(h) The books and records to be maintained by members of such national securities exchange and the right of such exchange to require, periodically or otherwise, reports in regard to the transactions and affairs of the members of such national securities exchange and the duty of such members to permit the officers or representatives of such national securities exchange or of the Commission to examine such books and records.

The CHAIRMAN. What is your objection to the bill? You have just completed reading your suggestions as to paragraph 5, section 18. Mr. WHITNEY. Yes, sir.

The CHAIRMAN. What is the difference; where is the difference between that and paragraph 5 in the bill?

Mr. WHITNEY. The difference is, our suggestion as against what is contained in the bill is that there is a change from the operation of the exchanges given to the commission, to a regulatory power. In other words, the commission cannot come in and operate an exchange and appoint its officers or committees, in that way; but it can suspend totally or for a period of time any exchange that does not conform w th its rules and regulations. That is the material point, with some minor details.

The CHAIRMAN. You mean that you do not want that authority given the Commission?

Mr. WHITNEY. Not that it may operate, but that it may regulate. The CHAIRMAN. Yes; you are willing to give the Commission entire authority over the margins?

Mr. WHITNEY. No, sir; to the Federal Reserve Board.

The CHAIRMAN. Well, whatever agency has it, or deals with it. Mr. WHITNEY. Yes, sir.

The CHAIRMAN. Why would you not trust the Commission just as well on this as you would on margins? Is not the subject of margins pretty vital?

Mr. WHITNEY. Very vital. I do not think it is a question of trust. It is a question of opinion.

The CHAIRMAN. I say that you trust the Commission, or the authority, whatever it is, to have sole power over margins. It appears to me that as to these regulatory matters that the same authority, or any other authority, that is entrusted with them, might be just as well trusted to do the proper and wise thing about this thing as it would about other matters.

Mr. WHITNEY. Mr. Chairman, they are given full power, except for that distinction, and ability to operate, as against regulate. We believe that stock exchanges belong to their members and the Commission may regulate by putting those exchanges or members out of business, but they may not operate, and as to the Federal Reserve Board, that is the authority now which, under the Flass-Steagall Act, controls credit conditions, and we advocate a continuation of and amplification of that policy.

As I was saying, in some respects these suggestions go further than anything contained in the bill. If they are adopted, a large part of section 7, and the whole of sections 9 and 16 should be eliminated, and this is more or less in answer, Mr. Chairman, to what your inquiry was.

These provisions give the Commission ample power to require exchanges to adopt rules for the prevention of excessive speculation and unfair practices in security transactions. To correct these abuses it is not necessary to give the Commission power to prescribe

the method of electing officers and committees, the hours of trading, the time and method of making settlements, payments and deliveries by members and customers, and so forth. To exercise such powers is not to supervise or regulate exchanges but is actually to operate. them.

And, briefly, in regard to other provisions in the bill. There are many other provisions of the bill which should be amended or qualified. This is true of section 8, which describes manipulative transactions in very broad terms; of section 13, which makes the solicitation of proxies a crime; of section 15, which prohibits officers, directors, and principal stockholders of listed corporations from buying and selling equity securities of such corporations within any 6 months' period; of section 25, which imposes excessive criminal penalties; and of section 30, which imposes registration fees on national securities exchanges. I mention these sections only in passing because of the limitation of time. They are of very grave importance, but are less so than those which I have chosen to discuss in more detail. I trust some means may be found to convert them and other sections which I have not mentioned into fair and temperate legislation.

Finally, I wish to state as emphatically as I can that it is my belief, based upon my experience, that the adoption of the bill in its present form would seriously disrupt our organized security markets and American business. It is impossible to forecast what the result would be if the markets for listed securities were destroyed. It is certain that such an event would bring untold loss to individual security owners and indefinite delay to the present recovery program. In addition, it would also tend to drive the security business of the country away from the organized stock exchanges and into the unorganized over-the-counter markets which exist in every financial center. Proper and orderly regulation of security practices is possible when transactions take place on stock exchanges, but it is almost impossible to regulate unorganized over-the-counter markets. The stock exchanges of the entire country have been charged with opposing the bills pending before this committee for the sole purpose of avoiding any form of Federal regulation. In all good faith, the New York Stock Exchange authorized me, when I appeared before this committee a month ago today, to make a definite proposal looking toward the adoption of a sound regulatory law. Today not only the New York Stock Exchange but the other leading exchanges of the country, to whom I have referred, suggest to this committee amendments for the pending bill so as to make it a workable and not a destructive statute. The purpose of the exchanges in making these suggestions is to preserve for the benefit of the American people the safeguards which exist today by reason of the public character of transactions on organized stock exchanges.

