Imágenes de páginas
PDF
EPUB

STATEMENT OF CHAIRMAN PURCELL RELATIVE TO PARTICIPATIONS BY THE REGIONAL EXCHANGES IN THE PROGRAM DEVELOPING THE PENDING PROPOSALS FOR AMENDMENT OF THE SECURITIES EXCHANGE ACT OF 1934 AND THE SECURITIES ACT OF 1933

In view of certain statements made by a representative of one of the regional securities exchanges with respect to his participation in the conferences leading up to the pending proposals for amendment, I think the record should accurately show the efforts of the Commission to secure the views of the regional exchanges upon these and any other proposals which they might wish to advance. The participation of the regional exchanges in discussions relative to possible amendments to the Federal securities legislation is summarized in considerable detail in a letter from Justice Eicher to Chairman Lea dated October 17, 1941. I should like to insert a copy of this letter into the record at this point.

Hon. CLARENCE F. LEA,

OCTOBER 17, 1941.

Chairman, Committee on Interstate and Foreign Commerce,

House of Representatives, Washington, D. C.

DEAR CONGRESSMAN LEA: The Commission has received a copy of a letter dated September 26, 1941, sent to the Committee on Interstate and Foreign Commerce by various regional securities exchanges.

At the outset I wish to clarify a statement made in the letter to your committee. The assertion is made that "In the absence of material changes in the Securities Exchange Act of 1934, the regional exchange markets will face a process of disintegration leading to ultimate extinction." The letter also states that "In recognition of this fact, 10 months ago the regional exchanges advocated, and the Securities and Exchange Commission undertook, a factual study of the major problems of the regional exchanges." The Commission wishes to make it clear that its study was not undertaken in recognition of any such fact, and that it is not in possession of any information which warrants any such conclusion.

It is also stated in the letter that the reports to the Congress of the securities industry and of the Commission dated, respectively, July 30 and August 7, 1941, "do not sufficiently consider the interests of the small elements in the business or the interests of the public served by them." I am indeed sorry that the regional securities exchanges which signed the letter reached that conclusion. I wish to emphasize that the Commission, in examining each of the proposals reflected in the respective reports, made every effort to give adequate consideration to the public interest, including the interests of the various elements in the securities business.

The letter of the regional exchanges further states that their "limited participation" in the conferences from which the reports emanated precluded adequate consideration of their problems. Lest this leave an erroneous impression, I should like to review for the benefit of your committee the history of the participation of the regional exchanges in the conferences and of our efforts to obtain their views. On January 10, 1941, following a conference between the regional exchanges and the Commission, the representatives of the regional exchanges conferred with the Trading and Exchange Division and discussed with members of its staff those suggestions for amendments to the Securities Exchange Act of 1934 which were then under consideration by the revision conferees. After the representatives gave their offhand views on the proposals they signified their intention to give further consideration to the matter and to submit their own suggestions at some future date.

On February 11, 1941, Judge Jerome N. Frank, then Chairman of the Commission, wrote to Mr. George N. Keyston, President of the San Francisco Stock Exchange and again invited the submission of the views of the regional exchanges. Subsequently, on February 17, 1941, Commissioner Ganson Purcell, then

Director of the Trading and Exchange Division, forwarded to Mr. Clarke C. Wickey, executive vice president of the Detroit Stock Exchange, who had been designated to receive communications on behalf of the regional exchanges, copies of the most recent agenda of the proposed amendments to the acts.

In the letter of February 17, 1941, Mr. Purcell stated that, "the Commission is, of course, most anxious to have the viewpoint of all segments of the securities business community in its consideration of possible amendments to the Federal securities legislation in order that the Commission's conclusions will be reached only in the light of the factors affecting all phases of the industry. In order that we can have the benefit of the comment and suggestions of the regional exchanges, I am asking that you circulate copies of the enclosed agenda to the regional exchanges. Through you the Commission is inviting their early comment upon the proposals embodied in the agenda. So far as possible, I think it would be helpful to the Commission if the several representatives of the regional exchanges could personally present and discuss their views here in Washington. In any case where time and distance may make such impracticable, I assure you that the Commission will, of course, give equally careful consideration to their written views on the problems involved and the treatment thereof suggested in the agenda."

Thereafter, on April 28, 1941, at the Commission's invitation, representatives of the regional exchanges conferred with the Commission and the staff on the proposed amendments to both acts. Representatives of the staff were assigned to explain in detail each of the proposed amendments to both acts. A subsequent conference was held on that day at which this was done. On the following day two conferences were held between the representatives of the regional exchanges and the Commissioners, at the end of which the Commission again invited the regional exchanges to make such further comments concerning the amendments as they wished the Commission to consider. The representatives of the regional exchanges then designated some of their number to attend full conferences the following week with the Commission and with the other representatives of the securities industry who were then engaged in working on the proposed amendments. Following the conferences on April 28 and April 29 general discussions of the problems of the regional exchanges took place between the representatives of the regional exchanges and members of the staff of the Trading and Exchange Division. During the following week four conferences were held with the Commission on May 6 and May 7 attended by representatives of the regional exchanges and by the other representatives of the securities industry. At these conferences each of the amendments was discussed and each participant was invited to express his views.

