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NATIONAL SECURITIES EXCHANGES REGULATION
TUESDAY, MARCH 20, 1934
HOUSE OF REPRESENTATIVES,
Washington, D.C. The committee met, pursuant to call, at 10 a.m., in the committee room, New House Office Building, Hon. Sam Ravburn (chairman) presiding.
The CHAIRMAN. The committee will come to order. We are to take up for consideration this morning H.R. 8720, introduced on yesterday.
We had 3 weeks' hearings on the other bill. We listened very attentively to all of the suggestions which were made, and criticisms, and in this new draft we have tried to meet the legitimate criticisms. We do not hope, of course, to pass any bill at all that will please everybody. If we put all of the amendments in that were suggested, we would not have anything but the enacting clause left.
It is the hope of the committee that when the explanations of this new bill are made by the gentlemen who have been interested in its drafting and representatives of the Federal Reserve Board, as suggested by many members of the committee, and of the Treasury, that we will close these hearings. I think that it could not be expected that we will go into new hearings and thresh over all of the things that we have been over, and I hope that that will not be expected.
(H.R. 8720 is as follows:)
[H.R. 8720, 73d Cong., 2d sess.) A BILL To provide for the regulation of National Securities Exchanges and of over
counter markets operating in interstate and foreign commerce or through the mails, and to prevent inequitable and unfair practices thereon, and for other purposes
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. This Act may be cited as the “ National Securities Exchange Act of 1934."
NECESSITY FOR REGULATION OF SECURITIES TRANSACTIONS
SEC. 2. Transactions in securities as commonly conducted upon securities exchanges and over-the-counter markets are affected with a national public interest. Such transactions are carried on in large volume by the public generally and a considerable proportion of such transactions originates outside the States in which the exchanges and over-the-counter markets are located and/or are effected by means of the mails and instrumentalities of interstate commerce. The prices established and offered in such transactions are generally quoted and disseminated throughout the United States and foreign
countries as a basis for determining and establishing prices at which securities are bought and sold; as a basis for determining and establishing the amount of taxes owing to the United States and to the several States by owners, buyers, and sellers of securities; and as a basis for determining and establishing the value of collateral for bank loans. Such transactions involve in substantial proportions the securities of issuers engaged in interstate commerce. Such transactions involve the use of credit; directly affect the financing of trade, industry, and transportation in interstate commerce; directly affect and influence the volume of interstate commerce; and constitute an indispensable part of the current of interstate commerce. Such transactions give rise at times to a large volume of speculation in securities. Frequently the prices of securities on such exchanges and over-the-counter markets are susceptible to manipulation and control, and the dissemination of such prices gives rise to excessive speculation. By reason of such manipulation, control, and excessive speculation, there occur sudden and unreasonable fluctuations in the prices of securities on such exchanges. Such sudden and unreasonable fluctuations in prices coulpled with excessive speculation and minipulation cause alternately unreasonable expansion and unreasonable contraction of the volume of credit available for trade, transportation, and industry in interstate commerce, and thus directly burden such commerce. Such sudden and unreasonable fluctuations hinder the proper appraisal of the value of securities, and thus prevent a fair calculation of taxes owing to the United States and to the several States by owners, buyers, and sellers of securities and the fair valuation of collateral for bank loans. Such sudden and unreasonable fluctuations constitute an obstruction to and a burden upon interstate commerce and upon the national banking and Federal Reserve Systems. The national credit is intimately related to and affected by the prices for which securities are sold and offered for sale upon exchanges and on over-the-counter markets. National emergencies, which produce wide-spread unemployment and the dislocation of trade, transportation, and industry, and which burden interstate commerce and adversely affect the general welfare, are precipitated, intensified, and prolonged by manipulation and control of security prices and by excessive speculation on exchauges and over-the-counter markets. To meet the national emergencies resulting from such manipulation, control, and excessive speculation the Federal Government is put to vast expense, with a consequent burden upon the national credit. Public regulation of transactions in securities on exchanges and on over-thecounter markets, and the regulation or prohibition of all means or devices or methods which are apt to cause manipulation or control of such transactions, or which are likely to lead to excessive speculation, are hereby declared to be imperative in the public interest for the protection of interstate commerce, the national credit, the Federal taxing power, and the national banking and Federal Reserve Systems. To make such regulations effective and to insure the maintenance of fair and honest markets in such transactions, control of the listing of securities on such exchanges and markets, of the making of appropriate reports, of transactions by officers, directors, and persons holding fiduciary positions and of other matters is equally imperative and necessary.
