ing a fictitious dividend. You would buy the stock from me. I sold it to you. I did not own it. You would immediately sell the stock back to me. So we would in effect create a fictitious dividend. We immediately stopped that, passed a rule prohibiting it.

We have to be constantly aware of what is going on in the market and adopt rules to prevent conditions which we think are detrimental to the exchange.

Mr. HELLER. On the whole, however, you feel that the policing situation is pretty well under control?

Mr. CROOKS. It is very effective.

Mr. HELLER. Would you care to give us your opinion with respect to the stabilization process?

Mr. CROOKS. Yes. The stabilization process is a procedure that has been developed in, in consultation with various segments of the industry to aid and help in the primary offering of securities and the stabilizing of the market while the offering is going on.

Mr. HELLER. Is that not a form of manipulation?

Mr. CROOKS. I do not believe it is; no, sir. As a matter of fact, I would say, Mr. Chairman, that the greatest user of the stabilization process is the Federal Government. When the Federal Government sells new securities in the form of Government bonds, it stabilizes the market, and does it once or twice or three times a year, whenever it offers securities.

Mr. HELLER. How, in your opinion, can that be done and be beneficial to the market?

Mr. CROOKS. The stabilization process stabilizes the prices. If I might put myself in the position of a stockholder of a corporation which decides to sell 200,000 or 300,000 or 400,000 shares of new stock, without this stabilization process I might see the value of my security decline substantially while the distribution was going on and I think it aids me and helps me by maintaining the value of my security by this stabilization procedure.

Mr. HELLER. In your opinion, has it been effective?

Mr. CROOKS. It has been effective; yes, sir.

Mr. HELLER. In your opinion, have the Securities Acts restricted the volume of the business on the exchange?

Mr. CROOKS. No, sir; I do not think they have.

Mr. HELLER. In your opinion what has been the effect?

Mr. CROOKS. I think the Securities Acts on the whole have been very beneficial to the industry.

Mr. HELLER. Would you say that they are desirable?

Mr. CROOKS. I think they are desirable.

Mr. HELLER. What is the solvency record of the members of the exchange? I know that some mention was made by Mr. Funston of that.

Mr. CROOKS. The solvency record of the members of the exchange for a period of 52 years, I believe, is 99.75 percent. For the past 14 years it has been 100 percent.

Mr. HELLER. Mr. Crooks, as we understand, the exchange rules cover all activities of members; is that correct?

Mr. CROOKS. That is correct.

Mr. HELLER. Do you have rules for the odd-lot dealers?

Mr. CROOKS. No; we do not have rules for the odd-lot dealers in our constitution.

Mr. HELLER. Will you explain why you do not cover the odd-lot dealers?

Mr. CROOKS. The odd-lot dealer would be bound by the rules of the exchange to the extent that any other member would be bound by the rules of the exchange, so far as carrying out the business in an orderly fashion is concerned. We do not have any rules pertaining to the odd-lot dealers differential.

We believe that is a matter of the dealer's profit and we believe that should rest with the odd-lot houses; we should not dictate to them, the dealer profits that they make on transactions, unless, of course, it were exorbitant in which case we would take action.

Mr. HELLER. Is the differential on odd-lot sales the same on the stock exchange as it is on the curb?

Mr. CROOKS. I do not know, Mr. Chairman, whether it is or not. I do not quite know what the differentials are on the curb. The differential on the exchange is one-eighth of a point away from the round-lot block up to a price of 40 and above 40 it is one-quarter.

Mr. HELLER. There are rules regulating differentials on the curb; is that correct? They have rules regulating the odd-lot dealer?

Mr. CROOKS. I do not know whether the curb has that incorporated in their rules or not. I am not sure, Mr. Chairman.

Mr. HELLER. Mr. Crooks, what is your opinion regarding the period of time required to report tradings by insiders?

Mr. CROOKS. Now, as I understand it, under the act, any insider must report any transaction he makes 10 days after the 1st of the month following the month in which he made the transaction.

