Governor BLACK. I think that is right. I was talking about registered.

Mr. HUDDLESTON. I am wondering whether it is not desirable in the public interest that a market for unlisted securities should be provided. Is it not desirable, in the public interest, that there should be free commerce in all kinds of securities, listed as well as unlisted? Governor BLACK. I think so, sir.

Mr. HUDDLESTON. Yes, this bill makes it impossible to trade in such securities on a national exchange.

Governor BLACK. Well, as I say, when we talk about national exchanges, I was talking about Boston, or Philadelphia, or San Francisco or the New York Stock Exchange.

Mr. HUDDLESTON. Yes.

Governor BLACK. I did not understand that they traded in unlisted securities on those exchanges, but only listed securities. Mr. HUDDLESTON. That is no doubt correct as to them.

Governor BLACK. They are the ones that are being reulated. Mr. HUDDLESTON. I am inviting your attention to that, and want to ask you about your opinion. Do you think that it would be a desirable thing to relax the rule and permit trading on national exchanges of unlisted securities?

Governor BLACK. I do not know that there is any rule against that, sir, except it just is not the custom of the exchanges to deal in any such securities, except those represented by the registered companies.

Mr. HUDDLESTON. This bill, as is my understanding of it, prohibits trading in unlisted securities on the exchanges that are licensed.

Governor BLACK. Well, I do not understand that. I understand this bill limits borrowing by members of exchanges on unlisted securities.

Mr. HUDDLESTON. Now, going to that ponit. Is that desirable, in the public interest?

Governor BLACK. Well, I think that is the only way you can curb loans on securities, speculative loans, based on securities, because if you do not do that and allow loans of a speculative character to be made on unlisted securities, for speculative purposes, it is very difficult to get any margin requirements, because nobody knows what is the loan value of those securities. There is no market.

Mr. HUDDLESTON. You would not think that it would be desirable to forbid a bank making loans on unlisted securities?

Governor BLACK. No, sir. We have corrected that in this bill so that they may make them, except for speculative purposes.

Mr. HUDDLESTON. Of course, the purpose of borrowing may be unknown to the bank.

I

Governor BLACK. Well, a banker said that to me yesterday. said, "I do not believe you have a loan in your bank that you do not known whether it is speculative or is not, and having that intimate knowledge with your loans, and realizing that there is a penalty of 10 years in the penitentiary, I believe it will be very easy to decide whether a loan is speculative or is not.

Mr. HUDDLESTON. We have no definition as to what is a "speculative loan." It is a rather loose expression, it seems to me.

Governor BLACK. Well, sir, the Senate committee asked me the difference between gambling and speculation, and I told them that

ere was some pleasure in gambling, and very little in

POLESTON. That depends upon which side you came out on. or stack. They asked me that, too, and I told them that ut on both ends, and lost in the middle.

*27*1AN. Mr. Marland.

12.-5. Governor, I would like to ask your opinion on this. eve "ne passage of this act as written will have any serious stro-market values as they are at present?

"O SLACK. I doubt it very much.

LAND. That seems to be greatly feared. You doubt it? 3LACK. Very much. I have heard "Wolf" cried so business in this country that I do not have much fear We heard the same thing when we went off of the gold you heard the same thing about the gold clause, and I felt eway when they took our gold, but I was mistaken in all

~ LALAND. If it had the effect of causing a decline, how would the future sales of Government securities; decline in the

mos, Ques÷harket securities?

“or Black. Well, I heard Mr. Cassatt make his statement that just now. Of course, there is a natural trend of bonds to he wake of stocks, but if there was some special reason for ass evining, such as you suggested, I am of the opinion investors ... eek 20 lavestment in government bonds, and we might anticiin the price instead of a fall.

MP BULWINKLE. Governor, do you think that the Federal Trade sien, as it is constituted in this bill, is the proper commission wy to give the workings of this to?

Ce setter BLACK. I think this should be regulated by a governmission. I would say that the Federal Trade Commission vised to insure fair practices and it thereby would certainly de ver ver commission to refer this to.

SWINKLE. You are of the opinion, then, that it is the proper

Cergenz Black. Yes.
BLACK.

