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ise Committee on Interstate and Foreign Commerce and Congress justly proud. These statutes have gone a long way in the mitigaand elimination of undesirable practices in the securities field, in restoration of confidence in the securities markets, and in the proion of the investing public. Svperience in the administration of these acts, however, naturally

riven rise over the years to various suggestions as to their imvement and their workability, which obviously could not all be - ipated at the time of their original enactment. A program for vion in the light of such experience was interrupted by the war. che instance of the House Committee on Interstate and Foreign camerce, the Commission renewed discussions with industry relating

revision program, and from time to time since has presented the - of such discussions to the committee for consideration.

addition to the responsibilities and duties with which the SEC urged relating to disclosure of information about listed securities regulating practices in exchange and over-the-counter operations,

curities Exchange Act of 1934, as amended, imposed certain duund responsibilities upon national securities exchanges and upon al securities associations. That act requires that both the exra and the over-the-counter markets should be governed by cermiles for the protection of the public in the conduct of their oper

That legislation when enacted not only provided for certain which should be contained in their rules but also directed the cuission to make a study of the rules and report to the Congress cults of its investigation together with its recommendations. t study, together with the Commission's hearings into the diffiof Richard Whitney & Co., led to a program of reforms drafted ne cooperation of the Commission, which was approved by the York Stock Exchange in October 1938. In view of the more

years which have elapsed since that time and the experience necessarily grows out of the administration of such programs the statutes, and in view of the comments which recently and ily have been made as to today's market conditions, it has

to us that it is now highly appropriate again to review these overning the activities of the various securities markets to see r they are adequate to protect investors, to determine just how

being administered by the exchanges and the over-the-counciations, and whether changes, modifications, or expansions of 's or statutes are desirable now in the public interest. ur feeling that the SEC properly, as an arm of the Congress, uld bring up to date and enlarge upon the study which it was ed to make some 26 years ago. For this purpose, I have in| House Joint Resolution 438, which would authorize to be iated the sum of $750,000 for the Commission to make such id investigation and report to the Congress by January 3,

results of its study together with its recommendations. rst witness this morning is William Cary, Chairman of the 's and Exchange Commission. nan Cary, I believe this is your first appearance before our nittee and I wish to welcome you here as well as to express d to your fellow Commissioners the continuing interest which ommittee has in the successful and effective administration f the various statutes which have been entrusted to you.

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Studies conducted..

Shipley, Carl L., letter from.

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SECURITIES MARKETS INVESTIGATION

TUESDAY, JUNE 27, 1961

HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON COMMERCE AND FINANCE
OF THE COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D.C. The subcommittee met at 10 a.m., pursuant to call, in room 1334, House Office Building, Hon. Peter F. Mack (chairman of the subcommittee) presiding.

Mr. Mack. The subcommittee will be in order.

The Subcommittee on Commerce and Finance of the House Committee on Interstate and Foreign Commerce today is beginning hearing on House Joint Resolution 438, a joint resolution directing the Securities and Exchange Commission to make a study and investigation of the adequacy for the protection of investors, of the rules of the stock exchanges and of the National Association of Securities Dealers. (H. J. Res. 438 follows:)

(H.J. Res. 438, 87th Cong., 1st sess.) JOINT RESOLUTION To amend_the Securities Exchange Act of 1934 so as to authorize

and direct the Securities and Exchange Commission to conduct a study and investigation of the adequacy, for the protection of investors, of the rules of national securities exchanges and national securities associations

Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That section 19 of the Securities Exchange Act of 1934 is amended by adding at the end thereof a new subsection as follows:

(d) The Commission is authorized and directed to make a study and investigation of the adequacy, for the protection of investors, of the rules of national securities exchanges and national securities associations, including rules for the expulsion, suspension, or disciplining of a member for conduct inconsistent with just and equitable principles of trade. The Commission shall report to the Congress on or before January 3, 1963, the results of its study and investigation, together with its recommendations, including such recommendations for legislation as it deems advisable. To carry out such study and investigation there is hereby authorized to be appropriated the sum of $750,000.”

Mr. Mack. I have been alarmed by recent developments in the securities markets and it appears that others share my concern.

In the past few weeks the president of the New York Stock Exchange has issued two very firm warnings against speculation in the stock market. The Securities and Exchange Commission has initiated an investigation of the American Stock Exchange to determine whether additional rules or laws are required to insure proper operation of the exchange.

A few weeks ago, the Commission disclosed that they had more manipulation cases in various stages of administrative and criminal proceedings than ever before. The Chairman of the Commission

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testified before the House Appropriations Committee that the recent action in newly offered over-the-counter securities raised questions as to whether there are forms of manipulation. The National Association of Securities Dealers has written to all members indicating concern over the very large total of outstanding undelivered transactions (fails). This letter warned that there were $1,400 million of outstanding over-the-counter contracts upon which delivery had not been made. The country's largest brokerage firm has run a dozen newspaper ads in the past 2 months urging investor caution. Other brokerage houses have alerted employees to the danger of uninformed public speculation. Here is a quotation from a bulletin which one brokerage firm sent to its managers and registered representatives :

To any of you who were in the securities business in 1930 the above-listed items would be sufficient to alert you and tell you that there could be very rough times ahead for the securities business. To those of you who have recently enter this profession, I will tell you flatly that the warning flags are flying, and it behooves every one of you to recognize this signal and to conduct yourself accordingly.