I think that time should be shortened considerably so that the public would know sooner than that what action has been taken by the insider. I think that would be about the most beneficial thing that could happen in connection with section 16.

Mr. HELLER. What would be your recommendation?

Mr. CROOKS. I would say some period of time, I should think that it should be 6 or 7 days. At the present time a man might come under the law now and wait 40 days before he reports a transaction. I think the reporting should be much more prompt than that. Mr. HELLER. Have you ever made a recommendation to that effect to the House or the Senate?

Mr. CROOKS. No, we have made no official recommendation.

I think at various times we have discussed that with the Commission.

Mr. Chairman, I now understand from Mr. Rosenbery, our counsel, that we did make such a similar recommendation or showing about insiders at a hearing before the Congress in 1941, in connection with a review of the Securities Exchange Act.

Mr. MCGUIRE. Mr. Chairman.

Mr. HELLER. Mr. McGuire.

Mr. MCGUIRE. The only thing I have to say is I think that it has been an excellent idea to have you four gentlemen here at the table. together to answer all these questions, and it amazes me to think that you have 93 years' experience, for such young-looking gentlemen. Mr. CROOKS. Thank you, Congressman.

Mr. MCGUIRE. Another thing, I do not know what this room is ordinarily used for, but in spite of the hammering and the banging, and all of the noise from the traffic on the outside, I think that you gentlemen have displayed excellent qualities of calmness, and if I were more literate I might say "sang-froid."

Mr. CROOKS. Thank you, Congressman.

Mr. HELLER. I guess that about closes the questions we have and concludes our second public session.

I want to take this opportunity to thank you, Mr. Funston, and the gentlemen who are associated with you for your very, very fine cooperation.

This subcommittee certainly appreciate the suggestions and recommendations which you have presented to us for your organization. We may not wholly agree with them all, but they certainly will present very interesting channels for discussion when we write our report. We thank you.

Mr. FUNSTON. Thank you, Mr. Chairman.

(Thereupon, at 12:45 p. m., the subcommittee adjourned to meet at the call of the chairman of the subcommittee.)

STUDY OF THE SECURITIES AND EXCHANGE COMMISSION

THURSDAY, MARCH 27, 1952

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE OF THE COMMITTEE ON
INTERSTATE AND FOREIGN COMMERCE,
Washington, D. C.

The subcommittee met at 2 p. m., pursuant to call, in room 1334, New House Office Building, Washington, D. C., Hon. Louis B. Heller (chairman of the subcommittee) presiding.

Mr. HELLER. Commissioner, would you be good enough to raise your hand and be sworn?

Do you solemnly swear that the testimony you will give will be the truth, the whole truth, and nothing but the truth, so help you, God?

Mr. MILLONZI. I do.

TESTIMONY OF ROBERT I. MILLONZI, COMMISSIONER, SECURITIES AND EXCHANGE COMMISSION

Mr. HELLER. Will you give the reporter your full name and your home address?

Mr. MILLONZI. My name is Robert I. Millonzi. In Washington, I reside at 3048 R Street NW., but my place of residence is in Buffalo, N. Y., at 28 Oakland Place. I am a duly licensed attorney at law, licensed to practice in all courts in the State of New York, the Tax Courts, all Federal courts, and the Supreme Court of the United States of America. I was admitted to the bar in 1935. I do not know how much more you want.

Mr. HELLER. That is all right, Commissioner. Will you give us a little bit of your background, legal and business experiences that you have had prior to becoming Commissioner of the SEC?

Mr. MILLONZI. I practiced law following my admission to the bar with the firm of Coatsworth & Diebold, Buffalo, N. Y., now the firm. is known as Diebold & Millonzi, and I am now a partner in that firm. I practiced law continuously off and on until I was sworn in as Commissioner of the Securities and Exchange Commission on June 21,

1951.

Between 1940 and 1943, I was a counsel for the New York State Department of Agriculture and Markets, and in that capacity handled legal work for that department.

At the time of coming to Washington to serve as Commissioner, I was a director, a member of the executive committee, and counsel for the First National Bank of Buffalo.