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2944 • A meeting of the Federal Reserve Board was held in Washington on Tuesday, September 25, 1934, at 230 P. m. PRESENT: Mr. Mr. Mr. Mr. Mr. Morgenthau, Chairman Thomas, Vice Governor Hamlin James Szymczak Mr. Mr. Mr. Mr. Mr. Morrill, Secretary Bethea, Assistant Secretary Carpenter, Assistant Secretary Wyatt, General Counsel Goldenweiser, Director of the Division of Research and Statistics Mr. Parry, Assistant Director of the Division of Research and Statistics Mr. DuBois, Assistant Counsel Mr. Woodlief Thomas, Research Assistant, Division of Research and Statistics ALSO PRESENT: The tio4 Ivas With Mr. Black, Governor of the Federal Reserve Bank of Atlanta Mr. Joseph P. Kennedy, Chairman of the Securities and Exchange Commission Mr. Herman Oliphant, General Counsel to the Secretary of the Treasury Mr. Edward Greenbaum, Special Assistant to Mr. Oliphant Chairman suggested that the important thing for considera- the cluestion of when the regulation to be issued by the Board regard to the extension and maintenance of credit by brokers, cleaaers and members of national securities exchanges, is to be issued eqld made effective. In this connection, Er. Kennedy stated that, he had not had an opportunity to read the draft of regulation, he felt e P rsonally it would be a mistae for the Board to issue a l'egIllation now, to become effective on October 1, 1034, even if it were a regulation which would be readily understood, as such procedure 2945 9/25/34 w°111d allow persons affected too short a time in which to become acwith it, would have an adverse effect on the securities market, and would result in a great deal of criticism of the Board. He said that he felt that the public should be given a reasonable '‘ m°114t of time to consider the regulation before it becomes effective, 8411d that, in his opinion, the criticism and adverse effect would be 4 great deal less if the regulation were made effective after October 1 than 'mulct be the case if it were issued this week to become effective october 1. He added that the Securities and Exchange Commission did not intend to issue by October 1 the regulations which it is ealled upon J. -r,o promulgate pursuant to the provisions of the Securities 4:ellange Act of 1934 which become effective on that date. He also referred) as a further reason why the Board's regulation should not be issued to become effective on October 1, to certain problems which the Securities and Exchange Commission would have to meet in connection With its duties under the Securities Exchange Act if the Board's regulation is made effective on that date. Vice Governor Thomas stated that he had been concerned as to the P°8sible effect of issuing the regulation within such a short time bel'ore b Presid eing made effective; that he had called Mr. Richard Whitney, e-- Of the New York Stock Exchange, on the telephone and had asked h. '\ at is °Pinion; and that Mr. Whitney had replied that he thought it b a, e .erY serious matter for the Board to issue the regulation --.4a time to become effective October 1, and that, if possible, some 2946 9/25/34 -3- weY should be found to postpone the effective date. Mr. Hamlin suggested, as a means of meeting the problem, that the Securities and Exchange Commission, in concurrence with and at the request of the Board, issue, at the time of the publication of the Board's regulation, a ruling that all securities coming within the Provisions of the Board's regulation shall be deemed and held to be wit , 4_ -u-Ln the definition of "exempted securities" as prescribed by the Securities Exchange Act of 1934, from October 1 through October 14, 1934) (or such date as might be determined upon), after which ellch exemption shall cease; which, he thought, in effect, would susPelx1 the °Peration of the regulation until the later date. Mr. Kennedy stated that the above proposal was in accordance with a 11.ggesti0n which had been submitted by him yesterday to Vice Qaverna,. -- "'Lomas, at the request of the latter, and that, while he ectilld not speak for the Commission, he believed it would agree with the suggestion. ITP°4 inquiry by the Chairman, Mr. Wyatt stated that, in his ()pillion, there is no doubt that the Securities and Exchange Commission, ilnder the provisions of the Securities Exchange Act of 1934, 4" the l'ight to exempt any or all securities from the provisions of the Act, or any regulations issued thereunder, if such action is cleeilled to be in the public interest, but that such authority does not relieve the Federal Reserve Board of the responsibility of issuing a reglaatiot Prior to October 1 to take effect on that date. 2947 9/25/34 -4In the ensuing discussion of Mr. Hamlin's proposal, Mr. SzYmczak stated that, in his opinion, as soon as the Board's regulation gets in the hands of