tions be applied to any registered corporation whose gross assets are less than a minimum of $5,000,000 without limiting the number of stockholders, provided the securities of this corporation are listed on a national securities exchange, and a majority of the stock is owned by persons who reside within the vicinity of the corporation and the exchange. In other words, I am trying to describe a small local corporation whose securities are listed on a regional stock exchange. It is our sincere belief that the "newspaper print" of sales of listed securities is such an important factor of protection for the investor that this factor alone justifies broadening the exemption proposals. As an additional protection, the stockholder would have the advantage of being able to use the well-regulated facilities of a national securities exchange. It can hardly be argued that the number of stockholders determines the size of a corporation. We are apprehensive about the future of our stock exchange. We do not believe that it was the intention of the Members of Congress or of the Commission that the over-the-counter market should expand at the expense of and with unfair advantage over regional exchanges. Since the adoption of the Securities and Exchange Act of 1934, the Cleveland Stock Exchange has lost through delistings 64 issues. Practically all of these issues are quoted, bought, and sold in the over-the-counter market. We have today 82 regularly listed issues28 of which have gross assets approximating $3,000,000 or less. We are hoping that this Congress will make it possible for our exchange to rebuild and be of more importance to the great industrial region we represent. I am now addressing my remarks to item 9 of the committee agenda relating to "Insiders' Trading Profits and Reports," and particularly to the exemptions outlined in 16 (d) of the committee print. We respectfully request that any exemption to apply under this section also apply to any registered corporation whose gross assets are less than a minimum of $5,000,000 without limiting the number of stockholders, provided the securities of this corporation are listed. on a national securities exchange, and a majority of the stock is owned by persons who reside within the vicinity of the corporation and the exchange. All our remarks to justify the request for exemption from proxy regulations are equally applicable to this section. We hope it will be possible for this committee to have as a part of the record of this hearing the conclusions of the Commission which they will draw from the study of regional exchanges now being conducted. This study is of the utmost importance to all regional exchanges. The CHAIRMAN. Mr. Cunningham, is it your judgment that stocks should be delisted where the sale becomes too small? Mr. CUNNINGHAM. No, sir. The CHAIRMAN. Do you draw any distinction between the registration on the large and small exchanges, from the standpoint of benefits they give to industry, depending upon the size of the corporation? Mr. CUNNINGHAM. I do, sir. The CHAIRMAN. And it is your belief that many of the smaller cor porations can be better served by the regional exchanges and regional listings than by the New York listings? Mr. CUNNINGHAM. For small corporations; yes, sir. There is a degree of smallness that must be considered there. The CHAIRMAN. What is your judgment as to small sales of listed stock and the effect that it has upon the value of that security to the stockholders? Mr. CUNNINGHAM. Well, I do not think that is so important, Mr. Chairman. I think the consistency of firm quotations is of just as great a value as is the continuity of sales. The CHAIRMAN. We thank you, Mr. Cunningham. Mr. CUNNINGHAM. Thank you. PROPOSALS FOR AMENDMENTS TO SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934 MORNING SESSION TUESDAY, JANUARY 27, 1942 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. Clarence F. Lea (chairman) presiding. The CHAIRMAN. The committee will please come to order. Mr. Smith, you may proceed. STATEMENT OF KENNETH L. SMITH, PRESIDENT, CHICAGO STOCK EXCHANGE, CHICAGO, ILL. Mr. SMITH. Mr. Chairman and members of the committee, my name is Kenneth Smith. I am president of the Chicago Stock Exchange. From 1924 to 1929 I was in the office of the Secretary of State of the State of Illinois, where I assisted in the administration of the Illinois securities law. In 1929 I went to the Chicago Stock Exchange as an examiner of listing applications. Prior to my election as president of the exchange in 1938 my duties at the exchange covered at different times the business conduct of members, including the actual examination of books as to financial condition and rule violations. This work led to conferences with the Securities Exchange Commission and the Federal Reserve Board in the formulation and enforcement of their rules and regulations. I have never been a member of the exchange and have not engaged in the securities business as either a dealer or a broker. I have been on both sides of the table in connection with regulation. It is a real privilege to appear before this committee as its hearings are drawing to a close. As I listened to the testimony of the many witnesses heard last week I could not help but feel how difficult it would be if I were a member of the committee, to sift and organize the evidence so that out of it would come the result best for the country as a whole. Many times as I sat in the back of this room I have wished that I could have asked the witness a question or two. Often a member of the committee has been at the point of bringing out the real facts but has fallen short of so doing because it requires familiarity with the business and with the workings of the Securities and Exchange Commission to get to the bottom of things. Therefore, if I may, I am going to ask myself some of these questions and answer them to the best of my ability. Let the chips fall where they may. Only by the most candid approach, whether it may step on the toes of my associates in the business or on the toes of the Commission, do I feel that I can discharge my obligation to this committee. You are the people's representatives, it is our duty to help you in any way we can. The first question-who wants legislation? Mr. Purcell's answer to that question is given in his opening statement to this committee. At page 3 of the transcript of these hearings he says Right at the outset I would like to make quite clear that the impetus for amendment of these statutes comes from groups in the securities industry and not from the Commission. I should not wish our appearance at the beginning of the hearings to indicate in any way that the Commission initiated any program for enlarging its authority. That is clear enough. But listen to this. From the first paragraph of the report on the proposals for these amendments which the Commission made to this committee under date of August 7, 1941, I quote as follows: The few proposals which would extend in material respects the area in which the acts apply have emanated from sources other than the Commissionand I am still quoting although the Commission does recommend the adoption of several amendments which it believes essential to give it authority to fill loopholes in the general area now covered by the acts. That is what the Commission has so often called a "yes-but" answer when used by someone other than itself. Presumably then we must look to the so-called industry report made to this committee by the representatives of the Investment Bankers Association of America, the National Association of Securities Dealers, Inc., the New York Curb Exchange, and the New York Stock Exchange. Much labor went into the preparation of this report. Its early pages enumerate the many conferences given over to the task. In some of these conferences, when the work was well advanced, we participated. But we were made to feel like a stepchild in a family council. Early in these hearings, page 7 of the record, Congressman Holmes drew attention to the lack of stenographic reports of these S. E. C.-industry conferences. The little fellows made suggestions but there is no evidence anywhere that these suggestions received any consideration. Mr. WADSWORTH. Would you care to enlarge upon that? Mr. SMITH. Well, I could, if the Congressman would like to have me do so, and I will try to give you a verbal picture of just how that conference lined up. I will have to draw on my recollection. I think that the Commission has a more accurate record of it. I do not have an accurate record of the circumstances of the conferences. The regional exchanges as a group held several meetings. Mr. SMITH. That was some time in the fall of 1940, or in January of 1941, I would say. At the request of the regional exchanges acting through a so-called steering committee, we came down to Washington and had a conference with the Commission, which was rather hard to get. Our group assembled down here in Washington. It |