thereof. In view of this situation it will be necessary, therefore, to grant additional time to allow these claimants to file their applications for payment. Inasmuch as it will be necessary to extend the time for filing applications by the above-mentioned claimants, it would appear that any provisions extending the time for filing applications should also apply to the other classes of claimants. While the claimants who have already received awards from the Mixed Claims Commission, the War Claims Arbiter and the Tripartite Claims Commission have had ample opportunity to file applications for payment thereof, some of them, for various reasons, have not done so. Many of these claimants have not been located by the Treasury and apparently, in some cases, they do not even have knowledge that an award has been entered in their behalf. The amount of each individual award involved is relatively small, but, no doubt, the majority are in favor of persons of limited resources. If the time for filing applications for payment is extended, the Treasury will be in a position to continue payments to claimants whose applications it may receive. During the past 2 years the Treasury has paid six claims amounting to approximately $3,800.

I recommend, therefore, that the proposed legislation be given favorable consideration at this session of Congress in order that payments may be made to claimants promptly upon receipt of their applications. If Congress does not take action at this session and additional awards are entered by the Mixed Claims Commission, the claimants will be deprived of their funds until Congress acts to extend the time within which applications may be filed. Your attention is called to the fact that these payments are all made out of trust funds and do not represent an expenditure from public funds and are not, therefore, a charge against the budget. A similar recommendation has been submitted to the President of the Senate. Very truly yours,

WAYNE C. TAYLOR, Acting Secretary of the Treasury.

In compliance with paragraph 2a of rule XIII of the Rules of the House of Representatives, changes in existing law made by the bill are shown as follows: Existing law proposed to be omitted is enclosed in black brackets; new matter is printed in italics; existing law in which no change is proposed is shown in roman.

Settlement of War Claims Act of 1928, section 2 (g):

(g) No payment shall be made under this section unless application therefor is made, within ten years] twelve years after the date of the enactment of this Act, in accordance with such regulations as the Secretary of the Treasury may prescribe

* *

*.

Settlement of War Claims Act of 1928, section 5 (f):

(f) No payment shall be made under this section (other than payments to the United States in respect of claims of the United States on its own behalf) unless application therefor is made within [ten years] twelve years after the date of the enactment of this Act in accordance with such regulations as the Secretary of the Treasury may prescribe * *

*

Settlement of War Claims Act of 1928, section 6 (h):

(h) No payment shall be made under this section unless application therefor is made by March 10, 1938] March 10, 1940, in accordance with such regulations as the Secretary of the Treasury may prescribe

MAY 6, 1938.-Committed to the Committee of the Whole House on the state of the Union and ordered to be printed

Mr. EICHER, from the Committee on Interstate and Foreign Commerce, submitted the following

REPORT

[To accompany S. 3255]

The Committee on Interstate and Foreign Commerce, to whom was referred the bill (S. 3255) to provide for the establishment of a mechanism of regulation among over-the-counter brokers and dealers operating in interstate and foreign commerce or through the mails, to prevent acts and practices inconsistent with just and equitable principles of trade, and for other purposes, having considered the same, report favorably thereon with amendments and recommend that the bill as amended do pass.

The amendments recommended by the committee are as follows: In subsection (f) of the amendment made by section 1 of the bill strike out ", but such withdrawal shall be subject to such appropriate terms and conditions for the orderly liquidation of such association as the Commission may prescribe”.

Amend section 2 of the bill to read as follows:

SEC. 2. Subsection (c) of section 15 of such Act, as amended, is amended to read as follows:

"(c) (1) No broker or dealer shall make use of the mails or of any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security (other than commercial paper, bankers' acceptances, or commercial bills) otherwise than on a national securities exchange, by means of any manipulative, deceptive, or other fraudulent device or contrivance. The Commission shall, for the purposes of this subsection, by rules and regulations define such devices or contrivances as are manipulative, deceptive, or otherwise fraudulent.

"(2) No broker or dealer shall make use of the mails or of any means or instrumentality of interstate commerce to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any security (other than an exempted security or commercial paper, bankers' acceptances, or commercial bills) otherwise than on a national securities exchange, in connection with which such broker or dealer engages in any fraudulent, deceptive, or manipulative act or practice, or makes any fictitious quotation. The Commission shall, for the purposes of this paragraph, by rules and regulations define, and prescribe means reasonably de

signed to prevent, such acts and practices as are fraudulent, deceptive, or manipulative and such quotations as are fictitious.

"(3) No broker or dealer shall make use of the mails or of any means or instrumentality of interstate commerce to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any security (other than an exempted security or commercial paper, bankers' acceptances, or commercial bills) otherwise than on a national securities exchange, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors (A) to provide safeguards with respect to the financial responsibility of brokers and dealers; (B) to regulate the manner, method, and place of soliciting business; and (C) to regulate the time and method of making settlements, payments, or deliveries."

