Mr. REDMOND. It simply means that you are going to make it possible for a man to be a criminal and be faced with a jail sentence of 10 years, although he has done nothing.

Mr. PECORA. Oh, no.

Mr. REDMOND. It is the fact that he fails to take action to liquidate a loan that will make him a criminal.

Mr. PECORA. Only willful violations may be dealt with.

Senator GORE. As a matter of draftsmanship, do you think the word "vital" adds anything to it in the way of certainty or clarity? Mr. REDMOND. I really do not, Senator Gore. We make our suggestion here for consideration.

The CHAIRMAN. On your page 25, have you any suggestion to make as to the amounts there?

Mr. REDMOND. No, Senator. We frankly feel that the present amounts proposed in the bill are excessive, but we leave it to the discretion of the committee to determine what would be more appropriate and lower amounts.

Mr. PECORA. You must remember, Mr. Redmond, that the penalty provisions of the bill are the teeth.

Mr. REDMOND. I am not unaccustomed to seeing teeth in a bill, Mr. Pecora.

Senator BARKLEY. You do not want them to have false teeth.

Mr. REDMOND. No; I do not want them to be false teeth at all. I want them to apply to what is really a crime, but I do not want to see innocent people made liable as criminals.

The CHAIRMAN. I am just wondering whether you had in mind what the fine should be, and what the term of imprisonment should be.

Mr. REDMOND. No, Senator. I think those matters should be fixed with relation to the other Federal statutes determining what is a proper penalty for different types of offenses.

Mr. PECORA. You think there should be something more than a slap on the wrist for a violation, do you not?

Mr. REDMOND. Absolutely; and I would expect substantial penalties, Mr. Pecora, but not these provisions of 10 years and $25,000, which, so far as I know, exceed the Federal penalties for many felonies.

Mr. PECORA. You talk of 10 years as if that were the only penalty the court could impose. That is the maximum.

Mr. REDMOND. I know; but is it not true, in the criminal law, that very few penalties are mandatory? A man may be sent to prison for 10 years for forgery, and that is the maximum.

Mr. PECORA. That is the maximum. There are very few maximum terms of imprisonment imposed by the courts anyway.

Mr. REDMOND. If you are trying to give me comfort, Mr. Pecora, that I will not languish in jail as long as I might otherwise, I am afraid it is cold comfort. [Laughter.]

The CHAIRMAN. Very well.

Mr. REDMOND. Section 30 deals with the registration fee. We suggest its omission because of our feeling that it is merely a further tax, With respect to section 31 we have no suggestions.

Section 32 deals with the members and employees of the Federal Trade Commission. We renew our statement that we feel that the

authority in charge of regulation of exchanges should be a separate body, thoroughly familiar with the operation of stock exchanges and the security business.

With respect to section 34 we would like to point out that the effective dates suggested by the bill will make it absolutely impossible, as a practical matter, for the machinery which the bill itself proposes to be put into effect. There are approximately 900 corporations listed on the New York Stock Exchange. Even with the best wish in the world to comply with the registration requirements of the bill it would be physically impossible for them to do so.

Of course, if our amendments were accepted to sections 11 and 12, that matter would be cured automatically, because those corporations which are now listed would be allowed to continue listed, at least temporarily.

There is a comment here in regard to certain sections of the bill which do not directly affect the work of stock exchanges. There is one thing

Senator TOWNSEND. Do you want that inserted in the record? Mr. REDMOND. Suppose I read it. It is very brief. [Reading:]

A number of sections deal with subjects which do not directly affect the work of stock exchanges. We have refrained from making any comment on such sections but this fact must not be considered as indicating approval by stock exchanges of the substance of these sections. This is particularly true of section 15 insofar as it deals with the liability of principal stockholders, of section 19 which deals with the liability of controlling persons, and of section 23 which deals with the public character of information.

Senator GORE. What was the first section? I did not get it.
Mr. REDMOND. Section 15, Senator Gore. [Continuing reading:]

The first two of these sections will impose liability upon persons merely because they are the owners of property and will almost certainly interfere with the free flow of capital into industry. The last will require corporations whose securities are dealt in on exchanges to disclose highly confidential information which will be of value only to competitors, both foreign and domestic.

