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livelihood of the prople living in these communities. We feel, therefore, that this bill must be given careful consideration from the point of view of the smaller cities and of the thousands of small companies which do their financing in local markets where they are known. If local markets are destroyed these thousands of small corporations may be forced to close or seek their financing requirements in the large capital centers of the country and past experience has demonstrated that only the exceptional smaller corporation can secure its financial requirements in the large money centers. We believe that it is to the best interest of the United States that corporations should not be at the mercy of any one city and that local capital markets should be encouraged rather than destroyed.

Most of the companies which have their securities listed on the local exchanges are small companies, and because of the stringent requirements of the bill many may be forced to delist their securities because of the added expense and burdens necessary to keep them listed. Our exchanges have for years been working toward annual independent audits and quarterly reports, and have been successful in obtaining them. In most cases the quarterly reports are furnished by the corporations' own auditors. The expense in having their accounts audited four times a year would be so prohibitive that it would not be in the interest of their stockholders to have them prepared. There is an additional expense in preparing monthly reports which must include earnings and sales.

We have been advised by many local companies that they will be forced to withdraw their securities from our exchanges. This will prove a great hardship upon the corporations themselves whenever they are in need of additional financing, but it will be a greater hardship upon their stockholders, as their securities will then lose their collateral value for loans and their saleability will be greatly hindered, and they will be forced to look to the over-the-counter market in order to realize on their investments. There is usually a large spread between the bid and asked prices in over-the-counter markets, and the seller of securities would be forced to suffer unnecessary depreciation on his holdings.

The bill makes it unlawful for a member of an exchange to grant credit on any securities not registered on a National Securities Exchange. This works a particularly great hardship upon local brokers and their clients, as it destroys the collateral value in a brokerage account of State, county, and municipal bonds, most mortgage bonds, Federal farm loan and joint-stock land bank bonds, bank stocks, insurance stocks, most guaranteed railroads stocks, and also securities of many good local companies. Many people have much of their capital invested in securities falling in these categories, and the passage of this bill would cause a tremendous amount of forced liquidation as well as the elimination of future collateral value for the purpose of purchasing listed stocks.

Fixing of margin requirements at 60 percent gives a great advantage to the wealthy and penalizes those of moderate means. The wealthy are in a better position to advance 60 percent but not so those of moderate means. This certainly is not fair to the great majority of our people who, therefore, will be unable to margin their accounts in accordance with this section and will lose the securities which they are now carrying. It is possible that wealthy speculators will be

mislead an ordinarily prudent man. I do not see that there is much in that objection.

Mr. COOPER. Mr. Chairman-
Mr. HUDDLESTON. Mr. Cooper.

Mr. Cooper. Mr. Thompson, did you believe that the power given to the Federal Trade Commission in this bill, regarding the listing of securities, gives the commission the power to control private capital?

Mr. THOMPSON. I do.
Mr. Cooper. That is all.

Mr. THOMPSON. Mr. Chairman, the time which I understood was allotted to us, was to be divided up. Mr. Gradison, president of the Cincinnati Stock Exchange, will speak for a few moments, and then Mr. Shaughnessy, president of the San Francisco Stock Exchange, for about 12 minutes, followed by Mr. Paul, secretary of the Los Angeles Exchange.

We would like, with your permission, to have Mr. Whitney and his associates cover two or three points in which we are very much interested.

Mr. HUDDLESTON. Whom do you wish to hear now?
Mr. THOMPSON. We would like for you to hear Mr. Gradison.
Mr. HUDDLESTON. We will hear Mr. Gradison, then.

STATEMENT OF W. D. GRADISON, PRESIDENT CINCINNATI STOCK

EXCHANGE, CINCINNATI, OHIO

Mr. GRADISON. As president of the Cincinnati Stock Exchange, I represent the Associated Stock Exchanges composed of the following members: Hartford, Minneapolis-St. Paul, Washington, Los Angeles Stock Exchange, and Los Angeles Curb, Cincinnati, Columbus, Cleveland, New Orleans, Salt Lake City, Baltimore, St. Louis, Detroit, Buffalo, Pittsburgh, San Francisco Stock Exchange and San Francisco Curb, and Philadelphia. In addition, I have been requested to speak for the Seattle, Richmond, Louisville, and Salt. Lake City Stock Exchanges.

