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Mr. PETTENGILL. I say, if the margin requirements of the bill tended to depress security prices generally, it would also tend to make Government financing more difficult and to depress Government bonds?

Mr. Smith. I think if there is anything in this bill, in the part that we have studied, or outside of the parts that we have studied that injures the country, of course, it will interfere with Government financing. That is true in general.

Mr. PETTENGILL. But, you express no opinion as to whether it will have that effect. You have answered my hypothetical question, yes. But, you do not express any opinion as to the margin requirements in the bill?

Mr. SMITH. The reason I stay away from that is because we did not consider it, that same question has been asked a number of times, and the one thing that we want to do, is to be perfectly frank with each other so that there could be no misunderstanding as to our positions.

Mr. PETTENGILL. Exactly
Mr. Smith. Because the Treasury was called in on this.
Mr. PETTENGILL. I understand, but I wanted to get an expression

Mr. Smith. And we will be glad to do anything we can. We are at your service in any connection. We are not advocating this measure. We are-and, above all, I am answering you in order that there may be no misunderstanding about our position-we are anxious to do what we can, and when you mention the margin subject, that is a subject that we have not studied.

Mr. PETTENGILL. Of course, our responsibility is to adopt a bill that will not retard honest and legitimate business recovery in this Nation.

Mr. Smith. Certainly; but please do not ask us to express an opinion about something about which you have not consulted us.

Mr. PETTENGILL. Our responsibility will not be saved by any saving clauses, such as are outlined in your formal statement.

Mr. SMITH. That is correct.

Mr. MARLAND. Do you not think that the Treasury should be consulted?

Mr. SMITH. It seems to me that this committee should answer that question, Mr. Marland, if I may say so.

The CHAIRMAN. I will state, in order that there may be no misunderstanding, the President, at my suggestion, asked the Treasury and the Federal Reserve Board for their opinions and assistance in the working out of this bill of the things that they are supposed to know about. I did that, because I thought that was what the committee wanted. I do not see why Mr. Smith should be an expert on stock-exchange regulations, as such. Of course, I do not imagine that he has ever been engaged in that business.

Mr. WOLVERTON. Mr. Chairman.
The CHAIRMAN. Mr. Wolverton.

Mr. WOLVERTON. I can appreciate, so far as the Treasury is concerned, that there are certain matters that are particularly in their knowledge. The same applies equally to the other Departments, to the Federal Reserve, the Comptroller of the Currency, and the Re

construction Finance Corporation. It would seem to me, however,
that after each department has passed on the questions which are
particularly within its knowledge, then there should have been a
bringing together of those departments, to discuss between themselves
the effect, one upon the other, so that when this bill came before us,
that these representatives could come and state, “We, after study of
the bill by our own particular department, and in consultation with
those in other departments, are unqualifiedly in favor of the bill."
That would be reassuring to the country, and certainly would be help-
ful to this committee, in my opinion.

The CHAIRMAN. Are there any other questions?
Mr. Smith, do you have anything further to state to the committee?
Mr. Smith. I have nothing further.
Mr. WaDSWORTH. Mr. Chairman, may I ask just one question?
The CHAIRMAN. Mr. Wadsworth.

Mr. WADSWORTH. I have observed that the witness has emphasized his concern and that of the Treasury Department on the stability of the financial structure of the country. Do not the margin requirements, as expressed in percentages, have a very direct effect upon that problem?

Mr. Smith. That is a question that is entirely outside the subject of our review.

Mr. WADSWORTH. Should it not be?

Mr. Smith. I cannot answer that for the committee, Mr. Wadsworth. I cannot answer that for you.

Mr. WADSWORTH. All right.
Mr. Holmes. Mr. Chairman, may I ask just one question?
The CHAIRMAN. Mr. Holmes.

Mr. Holmes. In relation to section 3, page 8, paragraph 13. The term "exempted security” or “exempted securities”—I will read a part of the bill:

The term “exempted security” or “exempted securities "shall include securities which are direct obligations of or obligations guaranteed as to principal or interest by the United States.

Were you asked to make any observations on whether or not in exempted securities you would allow States and the subdivisions thereof, the same privilege as the Federal Government?

Mr. Smith. Well, the provisions of the bill are that United States Government bonds shall be exempted.

Mr. HOLMES. That is true.

Mr. SMITH. And the Federal Trade Commission may exempt other securities. Now

Mr. HOLMES. You do not give them the latitude that you do the
Federal Government?

Mr. SMITH. No, sir.
Mr. HOLMES. What is the reason for that; have you any?
Mr. SMITH. Well

Mr. Holmes. Is it not going to be more difficult for the States and municipalities to finance their obligations when they are not included in the same category?

Mr. Smith. I think it is reasonable to believe that the Federal Trade Commission will make a study of this question of exempted securities and set up certain definitions, and I would say that about

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the first bonds they would exempt will be State bonds. Now, you can go just a certain distance in legislating details, and for that reason we felt that the Federal Trade Commission could be relied upon to take satisfactory action in that matter.