Amend section 3 of the bill to read as follows:

SEC. 3. Subsection (b) of section 29 of such Act is amended by inserting before the period at the end thereof a colon and the following: "Provided, (A) That no contract shall be void by reason of this subsection because of any violation of any rule or regulation prescribed pursuant to paragraph (3) of subsection (c) of Section 15 of this title, and (B) that no contract shall be deemed to be void by reason of this subsection in any action maintained in reliance upon this subsection, by any person to or for whom any broker or dealer sells, or from or for whom any broker or dealer purchases, a security in violation of any rule or regulation prescribed pursuant to paragraph (1) or (2) of subsection (c) of section 15 of this title, unless such action is brought within one year after the discovery that such sale or purchase involves such violation and within three years after such violation." In the amendment made by section 4 of the bill strike out "pursuant to clause (3), (4), or (5) of subsection (c)" and insert in lieu thereof "pursuant to paragraph (3) of subsection (c)".

I

GENERAL STATEMENT

A. INTRODUCTORY

Senate bill 3255 amends the Securities Exchange Act of 1934, as amended, by inserting a new section, section 15A, immediately after the present section 15; and by amending subsection (c) of section 15, subsection (b) of section 29, section 32, and subsection (a) of section 17. In its essentials, the new section 15A would set up a system for cooperative regulation of the over-the-counter markets, through the activities of voluntary associations of investment bankers, dealers, and brokers doing business in these markets, under appropriate gov ernmental supervision. The proposed amendment of subsection (c) of section 15 of the Securities Exchange Act would clarify and strengthen the direct regulatory powers over the over-the-counter markets embodied in the present subsection (c), and would provide for certain additional direct powers which are desirable in the public interest. The changes in sections 29, 32, and 17 are supplementary to the new section 15A and the changes in subsection (c) of section 15.

B. SCOPE OF THE PROBLEM

1. Importance of the over-the-counter markets.-Under the Securities Exchange Act of 1934, the over-the-counter markets are deemed to include all transactions in securities which take place otherwise than upon a national securities exchange. These markets are immense, the activities embraced therein are varied, and they are of the utmost importance to the national economy.

Currently, some 6,766 firms of brokers and dealers are registered with the Commission as transacting business in the over-the-counter markets. For purposes of comparison, it may be pointed out that there are only 1,375 members of the New York Stock Exchange. Over-the-counter quotations for at least 60,000 separate issues of securities are published in services to which brokers and dealers subscribe, whereas only about 6,000 separate issues of stocks and bonds are admitted to trading on all the stock exchanges of the country.

Moreover, a great deal of trading takes place over the counter even in securities which are admitted to trading upon exchanges. This is particularly true of high-grade bonds and preferred stocks; in fact, many issues of high-grade bonds and preferred stocks are not admitted to trading upon any exchange, and have their only market over the counter. For example, an estimate indicates that, as of the summer of 1937, insurance company securities with an approximate market value of about $343,000,000 were admitted to trading upon exchanges, whereas some $1,209,000,000 of insurance company securities-roughly four times the previous figure-were not admitted to trading upon any exchange, and thus enjoyed their only market over the counter. Moreover, the primary operations of the great underwriting houses take place over the counter. Thus, the over-the-counter markets not only provide the medium for an immense volume of trading in a great variety of securities, but they also provide the principal channel by which the savings of the Nation flow into new financing. It is scarcely necessary to state the importance of the process by which the financial requirements of expanding industry are met through the public sale of securities to investors. The process of distributing such securities takes place on a national scale over the counter.

The over-the-counter markets in their day-to-day operation may be envisaged as a network of telephone and telegraph wires connecting dealers in all parts of the country. One might almost describe the interstate telephone as a trade symbol for this highly important business. The mails, of course, are used extensively and continuously. Thus, the over-the-counter markets are national in a dual sense: First, because of their immense importance to the national economy; second, because the actual operations of these markets are interconnected on a national scale.

2. Importance of regulating the over-the-counter markets in relation to the regulation of exchanges.-The importance of the over-the-counter markets in and of themselves would suffice to justify a reasonable system of regulation. Effective regulation of these markets is, moreover, imperative to prevent the evasion of the system of regulation of exchange trading embodied in the Securities Exchange Act of 1934. This was recognized by the Congress in the original enactment of that act. Thus, the report of the Senate Committee on Banking and Currency (S. Rept. No. 792, 73d Cong., 2d sess.) accompanying the bill which became the Securities Exchange Act of 1934 included the following statements:

It has been deemed advisable to authorize the Commission to subject such activities [i. e., trading in the over-the-counter markets] to regulation similar to that prescribed for transactions on organized exchanges. This power is vitally necessary to forestall the widespread evasion of stock-exchange regulation by the withdrawal of securities from listing on exchanges, and by transferring trading therein to "over-the-counter" markets where manipulative evils could continue to flourish, unchecked by any regulatory authority (p. 6).