The CHAIRMAN. Mr. Boylan, Mr. Boileau would like to ask you a question.

Mr. TOBEY. This committee is forming its judgment on all of the evidence. Would you be willing, as representing the Chicago Board of Trade, to file with this committee a list of the charges and convictions made by the board against all of the members and what the offenses were during the last 5 years, including 1929?

Mr. BOYLAN. Yes, sir.

The CHAIRMAN. You will give us that?
Mr. BOYLAN. Yes, sir.

STATEMENT OF JAMES J. COUGHLIN,

PRESIDENT OF THE

BROKERS' ASSOCIATION, CHICAGO BOARD OF TRADE

Mr. COUGHLIN. My name is James J. Coughlin. I live in Chicago. I am a floor broker on the Chicago Board of Trade and for the past 312 years I have been the president of the Brokers' Association. They are a group of some 500 floor brokers trading in all lines on the Chicago Board of Trade, and in their behalf, as well as my own, I presume in behalf of anyone else that might be affected, I am appearing here with these other gentlemen protesting against the inclusion of the license provision in House bill 3009.

I am assuming that that provision was inserted in the bill in order to make effective and enforceable the restrictions and the propositions that are in the bill concerning the conduct of floor brokers.

I assume generally you gentlemen are familiar with them and I want to say at the outset that you are not half so interested in maintaining a very high standard of fair dealing and honesty and honor among the floor brokers as are the brokers themselves, because they have an immediate financial interest, as well as the general good of the association, involved.

Let me say this, that there is not a single thing that I know of that a broker could do, by way of an unfair act, a dishonorable or a fraudulent act, that is not already prohibited by specific rules of the exchange; and if somebody comes along ultimately, some diabolical genius, and thinks of something that has not already been specifically prohibited by the rule, the general rule, what I call the disorderly conduct provision or provisions of the rules are ample to cover. They cover generally anything that is in any way inequitable, unfair dealing, and detrimental to the welfare of the exchange, and so on, and so far as safeguards and guaranties of brokers' conduct is concerned, there are already ample and sufficient specific rules covering them.

So that these restrictions that are contained in your bill are simply a duplication of what are already existing rules.

Now, that being so, it seems to me that the next question is to what extent and how effective are these rules of the exchange enforced.

Well, first of all, let me say this, that I think it would be a practical impossibility for a broker to do an unfair, dishonest, or fraudulent thing in the handling of an order without being immediately detected. I do not know what he could do that somebody would not see him do. As you all know, we all stand shoulder to shoulder

in the different pits. If a broker gets an order, a half a dozen see him get it. They see what he does with it; see what notes are made, what notation he makes on his trading card.

Now, those men are all experienced traders. They are keen observers. They have to be or they would not remain in the pits very long.

So that no man, it seems to me, however much he might desire to do a dishonest thing, is always forestalled by possible immediate detection, and when I say "immediate ", I mean exactly that.

That being the case, we have had this situation on the board: I think probably in my time, which covers approximately 10 years, we have averaged disciplinary cases before the board of directors at the rate of about one a year, and in that time, just taking that average over the period of 10 years, I know of one instance where a man was acquitted. In the other nine instances there was a finding of guilty and inevitably infliction of penalties that I always thought were far more severe than I would have inflicted if I had been sitting in judgment.

Now, these trials are conducted in this kind of manner: If a man is detected in doing an improper thing, the customary method is that he is reported to a member of the business conduct committee by whoever sees him doing it, and, incidentally, let me tell you that it has never been considered and is not now considered an unsportsmanlike thing for one member to report another, because every time a broker does an unfair thing, such as bucketing an order, he is just depriving the market, which means everybody in it, of his right to a chance to that trade, and consequently there is never any hesitancy about reporting any broker on anything of that sort that might

go on.

When the report is made to the member of the business conduct committee, or to a director, an investigating committee is appointed immediately. They send for all of the cards of the transaction, the orders of the broker, his cards, and trading cards, if he has any, and everything that might be at all pertinent. They are gone over carefully. If they indicate violations, charges are preferred again before the board of directors, and he is haled in on reasonably short notice and he has no right to retain professional counsel. He can only be represented by another member of the board. There is no long record made up, necessarily. He is tried before a jury of experts who not only know all about the business generally but they know all about the facts and circumstances that surround the market at the particular time the offense is alleged to have been committed, and they know the man who is accused.