We are in the process of recovery. If normal economic conditions are to be restored business must be revived. The securities dealt in on American stock exchanges represent a large part of the liquid capital of the Nation. The market value on March 1, 1934, of the securities listed on the New York Stock Exchange alone exceeded 73 billion dollars, or substantially one quarter of the estimated total wealth of the entire Nation. This is no time for hasty or ill-considered legislation which might freeze such a large part of the liquid resources of the country.

The New York Stock Exchange and, I am sure, every other exchange in the country, stand ready to furnish your committee with all the technical and expert advice at their command and to assist in drafting amendments to the pending bill or in drafting a new bill, which will give whatever administrative authority may be chosen, full power to prevent excessive speculation and to regulate unfair practices in security transactions. They are, however, gentlemen, united in opposing legislation which may destroy the security markets of the Nation.

The CHAIRMAN. With the amendments that you have suggested, would you support this bill?

Mr. WHITNEY. I beg your pardon?

The CHAIRMAN. With the amendments you have suggested, would the bill have your support?

Mr. WHITNEY. We believe that with the amendments, sir, this bill could be made workable and not destructive. However, as I have said, we are not in agreement with the fundamentals contained in other parts of the bill, which I have not gone into, sir, because of the lack of time, or at least, as I thought so, this morning, but we believe

The CHAIRMAN. Sometime, Mr. Whitney-I think that you were on the stand 2 days before this morning-you said that your exchange was for regulation.

Mr. WHITNEY. Yes, sir.

The CHAIRMAN. And yet we have not been able to get at least, you have not gotten over to me, just exactly what kind of regulation you would want, and this morning you have presented amendments that you would like to have to this bill, and yet you say that even if they were adopted you would not be for the bill.

Mr. WHITNEY. I said, sir, we thought with the amendments the bill would be workable and not destructive; but there are further matters in the bill which we do not agree with.

We have never, sir, been a party, to my knowledge, to any drawing of any bill that has been presented to either House of Congress. We stand ready, in any way, to sit down for as long as may be requested, and with our experts to give such help and advice as may be asked of us, and I think there is no question but if such a request were made of us that we could readily show you exactly what we would support in the form of a regulatory bill.

We do advocate, Mr. Chairman, a regulatory bill along workable lines.

The CHAIRMAN. Well, of course, that is just as general and as wide as the earth. That does not give us any information, Mr. Whitney, about what your exchange stands for.

Mr. WHITNEY. We have stated in the record, Mr. ChairmanThe CHAIRMAN. You talk about a workable bill. I do not know what that is.

Mr. WHITNEY. Mr. Chairman, we stand able and ready to give that. You do not wish me to go into the details and the technicalities of a bill here on my feet. I would not be able to do so, anyway. We stand ready to do anything that you want in this regard to meet your requests.

The CHAIRMAN. Any questions?
Mr. KENNEY. Mr. Chairman-

The CHAIRMAN. Mr. Kenney.

Mr. KENNEY. Mr. Whitney, are you approaching this bill as a credit problem chiefly, or do you regard our problem primarily as moral?

Mr. WHITNEY. I think both, Mr. Kenney. I think both. If you will be specific. Of course, the margin requirements, in our opinion, are a credit problem. There are a great many other matters that come under the jurisdiction of the stock exchanges and in the operation of exchanges that touch closely on the moral element.

Mr. KENNEY. Well, fundamentally, it is a tremendous credit problem which we have before us.

Mr. WHITNEY. One part is a very tremendous credit problem.
Mr. KENNEY. You are in accord with that.

Mr. WHITNEY. Yes, sir.

Mr. KENNEY. And if we are dealing with the credit or financial structure, we should make that the great fundamental process, as I regard it. Do you agree with that?

Mr. WHITNEY. I do, absolutely, that that is one of the basic fundamentals. I do not wish to minimize its importance. There are other fundamentals in the bill and in this whole subject.

