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quite possible that the bill is creating a different kind of evil. Certainly there is nothing to be gained by having management continue in power by default.

Section 17 (d). This section gives the right to recover contribution from others also responsible for a misleading statement, but this would only tend toward a multiplication of law suits and would not benefit anyone in the great majorityof cases. No reason is seen why all parties responsible in one jurisdiction should not be sued in one suit.

THE WAY TO PERFORM A LEGISLATIVE OPERATION

By President Woodrow Wilson And I might add this, if you please; not to go at them haphazard but to go steadily through the things that have become obvious excrescences and cut them off. That's a very definite program, and then I might add, go into an absolutely thorough investigation of the way it may best be conducted, find out just when, in dissecting, the scalpel can be introduced and divorce these artificial unions, because I know that you will not be cutting living tissues.

I hear a great deal of talk about conservatism and radicalism. Now, what makes a man shiver when he hears a statement of the facts concerning it? He feels it is cold blooded and indiscreet to state the facts and yet he really is inclined, I must say, to think there is something in it. He says to himself, this man must be a radical because if he sees the thing that way, what in God's name is he going to do, because, if he is going to go to work thoroughly to change those facts there is no telling where he will stop. Now, it is just there that he ought to stop being radical. If the prudent surgeon wants to save the patient he has got absolutely to know the naked anatomy of the man. He has got to know what is under his skin and in his intestines; he has got to be absolutely indecent in his scrutiny. And then he has got to say to himself: “I know where the seat of life is; I know where my knife should penetrate; I dare not go too far for fear it should touch the fountain of vitality. In order to save this beautiful thing I must cut deep but I must cut carefully; I must cut out the things that are decayed and rotten; the things that manifest disease and I must leave every honest, wholesome tissue absolutely untouched.” A capital operation may be radical but it is also conservative. There cannot be life without the cutting out of the dead and decayed tissue.

The CHAIRMAN. Mr. John Dickinson, chairman of the so-called “Roper Committee”, will be the witness on Tuesday.

I have here a resolution adopted by the Board of Directors of St. Louis Chamber of Commerce, at a meeting held February 21, 1934, a memorandum from R. L. Day & Co., Dick & Merle-Smith, R. W. Pressprich & Co., Rutter & Co., Salomon Bros. & Hutzler Wood, Struthers & Co., a memorandum from Mr. Waldo S. Kendall, a letter from Mr. George W. H. Allen, Owera Point, Cazenovia, N.Y., addressed to Mr. Culkin, and a letter and memorandum from Mr. Standley S. Wohl, executive assistant in charge of securities, North Carolina Utilities Commission, Raleigh, which I will insert in the record.

(The documents referred to are as follows:) The following resolution was unanimously adopted by the board of directors of St. Louis Chamber of Commerce, at a meeting held February 21, 1934.

The St. Louis Chamber of Commerce is opposed to the Fletcher-Rayburn bill, which contemplates the passage of the so-called “National Securities Exchange Act of 1934”, because not only does it regulate stock transactions but this bill goes so far as to affect business in general adversely, and makes orderly recovery impossible without further governmental interference and financing. We have herein eliminated from consideration those sections which concern primarily the stockbroker or dealer, and have directed our attention only to those sections with which business and industry generally are concerned.

(1) We do not believe at this time business should have such restrictive legislation thrust upon it.

(2) We do not believe it to be prudent or constructive to require banking institutions to exact a 60 percent margin or that members of licensed exchanges not be allowed to lien or trade in unlisted securities; thereby destroying the marketability of a great number of sound securities, thus causing irreparable harm to investors and corporations, further liquidation and deflation, together with restriction and curtailment of credit at a time when credit should be expanded.

One inevitable result of the prohibitions in section 4, will be the development of a powerful wide-spread bootleg traffic in securities just as the prohibitions in the Volstead Act resulted in a powerful wide-spread traffic in illicit liquor.

(3) Every piece of legislation which is excessively restrictive is a stumblingblock to recovery, causes uncertainty and hesitancy, and destroys initiative. If we continue to compound the burden of business with legislation, which is highly restrictive beyond the correction necessary, recovery will be scuttled.