There is never any dilatory procedure such as you might have in proceedings under this bill; no question of validity or constitutionality of the regulation or statute; no motion to quash a pleading or anything else. They simply take the evidence and put it under the man's nose and make him explain it.

Now, I know something about those trials, and I do not think I have seen one where a member was up for discipline that was not disposed of in the same afternoon that the hearing began, at no expense to anybody.

Now that is the machinery as it exists at the present time. Of course, you know what the procedure before a commission would be.

Necessarily, the man would be required to retain professional counsel, probably have to spend a great deal more money than he had. I do not think it is unfair to the brokers at this time to say that if any such proceeding was brought against our members nowadays, he would probably have to let it go by default, or we would probably have to pass the hat to collect a defense fund for him.

Now you know in a general way what these proceedings are. It will be necessary to have a lot of explaining, presentation of evidence, in order to make a record clear to those who are going to consider it. There are briefs to be written and printed, subsequent arguments in Washington before the Commission, and then the possibility of an appeal.

Now that is a thing that the bill seeks to substitute for this present effective machinery that we have.

Now your bill here, it seems to me, substitutes really a terrible threat against the brokers. First of all, I assume that it displaces the disciplinary provisions and powers of the board of trade we maintain; secondly, the license section feature is here, and the possibility of its revocation; and, thirdly, of course, you have got the criminal provisions of the bill.

Now I am frank to say this, that I know some brokers I do not like, but I do not know any broker that I think sufficiently vicious that the public needs to be protected against him to the extent to which this bill goes, and in that connection I just want to say that I think I am going to differ with the chairman a little bit with respect to the comparison of attorneys and doctors and brokers. Possibly I know something about that. In an unguarded moment 20 years ago the Supreme Court of Illinois issued a license to me to practice law. Nobody has ever offered a satisfactory explanation for that, but it is a fact none the less.

Now, attorneys and physicians are not grouped in an organization that is operating under a corporate charter under a Federal license and that makes rules and can enforce the rules, for the proper behavior and proper conduct of those persons. Every attorney and every physician is simply out on his own, and the only law that he is bound in any way to respect is, of course, the statute or the law, whatever it may be, that is applicable to everybody. He is not a member of an organization or organized exchange that makes rules of conduct for him and that can enforce those rules.

We have that situation on the board, and for that reason I think the feature as to licensing is decidedly unnecessary in order to protect the public because the man is in effect under a license already. He is operating under the rules of the exchange, and the minute he violates them there is an enforcement and a disciplinary power that can immediately revoke his right to operate.

Now, as I say, I do not know of any conditions that exist that make the delegation of this licensing power through the Secretary a necessity. I think, as a matter of fact, that if this bill were passed with that provision in there the only purpose you would serve would be to defeat the purposes of the bill. I told you a moment ago it is impossible for a broker to do anything without being detected, and whenever he does it is not considered unsportsmanlike to turn him up, if we catch him doing it; but I question very much whether any other broker would care to turn another

up to the Government, were he subject to the possibility of revocation of his license and a long, expensive trial before a commission and possibly a jail sentence. I think possibly any friendship that ceases in the present existing conditions might conceivably be revived and, rather than turning up, the disposition might be to cover him up; and for that reason I think that your bill would tend to defeat its own purpose if you pass it in its present form.

We now have detection and disclosure under our present system, and under your system I think we would have detection and inclosure wherever it were possible. That is my own theory. I know, as much as I detest and deplore to see any improper thing on the part of a broker, I would certainly hesitate very much to turn him up to a governmental body where he can become involved so completely and so expensively as he could under the provisions of this

act.

Are there any questions, Mr. Chairman?

The CHAIRMAN. If there are no questions, the hour of adjournment has arrived.

Mr. Hook. I would like to ask a question, Mr. Chairman. These regulations of your exchange are a matter of a code ethics?

