it will be along the same line as that given a year ago, there will be some new things brought out, a great many things brought out that have developed during the year's time that we have had time to study this bill, will change the minds of you men.

Mr. ANDRESEN. One more question.

The CHAIRMAN. Mr. Andresen.

Mr. BOYLAN. Yes, sir, Mr. Andresen.

Mr. ANDRESEN. What is your idea about this bill, if it becomes a law and is put into operation, as to the effect, ultimate effect it will have upon the price paid for the commodity, grain, corn, and so forth?

Mr. BOYLAN. I do not like to look into the crystal ball for you. But my opinion is that the bill in its present form, in the normal crop year, and we are going to have normal crop years again sometime, will cause the speculator that carries the farmer's grain from the time it matures until it goes into consumption to disappear from the market, thereby leaving a price structure that, in my opinion, will be very low.

Mr. HOPE. May I ask you a question?

Mr. BOYLAN. Yes, Mr. Hope.

Mr. HOPE. Is it not a fact that the same argument that you are making now was made at the time the Capper-Tincher bill was passed by Congress in 1922?

Mr. BOYLAN. No. The Capper-Tincher bill did not carry the limits this bill does.

Mr. HOPE. But were not the same arguments made at that time, that it would not work and that it would destroy the market for grain? You will find that argument was made, as a matter of fact, because I have checked it up; exactly the same arguments were made when that bill was being considered that are being made now as to the effect of this bill. Yet, is it not also true that there has been more speculative activity in the grain market since that time than at any time in the history of boards of trade in this country?

Mr. BOYLAN. With a few exceptions, yes. We had speculation in 1933, and again in 1925 that resulted from European crop failures and crop failures in this country, and general trade inflation, that brought about speculation; but normally, no.

The CHAIRMAN. We desire to thank you, Mr. Boylan.

Mr. BOYLAN. Thank you, Mr. Chairman.

Mr. WICKHAM. Mr. Chairman, the next witness is Mr. Louis G. Caldwell, of the law firm of Kirkland, Fleming, Green & Martin, of Chicago.

The CHAIRMAN. We will be glad to hear you, Mr. Caldwell. STATEMENT OF LOUIS G. CALDWELL, LAWYER, CHICAGO, ILL.

Mr. CALDWELL. Mr. Chairman and gentlemen of the committee, my name is Louis G. Caldwell. I am a member of the law firm of Kirkland, Fleming, Green & Martin, of Chicago, attorneys for the Chicago Board of Trade, and am resident partner in charge of the firm's Washington office. My partner, Mr. Ellis, who has previously appeared before you, was unable to be present and consequently I am having to present to you the matters which he had intended to

cover.

66

This statement will be confined to the provisions of H. R. 3009 having to do with the licensing of futures commission merchants and of floor brokers. It is not directed at the fundamental licensing feature of the bill, namely, the designation of exchanges as contract markets" by the Secretary of Agriculture. In this respect, the bill takes over the machinery already established by and under the Grain Futures Act of 1922, and supplements it with various additional restrictions and forms of regulation which I shall not discuss, except where they are relevant to my subject. The licensing of futures commission merchants and floor brokers is, however, a new feature not contained in the present law.

I find it necessary to preface our objections to this feature by a brief summary of the pertinent provisions of the bill.

The bill makes it unlawful for any person to engage as futures commission merchants or to act as floor brokers unless licensed by the Secretary of Agriculture (sec. 4 (d) and (f)).

It authorizes the Secretary of Agriculture to issue licenses upon application in accordance with rules and regulations and in form and manner to be prescribed by the Secretary (sec. 8 (a) (1)). To obtain a license an applicant must give such information and facts as the Secretary may deem necessary concerning his business. When licensed the licensee must continue to report and furnish to the Secretary such information pertaining to his business as the Secretary may require (sec. 4 (e) (1)). The Secretary is authorized to fix fees, not to exceed $10, for the issuance and renewal of licenses (sec. 8 (a) (4)).

The Secretary is authorized to refuse a license if the applicant has violated any of the provisions of the act or any of the rules and regulations promulgated by the Secretary under the act for which the license of such applicant has been revoked (sec. 8 (a) (2)). Incidentally the meaning of this section is far from clear with respect to a person who applies for a license the first time and who, it may be claimed, has previously violated some provision of the act or some regulation.