(4) At a time when the Administration is exerting its efforts to expand business to absorb workers so that the necessity of continuing the C.W.A. indefinitely will be overcome, legislation should not be enacted which will deter business expanding.

(5) Business should not be rendered impotent as a prosperity-builder in this way at a time when it is necessary for the Government to expand the national debt enormously.

(6) Specifically, this legislation is opposed by business, because:

(a) When the sale of corporate securities is surrounded by restrictions which prevent the ready sale and purchase of such securities, then they are no longer attractive to investors, and the investment of capital in business will tend to cease.

(b) No informed investor will invest his money in securities of corporations whose affairs are subject to such complete bureaucratic control as this bill provides.

(c) The provision pertaining to proxies and the mailing of complete stockholders' lists at the time corporations mail proxies with their calls for stockholders' meetings is unnecessarily burdensome.

(d) Business already supplies the various departments of the GovernmentInternal Revenue Bureau, Census Bureau, and others—with numerous reports and records. This bill will further increase enormously accounting, clerical, and other expenses with no advantage to industry, the public, or the investor.

(e) Making public, reports filed with the Federal Trade Commission will not only permit the domestic competitors of a company to inform themselves fully regarding the private affairs of a company, but this information will be available to foreign firms to the detriment of our foreign commerce.

We further feel that the restrictions, obligations, and liabilities as imposed by this act are so far-reaching as to destroy an open and liquid market for all owners, buyers, and sellers of securities and that, therefore, the passage of the act in its present form is detrimental to the public, the investor, and industry, and will not accomplish protection either for the above groups or for the National Banking or Federal Reserve System.

Further, this measure unreasonably and unwarrantedly assumes that all business is as questionable as the sensational exceptions that have come to light. In an effort to discipline and regulate the exceptional miscreant, this law indiscriminately stigmatizes and condemns all, and in so doing dips dangerously into the field of legitimate business to its serious detriment.

Already the burden of financing business is too heavy on the Government. The passage of this act will force further financing into governmental channels, thereby increasing the burden on the Government. Indeed, if it be the purpose of such legislation to foster governmental paternalism of all business, it is the more objectionable to the rank and file business man who desires to be self-sustaining and deserves not the inference of rascality and undependability inferred in such regulations.

Memorandum from R. L. Day & Co., Dick & Merle-Smith, R. W. Pressprich & Co., Rutter & Co., Salomon Brothers & Hutzler Wood, Struthers & Co.

Regarding the business of a certain type of dealers and brokers in investment bonds and similar investment securities in relation to the provisions of the proposed National Securities Exchange Act of 1934.

The undersigned firms wish respectfully to outline the particular type of business in the investment field carried out by them.

These firms or their predecessors have been doing business in this field for generations--one of them over 130 years.

Their clients are largely investment institutions such as savings banks, insurance companies, commercial banks, charitable and educational institutions, trustees of trusts, corporate and individual investors, who are primarily interested in the highest grade of seasoned investment securities. Most of such clients have done business continuously with the undersigned firms for many years.

Our business has been threefold; security analysis, acting as brokers, and acting as dealers.

This threefold business has been developed over a long period because of the requirements of our type of clients. Our customers require careful and continuous study of particular securities coupled with expert knowledge of markets. and normal price ratios between securities. The larger institutions also must have means provided whereby to purchase and sell advantageously large blocks of securities.

To accomplish such purposes the undersigned firms were forced to build up their statistical and research organizations until the expense involved for this purpose amounted to a heavy proportion of overhead. The value of such service is indicated by the continuous demand for information and advice.

Due to the narrow market for bonds on the exchange, large blocks cannot be purchased on the board without a material effect upon the price of the securities. Many issues of seasoned bonds are of the closed-mortgage type, which have long been held by investment institutions and accordingly change hands so infrequently that there is seldom an active market for these bonds on the floor of the exchange. Moreover, many of the high-grade or seasoned investment bonds, such as State and municipal bonds and railroad equipment and other securities, are not listed on any exchange at all. They must be bought and sold over the counter in both broker and dealer transactions.

To meet this general situation the undersigned firms became merchandisers of securities and are accustomed to gradually accumulate from time to time blocks of desirable seasoned securities which are sold when required to the larger institutions at prices, if the securities are listed, closely approximating the prices on the exchange. These blocks are acquired partly on the board and partly directly from many institutions and individuals with which we are in touch.

