The Montgomery advertiser. [volume] (Montgomery, Ala.) 1885-1982, 1909-06-17
Committee Makes Report
On NelU York Exchanges

perienced persons who act on interest
ed advice. tips advertisements In
newspapers. or circulars sent by mail.
or take flyers in absolute ignorance
and with blind confidence In their luck.
Almost without exception they
eventually lose"
AS to the character Of the transac-
tons the committee declares II is un-
questionable that only q small part of
them ~ of Investment character: a
substantial part may be characterized
as virtually gambling. Yet we are I'M
able to see how the state could distin-
guish by law between proper and i'm
proper transactions, since the forms and
mechanisms used are Identical. Rigid
statutes directed against the latter
would seriously interfere with the for
mer. The experience OF Germany with
similar legislation Is Illuminating.
But the Exchange, with the plenary
power over members and their opera
tions. could provide correctives, as we
shall show.
Purchasing securities on margin is
as legitimate a transaction as q pur-
chase of any other property in which
part payment is deferred. We there
fore see no reason whatsoever for
recommending the radical change sug-
gested, that margin trading be prohibit
ed.
Insofar as losses are due to insult
ficient margins. they would be
materially reduced If the customary
percentage of margins were increased.
In preference to recommending legisla-
tion, we urge upon all brokers to dis
courage speculation upon small margins
and upon the exchange to use its in
fluence. and IL necessary, its power. to
prevent members from soliciting and
generally accepting business on q less
margin than 20 per cent"
Pyramiding, that Is the use of paper
profits as margin for further commit
ments should be discouraged, says the
committee. In this connection 1t is
suggested that IL brokers and the banks
would make 1t rule to value securities
for the purpase of margin or collateral.
not at the current price OF the moment.
but at the average price of. say. the
previous two or three months (pro-
vided that such average price were
not higher than the price of the mo-
ment) the dangers of pyramidfng would
be largely prevented.
I'VE have been strongly urged to
advise the prohibition or limitation OF
short sales" says the report, mot only
on the theory that 1t is wrong to agree
to sell what ones does not possess. but
that such sales reduce the market price
of the securities involved. We do not
think that 1t is wrong to agree to sell
something that one does not now pos
sess. but expects to obtain later.
Short-sellers endeaver to select times
when prices seem high in order to sell,
and times when prices seem low in
order to buy. their action in both cases
serving to lesson advances and diminish
declines OF price. In other words.
short-selling tends to produce steadi-
ness in prices, which is an advantage
to the community. No other means of
restraining unwarranted marking up
and down of prices has been suggested
to u.s."
The committee here calls attention
to the New York law of 1912 which
declared void all short sales, and to
the law of 1853 repeating the act of
1912 and legalizing short sales.
Manipulation of prices is divided by
the committee into two classes: first.
that which is resorted to for the pur-