Mr. COUGHLIN. It is not. They are rules; definite rules. They are not a code of ethics. They say, "It shall be unlawful." It is strictly "thou shalt " and " thou shalt not ", all the way through. Mr. Hook. Does it not compare with the code of ethics in the legal profession?

Mr. COUGHLIN. No. A code of ethics in the legal profession, as I understand, is merely a recommendation of the profession generally as to how they ought to behave themselves; but ours are rules, and specific directions as to how they shall behave themselves, or else. In other words, they are enforced. Your legal ethics are not.

Mr. Hook. Certain bar associations do enforce the rules of ethics in the same way that you enforce the laws of your exchange. Mr. COUGHLIN. I assume so, and possibly by a revocation of license.

Mr. Hook. In addition to that, the profession is guarded by a license.

Mr. COUGHLIN. Well, I can still see a very substantial difference between an attorney, a physician, and the broker. After all, brokers are dealing in dollars and cents and while unquestionably his work is of great importance, necessarily it seems to me that there is a great deal of difference between the damage that a broker can do and an attorney or a physician can do.

Mr. BOILEAU. As I gather from your testimony, you are of the opinion that every broker is interested in seeing that every other broker is honest.

Mr. COUGHLIN. Decidedly so.

Mr. BOILEAU. Do you know of any broker who is dissatisfied with the present method of disciplining the brokers; feels that it is not strong enough?

Mr. COUGHLIN. Hardly. I should not say so. I think it is decidely effective and decidedly severe. I have seen them suspended for 2 years when I thought that 30 days' suspension would have been sufficient.

Mr. BOILEAU. I gather also that the members of the exchange would be quite interested in knowing that the brokers are all honest men.

Mr. COUGHLIN. They are very emphatically so.

Mr. BOILEAU. And is there any demand on behalf of the exchanges other than the brokers, for any additional disciplinary regulations?

Mr. COUGHLIN. No; because as I have said, I think the rules right now cover everything the broker possibly could do that might be construed as fraudulent or unethical and the exchange itself has machinery for enforcing and does enforce it; enforces it very effectively, and very speedily, and very expeditiously.

The CHAIRMAN. It will be necessary for us to suspend.

Mr. ANDRESEN. Would it be possible for the committee to have a copy of the regulations of the exchange?

Mr. COUGHLIN. Yes. I will give you one right now.

I would just like to say, or make this further observation for the benefit of the chairman, who seems to be convinced that something ought to be done about the idea of the brokers trading for themselves. I most certainly would tread very lightly before I made such a regulation, because I cannot think of anything that you could do that would be any more harmful.

The CHAIRMAN. I am asking that, because I know nothing of those regulations.

I would like to have you though, if you have a completed card on which orders have been executed, I would like to have a copy of such card left with the committee.

You spoke of the cards upon which the notations were made of orders.

Mr. COUGHLIN. Trading cards. I think that I have one here.

The CHAIRMAN. With all of the endorsements on it?

Mr. COUGHLIN. Well, I can show you a card here.

The CHAIRMAN. That is a blank card.

Mr. COUGHLIN. We will put in a sample.

The CHAIRMAN. You can use the name John Doe, but I would like to have the complete notations you use. I would like to have a completed card as if a transaction had gone through the clearing house and had been finally disposed of so that we may see what information is placed on each of those cards and see how much information the clearing house has when it gets the card finally as to what the transaction has been and how much opportunity is thus given for a check.

Mr. ČOUGHLIN. We will complete the card and file it with you. The CHAIRMAN. Now, gentlemen, this morning was set apart for hearing of witnesses on this bill.

Mr. BEALE. Mr. Chairman, I would like to be heard.

The CHAIRMAN. We have had rather full hearings on this bill or similar bills during the last 3 or 4 years.

(After informal discussion as to further hearings, the following proceedings were had:)

The CHAIRMAN. If it is satisfactory to the members of the committee we will meet Thursday morning and endeavor to complete the hearings on this bill.

(Thereupon, at 12.10 p. m., the committee adjourned.)