Over a period of years a very considerable proportion of all the business of this nature with the larger institutions in seasoned securities, has been done through the undersigned firms.

Conversely, when these institutions are faced, for one reason or another, with the necessity of selling very large blocks of securities, such firms as ours supply a vital market or distribution agency. For instance, during the savings-bank runs in Philadelphia in 1932, or in New York and New Jersey in 1933 shortly before the banking holiday, millions of dollars of high-grade securities were marketed for the savings banks through our firms in order quickly to supply the cash urgently needed to meet demands. The market for such securities on the exchange had largely collapsed, but this distribution was accomplished quickly and at reasonable prices largely on a brokerage basis. This was successfully accomplished because the liquidating banks and the other institutions who were able to help, were willing to rely where necessary upon the knowledge and fairness of our firm in arranging the transactions and setting prices fair to both sides in spite of the market chaos that then existed. These special incidents furnish dramatic examples of a vital service in secondary distribution which the undersigned firms are continuously rendering.

To collect or dispose of blocks of securities for such institutions it is vital that our firms be permitted to buy and sell, not only over the counter but also upon the exchanges and without the additional cost of employing a broker middleman.

At times the exchanges offer the only outlet for securities, particularly when the dealer feels it cannot recommend purchase by one of its own clients. If as dealers we are forbidden as might be construed from the act, to buy and sell upon the exchanges, the ultimate purchaser or seller must suffer because of the price spread which must be asked in order to compensate for the increased risks of delay in distribution or acquisition. If forbidden to be members of an exchange but permitted to transact business on the exchange through other brokers, the added expense involved would probably necessitate the abandonment or severe curtailment of our research department. We believe that from a financial standpoint it is only possible for us reasonably to finance an adequate statistical research service by a combination of a broker-dealer business. The earnings of the brokerage business, or from the dealer business in high-grade securities (which yields only a very limited turn-over profit) will not, in our opinion, separately justify the expense of an adequate statistical research department.

Furthermore, both institutional and other clients from time to time desire, or we recommend, that certain transactions be carried out upon a brokerage basis, sometimes on the exchange and sometimes on the over-the-counter market. The price spread required to compensate for the risk to the dealer involved in the chaotic markets during the last few years would make dealer transactions often too costly for our clients. Smaller investors buying small blocks usually can more economically be served by transacting their business as a broker. If, as is the case with some of us, we give continuous supervision of a list of securities for a fee, all transactions for such clients must be carried out as a broker.

In addition, it is obvious that each client presents a different investment problem, whether in the type of security desirable for his list, or in the maturity of the bonds which may be best suited to his needs. Obviously, such firms as ours cannot hope to keep in stock, in view of the heavy risks involved, a list of securities adequate to meet every need of our clients.

We submit the conservative investors need and should have a combination of broker-dealer investment house which is a member of a national securities exchange. The advisability of this triple service can easily be confirmed by those investors of capital funds best qualified to know, such as savings banks and nsurance companies, as well as individual and corporate fiduciaries. It would not seem in the public interest to disrupt relationships between such houses as ours which have existed in some cases for generations, nor would it seem in the public interest to restrict a secondary market which seems vital to large investment institutions through crippling by legislation the complex and important machinery which has for so long a period served its purpose to the satisfaction of these same institutions. We feel that the legislature, desiring perhaps to correct certain abuses which may have grown up in connection with the use of the market provided by the exchanges, should consider carefully before passing legislation the provisions of which will indirectly cripple the various services we have outlined.

In this connection we should make it clear that the broker-dealer business to which we refer is done on a cash basis.

To what extent the restrictions of the act will affect our capacity to finance our own business through the banks is not very clear. Many institutions, such as savings banks and insurance companies, have stringent rules affecting the investment of their funds which postpone the date for the acceptance of and payment for securities purchased until the necessary formal ratification of the transaction has been concluded. During the intervening period and until payment is made the securities so contracted are customarily carried by the investment house. Our firms must also carry a large inventory of securities which are necessary if we are to continue the services referred to. If the restrictions in the act relating to margins and ownership of the collateral over a period are applicable to all borrowings to finance the carrying of securities as outlined above, it will unnecessarily curtail both our volume of business and the service we render.