There is one other. It came in late, and is therefore an addendum, showing that even persons like ourselves, who think we have some knowledge of stock exchanges, do not always remember all the details. Counsel for the San Francisco exchanges, who came on from the coast, has pointed out to us that under their rules they ́ have today certain banks which are literally members of the exchange. Therefore they would be swept in under the definition of a member of the exchange under many provisions of this bill which would not normally be considered applicable to banks. For this reason he suggests that there be added to paragraph 3 (a) 3, at the beginning, the following:

Subject to paragraph 7.

That is to be added to the definition of members of the exchange. Also the following language in subsection 7. [Reading:]

(7) The term "broker" or dealer" shall not include a bank, except as hereinafter set forth, or any person insofar as he buys or sells securities for his own account and not as a part of a regular business; the term "member" shall include a bank member of a national securities exchange but only to the extent that it shall act as broker or dealer.

Thereby putting a bank, when it acts as a broker or dealer, subject to the same restrictions as members of the exchange, but otherwise exempting them from the provisions of the act and putting them in the category with banks.

The CHAIRMAN. Is that all? Are there any questions?

Mr. WHITNEY. Mr. Chairman, I would like to add this one word: That these amendments have been approved-if I state anything that is inaccurate, the gentlemen are here, so that they can contradict me if they wish. These amendments have been approved by the representatives of the Boston Stock Exchange, the Chicago Stock Exchange, the New York Curb Exchange; by Mr. Thompson, president of the Associated Stock Exchanges, as members of which there are 18 exchanges, and he has been authorized as well to represent the Louisville Stock Exchange, of Louisville, Ky.; the Seattle Exchange, of Seattle, Wash.; and the Richmond Exchange, of Richmond, Va.

Separately we have been instructed to represent, by members in the Associated Stock Exchanges, the Baltimore Stock Exchange and the Philadelphia Stock Exchange.

There are present here representatives of the four California stock exchanges, in Los Angeles and San Francisco. They also approve these amendments as suggested, with the one reservation made by San Francisco which Mr. Redmond has just referred to.

That covers, by and large, almost all the exchanges of this country with the exception of some of the smaller ones or exchanges on which particular securities are dealt in.

Senator GORE. Mr. Redmond, did you say that the changes which you have suggested cover the case of transactions and dealings in bonds, which are not speculative, and that they would not be involved in these regulations? Somebody was talking to me a day or two ago, and said there ought to be a differentiation between transactions or dealings in bonds and dealings in stocks. Do your amendments cover that point?

Mr. WHITNEY. The matter in section 6, it to the Federal Reserve Board as to rules enable them to accommodate that situation. is section 9 in our amendments.

Senator Gore, leaving and regulations would Also section 10, which

Senator GORE. What section do you leave out?

Mr. WHITNEY. We leave out section 9, and section 10 deals with segregation. Again, that is left to the Commission to determine the function of dealer and broker. Under that come bond brokers as well as all other types of brokers.

Senator GORE. You kept section 2 in there?

Mr. WHITNEY. Yes, sir.

Senator WALCOTT. There is no change in section 2.

The CHAIRMAN. Is there anything else?

Senator WALCOTT. Mr. Chairman, just one question. With regard to section 6, Mr. Redmond, in presenting that, on the matter of exempted securities, in which he now includes Federal and State securities and securities of subdivisions thereof, made the remark, I think, that he did not object to that change. It was a half-hearted, rather lukewarm advocacy of that, as I recall it. How do you feel about that?

Mr. REDMOND. I think our feeling is that it is not a subject really on which the exchanges ought to express a very definite position. Very few of the municipal bonds are actually listed and dealt in. The committee has heard, of course, from the representatives of the bond traders who deal in such securities over the counter, and I believe also from persons representing municipal interests.

Senator WALCOTT. Do you not feel that there are a great many that are really vitally interested in dealing in municipal securities and securities of other State subdivisions who would be very seriously hurt if they were not included in the exemptions?

Mr. REDMOND. I think there is no question about that.

Senator WALCOTT. I would like to make that clear, because I thought, from the fact that you were rather lukewarm, you merely meant by what you said that the stock exchanges are not particularly interested in this particular thing.

Mr. WHITNEY. It is merely outside their province, as such, although of great and most vital interest to many of their members. Mr. PECORA. But insofar as you would permit yourself an expression of opinion on that, you think exemption could be provided for in the bill for all issues of States and political subdivisions of States.

Mr. WHITNEY. I certainly do.