The general impression is that the National Securities Exchange Act of 1934 will only affect, to any great degree, the New York Stock Exchange. A careful study of the bill by all of the smaller exchanges in the United States shows clearly, should this bill be passed, that it may eliminate from existence most of these exchanges, and can conceivably put out of business almost 90 percent of its members. The small stock exchanges, which are local in nature, play an important part in the economic life of their communities, and it is necessary that there be local markets in order to raise capital for the industries in their localities through the sale of securities. Thousands of companies are dependent solely on local markets to raise capital which are unable to compete in the large financial centers. Unless there is a market providing a fair degree of liquidity it will be almost impossible for the local security dealers to function.

Investors generally will not purchase securities that are not marketable, and if the markets are destroyed it will be impossible for the small corporations throughout the country to finance themselves. Many of our small Midwestern cities are solely dependent on one or two local corporations for their support, and the closing of these plants because of lack of capital would eliminate the only means of

livelihood of the prople living in these communities. We feel, therefore, that this bill must be given careful consideration from the point of view of the smaller cities and of the thousands of small companies which do their financing in local markets where they are known. If local markets are destroyed these thousands of small corporations may be forced to close or seek their financing requirements in the large capital centers of the country and past experience has demonstrated that only the exceptional smaller corporation can secure its financial requirements in the large money centers. We believe that it is to the best interest of the United States that corporations should not be at the mercy of any one city and that local capital markets should be encouraged rather than destroyed.

Most of the companies which have their securities listed on the local exchanges are small companies, and because of the stringent requirements of the bill many may be forced to delist their securities because of the added expense and burdens necessary to keep them listed. Our exchanges have for years been working toward annual independent audits and quarterly reports, and have been successful in obtaining them. In most cases the quarterly reports are furnished by the corporations' own auditors. The expense in having their accounts audited four times a year would be so prohibitive that it would not be in the interest of their stockholders to have them prepared. There is an additional expense in preparing monthly reports which must include earnings and sales.

We have been advised by many local companies that they will be forced to withdraw their securities from our exchanges. This will prove a great hardship upon the corporations themselves whenever they are in need of additional financing, but it will be a greater hardship upon their stockholders, as their securities will then lose their collateral value for loans and their saleability will be greatly hindered, and they will be forced to look to the over-the-counter market in order to realize on their investments. There is usually a large spread between the bid and asked prices in over-the-counter markets, and the seller of securities would be forced to suffer unnecessary depreciation on his holdings.

The bill makes it unlawful for a member of an exchange to grant credit on any securities not registered on a National Securities Exchange. This works a particularly great hardship upon local brokers and their clients, as it destroys the collateral value in a brokerage account of State, county, and municipal bonds, most mortgage bonds, Federal farm loan and joint-stock land bank bonds, bank stocks, insurance stocks, most guaranteed railroads stocks, and also securities of many good local companies. Many people have much of their capital invested in securities falling in these categories, and the passage of this bill would cause a tremendous amount of forced liquidation as well as the elimination of future collateral value for the purpose of purchasing listed stocks.

Fixing of margin requirements at 60 percent gives a great advantage to the wealthy and penalizes those of moderate means. The wealthy are in a better position to advance 60 percent but not so those of moderate means. This certainly is not fair to the great majority of our people who, therefore, will be unable to margin their accounts in accordance with this section and will lose the securities which they are now carrying. It is possible that wealthy speculators will be (The three tables above referred to are as follows:)

The volume of transactions in par value of bonds listed on exchanges outside of New

York City

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Baltimore.
Boston.
Buffalo
Chicago Stock
Chicago Board of Trade (stock

department)
Chicago Curb.
Cincinnati.
Cleveland.
Detroit.
Hartford,
Los Angeles Stock
Los Angeles Curb.
Louisville
Minneapolis-St. Paul.
New Orleans.
Philadelphia
Pittsburgh
Richmond.
St. Louis.
Salt Lake
San Francisco Stock
San Francisco Curb.
Seattle.
Washington..

