The Washington times., 1913-07-30
SELLING SHORT" ON CHANGE.

understood at this distance from the headquarters
of that mysterious class of operations, consists in
selling what you don't possess. Last Saturday a
broker in New York sold" S25,0OO of per cent
Government bonds at 95A; that is, he agreed to
deliver the bonds in twenty days at that price. Pre-
sumably he didn't own the bonds when he sold them.
He merely bet that he could within the twenty days,
buy them at price so low that their delivery at
that figure would give him profit.
bear campaign against particular security
consists in crusade of such short selling If large
enough number of people are willing to risk money
enough on such gamble, they may scare the invest
ing public badly enough to induce It to unload its
holdings of that security cheap enough to let the
bears buy what they need and deliver at profit.
Now, there is no rule on the exchange against
selling short. 1t is, in fact, big feature of the
business. 1t is done in stocks bonds, cotton, pro-
visions, wheat-pretty nearly everything that is the
subject of change transactions.
When the practice is criticised the specialists
always rush forward to defend it; and they make
a pretty good case for it, too. Whether they are
right wrong, it is not the present purpose to
adjudge.
But in connection with this recent short sale
of 2 per cent bonds interesting situation has
developed. The committee on business conduct of
the New York Stock Exchange has taken up this
particular transaction and discussed it in the light
of its probable effect on the standing of the exchange
at Washington" What does that mean? Simply
that the discovery of this transaction gives color Of
probability to the charge of Secretary McAdoo that
there is campaign on foot to depress the per
cent bonds in order to scare the banks that own
them, and thus line up the banks against the pend
ing currency legislation.
There is, as has been said, no rule against short
selling, and it is very The exchange auhori-
ties are investigating not the practice in general
but the unfortunate fact that single transaction
should have taken place in circumstances that might
attract Congressional attention to that practce Their
attitude would seem to be that, while they don't
object to the practice in general they don't want
operators to do the thing at times and in ways that
may attract too much notice.
That seems a mighty queer attitude If short
selling is perfectly legitimate and right why should
the exchange get excited about a single instance
of it? The eccentciy of its reasoning is suggested
by this excerpt from the New York Times news
report, published today, of the affair:
The member who sold the bonds admitted that he
had seriously erred and expressed contron having
un~ittingy heightened an impression held in Washing
ton that the recent low quotations on Government bonds
were the result of conspiracy embarrass Congress
in changing the currency laws
While there is. rule the Exchange which for
bids members from selling securities short if il could
be proved that such sales had been
OF depressing prices they would under ban OF
general rule prohibiting practices detrimental to the
welfare of the Exchange One of the functions of the
committee on business conduct is Ito keep in touch
with the course of prices of securities listed on the
Exchange with the view of determining when improper
transactions are being resorted to-"
officers of the Exchange said yesterday that while
they believed that the offending member had acted with
out stopping think Of the which Con-
gress might put upon his action they nevertheless felt
that he should be punished. He will be before the
committee this afternoon and will called upon to
produce his books for examination. If he is found
guilty of act opposed to the best interests of the
Exchange the matter will be submitted to the next
meeting OF the full board Of governors with recon-
mendation that he be disciplined.
All this seems to signify that the exchange
regards short selling as legitimate enough when Con-
gress and Woodrow Wilson and Secretary McAdoo
are not looking but rather a foolhardy thing when
those authorities have their eyes Wall Street.!
This inspires some wonderment. In the absence of
rule against short selling, who shall decide in what