The congressional investigations of 1930–31 were bitter ones as far as our industry is concerned. Out of these investigations came the Securities Act of 1933, the Securities Exchange Act of 1934, and the SEC, but something far worse than that came from the investigations. Our entire industry was cast in an unfortunate role insofar as the public was concerned and we became the most popular “whipping boys" available. Our entire industry suffered under the last for many long years. It is only recently that the public has again come back into the market in strength and has made it possible for many of you to earn handsome salaries and live as successful businessmen.

I for one do not care to go through the early 1930's again. There are several things that all of us can do right now.

1. The rules and regulations of the SEC, NASD, and the New York Stock Exchange are clearly written and are available for study by each one of you. It is the policy of this firm to abide by all of these rules. During the recent active markets—which of course have caused the events described in the first paragraph-many registered representatives have been critical of some of the rules under which we operate and work, and newly acquired customers have agreed with the criticisms. We do not write these rules but we do propose to abide by them and we can tell you that it is to your own advantage if you also accept and abide by the rules. At this stage of the market and for the reasons outlined above, acceptance of the rules can be your major contribution toward your profession.

2. Our network with busy wardroom offices provides a perfect workshop for manipulation of the securities market. Manipulation and "rigging" of markets is as old as our business. At the present time it is against the law. Let each one of us make absolutely certain that we are not being used by irresponsible persons for the purpose of manipulating or affecting the price of any security. Be extremely cautious about entering orders for any group of speculators. We must carefully guard against being "used" by irresponsible and avaricious groups or individuals of any kind.

Our subcommittee cannot but be aware of these various pronouncements concerning the current situation in the securities markets nor can it be unmindful of the responsibilities which it has to the Congress and to the public as to the adequacy of the protection afforded to investors and to the public by the various securities acts which are now on the books.

The Securities Act of 1933, relating to the truthful disclosure of information about new security offerings, the Securities Exchange Act of 1934, relating to disclosure of information about listed securities and regulating practices in exchange and over-the-counter operations, and succeeding legislation which is administered by the Securities and Exchange Commission, represent legislation of which the House Committee on Interstate and Foreign Commerce and Congress are justly proud. These statutes have gone a long way in the mitigation and elimination of undesirable practices in the securities field, in the restoration of confidence in the securities markets, and in the protection of the investing public.

Experience in the administration of these acts, however, naturally has given rise over the years to various suggestions as to their improvement and their workability, which obviously could not all be anticipated at the time of their original enactment. A program for revision in the light of such experience was interrupted by the war. At the instance of the House Committee on Interstate and Foreign Commerce, the Commission renewed discussions with industry relating to a revision program, and from time to time since has presented the result of such discussions to the committee for consideration.

In addition to the responsibilities and duties with which the SEC is charged relating to disclosure of information about listed securities and regulating practices in exchange and over-the-counter operations, the Securities Exchange Act of 1934, as amended, imposed certain duties and responsibilities upon national securities exchanges and upon national securities associations. That act requires that both the exchange and the over-the-counter markets should be governed by certain rules for the protection of the public in the conduct of their operations. That legislation when enacted not only provided for certain items which should be contained in their rules but also directed the Commission to make a study of the rules and report to the Congress the results of its investigation together with its recommendations.

That study, together with the Commission's hearings into the difficulties of Richard Whitney & Co., led to a program of reforms drafted with the cooperation of the Commission, which was approved by the New York Stock Exchange in October 1938. In view of the more than 20 years which have elapsed since that time and the experience which necessarily grows out of the administration of such programs and of the statutes, and in view of the comments which recently and currently have been made as to today's market conditions, it has seemed to us that it is now highly appropriate again to review these rules governing the activities of the various securities markets to see whether they are adequate to protect investors, to determine just how they are being administered by the exchanges and the over-the-counter associations, and whether changes, modifications, or expansions of the rules or statutes are desirable now in the public interest.

It is our feeling that the SEC properly, as an arm of the Congress, now should bring up to date and enlarge upon the study which it was authorized to make some 26 years ago. For this purpose, I have introduced House Joint Resolution 438, which would authorize to be appropriated the sum of $750,000 for the Commission to make such study and investigation and report to the Congress by January 3, 1963, the results of its study together with its recommendations.

Our first witness this morning is William Cary, Chairman of the Securities and Exchange Commission.

Chairman Cary, I believe this is your first appearance before our subcommittee and I wish to welcome you here as well as to express to you and to your fellow Commissioners the continuing interest which this subcommittee has in the successful and effective administration by you of the various statutes which have been entrusted to you.

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