have not yet evolved any plan that will cover all of those States. We have not yet made any regulations, although Mr. Saperstein's department has had numerous hearings on the question where people who are interested in the subject have been heard. It will probably be a type of license, but just how it will be done, whether it will be based on financial responsiblity to carry on the business or on something else, and how far we can go, we will have to determine, after we investigate and compare the requirements of the different States. Mr. WOODRUM. Does the act require that only such firms shall be licensed as are engaged in the business? Mr. KENNEDY. We can make any regulation we want, provided they do an interstate business or use the mails. What we are primarily interested in is the man who opens a shop, for instance, in Illinois, today, but does not do anything in connection with it in Illinois, but sells in Iowa and the other States around there. That is the type of person that is beating the blue-sky laws. Mr. WOODRUM. In other words, the Commission has full power, under the act, to say whether or not only licensed dealers may sell securities, and if so, to prescribe the terms upon which they may secure such a license? Mr. KENNEDY. That is right. Mr. WOODRUM. That is a pretty broad authority. Mr. KENNEDY. It is very broad. Mr. WOODRUM. Has the Commission taken any action in formulating any policies along that line, to determine how far it will go in the matter of requiring registration, and if so, what shall be the terms of registration? Mr. KENNEDY. We have not decided on the question; there seems to be a question as to whether it will be a mere registration or a license. First, we want to get everybody selling securities on record and determine before we start how many we have and what type of business they are conducting, then we will lay down certain rules and terms with which they must comply before we grant registration. Mr. WOODRUM. As a matter of fact, are not most stock transactions done by a comparatively small number of very large operators? Mr. KENNEDY. As to the over-the-counter business, I would say the difficulty there is that a great many of the fakes are perpetrated by fellows who move very quickly from one city to another. They may be in your State today and tomorrow they may be in Baltimore. They usually last about 60 days, and then they are gone. As far as the big operators are concerned, I think that would apply largely to dealers in Liberty bonds, and so forth, in New York City. The big type of business is done there. There are about 6,000 in New York State alone, and we figured there are approximately 9,000 throughout the other 47 States. I think we could clear up a great many of these things, Mr. Chairman, if you would ask me some questions in reference to matters you particularly want to know about. We also have an obligation to lay down rules and regulations as affecting the operation of the business of all corporations in the country. When I say these are the things we have authority over, we have also the obligation to police them all, and to see that these things are all complied with. That is our great job. That is why it requires so many people. The New York State office alone, connected with the attorney general's office in New York State, which has to do approximately one-tenth of the work required under the Securities Act, has 87 people in it. That is in New York State alone, for the kind of work that we are required to do under the two acts that we have here. We must go rather thin. REPORTS ON DIRECTORS, OFFICERS, AND PRINCIPAL STOCKHOLDERS OF CORPORATIONS The act also provides that every month we must get reports from all directors and officers and also principal stockholders, or so-called "insiders," who own more than 10 percent of equity securities and who change their position during that month. That means that every man who owns more than a 10-percent interest in the company must file a report with us every month, that is, a director or insider, showing what his stock equity or ownership has been during that month. In addition to that, every corporation, for the period ending in June 1935, must be registered from the largest from the Standard Oil and the United States Steel Corporation-down to the smallest one, with all their affiliates and subsidiaries; must file a statement, and very one of those statements must be checked by our registration department, which adds to their present burden of passing on new securities and new issues in this country. They have the obligation of checking all that type of work that comes in to them. Approximately, there are 6,000 securities registered on all stock exchanges in the United States. Mr. WIGGLESWORTH. Have you any idea how many of those socalled "insiders" there are likely to be? Mr. KENNEDY. We have not any reports yet. The first one is due on January 10. That will be the first information we have on anybody who holds a 10-percent interest in any corporation throughout the United States. Mr. WIGGLESWORTH. That applies to all corporations, large or small? Mr. KENNEDY. Every corporation having securities registered on an exchange. ORGANIZATION SET-UP Mr. WOODRUM. Suppose you give us some idea of your organization set-up, tell us how it is divided, and the classifications. There are five commissioners? Mr. KENNEDY. That is right. Mr. WOODRUM. And they receive a basic salary of $10,000? Mr. BANE. We have five commissioners. The Commission is organized into three major divisions. There is the office of the general counsel, which, of course, is responsible for and is the adviser to the Commission on all legal work. There is the Registration Division, which Mr. Kennedy has referred to, which has charge of all registrations under the Exchange Act and the securities act, and in addition, the reports that will come from officers and directors and large stockholders. There is the Trading and Exchange Division, which is the division that is largely responsible for the practices engaged in, in or on a market, on a registered exchange, or in an over-the-counter market. That Division will police those exchanges and the practices indulged in in those exchanges and in the over-the-counter market. In addition to the three larger divisions, there are two offices of the Commission, much smaller in size. There is the office of the technical adviser to the Commission and the office of the economic adviser to the Commission. They are not exactly divisions, at least now they are smaller offices, acting as advisers directly to the Commission on particular technical questions, or on broader economic phases that particularly affect the Commission's rules and regulations and its policy. Of course, you have the administrative division, which is set up largely like the administrative division is in practically all of the independent organizations. We have, of course, an accounts section, the office of the personnel director, and the secretary's office, a stenographic section, and a library-the usual administrative set-up. However, I think we have in this administrative section so grouped the functions necessarily required in a