SEC. 3. (a) When used in this Act, unless the context otherwise requires
(1) The term “exchange" means any organization, association, or group of persons, whether incorporated or unincorporateil, who constitute, maintain. or provide a market place or facilities for bringing together purchasers and sellers of secuities or otherwise performing with respect to securities the functions commonly performed by a stock exchange as that term is generally understood and as it may be further defined by the Federal Trade Commission.
(2) The term “ facility” when used with respect to an exchange includes its premises; tangible or intangible property, whether on the premises or not; any right to the use of such premises or property or any service thereof. including, among other things, any system of communication to or from the exchange, by ticker' or otherwise, maintained by or with the consent ot the exchange; and any right of the exchange to the use of any property of service.
(3) The term “member” when used with reference to an exchange means any person who is permitted either to effect transactions on the exchange with. out the services of another person 'acting as broker or to make use ot the facilities of an exchange for transactions thereon without payment of a commission or fee or with the payment of a commission or fee which is less than
that charged the general public, or any firm of which a member is a partner, or any partner of such firm.
(4) Subject to paragraph 7 of this section, the term “broker” means any person engaged in the business of effecting transactions in securities for the account of others.
(5) Subject to paragraph 7 of this section, the term “dealer” means any person engaged in the business of buying and selling securities for his own account, through a broker or otherwise.
(6) The term “ bank” means (a) a banking institution organized under the laws of the United States, (b) a member bank of the Federal Reserve System, (c) a banking institution doing business under the laws of any State the business of which is substantially confined to banking and which is supervised by a State banking commission or similar official, or (d) a receiver, conservator, or other liquidating agent of any institution included in clause (a), (b), or (c) of this paragraph.
(7) The term "broker” or “ dealer" shall not include a bank or any person insofar as he buys or sells a security or securities for his own account and not as a part of a regular business.
(8) The term " director ” means any director of a corporation or any person performing similar functions with respect to any organization, whether incorporated or unincorporated.
(9) The term “issuer" means any person who issues or proposes to issue any security or who guarantees a security either as to principal or income; except that with respect to certificates of deposit for securities, voting-trust certificates, or collateral-trust certificates, or with respect to certificates of interest or shares in an unincorporated investment trust not having a board of directors or of the fixed, restricted management, or unit type, the term " issuer” means the person or persons performing the acts and assuming the duties of depositor or manager pursuant to the provisions of the trust or other agreement or instrument under which such securities are issued; and except that, with respect to equipment-trust certificates or like securities, the term " issuer” means the person by whom the equipment or property is, or is to be, used.
(10) The term “person" means an individual, a corporation, a partnership, an association, a joint-stock company, a business trust, or any unincorporated organization.
(11) The term “security” means any note, stock, treasury stock, bond, debenture, certificate of interest or participation in any profit-sharing agreeinent or in any oil, gas, or other mineral royalty or lease, any collateral-trust certificates, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, or in general, any instrument commonly known as a “ security"; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, or warrant or right to subscribe to or purchase, any of the foregoing, but shall not include currency or any note, draft, bill of exchange, or banker's acceptance which arises out of a current transaction or the proceeds of which have been or are to be used for current transactions, and which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited.
(12) The term "equity security” means any stock or similar security: or any security convertible, with or without consideration, into such a security and any warrant or right to subscribe to or purchase such a security; or any other security which the Commission shall deem to be of similar nature and consider necessary or appropriate by rules and regulations to treat as an equity security.