the public it will improve the tone of the marketar4A A will not result in criticism of the Board because of the short time in which it was issued prior to October 1, but that if the S ecurities and Exchange Commission has an opposite view with regard to its own regulations, he would not want to press the opinion that the Board's regulation should be issued immediately and made effective on October 1. The Chairman stated that undoubtedly the New York Stock ExC1141ge will have some suggestions regarding the draft of regulation which the Board will want to consider, and Mr. Parry outlined, for Mr. 14°rgerithaut8 information, the consideration which had been given by the 4434rd and its staff to the comments and suggestions made by the Ireri°`13 Principal stock exchanges in connection with the proposed tegIllation. He also stated that copies of the August 17 and September 5 clrafts of the regulation had been submitted to representatives °I' the PrinciPal stock exchanges and their comments in connection therewith given very careful consideration by the members of the Board, 8 staff who had worked on the regulation. G°Irernor Black stated that, in his opinion, the Federal Reac)ard is r equired under the law to prescribe the regulation before 8erva October to be effective on that date, and that the Board 811°111d tak e action in accordance with the law, but that it may be 2948 9/25/34 possible to work out something in accordance with the suggestion made by Mr. Hamlin which would meet the objections to having the regulation made effective by the Board on October I. He also stated that he was unable to agree with Mr. Kennedy that to make the regulation effective on Octobe I would create a disturbance. He said that the securities market is 'rer5r i nactive at the present time, that he felt the proposed regulation i8 so liberal that the market will accept it gladly, and that it would help the market whereas if its effective date were postponed it might he.ve at adverse effect. Mr. cot the Oliphant stated that, in his opinion, it is clearly the duty Board to prescribe a regulation before October 1, but that the qllestion whether the regulation should be made effective on that date was 44 0Pe/1 one. The C hairman stated that he thought Mr. Hamlin's suggestion was ecellent one and that he was ready to take the position that the 13(34rd 18 requjred to issue a regulation prior to October 1. Mr. Hamlin stated that his suggestion might be considered on the b4els of the action of the Securities and Exchange Commission being taken with the con currence of the Board, rather than with the concurrence and et the request of the Federal Reserve Board, but Mi. Kennedy stated that 11 clid tot believe the Commission would be willing to act unless requested to do so bY the Board, for the reason that such action ordinarily r°1-11c1 tot be taken by the Commission in the absence of such a request. Mr. James suggested that any resolution incorporating Mr. Hamlinis 1311°P°8'11 should include a statement in the nature of a preamble to the "rctt that the Board is required to issue a regulation prior to October 2949 9/25/34 -61; that such a regulation has been prepared; that the Board recogn izes that the time available before October 1 is too short to permit the Platting of the regulation into actual effect on that date; that to do 8° might have an adverse effect and would not be fair to those affected by the r egulation; and that since the Securities and Exchange Commission has a uthorp— v to make exemptions of securities from the provisions of the Board's regula tion, the Board is requesting that it exempt all seties affected by the regulation until the public has had an op_portuni4. v.7 to become reasonably familiar with the provisions of the regulatio4. During a discussion of the length of the period during which the Propo—, Q c1 exempti on of securities should be effective, it was suggested by the , CI-a'rman, and concurred in by the other members present that such e:KernPtio n would not be necessary beyond October 6. Mr. Hamlin moved that his proposal, amended to incorporate Mr. James' suggestion, be approved in Principle, and that counsel be instructed to prepare a resolution in accordance therewith for consideration by the Board. Carried unanimously. Mr. Szymczak moved that the members of the Board agree that the Board's regulation on margin requirements shall be issued not later than Thursday, September 27, 1934. Carried unanimously. . It being agreed that counsel would require some time to prepare the form of resolution referred to above, Mr. Svmczak moved that the meeting adjourn to meet again tomorrow morning at 10:00 a. m. for the Purpose of considering the form of the resolution. Carried unanimously. Thereupon the meeting adjourned. Vice Governor.
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