EXTENSION OF REMARKS

OF

HON. CARROLL D. KEARNS

OF PENNSYLVANIA

IN THE HOUSE OF REPRESENTATIVES

Monday, May 1, 1961

Mr. KEARNS. Mr. Speaker, stockmarket prices influence the personal expenditures of consumers, as well as the market for other investments such as Government bonds.

The New York Stock Exchange, taking note of recent heavy trading in securities, has warned the public against unsound investment practices. Keith Funston, president of the stock exchange, said on April 4, 1961 that

There is disquieting evidence that some people have not yet discovered that it is impossible to get something for nothing, and they are attempting to make improper use of the facilities of the investment community.

Mr. Funston said, according to the New York Times of April 5, that the exchange had received reports indicating that some would-be investors were trying to buy shares of companies whose names they could not identify, whose products were unknown to them and whose prospects were highly uncertain.

A resolution which I have sponsored, House Joint Resolution 21, as amended, requests an investigation of the monetary and financial structure of the United States, by the Committee on Banking and Currency of the House of Representatives.

The House Rules Committee can speed an investigation of the adequacy of existing laws to protect the public from the consequences of undue speculation by favorably reporting House Joint Resolution 21, as amended.

I include as part of my remarks a joint memorandum which my dear friend and colleague the gentleman from New York [Mr. MULTER] and I have issued. I also include, as part of my remarks, articles from the New York Times and the Washington (D.C.) Post and Times Herald, which underscore the need for the type of study and investigation my resolution, as amended, would provide:

Representative CARROLL D. KEARNS.

Subject: Resolutions calling for study of

monetary system, etc.

1. I have for many years been urging the Banking and Currency Committee to undertake a study of our monetary and fiscal policy in all its facets.

Since 1952. I have been introducing resolutions directing the Banking and Currency Committee to make such a study. The resolution, House Resolution 21, as amended, by Congressman CARROLL D. KEARNS, also seeks such a study.

I join Mr. KEARNS in urging that a resolution be reported by the House Rules Committee, calling upon the Banking and Currency Committee to make such a study of our monetary system in all its aspects.

ABRAHAM J. MULTER,

Member of Congress.

2. Since testifying on April 25 on my House

Resolution 21, as amended, my attention has been drawn to other resolutions calling for similar studies, and that the House Banking and Currency Committee has jurisdiction over the subject matter of my resolution.

I therefore suggest that my resolution be further amended to direct the House Banking and Currency Committee to undertake the complete study of our monetary system and report to the Congress its findings and recommendations.

From discussion with members of the House Banking and Currency Committee it is my view that they would welcome making

such a study of our monetary system. CARROLL D. KEARNS, Member of Congress.

[From the New York Times, Apr. 5, 1961] FUNSTON CAUTIONS PUBLIC ON RECKLESS INVESTMENTS-URGES CARE IN SELECTING STOCKS-SECURITIES AND EXCHANGE COMMISSION SEEKS STRICTER AD RULES

The New York Stock Exchange, taking note of recent heavy trading in securities, warned the public yesterday against unsound investment practices.

At the same time, the Securities and Exchange Commission proposed strict new regulations against deceptive or fraudulent advertising by investment advisers. The new rules would apply to 1,800 investment advisers licensed by the Securities and Exchange Commission.

Keith Funston, president of the stock exchange, said in regard to the activity in the

stock market:

"There is disquieting evidence that some people have not yet discovered that it is impossible to get something for nothing, and they are attempting to make improper use of the facilities of the investment community."

Mr. Funston said the exchange had received reports indicating that some "wouldbe investors" were trying to buy shares of

companies whose names they could not identify whose products were unknown to them and whose prospects were highly uncertain. He urged investors to follow "time-tested guideposts" advocated by the exchange as a means to sound investment, including skepticism about tips.

The Securities and Exchange Commission's new rules were proposed under a law enacted last year. No date was announced as to when the new regulations would go into effect. Under them, advertisements would be prohibited from doing the following things:

Representing any "graph, chart, formula, method, system, or other device" as able to indicate when to buy or sell securities, "without disclosing, in close juxtaposition and with equal prominence, the limitations and difficulties" in using such techniques.

Containing testimonials about the investment adviser or his product.

Referring to an adviser's past recommendations, which may have been profitable.

Offering any service as free unless it is, in fact, entirely free and subject to no charges or obligations, direct or indirect.

The agency said other practices might have to be curbed, and it invited suggestions to be submitted by May 15.

The investment advisers licensed by the Securities and Exchange Commission sell advice on stocks and bonds in weekly letters to subscribers or in pamphlets, reports, analyses, and brochures. Their advertising is aimed at attracting buyers for this material.