Governor, we have an exchange at San Francisco that Nostress almost entirely, if not wholly, on unlisted securities.

think it better that that business be prohibited, or that bee to permit the sale of those unlisted securities, that is, the lege, should be granted under control of the regulatory BLACK. Well, now, those securities are listed on that

They are listed only for trading purposes. They are not the corporations whose stock is represented. They are grapes wing privilege on the exchange on the initiation of a member age instead of on the initiation of the corporation whose cerned.

Covernor BACK. Well, now, will you ask your question again, As I did not know there was such an exchange?

What I wanted to get was your judgment as to whether a set hat dass of business should be prohibited or should be peronce the control of the regulatory body.

Governor BLACK. Well, your question is an entirely new one, but I would think if it were properly conducted under fair practices, that it ought to be permitted some way, because they are practically listed securities. If they are not listed by the corporations, they are listed, certainly, with the tacit approval of the corporation by members of that exchange. I take it that is true.

Mr. LEA. Thank you.

The CHAIRMAN. Governor Black, I think I express the feeling of the whole committee, that we appreciate deeply having a witness before us who is intelligent in answering questions and who does not dodge, and who presents the case in a fair way.

Governor BLACK. I appreciate that very much, Mr. Rayburn. It has been a pleasure to appear before your committee.

The CHAIRMAN. We have had too little of it in this hearing.

Governor BLACK. If anything occurs to me, I will be glad to give it to you.

Mr. BULWINKLE. Governor, just a minute, please. You said your studies and the studies of the Federal Reserve Board's staff were continuing.

Governor BLACK. That is right.

Mr. BULWINKLE. Now, have you or the staff got any additional information, or formulated any additional amendments? Governor BLACK. Up to the present time?

Mr. BULWINKLE. Yes.

Governor BLACK. Not up to the present moment; no, sir.

Mr. BULWINKLE. Have you in view any that you are going to give us?

Governor BLACK. None, unless they may be on some technical exchange operations. We are looking into them more fully. The trouble is that we are not, any of us, experts in stock exchanges.

Mr. Chairman, I came near omitting one thing that the board asked me to call the attention of the committee to and suggested a bill, which we recommended 2 years ago relative to fixing reserves of members banks, not by fixed numbers as they are now, 37, 10, and 13 percent, but upon the basis of velocity in the turn-over in the bank. I guess you remember that. I would like very much to leave a memo

randum with the clerk on that.

The CHAIRMAN. I think that would come before the Committee on Banking and Currency.

Governor BLACK. Probably I had better submit it to them because we think that would be a benefit now.

The CHAIRMAN. We are very much obliged to you, Governor. The CHAIRMAN. Mr. Corning, you have someone who wished to be heard?

Mr. CORNING. Yes; Mr. Chairman. Mr. Gibbons.
The CHAIRMAN. We will hear Mr. Gibbons.

STATEMENT OF GEORGE B. GIBBONS, MUNICIPAL BOND DEALER, 49 WALL STREET, NEW YORK, N.Y.

The CHAIRMAN. Will you qualify by giving your full name and your business?

Mr. GIBBONS. George B. Gibbons. I am a municipal bond dealer, 49 Wall Street, New York City.

The municipal bond dealers in New York City appointed a committee, and appointed me as chairman to bring some points before your committee. You have been kind enough to let us do that, and these are the points. In going over this bill, it has seemed to us very clearly that it was designed to correct speculative abuses on stock exchanges. We cannot see, after very careful examination, where that applies to municipal bonds or just why they should be in the bill. For instance, they are not speculative in any manner, except possibly, Government bonds, because there are not enough of them, as a rule, of any one particular maturity or kind, or rate of interest, to speculate in them.

Now, the purchasers of municipal bonds, are, in a good many instances, insurance companies, trust funds, savings banks, local banks. Once they are bought they stay bought, as a rule, until sold for need, and to list them on the exchanges would not do them any good at all. In fact, it would do them some harm.

Now, the abuses that apply to other securities such as washed sales does not apply to State and municipal bonds. There are not enough of them available. If you did have a wash sale, or if you sold short, you could not buy them back. And, you do not buy them with your customer's money. You buy them with your own. And, by having these State and municipal bonds under the provisions of this bill would be very harmful in their price and desirability, and availability for collateral for loans. They would either have to be listed or they would have to be exempted, or they would not be available as collateral and for ready sale.