We would not be in a position to bid at public sale for issues of State and municipal bonds or railroad equipment obligations. In such cases the amounts to be purchased are often large and have to be paid for upon delivery and may have to be carried in whole or in part for some time before the investment house can, in turn, sell them. The proposed restrictions would necessarily curtail the market for issues of municipal bonds.

We understand that the Public Works Administration is preparing to receive bids for securities held as collateral for loans made by it to certain municipalities. The normal bidders for these bonds would to a very large extent be investment houses like our own. If we could not finance the purchase of these securities by immediate bank loans, we doubt very much if the Public Works Administration could obtain satisfactory bids.

In the case of bank loans for such purposes we see no logical need for legislative restrictions. We believe the security of such loans may safely be left to the discretion of banks or other loaning institutions, particularly when the type of collateral offered is considered.

We take pride in our business. We have spent many years in building up a clientele among institutional and individual investors. We believe that they have faith in our integrity and fair dealing, and if desired will so testify. convinced that restrictions that may indirectly cripple our capacity to render investment advice are not in the public interest. We believe our clients are entitled to the services we can render without curtailment. We believe they are entitled to a market for their investments which is as free and unrestricted as is possible in the public interest. To that end we believe that investment houses

We are

doing the type of business we have outlined above should be permitted and en-
couraged to continue a broker-dealer-advisory service.
Respectfully submitted.

R. L. DAY & Co.
Dick & MERLE-SMITH.
R. W. PRESSPRICH.
RUTTER & Co.
SOLOMON BROTHERS & HUTZLER.

SUPPLEMENTAL MEMORANDUM

This memorandum is intended as a supplement to that already submitted by the undersigned firms.

In respect of specific recommendations for amendment of the bill in question, our interest lies mainly in the provisions of the first sentence of section 10, which forbids members of an exchange or any person who as broker transacts a business in securities through such member, to act as a dealer.

We are informed that a suggestion has been made in the House committee that the act be amended to permit members to act as broker-dealers provided they carry on their business upon a cash basis.

A study of this committee's memorandum describing the type of business done by the firms we represent will show that from our point of view such an amendment would be wholly satisfactory and would permit us to continue our business as presently conducted.

We have been reluctant to propose or argue for such an amendment, realizing that the question of restriction of margin trading, though not of importance in our business, involves considerations affecting other firms both large and small throughout the country now rendering valuable service in the investment field. It furthermore raises difficult questions which probe deeply into the fundamental fiscal policy of the United States, embracing as it does questions of deflation and the inadvisability or restricting a form of credit which may be of considerable importance in meeting and sustaining the capital needs of industry.

For such reasons we have been disposed to recommend that the first sentence of section 10 be striken out because we feel that the joint broker-dealer service is in the public interest, believing that the general question of margin credit should be the subject of further study.

On the other hand, it is only fair to our own interest to restate that from a personal point of view the opportunity to conduct a threefold broker-dealeradvisory service, provided it is done on a cash basis, would be wholly satisactory. Respectfully,

R. L. Day & Co.
Dick & MERLE-SMITH.
R. W. PRESSPRICH & Co.
RUTTER & Co.
SOLOMON BROTHERS & HUTZLER.
Wood, STRUTHERS & Co.

For the purposes of the record, may I state that I am Waldo S. Kendall, of Minot, Kendall, & Co., Inc., of Boston, Mass., investment bankers. I am also president of the Security Dealers Association of New England and a member of the regional code authority of the investment banking business, when that code is adopted.

RE H.R. 7852

Every security dealer in the country is vitally concerned with section 14 of this bili. There are thousands of them, unorganized and inarticulate as far as representation here is concerned. I had no idea when I arrived here yesterday, merely to act as an observer, of asking for the privilege of appearing before you. But as I sat here listening, the necessity of giving voice to what I believe represents the sentiments of these inarticulate thousands living in communities large and small and performing therein the function of financial adviser to those desirous of buying securities, became apparent.

This section in effect puts all these dealers in securities, who carry on the bulk of the genuine investment business of the country, in contradistinction to the

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