Mr. KENNEY. What I am trying to bring home is that, of course, this bill presents a moral problem, a problem of morality, but the larger view, as I see it, is the question of the financial structure of the country and the great credit problem which is involved here, and that, after all, it seems to me is the background of this whole bill, and the matters which should be brought prominently to the front.

Mr. WHITNEY. There is no question about that, sir. All operations of the stock exchanges, where securities are dealt in, involve the financial affairs of the Nation, and therefore the whole credit problem.

Mr. Chairman, I wish to reiterate what we have stated, I stated, when I was first here a month ago, that we are in accord with the general principles set forth here. It is in the details that we differ, and only in the details.

Mr. PETTENGILL. Mr. Chairman

The CHAIRMAN. Mr. Kenney, have you finished?

Mr. KENNEY. Yes.

The CHAIRMAN. Mr. Pettengill.

Mr. PETTENGILL. Mr. Whitney, I am interested in your views for the moment, not with respect to the exchanges or their members, but with respect to national recovery. It if be possible to look at that side of the picture, what in your general view would be the effect of the adoption of the bill as now in type, on national recovery? Mr. WHITNEY. Disastrous.

Mr. PETTENGILL. You think that it would be deflationary?

Mr. WHITNEY. Absolutely; just as sure of it as I am standing here. Mr. PETTENGILL. What leads you to that conclusion?

Mr. WHITNEY. I believe, sir, that the markets, the security markets of the Nation, will dry up.

Mr. PETTENGILL. Why?

Mr. WHITNEY. Why?

Mr. PETTENGILL. Yes.

Mr. WHITNEY. Because of the various points that I have referred to of what would be eliminated of the essential factors in such

markets; the effect of margins; the effect of segregation; the registration of securities.

I have not gone into these details, Mr. Pettengill, before the committee, because I did not want to bore them.

Mr. PETTENGILL. Yes.

Mr. WHITNEY. But we have had hundreds of letters from some of the most important corporations of this country that say if this bill is enacted, they will delist their stocks.

Now, with those factors and others, the market for securities in which a vast amount of the national wealth is now resided, will be gone, but people must have a place to liquidate or to buy and sell. It seems to me we have to go a very few years back, if not at the present time, and see the conditions of real estate and mortgages on real estate, and even in some instances in bank stocks, and other unlisted securities, to see what trouble and disaster can come in the taking away or the not having a market for such securities, or for such particular goods.

Mr. PETTENGILL. Do you think that the particular difficulty would be the delisting of stocks?

Mr. WHITNEY. I think that would be a very material point; yes. Mr. PETTENGILL. And, of course, Congress has no power to require a corporation to either list or delist?

Mr. WHITNEY. Not that I know of, sir.

Mr. PETTENGILL. As a general statement, if there were deflation of stocks-we will put it this way-in times of deflation of stocks, do bonds generally follow the down curve?

Mr. WHITNEY. Not necessarily, sir.

Mr. PETTENGILL. Not necessarily?

Mr. WHITNEY. No.

Mr. PETTENGILL. They might possibly affect, or make the bonds rise?

Mr. WHITNEY. I do not think so; no.

If you want the usual custom that takes place, as experience has shown, usually-and there may be many people in this room who disagree with me. This is just an opinion. Usually when stocks fall, bonds follow, but at some time thereafter, and it is usually the custom for bonds to recover before stocks will, that being somewhat evidenced because of the fact that they are the underlying obligations of the particular companies. That is, in the main, how markets work, and therefore, to answer you, that in deflation of stocks, if stocks fell, would bonds fall, perhaps not at the moment, but if it was sustained, presumably they would, because it would have an effect upon all industries.

Mr. PETTENGILL. The deflation you fear, following the passage of the bill as drawn, would come, I take it, one, from the delisting of stocks, and, two, from what you would consider the margin requirements being too high under present market conditions. Is that right?

Mr. WHITNEY. Yes, sir.

Mr. PETTENGILL. Would there be any other factor that mightMr. WHITNEY (interposing). No; I want to take that back. At the prevailing market prices, the margin requirements are not upsetting, but if there is a movement up, rising of prices, or a move down below the autumn price of 1933, then the margin requirements become excessive.