In one part of the act (sec. 4 (g)) it is provided that a license may be suspended or revoked for any of the following grounds: 1. Violation of any provision of the act.

2. Violation of any rule or regulation of the Secretary under the act.

3. Failure or refusal to make any report required by the Secretary. 4. Failure or refusal to keep books and records in the form and manner prescribed by the Secretary.

5. Failure or refusal to keep such books and records open to inspection by any representative of the Department of Agriculture or the Department of Justice.

6. In another portion of the bill (sec. 8 (a) (3)), an additional ground is specified, namely, the accepting of an order from any person who has been denied trading privileges on any contract market by order of the Secretary.

The procedure for suspension or revocation of license is substantially the same as that provided in section 6 (b) of the grain futures act, having to do with orders directing that all contract markets refuse all trading privileges to a person who has violated any provision of the act, and so forth. The principal difference which, how

ever, is very important, as I shall point out later on, is that under the Grain Futures Act the prosecution was by the Secretary of Agriculture before a commission of judges consisting of the Secretary of Agriculture, the Secretary of Commerce, and the Attorney General, while in this bill the Secretary of Agriculture institutes the proceeding as prosecutor before himself as judge for violations, it may be, of regulations which he himself has made as legislator. The procedure may be briefly summarized as follows:

If the Secretary has reason to believe that any person has committed a violation, he serves upon that person a complaint stating his charge, accompanied by a notice of hearing specifying "a date and place not less than 3 days after the service" and requiring such person to show cause why his license should not be suspended or revoked. The section then goes on to provide that upon evidence received the Secretary may suspend the license for a period not to exceed 6 months or revoke it.

Provision is made for a review of the Secretary's order by filing a petition in the United States Circuit Court of Appeals of the circuit in which the petitioner is doing business. Thereupon the Secretary files in the court a transcript of the record including the evidence received and the court is given jurisdiction to affirm, set aside, or modify the order of the Secretary. The findings of the Secretary as to the facts, however, if supported by the weight of the evidence, are made conclusive. There is also provision for further review by the Supreme Court upon certiorari.

Since a license may be suspended or revoked for violation of any rule or regulation promulgated by the Secretary, it is important to note what regulation-making powers are conferred on the Secretary. For present purposes it is not necessary to do this in detail since, in addition to the far-reaching powers conferred on him by specific provisions in the act, he is given blanket authority in section 8 (a) (5), "to make and promulgate such rules and regulations as, in the judgment of the Secretary of Agriculture, are reasonably necessary to effectuate any of the provisions or to accomplish any of the purposes of this act."

Let me say in passing that I am not at all certain that what I have just quoted is valid in view of the recent decision of the Supreme Court in the oil cases. The language is exceedingly broad and indefinite and seems to lack any standard limiting or defining the Secretary's authority. I did not come here, however, to talk on the constitutionality of any provision of the bill. What I want to emphasize here is the almost unlimited power you contemplate lodging in the Secretary to put a man out of business for violation of a regulation promulgated under this broad language, coupled with the fact that the bill makes no requirement that the Secretary give advance notice of his intention to make a regulation effective at some future date, or to hold a hearing of any kind at which interested parties may point out to him that it is unworkable or unjust.

These rules and regulations are to have all the force and effect of statutes enacted by Congress and, as you can readily see, violation of them is attended not only by miscellaneous criminal penalties but also by what amounts to destruction of a man's business. When Congress enacts an important statute it affords hearings before its com

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mittees to interested parties, such as the hearing we are having today, and nearly always enough time elapses between the introduction and final passage of a bill to give the persons affected an opportunity to adjust themselves to meet the new requirements. I believe that this bill should make provision for the lapse of a certain period of time before any regulation can become effective, together with a prior opportunity for hearing of objections to the proposed regulations. It may be that on one or two particular subjects in this bill its proponents will feel that there should be power to change the law overnight. While I would not agree with such a view, I would say that if there are such cases they should be specifically made exceptions to requirements such as I have outlined. In other words, it is not fair that a man's right to continue in business should be subject to the hazard that what he was legitimately doing today may, without his knowledge, become illegal tomorrow.

