New-York tribune., 1918-12-19
Broaden Functions
OF Stock Exchange
Clearing House
Board of Governors Adopt
New System for Handling
of Stock Balances and
Brokers' Loans

An expansion in the functions of the
New York Stock Exchange Clearing
House to include tho clearing of stock
balances and brokers' loans was nuth-
orizcd yesterday by the board Of gov
ernors, who approved changes from the
present system proposed by special
committee of five, of which S. +. Streit
is the chairman. The new system Will
operate under the name Of the Stock
Clearing Corporation, with paid-ln
capital Of $5O0,O00, all owned by the
Stock Exchange.
1t is claimed by the special commit
tee in a report submitted to the gov
ernors Of the exchange that through
the operation of the new clearing cor
poratior at least 65 per cent OF the
present daily extensions OF credit re-
ceived from banks viii be eliminated
and that there will be afforded pro
lection against risk and liability that
should cause the business of the eX-
change to be conducted on safer
basis than ever before.
"ln addition to the improved rela-
tionship between the banks and the
New York Stock Exchange" the report
asserts, "the simplifying of much of
the labor connected with deliveries Oh
securities should save a large percent
age of effort and time involved under
present conditions"
How the Plan Works
Pointing out how advances by banks
to brokers for the purpose of paying
off loans will be reduced to minimum
under the new system, the following
explanation is made:
'At the present time when q loan is
called which a broker desires to re-
borrow it is necessary for him to Sc
cure credit from his own bank for the
purpose of paying off the loan. 1t is
proposed to have the banks send their
securities to the Clearing Corporation.
where they will meet the representative
of the bank loaning the money and while
the securities are in the physical pos
session of the Clearing Corporation
the old loan is paid off and the new
loan made, with such changes in Sc
curites as may be necessary by the
brokerage house, thus eliminating any
credit advances by a third institution"
The advantages of the new plan for
clearing stock balances are illustrated
by taking the situation under the pres
ent system. Thus, if member of the
exchange buys 1000 shares of U. S.
Steel common and sells 900 shares,
the Clearing House furnishes him with
a balance of 100 shares to receive and
pay for the next day. If, however, the
member buys 1000 shares of Steel and
sells 900 shares of Southern Pacific, the
present clearing system is of no as
sistance should there be other tran
sactions in the same stocks.
1t is proposed to furnish credit by
the new clearing corporation in such
a manner that the proceeds of the de-
Pacific will be used to reduce the debit
caused by the purchase of the 1000
shares Of Steel, 50 that the net credit
extension required will be only that
necessary for the payment Of the diff
ference
European Methods Studied
The report of the clearance COM
mittee was prepared after an ex-
the methods employed on the European
stock exchanges, which have. in ad-
dition to systems of clearing contracts
similar to those of the New York Stock
Exchange, adopted uniform methods of
clearing money loans and stock bal
ances
"The volume Of business and con-
ditions in New York" the report adds.
"are such as to make it unwise to in
augurate a system as complete in many
ways as those already in operation in
Europe, but the plan submitted is
based on fundamental principles that
have proven sound through over twenty
years of use abroad, and is capable of
being largely expanded"
Members Of the local Stock Exchange
using the facilities of the new Clearing
Corporation are to keep with that in
stitution an amount Of money vary
ing according to the volume of their
business, but with a minimum of S10.-
900, on which no interest will be paid.
The total amount of money so de-
nosited must equal an average of s1O.-
100000, with minimum of SO 600 900.
The expenses of operating the cor
poration will be met by interest from
deposits with banks and by charges
for clearing money loans and securities.
Banks Co0perated
In working out its plan, the clear
ance committee cooperated with
committee of the New York Clearing
House Association banks, consisting of
Stephen Baker, president of the Bank
Of the Manhattan Company. Walter +.
Frew, president of the Corn Exchange
Bank, and Gates w. McGarrah, presi-
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