A violation of Securities and Exchange Commission regulations can result in a $10,000 fine or 2 years in prison. Usually, however, the agency brings proceedings against violators, suspending, or revoking

their licenses. It can also seek a court order enjoining illegal practices.

The president of the American Stock Exchange, Edward T. McCormick, endorsed the Securities and Exchange Commission program to stop indiscriminate investment recommendations. He added, however, that he did not think it unreasonable for persons assuming the risks inherent in the purchase of common stock to expect in the reasonably near future a dividend return of 5 percent on their investments.

Mr. Funston, in cautioning prospective investors, listed some of the guideposts for sound investing.

Investors, he said, should have well-defined objectives and should choose securities to meet these objectives. They should recognize that there are risks as well as rewards, and that stock prices go down as well as up.

He also advised investors to keep an emergency reserve for family needs, to get the facts from a member firm broker and not to invest on the basis of tips and rumors.

"There is no question that investors should exercise the same care in seeking securities as they would in purchasing a house, or a car or in making any other major investment," he said. He added that the recent market activity was a natural part of an expanding economy, and an overwhelming majority of investors are using the market place soundly.

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Yesterday's warning against unsound investment practices was the exchange's second in 2 years.

In April 1959 an article by Mr. Funston. "A Word of Warning," was read on television in commercial time relinquished by the brokerage firm of Sutro Bros. & Co. The was published in the exchange's monthly magazine and its message promoted by a $250,000 advertising campaign.

At that time, Mr. Funston said: "It would be most unfortunate to have any part of our business reflect unsound or unreasoned transactions-whether it be based on tips or rumors, or concentrated in low-price issues merely because the price is low."

Wall Street observers have not been disturbed over the recent heavy volume of trading so much as they have been concerned by the soaring prices of many socalled glamour stocks. These are often cheap in price and represent the securities of new companies, especially in the electronics and missile fields. They are companies whose futures could be extremely disappointing. and investors-actually, speculators in these instances could be financially hurt.

Trading on the New York Stock Exchange set a record in volume last month and in the first quarter of the year, exceeding even the trading of the crash year of 1929. Daily volume has climbed over the 5 million-share mark many times this year.

Yesterday, 7,080,000 shares changed hands. That was the largest volume since September 26, 1955, which was the first trading day after former President Dwight D. Eisenhower's heart attack, when 7.716,650 shares were traded.

Trading on the New York Stock Exchange has exceeded 7 million shares only 17 timesand 8 of those occasions were in 1929.

[From the Washington (D.C.) Post and
Times Herald, May 1, 1961]
OVER THE COUNTER AND INTO THE BLUE--
BROKERS WARN OF FLAMBOYANT STOCK-
BUYING

(By Frank C. Porter)

Six months ago, a construction laborer with muddy shoes and khaki work clothes walked into a Washington brokerage house. plunked down $25, and asked to open an account.

The chary broker tried to steer him into a safe and sound mutual fund, but his new customer would have none of it. He took successive flyers in a number of highly speculative local stocks-buying Servonics at 10 and selling at 18; National Research Associates at 11⁄2 and selling at 4: and Nuclear Research Associates at 234, which he still holds and which is now selling for about 6. For a total investment of $100, the construction worker now has paper profits of more than $1,000. Recently he breezed into the broker's office in a natty new blue suit and pearl grey vest. "What looks good today?" he asked.

The construction worker reflects a new wave of flamboyant stock speculation sweeping the country. As the contagion spreads, it invites invidous comparison with 1929 and worries overworked brokers and exchange officials, who realize a blowup in the securities market could give them a black eye and bring more stringent Federal regulation. As one of them puts it:

"When the house of ill repute is raided, everyone gets arrested."

Others describe it more delicately, but no less vehemently:

"The fact is that now the whole country is rapidly trying to get into the blue sky."-Walter K. Gutman, Stearns & Co., New York.

Some "would-be investors" are buying shares of companies "whose names they can't identify, whose products are unknown to them, and whose prospects are, at best, highly

uncertain."-G. Keith Funston, president of the New York Stock Exchange.

"A colossal wave of greed is building up among uninformed people."-A. Dana Hodgdon. Hodgdon & Co., Washington.

"The over-the-counter market has become a veritable gambling arena which causes grave concern to those who lived through and survived similar phases."Jacques Coe, Jacques Coe & Co., New York. "Unfortunately. some people are going wild, like an 18-year-old boy who suddenly discovers that girls are wonderful."—Sidney B. Lurie, Josephthal & Co., New York.