Needless to say, in anything I have said or shall say, I am not referring to either the present Secretary of Agriculture or to the Chief or any of the personnel of the Grain Futures Administration. I do not believe that any of them would be guilty of such arbitrary conduct. I am simply talking about the power you are conferring, and from this point of view I think we must keep in mind that the present encumbents may be succeeded by others in whom we would not have confidence.

With respect to the licensing provisions themselves, I have two sets of objections to bring to your attention. The first are general and are cited to show the undesirability of including any such provisions in the bill. The second are directed at what are believed to be defects in the provisions as now drawn.

Before taking up the general objections, let me tell you the number of persons involved in the license requirements. The figures I shall give you have reference to the Chicago Board of Trade only; we do not have the figures for the other grain exchanges.

There are approximately 351 individuals, member firms, and corporations who would have to be licensed as futures commission merchants. They maintain main offices, branch offices, and wire connections with correspondents' offices to a total of approximately 2,200. While no exact figures are available, the best data available indicate that between 40,000 and 50,000 persons are employed in these offices. In addition, there are 325 floor brokers on the Chicago Board of Trade.

These figures will, in themselves, offer you some idea of the substantial increase in Government machinery and personnel that will be necessary to handle merely the routine of issuing and renewing licenses and of recording, tabulating, and otherwise make use of the information which is to be required along with the applications for licenses and from time to time thereafter.

The principal point I want to make, however, is that if you impose the license system upon the commission merchants and floor brokers you will undermine the discipline now effectively exercised by the grain exchanges through their business-conduct rules, and you will not provide a satisfactory substitute. You will remember that in the first project for stock-exchange regulation it was proposed that individual brokers be licensed. The Securities Exchange Commission Act as finally passed omitted any such requirement, with the result

that stockbrokers are not now subject to licenses, and, so far as I know, there has been no claim that they should be. In other words, the regulation of stock exchanges so far seems to have proceeded satisfactorily without the use of licenses. The reason for not including a license requirement in the act were clearly set forth in the report of the committee on stock-exchange regulation to the Secretary of Commerce made in January 1934. I quote from a portion of the report:

Your committee does not consider it desirable to require the licensing of individual brokers. There is a distinct danger that such a system would break down the controls already exercised by the stock exchanges through their business-conduct rules, which operate or can be made to operate with summary speed and effectiveness. If brokers were licensed, it would inevitably come to be thought that the proper method of disciplining a broker would be the revocation of his license by the governmental authority. An exchange might well hesitate to deny its privileges to a broker whose license was still in full force and effect. Inevitably, however, the process of revoking a license would te much less summary than the action of a business-conduct committee of the exchange. The proceeding would take place at Washington and not locally. To some extent it would have to follow more or less protracted forms of judicial procedure and would have to be subject to review in the courts. All these factors, while cutting the ground from under the effectiveness of the exchange's own disciplinary procedure, would substitute a procedure slower and less certain of accomplishing results. It seems distinctly better, in the opinion of your committee, to stimulate the exchange to further disciplinary activity by holding it to a high degree of accountability for the conduct of members.

Other witnesses who will follow me will develop this feature in more detail. Let me point out, however, that proceedings within the exchanges have the following advantages among others:

First, they are more rapid, since the hearing in practically all cases is at the place where the alleged violator and all the witnesses do business.

Second, they are free of the requirement that a formal record of evidence be built up that will stand review by the courts.

Third, they are before experts who are familiar with both the transactions and the practices and reputations of the persons involved and who do not need to have technical terms explained by elaborate testimony.

Fourth, the complaint is usually kept anonymous so that the complainant is not held back by considerations which would deter him if his complaint went before a formal governmental body.

The bill, together with the Grain Futures Act, provides ample means for compelling exchanges to maintain adequate discipline. In the first place, the exchanges themselves are, as I have already pointed out, under a license system, and their designation as contract markets can be suspended or revoked for failure to fulfill their obligation. This, of course, is too severe a penalty and would inflict injury on too many innocent persons in the ordinary case. Presumably to cover this defect in the present act, the bill provides in section 6-B on page 22, that in lieu of revoking a designation as a contract market, the Secretary of Agriculture may enter an order directing that the exchange, or any director, officer, agent, or employee thereof, shall cease and desist from continuing an alleged violation, and failure or refusal to obey such order constitutes a misdemeanor subject to a fine of from $500 to $10,000 and imprisonment of from