You will recall that the representatives of the regional exchanges requested that the amendments be deferred until they had had an opportunity to present their viewpoint on the whole problem. In this connection Judge Frank in his letter to you of February 3, 1941, stated that the time necessary to the presentation and full consideration of the views of the regional exchanges would almost certainly result in a delay in the schedule which had been set for the submission of reports to you. He stated, however, that the Commission felt that it would be highly desirable to have the opinion of the regional exchanges before making a report and recommendations to you. You thereupon suggested in your letter of February 18, 1941, to Judge Frank, that if the study of the problems of the regional exchanges would require any considerable period of time it would perhaps be better not to delay the amendment program pending completion of that study. Although, as a consequence we did not delay the submission of our report to the Congress pending the completion of the study, I do not wish to leave the impression that the interests of the regional exchanges were not considered. On the contrary, as I indicated above, full consideration was given by the Commission to the interests of all segments of the securities industry.

In view of the foregoing, I find it difficult to understand the position taken by the regional exchanges in their letter of September 26 to your committee. In the course of the conferences with the regional exchanges we were requested by their representatives to conduct a study of their problems. We acceded to this request and the study is progressing as rapidly as possible. However, as has been pointed out in our earlier correspondence with you, the study embraces problems which are necessarily complex and far-reaching and, accordingly, it is not contemplated that it can be completed within the

near future. When we discussed the proposed amendments with the regional exchanges we agreed that we would refer to the study in our report to Congress and would advise it that if the study disclosed the necessity for any revision of the Securities Act or of the Securities Exchange Act we would request the Congress to make such revisions at some later date. I regret that through inadvertence we neglected to point out these matters in our report but wish at this time to correct that omission.

Very truly yours,

EDWARD C. EICHER, Chairman.

In addition to showing that the representatives of the regional exchanges were given full opportunity to comment on the proposals for amendment as they developed, I think the record should also show that the Commission has consistently followed a policy of close cooperation with the regional exchanges in order to strengthen their condition and to better the services and facilities which they offer to the investing public within their respective vicinities. One particularly important illustration of this general policy was the Commission's recommendation to the Congress in 1936 for the amendment of section 12 (f) of the Securities Exchange Act of 1934 relating to unlisted trading privileges in such a way as to permit exchanges not only to continue priviing unlisted trading privileges but to extend such privileges to additional suitable security issues. As a result of this amendment, the various regional exchanges have applied for and obtained extensions of unlisted trading privileges in approximately 150 security issues.

Another illustration of equal importance was the action taken by the Commission in connection with the so-called "multiple trading rule" of the New York Stock Exchange to which I have already referred. As I stated in my discussion of this matter, the action which the Commission took under section 19 (b) of the act to prevent the enforcement of this ruling by the New York Stock Exchange prevented a number of the regional exchanges from suffering the substantial injury which would have resulted had the New York Stock Exchange been permitted to withdraw its members and their partners from acting as odd-lot dealers and specialists on the regional exchanges in securities which are also traded on the New York Exchange.

A final illustration of the Commission's policy of giving the regional exchanges all appropriate assistance is the exhaustive study which it is new conducting into the several serious problems with which thest exchanges are faced. One phase of this study the extent and effects of over-the-counter trading in the securities which are also traded on the regional exchanges-has been substantially completed. Other phases of the over-all study of the problems of the smaller exchanges are now being investigated in the field and studied in the Commission's Washington office. A detailed field investigation of the Cleveland Stock Exchange has recently been completed and members of our staff are now engaged in a similar study of the Boston Stock Exchange. The Commission has also authorized the sending of experts from our Washington staff to the west coast in order to obtain the basic data for a similar appraisal of the problems of the regional exchanges in that locality. We hope upon completion of these field investigations to be able to arrive, in cooperation with the regional exchanges, at constructive proposals for improvement in their health and services to the public.

STATEMENT OF MARSHALL R. BARBOUR, PRESIDENT OF THE PITTSBURGH STOCK EXCHANGE, PITTSBURGH, PA.

The CHAIRMAN. Mr. Barbour.

Mr. BARBOUR. Mr. Chairman and gentlemen, since the Pittsburgh Stock Exchange, as a signatory to the regional stock exchange letter addressed to this committee under date of September 26, 1941, did and does endorse the position taken therein, and since we feel that the proposals for amending the Securities Act of 1933 and the Securities Exchange Act of 1934, contained in the joint report submitted by the Securities and Exchange Commission and the other bodies participating in those conferences, are being fully discussed before this committee, we desire only to present a few observations of a general nature.