$8,001, 200 $6, 417, 500 $3,048, 100 $2, 140, 200 $2, 137, 500 $21, 744, 500 11, 118, 745 5, 539, 376 3, 363, 800 1, 911, 600 1, 169, 800 23, 103, 321 1, 747, 100 2, 240, 400 1,524, 600 928, 900 797, 600 7, 238, 600 4,975, 500 27, 462, 000 12, 480, 500 | 10, 597, 000 1, 433, 000 56, 948, 000

53, 500 281,000 283, 500 193, 100 814, 109 956, 500 2, 538, 200 963, 675 73, 400 422, 500 4, 954, 275

30,000 68,000 220,000 134, 500 168, 500 621, 000 1, 490, 100 883, 050 222, 250 71, 900 84, 000 2,751, 300 (1) (1) (1) (1) (1)

(1) (1) (1) (0)

(1) 779, 500 2, 800, 500 623, 500

148,000 151, 000 4, 502, 500 (2)

(2)

(?)
44,000
22, 000 19,000 4,000

8,000

97,000 778, 500 110, 100 127, 400 18, 950 15, 600 2,834, 000

1,050, 550 2, 941, 000 2,075,000 1, 661, 000 2, 438, 000 11,949, 000 6,057, 074 5,882, 125 11, 089, 222 3, 948, 602 1, 560, 188 28,537, 211 115, 000

294, 000 100,000 43, 000 119,000 661,000 265, 100 527, 500 847, 300 502, 100 519,500 2, 661, 500 2,021, 000 2, 244,000 910,000 194, 000 161,000 5, 530,000 (1) (1) (1) (1)

(1) 3, 384, 500 2, 457, 500 2, 381,000 1, 530, 000 854, 500 10, 607, 500 767, 500 2, 533, 500

1,938, 500 349, 000 423, 000 6,011, 500 1, 151, 200 800, 400 170, 200 3,000 (2)

2, 124, 800 2, 395, 200 1, 603, 200 1, 624, 200 1,011, 200 1, 122, 100 7, 755, 900 48,911, 719 67, 407, 851 44,009, 247 25, 553, 852 13,780, 888 199, 663, 557

Total.

1 No bonds listed. ? No bonds.

The volume of transactions in shares of stock listed outside of New York City

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Baltimore.
Boston..
Builalo..
Chicago Stock
Chicago Board of Trade

(stock department)
Chicago Curb..
Cincinnati
Cleveland.
Detroit
Hartford
Los Angeles Stock
Los Angeles Curb.
Louisville
Minneapolis-St. Paul.
New Orleans.
Philadelphia
Pittsburgh.
Richmond.
St. Louis.
Salt Lake
San Francisco Stock
San Francisco Curb.
Seattle.
Washington.

890, 775 6, 613, 201 1, 643, 130 2,007, 110 11, 434, 665

3, 250,000 15, 406, 993 37,775, 806

23, 700 730, 424

345,000 35, 520, 785 5, 328, 923

22, 315
1, 318, OCO
30, 455, 056
19, 188, 822
12,983, 565

481, 718
99, 831

1. 466, 185
6,047, 935

762, 533

779, 056 5, 065, 720 2, 300.000 9, 171, 442 11, 082, 275

30, 500 5.59, 252

128, CCO 27, 234, 794 3, 542, 446

29, 621

518,000
19, 429, 889
15, 262, 932
4, 810, 286

293, 955
57, 093

1, 667, 147 3,855, 194

527, 392

519, 160 3, 843, 225 1,680,000 5, 450, 543 8, 310, 729

1, 250 487, 074

116, 00C 10. 599, 837 1, 625, 014

21, 717

380,000
10, 315, 075
9, 875, 057
2, 470, 066

145, 231
41, 543

350, 350 635, 753 3, 552, 711 10, 299, 561 13, 672, 390 76, 922, 866

610, 078 274, 377 10, 113, 429 15, 642,000 18, 288, 000 220, 297, 700 1, 155, 643 1, 657, 024 6, 936, 774