governmental independent agency as to make this administrative division as economical and at the same time as efficient as any that I know of. AMOUNT OF FUNDS AVAILABLE FOR FISCAL YEAR 1935 Mr. KENNEDY. We are rather in a bad way now because our appropriation that we have in cash does not seem likely to last us very much beyond the 20th or 25th of January. Mr. BANE. You will remember, Mr. Chairman, that you gave us at the last session of Congress $300,000, and you thought that, with the amount which would be transferred from the Federal Trade Commission when the administration of the securities act was transferred on September 1, would be sufficient to run us until Congress met again. Mr. WOODRUM. You got $300,000 from us? Mr. BANE. We got $300,000 in a deficiency appropriation act. Mr. BANE. No; we got a $300,000 direct appropriation from the last Congress. The exchange act itself provided that the Federal Trade Commission should transfer to the Securities and Exchange Commission funds which they had in connection with the administration of the securities act. Mr. WIGGLESWORTH. Did they not transfer those funds? Mr. BANE. They transferred some. There is a question as to whether they transferred as much as they should have. You thought and we thought that the amount that would be transferred would be about $500,000 based on the previous appropriation you had made in connection with the administration of the securities act. But when it came to making the actual transfer, the Federal Trade Commission transferred to us, $264,337.80, their position being that that is all that is due us. That makes a total amount that we have had to run on from the 1st of July until you can make us a supplemental appropriation, if you do, of $564,337.80. You can well see that with our estimate here of $2,340,000, to which the Budget cut our figures; about $500,000 this year for practically half a year, has, of course, greatly restricted our operations, and out of that had to be taken an amount for buying supplies, which, was a large item for a new organization; and also for renting a building, which, of course, we had to pay, although in later years the Park Service would pay it. Mr. KENNEDY. Our expenses today are approximately $120,000 a month, without the establishment of any out-of-town offices. ESTIMATE OF FEES Mr. WOODRUM. Are you getting any fees? Mr. KENNEDY. We get fees from the securities act, and I think we have a statement here of appproximately what we would get; and in addition to that we get from the stock exchanges one five-hundredths of 1 percent of the total volume of business done on the stock exchange. Mr. BANE. That goes into the Treasury. Mr. KENNEDY. Yes. Mr. WOODRUM. What does that amount to? Mr. KENNEDY. We expect it might run up to $500,000 this year. Mr. BANE. No, not for this year. Mr. KENNEDY. I am talking about the fiscal year. PRESENT AND PROPOSED NUMBER OF DEPARTMENTAL AND FIELD PERSONNEL Mr. WOODRUM. What is the total personnel of the Commission now? Mr. BANE. The total personnel now-this estimate here before you that the Bureau of the Budget has approved provides for 653 employees. We now have 376 persons on the pay roll. That, I think, takes in no branch offices, except 2 or 3 persons who have been detailed from Washington to the office we have very recently set up in New York. If I remember correctly, there are five persons already assigned to the New York office. We have not employed any for or assigned any to any other branch office. There is no field force except in New York. Mr. KENNEDY. One of our difficulties in expanding to meet the demands of the situation is our very limited cash supply at the moment. We have a very limited appropriation, so it became necessary for practically the first 3 months of the Commission's work for the Commission itself, and 3 or 4 other gentlemen, to do all the work except the clerical work, so we would have some money to go through on. Mr. WOODRUM. Your personnel set-up for 1936, under this estimate of $2,340,000. contemplates 533 people? Mr. BANE. No; it provides for 653 people. Mr. WOODRUM. That is 520 in the departmental service and 133 in the field? Mr. BANE. Yes, sir. Mr. WOODRUM. That is about half of what you thought you ought to have? Mr. KENNEDY. Yes. Mr. BANE. That is about 44% percent less than we thought we should have. Mr. WOODRUM. I notice you have a large proportion of your personnel, departmental as compared with field-520 as against 133. Mr. KENNEDY. We have cut down very severely on the field, because there is where we felt the operations would naturally expand if we were going to do anything. Mr. BANE. And, of course, a great many of the people in the office here will be available for and will be used in the field, instead of keeping them located in the different field offices. For instance, the Denver office this month might be able to get along with 20 people, but if a mining boom started up, and fake operations started there, we could send from this office the additional men required to make the investigations. Mr. KENNEDY. In addition to that, for instance, Washington will take care of this territory in through here; it will take care of Virginia and Maryland and the exchanges in this part of the country. Mr. WOODRUM. In the original set-up that you presented to the Bureau of the Budget, what was your total personnel? Mr. BRASSOR. 1,137-719 departmental and 418 field. Mr. WOODRUM. You felt then, and feel now, that for the proper administration of the act it would require an organization that large? Mr. KENNEDY. Yes, sir. Mr. WOODRUM. What consideration has the Commission given, if You can answer, as to the possibility or probability of any very drastic changes being made in this law that might bery materially influence your personnel or your activities or the scope of your organization? Mr. KENNEDY. I think there is always that possibility. We regard that; but I doubt very much, on the basis that we have our present personnel here today that anything could be done that would not make that absolutely essential unless we were completely wiped out. In other words, the watching of the operations of the exchanges, the filing of the reports, the examination of registration for new securities, even assuming that there is no great new demand for new securities, which we sincerely hope there will beall that would require a great part of this. Those seem to me to be the fundamentals of the act. Mr. WOODRUM. I am struck at the discrepancy between your field force and the force here in Washington. Your total departmental force is 520, while the total permanent field force is 133. I would expect that most of the work that the Commission has to do would be in the field. Mr. KENNEDY. As a matter of fact, Mr. Chairman, of those 28 men now working in New York, only 5 are assigned permanently to New York; 23 of them will become a part of the Washington force. We will have personnel connected with this organization that will look after ordinary routine matters here today, but there may be something that will develop very actively in Detroit or Atlanta, and they will be used for the work in those places. They will go from here to the places |