(13) 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, such securities issued or guaranteed by corporations in which the United States has a direct or indirect interest as shall be designated for exemption by the Secretary of the Treasury, and such other securities and instruments as the Commission may by such rules and regulations as it deems necessary or appropriate in the public interest or for the protection of investors, either unconditionally or upon specified terms and conditions or for stated periods, exempt from the operation of any one or more provisions of this Act which by their terms are inapplicable to an “ exempted security" or to "exempted securities."
(14) The terms “buy” and “purchase" each include any purchase or any contract to buy, purchase, or otherwise acquire.
(15) The terms sale and “sell” each include any sale or any contract to sell or otherwise dispose of.
(16) The term “ Commission " means the Federal Trade Commission.
(17) The term “ State" means any State of the United States, the District of Columbia, Alaska, Hawaii, Puerto Rico, the Philippine Islands, the Canal Zone, the Virgin Islands, or any other possession of the United States.
(18) The term interstate commerce means trade, commerce, transportation, or communication among the several States or between any foreign country and any State, or between any State and any place or ship outside the United States.
(b) No provision of this Act shall apply to, or be deemed to include, any executive department or independent establishment of the United States, or any lending agency which is wholly owned, directly or indirectly, by the United States, or any officer, agent, or employee of any such department, establishment, or agency, acting in the course of his official duty as such, unless such provision makes specific reference thereto.
(c) The Commission (or as to matters within their l'espective jurisdictions, the Federal Reserve Board, the Comptroller of the Currency, and the Interstate Commerce Commission) shall have power by rules and regulations to define or further define accounting, technical and trade terms used in this Act. and such definitions shall have the force of law.
PROHIBITIONS UPON UNREGISTERED EXCHANGES
SEO. 4. Unless an exchange within the jurisdiction of the United States is registered as a national securities exchange under section 5 of this Act, it shall 'be unlawful for any broker, dealer, or exchange, directly or indirectly, to make use of the mails or any means or instrumentality of interstate commerce for the purpose of using any facility of such exchange to effect any transaction in a security or to report any such transaction.
REGISTRATION OF NATIONAL SECURITIES EXCHANGES
SEC. 5. (a) Any exchange may be registered with the Commission as a national securities exchange under the terms and conditions hereinafter provided in this section by filing a registration statement in such form as the Commission may prescribe containing the undertakngs, setting forth the information, and accompanied by the documents below specified :
(1) An undertaking to comply, and to enforce so far as is within its powers compliance by its members and by issuers whose securities are registered thereon, with the provisions of this Act, and any amendment thereto and any rule or regulation made or to be made thereunder.
(2) Such data as to its organization, rules of procedure, and membership, and such other information as the Commission may by rules and regulations require as being necessary or appropriate in the public interest or for the protection of investors.
(3) Copies of its constitution, articles of incorporation, with all amend. ments thereto, and of its existing bylaws or rules or instruments corresponding thereto, whatever the name, which are hereinafter collectively referred to -as the “ rules of the exchange."
(4) An undertaking to furnish to the Commission copies of any amendments to the rules of the exchange forthwith upon their adoption.
(b) No registration shall be granted or remain in force unless the rules of the exchange include provision for the expulsion, suspension, or disciplining of a member for conduct or proceeding inconsistent with just and equitable principles of trade, and declare that the violation of any provisions of this -Act or any rule or regulation thereunder shall be considered conduct or pro ceeding inconsistent with just and equitable principles of trade.
(c) Nothing in this Act shall be construed to prevent any exchange from adopting and enforcing any rule not inconsistent with this Act and the rules and regulations made thereunder and the applicable laws of the State in which it is located.
(d) If it appears to the Commission that the exchange applying for registration is so organized as to be able to comply with the provisions of this Act and the rules and regulations thereunder and that the rules of the exchange