The very fact that the Federal Trade Commission has the power to exempt a municipal bond or refuses to exempt it, would be a continual depressing thought on that bond.

A man might buy a bond, or an institution might buy a bond, and after they bought it find it was not exempted, or the exemption was withdrawn. It affects the value and he would be unable to sell it readily.

I have a telegram here from a man who is financial officer of the State of New York, Mr. Morris Tremaine, State Comptroller. He is the custodian of $180,000,000 municipal bonds issued by 600 different municipal subdivisions of New York State, and here is what he says with regard to it.

[Western Union]

GEORGE B. GIBBONS,

ALBANY, N.Y., Mar. 23, 1934.

New Willard Hotel, Washington, D.C. You are authorized to use this telegram before any Governmental committee and file it as a matter of record. I firmly believe that the listing of municipal bonds on any stock exchange would be injurious to the credit of our municipalities and serious harm would come from such listing for the reason that manipulation of prices on an exchange for this type of security is far more likely than if they were traded in over the counter. Printed prices for small issues of securities such as some of them are could be used as a basis of soliciting orders above a natural market. Depressing prices could also be done through public quotations; at the present time there are 15 issues of New York City bonds listed on the New York Stock Exchange but trades in these issues are very seldom recorded. The State of New York has more than a hundred and eighty million dollars of its investment funds in over 600 municipalities of this State. The State annually invests upward of $15,000,000 in municipal securities of this State and I believe, as the State's chief fiscal officer, that it would not be helpful to the great majority of these municipalities to have their securities listed on any

exchange at the present time. A banker doing service for these municipalities is ready and willing to support the market for the securities that he has sold to his customers. I can see no gain from listing these securities and this is demonstrated by the active trading in New York City bonds in over-the-counter market as compared to the exchange where they are listed. Several banks took their securities off the New York Stock Exchange because of the possibility of manipulation and the consequent effect on credit of banks. I believe this same rule might be a serious menace to the holders of municipal securities if listed on the exchange; therefore, I strongly recommend, as far as the State of New York is concerned, that they neither be listed nor come under the supervision of the Federal Trade Commission. It is the business of New York State to manage its own municipalities and their finances.

Respectfully submitted."

MORRIS S. TREMAINE,
State Comptroller.

I might say here, very few men, officials, that is, county, State treasurers, and comptrollers, the mayors and comptrollers of cities throughout the country, county officials, and other municipal officials know that municipal bonds come under the provisions of this stock exchange bill, which is primarily being enacted to prevent speculation.

It is our belief that the bonds of States and political subdivisions and agencies thereof should be eliminated from the National Securities Exchange Act of 1934.

This bill is aimed to correct speculative abuses which do not exist in sale and distribution of municipal bonds. State and municipal securities have no rightful place in the bill and no useful purpose is served by including them in the bill. The inclusion of State and municipal bonds in the bill does not confer any benefit on the holders of municipal bonds nor on the municipalities issuing them on the contrary it imposes a very distinct hardship on both the municipalities and the purchasers of their bonds and will seriously affect their value as investments.

The exemption of the municipal bond will not add to its present value and the refusal to exempt bonds from the provisions of the bill would hurt its value.

Mr. MERRITT. What was that you said just now? Will you repeat what you said about the bonds. Something about abuses?

Mr. GIBBONS. No, I said that the very fact that exemption had been refused would cause the bond to decline.

Mr. MERRITT. Oh, yes.

Mr. GIBBONS. Now then, from this bill you have exempted bonds of the United States Government and if being exempted is helpful to bonds of the United States Government, municipalities and States ought to have the same help. And, if it is harmful to have Government bonds included, it would be harmful to have State bonds included, and municipal bonds included. They all belong to the same family.

Mr. MERRITT. There is a great distinction between values of municipal bonds.

Mr. GIBBONS. There is a great distinction, and all that this bill would do would not do anything to help them, but rather on the contrary to hurt them.

Mr. MERRITT. One idea of the bill is to protect the investor against buying poor bonds, whether municipal or otherwise.

Mr. GIBBONS. Well, how can you stop them from buying them?