1. Seven years' experience under regulation as prescribed by the 1934 act we believe has clearly demonstrated that the listed branch of the securities industry has suffered a considerably greater decline relatively than either the over-the-counter branch or that part of the industry concerned with original issuing of securities.

2. We believe that in the public interest, publicity of sales and quotations is equally as important as other disclosures required by the act. To effect this we believe that listing of as many securities as possible on national securities exchanges should be encouraged.

In view of the opinion expressed in paragraph 2, we endorse the suggestion made by the San Francisco Stock Exchange that this committee give careful consideration to the substitution of section 201 of H. R. 4344 for the present section 2 of the 1934 act. We also believe there is merit in the suggestion of the Cleveland Stock Exchange that certain exemptions be granted smaller companies to make listing more attractive.

We cannot emphasize too strongly that we feel that the listing of securities is of paramount interest to the public, and most urgently and respectfully ask this committee to give full consideration to a study of the parts of the act which are deterring listings and weigh the advantages gained from such provisions against the disadvantages thereof.

In the morning session of the committee hearing of January 23, the chairman asked Mr. Cunningham, of Cleveland, if he considered that even occasional sales of inactive securities were beneficial. We believe the answer is emphatically yes. When such a transaction takes place a public record of sale is made, the seller receives the consideration paid by the buyer, and each party to the transaction pays the same commission. The exchanges have frequent requests for such price records for purposes of appraisal, making the tax returns, and so forth, especially in States that have personal property taxes. If such transactions were made over-thecounter on a net basis, the buyer paying one price and the seller receiving another, and perhaps several transactions being made the same day by various houses, the question arises as to what should be the proper value given to the security. This we believe furnishes an obvious example of the value of listing on a registered exchange. I thank you.

(The following brief was submitted for the record:)

BRIEF SUBMITTED TO THE HOUSE COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE BY W. MONTAGUE GREER AT HEARINGS TO CONSIDER AMENDMENTS TO THE SECURITIES EXCHANGE ACT OF 1934

On October 9, 1941, Mr. Edmund Burke, Jr., Securities and Exchange Commissioner, in an address before the National Association of Securities Commissioners, said:

"I feel strongly that purchases of new issues of equity securities by institutional investors and particularly by individual investors, on a larger scale than we have seen them during the last decade are essential to our free enterprise economy once the defense emergency has passed."

It is taken for granted in this brief that Congress wishes to encourage and stimulate the flow of idle capital into private enterprise in the traditional American way. It is, therefore, also assumed that this committee will favorably consider how the Securities Acts may be liberalized to facilitate equity financing by private business, without weakening investor protection. That is the problem we ask leave to discuss. In discussing it we shall refer to the Securities Exchange Act of 1934 and the Securities and Exchange Commission's regulations and measures for its enforcement as "regulation."

At the outset, let it be agreed that regulation is not an end in itself. The people do not want regulation for the sake of regulation. This country, which was built by private enterprise, investment, and speculation, freely exercised by its citizens, does not desire unnecessary or ineffective legislative restrictions on their financial activities. So if specific statutory restrictions upon the individual's freedom of action, and inquisitions into his financial activities, serve no vital social purpose, such as according needed protection to the investor, they should, of course, be eliminated.

Regulation has been in effect for 7 years. The economic results produced are facts-not theories. Some of them are good and some are very bad, indeed.

The bad results should be recognized and balanced by Congress against the admittedly good results. In some cases it will be found that a certain section of the act, while doing good in one direction, does so much harm in another, more important, direction that it should be eliminated or amended. In other words, to use a familiar expression, the provision "does more harm than good."

It may also be true that a statutory section, while founded on sound moral and ideological grounds, does not in effect accomplish protection of the investor from unethical or fraudulent exploitation; or perhaps that adequate investor protection does not require the restrictive provision.

PURPOSES OF CONGRESS IN 1934

Notwithstanding the verbiage and many provisions of the 1934 act, the apparent purposes of Congress were really only these three:

* *

(1) To prevent the absorption of too large a portion of, and "to protect the national credit" (sec. 2) from speculative excesses in the securities markets, at the expense of "trade, transportation, and industry in interstate commerce" (sec. 2, subd. 3).

(2) To prevent "sudden and unreasonable fluctuations in the prices of securities," whereby "national emergencies, which produce widespread unemployment and the dislocation of trade, transportation, and industry, and which burden interstate commerce and adversely affect the general welfare, are precipitated, intensified, and prolonged" (sec. 2, subd. 3).

(3) to prevent direct and indirect frauds upon investors in securities and the unfair exploitation of the buying power of those possessing funds available for securities purchases.

The committee, we submit, will find no other major purpose of the 1934 Securities Exchange Act.

Let us then discuss these three purposes, which Congress had in mind when it enacted the act, to show that beneficient amendments can be made without bringing a recurrence of the abuses legislated against.

CONGRESSIONAL PURPOSE NO. 1

Considering purpose No. 1, the committee will agree that an excessive absorption of national credit for speculative transactions in securities is now

« AnteriorContinuar »