"Today we have people buying stocks merely because the company's name has the word electronic or space or computer or automation or infrared or vending or cryogenics in it *** They haven't the slightest idea what they're buying."-A partner in Johnston. Lemon & Co., Washington.

"Earnings are not cutting too much ice one way or the other right now. So many people are out after a fast buck these days they don't know what they're buying and don't seem to care."-Theodore R. White, Hornblower & Weeks, New York.

Others insist that trading in common stocks today is sound and orderly, that there is no concern for alarm. All agree, however, that there has never been such a period of broad public participation in the market.

In the first 3 months of this year, trading on the New York Stock Exchange topped 300 million shares-a record for any quarter in history. Daily volume on April 4 soared above 7 million shares, highest since former President Eisenhower suffered his heart attack in September 1955.

A New York Stock Exchange seat was sold last month for $225.000. the highest price in 28 years.

"Our business has been terrific. It's doubled just in the past month." reports Edgar B. Rouse, partner in Rouse, Brewer, Becker & Bryant, a large Washington brokerage house.

tional Association of Securities Dealers, the trade association which polices the over-thecounter market (many of the latter also work for stock exchange member firms).

How much business is done in the overthe-counter market? Nobody knows or is even willing to estimate it. But it is huge— probably several times the size of the volume on the exchange. The OTC market. about which little is known by the public, can be likened to the great bulk of an iceberg lying beneath the ocean's surface.

OTC MARKET BOOMS HERE

It is in this vast, less closely regulated market that today's wildest speculation is taking place. Shares listed by the exchanges are generally seasoned issues of well-known firms in mature industries. Although the OTC market has its own blue chips-American Express Co. or Weyerhauser Co., for example-it also includes thousands of untried fledgling firms, many with extremely romantic names, which permit the fledgling speculator's imagination to run riot.

Nowhere is this better illustrated than in Washington where a brisk over-the-counter market has developed in recent years to match the scores of exotic-sounding small research firms sprouting throughout the area and the growing appetite for stocks of Washington's relatively well-heeled population.

At the end of World War II there were possibly 2 dozen purely Washington companies with stock in the public's hands. Today the figure approaches 200, with more being added every month. To meet the demand, new brokerage houses have sprung up at an amazing rate. Ten years ago, there were less than 30 in the metropolitan area, today there are just short of a hundred.

Although the bulk are firms of established integrity, the high-pressure tactics and questionable ethics of a few have caused alarm in the industry. Several have been closed down by the Securities and Exchange Commission in the past year.

Brokerage houses in the District of Columbia incidentally, are unregulated at the local level.

As the volume rises, mistakes and delays multiply disproportionately. A customer

who has ordered 10 shares of General Time may wind up with 100 shares of General Tire. Transfer agents have lagged as much as a week in the delivery of share certificates.

NOT A COMPLETE MEASURE

But while volume on the New York Stock Exchange, commonly called the Big Board, has been setting records since the turn of the year, it is not a complete measure, of today's speculative activity.

Actually there are two stock markets. One comprises listed shares. those that are traded on the big board, the American Stock Exchange, and the various regional exchanges such as the Midwest, the Philadelphia-Baltisuch as the Midwest, the Philadelphia-Baltimore, and the Pacific coast stock exchanges.

The other is the over-the-counter market. where vast numbers of unlisted securities are sold directly by dealers without the offices of an intermediary exchange.

While the New York Stock Exchange lists some 1,500 issues, and its smaller sister, the American, about 900, the common shares of some 50.000 other firms are sold in the overthe-counter market. New York Stock Exchange member firms employ about 28,000 registered representatives, the "customers men" who actually serve the individual investor. By contrast, nearly 100.000 registered representatives are listed by the Na

EXTENSION OF REMARKS

OF

HON. RALPH W. YARBOROUGH

OF TEXAS

IN THE SENATE OF THE UNITED STATES

Monday, May 1, 1961

Mr. YARBOROUGH. Mr. President, I have been requested to place in the RECORD the address I delivered before 18th annual national convention of the American Public Power Association at San Antonio, Tex., on April 24, 1961. I ask unanimous consent that my remarks on that occasion titled "Public Power in Texas and in the Nation" be printed in the Appendix of the RECORD today.

There being no objection, the address was ordered to be printed in the RECORD, as follows:

PUBLIC POWER IN TEXAS AND IN THE NATION (Speech by U.S. Senator RALPH W. YARBOROUGH, of Texas, at the 18th Annual National Convention of the American Public Power Association at the Granada Hotel in San Antonio, Tex., April 24, 1961) Mr. President, members of the American Public Power Association. guests, it is a great pleasure to welcome the American Public Power Association to Texas, here to