Mr. Holmes. Well, insofar as State obligations are concerned, why should not they be included in the bill?

Mr. Smith. It is a matter of degree. The Federal Trade Commission will be called upon to make certain securities exempt, and I think it is perfectly obvious that the first name on the list would be the proper kind of State bonds. Of course, there might be some kinds of State bonds, you know, that would not be exempted. You could not exempt State bonds in their entirety.

Mr. HOLMES. My opinion is that the State bonds ought to be exempted.

Mr. SMITH. All of them?
Mr. HOLMES. That they should have the same rights.
Mr. SMITH. All?
Mr. HOLMES. Yes; practically all of them.

Mr. Smith. Then, they had better correct their practices, some of them.

Mr. HOLMES. Of course, that is true. No one knows where we are headed at the present time.

Mr. Smith. You would not want to exempt them, with some of the States in default, as some of them.

Mr. HOLMES. That may be, as to some of the States. But, not many of the States are not in that position. I think that may be applied to all securities all down the line. There are many securities in default.

Mr. Smith. Then, you would not want to exempt them, I should think.

Mr. HOLMES. Well, the bill works both ways.

Mr. Smith. Our feeling was that we might rely on the Federal Trade Commission to properly classify the exempted securities.

Mr. HOLMES. Well, that is true, but I am worried about the States and municipalities that have always enjoyed exceptionally good credit, and I can see, unless they are included in this bill, allowed the same latitude as the United States Government, that they are going to have difficulties in their financing; it will be more difficult and more costly for them.

Mr. COLE. Mr. Chairman, may I ask one question?
The CHAIRMAN. Mr. Cole.

Mr. COLE. Mr. Smith, I understood you to state that you have given a great deal of study to section 6 and section 7, very important provisions of the bill. With those two sections before you I want to ask you this question: Do you understand that under section 7 (a) a broker and/or dealer may borrow from a member bank of the Federal Reserve System and other members and/or brokers or dealers in accordance with such rules and regulations as the Federal Reserve Board may prescribe under the same credit conditions as brokers and/or dealer is permitted to extend to his customers under subsection C of section 6 and, if so, can the lender accept the statement of the borrower that the amount of loan requested is in accordance with subsection C of section 6?

Mr. Smith. That is correct.

Mr. MARLAND. Mr. Chairman-
The CHAIRMAN. Mr. Marland.

Mr. MARLAND. I want to make a statement rather than ask a question. It is my opinion that paragraph - of this act, as drafted, will have a very serious effect on future Government financing. I believe that the Treasury Department should study this bill with that possibility in mind and give this Committee their opinion on this subject.

The CHAIRMAN. Do you have anything further?
Mr. Smith. I have nothing further to say.
The CHAIRMAN. We are very much obliged to you, Mr. Smith.
Mr. Smith. Thank you.

The CHAIRMAN. The Committee is now going to have to go into a short executive session.

(Thereupon, at 11:25 a.m., the committee proceeded to the consideration of other business, after which it adjoumed to meet the following morning, Thursday, March 22, at 10 a.m.)

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THURSDAY, MARCH 22, 1934

HOUSE OF REPRESENTATIVES,
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D.C. The committee met, pursuant to adjournment, at 10 a.m., in the committee room, New House Office Building, Hon. Sam Rayburn (chairman) presiding.

The CHAIRMAN. The committee will come to order.

We decided late yesterday that we will use this morning in hearing the representatives of the exchanges.

Mr. Whitney, you may proceed.

STATEMENT OF RICHARD WHITNEY, PRESIDENT, NEW YORK

STOCK EXCHANGE, NEW YORK, N.Y.

Mr. WHITNEY. Mr. Chairman and gentlemen of the committee: The notice has been a little short and many of us have been up all night trying to get something to properly present to you, but I want to ask your forgiveness, if in our haste, there have been, well, omissions, or perhaps errors in what I am going to tell you, although we have tried to check very carefully.

The New York Stock Exchange is opposed to H.R. 8720 for the same reasons it was opposed to the Fletcher-Rayburn bill. The bill now pending before you contains modifications of some of the provisions of the original bill. However, our basic objections to the old bill apply with qual force to the new one. There is not time to discuss all of its provisions and I shall, therefore, confine my remarks to the most vital sections. I shall deal only with sections 6 and 7, which refer to margin requirements and the restrictions on members' borrowings; section 10, which deals with segregation of the functions of broker and dealer; sections 11 and 12, which deal with the requirements for the registration of securities and the reports which will be required of corporations whose securities are registered on an exchange; and section 18, which deals with the powers of the Commission over exchanges. There are many other sections of the bill which, in my opinion, should be amended.

Before discussing any provisions of the bill I want to make my position absolutely clear. I think this bill is unworkable and will have destructive effects not only upon stock exchanges but also upon the value of securities and the business of the country. I do not believe that sound legislation can be based on the framework of this bill. However, I understand that the committee desires constructive suggestions for the improvement of the bill. I shall, therefore, suggest specific amendments to the sections of the bill which contain the most

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