Senator GORE. Under your suggested amendments, could a person who does not know a thing on earth about securities or stock exchanges make money every time he ventures in?

Mr. WHITNEY. I wish it were true, sir.

Senator GORE. If it is not I am against it. [Laughter.] The CHAIRMAN. Is there anything else, gentlemen. (No response.) If that is all, then you may be excused, Mr. Whitney. We are very much obliged to you. We will take up these matters and consider them carefully.

I want to submit for the record a communication and have it read. Mr. Pecora will read it, and let it go into the record. Mr. PECORA (reading):

Hon. DUNCAN U. FLETCHER,

THE WHITE HOUSE, Washington, March 26, 1934.

Chairman Banking and Currency Committee,

United States Senate, Washington D.C.

MY DEAR MR. CHAIRMAN: Before I leave Washington for a few days holiday, I want to write you about a matter which gives me some concern.

On February 9, 1934, I sent to the Congress a special message asking for Federal supervision of national traffic in securities.

It has come to my attention that a more definite and more highly organized drive is being made against effective legislation to this end than against any similar recommendation made by me during the past year. Letters and telegrams bearing all the earmarks of origin at some common source are pouring in to the White House and the Congress.

The people of this country are, in overwhelming majority, fully aware of the fact that unregulated speculation in securities and in commodities was one of the most important contributing factors in the artificial and unwarranted “boom " which had so much to do with the terrible conditions of the years following 1929.

I have been definitely committed to definite regulation of exchanges which deal in securities and commodities. In my message I stated, "It should be our national policy to restrict, as far as possible, the use of these exchanges for purely speculative operations."

I am certain that the country as a whole will not be satisfied with legislation unless such legislation has teeth in it. The two principal objections are, as I see it

First, the requirement of what is known as "margins" so high that speculation, even as it exists today, will of necessity be drastically curtailed; and Second, that the Government be given such definite powers of supervision over exchanges that the Government itself will be able to correct abuses which may arise in the future.

We must, of course, prevent insofar as possible manipulation of prices to the detriment of actual investors, but at the same time we must eliminate unnecessary, unwise, and destructive speculation.

The bill, as shown to me this afternoon by you seems to meet the minimum requirements. I do not see how any of us could afford to have it weakened in any shape, manner, or form.

Very sincerely,

FRANKLIN D. ROOSEVELT.

The CHAIRMAN. The bill to which the President refers is the redraft we have been considering in this committee for some time past.

Senator GOLDSBOROUGH. I would like to submit for the record a letter from Mr. George A. Lambell of New York City, chairman of the committee of put and call brokers and dealers in the city of New York; also a telegram from Mr. Jacob France, chairman of the board of the Equitable Trust Co., of Baltimore.

The CHAIRMAN. They may be entered in the record.

(The communications referred to will be printed at the conclusion of today's proceedings.)

The CHAIRMAN. If there is nothing further, this closes the open hearings. We will not adjourn until 2:30 this afternoon, to meet in executive session.

(Whereupon, at 1 p.m., Tuesday, Mar. 27, 1934, the committee recessed until 2:30 p.m. óf the same day, to meet in executive session.)

Hon. PHILLIPS LEE GOLDSBOROUGH,

[Telegram]

BALTIMORE, MD., March 24, 1934.

United States Senate:

As chairman of board of one of Maryland's largest State banks I earnestly request your full cooperation and support in opposing paragraph A, section 7, National Securities Exchange Act, 1934, because of its unfair discrimination against nonmember State banks. I feel I am likewise voicing the sentiment of Maryland's 119 nonmember State banks whose total deposits are approximately $147,000,000.

JACOB FRANCE,

Chairman of Board, Equitable Trust Co.

NEW YORK, N.Y., March 23, 1934.

Hon. PHILLIPS LEE GOLDSBOROUGH,

United States Senate, Washington, D.C. DEAR SIR: On March 7, 1934, we submitted to the committee of the United States Senate a brief in regard to the National Securities Exchange Act of 1934. The committee of put-and-call brokers at that time pointed out and tried to make plain the economic importance of puts and calls and endeavored to show the difference between the so-called "manipulative options" and those dealt in openly by the put-and-call brokers and dealers in this country.

We were then, and are now, of the opinion that section 8. paragraph 9, as it appears in the proposed law, as well as in its revised form, only applies to such options which are acquired in conjunction with the actual purchase or