840, 200 3, 136, 400 20, 522, 930 321, 867 288, 127 3, 543.049

407, 463 488, 281 4, 201, 370 2, 775, 956 4,092, 518 27, 212, 084 1, 100, OCO 1, 800, OCO 10, 130,000 3,068, 749 3, 228, 819 36, 326, 546 3, 106, 501 5, 922, 176 66, 197, 487 1,000

700

57, 150 323, 062 363, 162 2, 462, 974

52, C00 $5,000 736, 000 6, 592, 342 7, 614, 522 87, 552, 200 1, 551, 958 2, 409, 566 14, 457, 907

14, 014 12, 377 100, 044 165, 000 145, 000 2, 336, 000 3, 468, 252 8, 637, 020 72, 305, 322 7, 059, 715 8. 129, 564 59, 515, 080 1, 401, 017 2, 099, 054 23, 793, 988 15, 393

415

936, 712 9,035 11, 433 218, 935

Total

298, 985, 602

197, 402, 209

110, 829, 673

60, 330, 186 83, 001, 668 750, 549, 338

Number of shares of stock and par value of bonds listed on exchanges outside of New

York City as of Feb. 19, 1934

Exchange

Shares

Par value bonds

$593, 317, 018 3, 542, 913, 710

126, 000, 000 1,049, 903, 000

1, 578, 400 337, 278, 587 140, 353, 000 26, 937, 650

396, 500,000

Baltimore..
Boston.
Buffalo
Chicago Stock
Chicago Board of Trade (stock department).
Chicago Curb.
Cincinnati.
Cleveland.
Detroit 1
Hartford 1
Los Angeles Stock.
Los Angeles Curb 1
Louisville...
Minneapolis-St. Paul.
New Orleans.
Philadelphis.
Pittsburgh.
Richmond.
St. Louis.
Salt Lake
San Francisco Stock
San Francisco Curb.
Seattle.
Washington.

14, 397. 097 298, 767, 489

33, 401.000 253, 174, 589

63, 265, 198 165, 241, 937 39, 224, 286 28, 299, 810 118, 691, 000

16, 602, 191 180, 549, 744

43, 402, 851 143, 255, 000 5, 009, 758

147,000 134, 377, 531 60, 213, 161

2, 309, 312 10, 761, 000 118, 482, 916 156, 150, 366 224, 700,000

4, 686, 652 19, 905, 340

4, 153, 500 11, 360, 000 233, 000,000 2, 224, 328, 626

74, 925, 000 90, 041, 714 122, 774, 000

990, 814,500 554, 000, 000

27, 454, 600 142, 182, 950

Total.

2, 140,015, 288

810, 690, 816, 255

i No bonds listed.

The present bill would seem to be predicated upon the mistaken premise that corporations and stock brokers will somehow contrive to continue their normal functions in spite of the drastic regulations imposed by this bill. I respectfully submit that on the contrary corporations will immediately, and in great numbers, remove their securities from listed trading to avoid the burdens the act seeks to impose, thereby not only failing to secure the results hoped for from the act but automatically throwing the market for these securities upon the street or over-the-counter market, depriving the corporations and their securities owners of the admitted benefits of a regulated listed market. In the same manner I am confident that many, if not the majority, of brokers, particularly those who are members of the local exchanges, will be unable, if not unwilling, to comply with the provisions of the act, and that as a result the local exchanges themselves may have to cease their functions.

The stringent provisions of this bill therefore would seem to defeat the very purposes it proposes to accomplish. It would without doubt seriously impair if not actually destroy the value of securities markets, thereby depriving the Federal Government and some of the States of the enormous revenues derived from taxation on the sales and transfers of securities, deprive thousands of employment, and deprive the commercial life of the Nation of those essential functions of the stock exchanges which no less a person than the President of the United States recognized in his message to the Congress when he said in part: “It is my belief that exchanges for dealing in securities and commodities are necessary and of definite value to our commercial and agricultural life.”

The CHAIRMAN. Are there any questions?

Mr. LEA. You stated that you recognized there have been practices on the exchanges that deserve to be condemned.

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