it might have become, from being dealt in on any other exchange. Or take the converse. A security may be listed on no exchange. A market may arise in New York. It is admitted to the Curb Exchange. It becomes a nationally known stock such as several now on the exchange. Would it be in the public interest for the Curb to be compelled to cease trading in this stock because the company, perhaps for selfish reasons, listed the stock in an exchange, say for illustration, in Arizona.

A substantial market in a security admitted to trading on the Curb Exchange could not be abandoned without tremendous financial disaster. The public has learned to rely on Curb quotations. Bankers use them for purposes of credit. To cease trading in such securities in order that a local exchange should become the sole market place might produce a financial crisis. It would benefit the distant exchange to a degree; it would give plenty of orders to the outside market; but it would leave the public confused and alarmed. It might cause bankers to call loans based upon New York quotations. The market upon which all have relief for values and for sale would have disappeared and no local or outside market would afford an adequate substitute.

Some securities are fully listed on several exchanges. This occurs when the company itself desires numerous distrubution points for the sale of new capital issues. On the other hand, a security may be distributed following listing on a small exchange and the company may have no interest in new financing. It may be content to have the market at home. But if a market be created in New York, the New York Curb Exchange enters in, to provide the public interested in a security with a market which is recognized throughout the country.

In past years, securities were admitted to the Curb Exchange when there was no market here; when the security was local. This was not a proper exercise of the function of the Curb Exchange. Now, the requirements forbid this. An active market must be here in advance of, and as the reason for, admission.

It is undoubtedly desirable that adequate information should be available to the public as to every security bought or sold in the United States. The New York Curb Exchange believes, moreover, that all trading should take place upon the floor of an exchange where it will always be subject to proper regulation and control; but so long as such an enormous amount of trading takes place of or outside any exchange and until the day comes when all trading is required to be upon exchanges, it is believed that it is in the public interest that trading in so-called "unlisted securities" should be permitted on an organized exchange when an active market exists in the security in the neighborhood of the exchange, and where sufficient information is on file with the exchange to give to the investor substantial information in respect to the security. No exchange is more sincerely or honestly run than the New York Curb Exchange, and barring the New York Stock Exchange, no exchange is so Nation-wide in its scope, or offers more efficient and modern facilities. As against trading upon a recognized and organized exchange and trading off an exchange, and unless and until a security may not be bought or sold other than on an exchange, the issue would seem to be overwhelmingly in favor of exchange trading.

(Thereupon, at 11:48 a.m., the committee adjourned to meet at 10 a.m., the following day, Thursday, Mar. 1, 1934.)