The New York herald., 1922-02-04
Better Protection for Public
and All Firms in Trade
Advised.
KAHN FAVORS SALE TAX
Would Revise Present Statutes
in Interest of Early Re-
turn Of Normalcy.

- II dtiN oldLtiIlGHL OI Tic DuChPl
stop evil and what the Stock Ex-
change can do about it was made last
night by Seymour l.. Cromwell, presi-
dent of the Exchange. He and Otto
II. Kahn, who advocated the levying
of a national sales tax as a means of
bringing business back to normal,
were among the speakers at the ninth
annual dinner Of the Association of
Stock Exchange Firms at the Hotel
Astor.
Mr.. Cromwell said that the Stock
Exchange has set its face against the
new methods of bucketing which in
genious minds have devised to bring
their tricks apparently within the law.
These he termed "abhorrent morally
and directly In contravention of the
spirit of fair trading" He insisted
that all brokers having even the re-
motest connection with the Exchange
must observe the rule that stocks of
clients bought for clients must be car
ried for clients.
He recommended that the Stock Ex-
change give better protection to the
small investor. He suggested the ap-
pointment OF an advisory committee to
confer with odd lot brokers' for this
purpose. He also inquired whether the
time had not come for the Stock Ex-
change not merely to expel dishonest
members. but to. lay the facts before
public authorities and help to prose
cute the offender.
Such is the spirit OF the stock Ex-
change nowadays that reforms sug-
gestcd by Mr.. Cromwell. which might
have been deemed too drastic not very
long ago, were approved with roaring
applause last night. The cheering was
especially vigorous when he said that
Exchange members, for the protection
Of the public and the brokers them
selves, must submit to regular examina-
tion of their books by the Exchange.
Market Must BE Free.
In the first part of his speech Mr..
Cromwell contended that in order to
provide an absolutely free market the
Exchange must continue as a volun-
try unincorporated institution As evil
dence of the trustworthiness of its
members he cited the fact that in the
ten year period ending in 1919 the yearly
average business failures among them
was less than one-half of one per cent.
One-half OF those who failed settled
in full with creditors, thus reducing the
absolute failures to one-quartcr of one
per cent.
But conditions are constantly chang
ing. Mr. Cromwell went on The war
created an army oil small and inexperi-
enced investors. who must be specially
protected. Officers OF the Exchange
must exercise close supervision. At
present all Stock Exchange houses have
their books audited by independent ac-
coGntants. This must go further
Now the time has come" Mr.. Crom-
well said. when the members OF the
Stock Exchange must collectively az
svre themselves OF the condition of one
another's affairs. | for one stand ABB
solutely for such a regular examination
OF the condition of Stock Exchange
firms.
There arc certain facts which we
must know about those firms who carry
stocks on margin for the public. We
must know the relation between their
free capital and their commitments.
We must know the obligations which
they have entailed and which may be
carried in the banks and which might.
due to the calling OF loans, suddenly
bring them to condition of insolvency.
We must know the character of num-
bered accounts. so that the Stock Ex-
change can be assured that no men,
bers have sold for their own account
the stocks that they should be carry
ing for customers. . / shall never
be satisfied until we have carried our
efforts for safety so far that insolv-
encics caused by improper dealings
shall never occur among Stock Ex-
change firms"
Mr. Cromwell continued:
within recent months more than one
Stock Exchange house has appealed to
our committees TO protest against the
removal Of tickers from houses that
we're known to the authorities OF the
Exchange to be doing an improper bust
ness. I. for one. cannot be convinced
that these appeals were made from dis
Interested motives.
II should like TO suggest strongly 10
officers OF banks that they be extremely
cautious In recommending some dealers
In securities. II has sometimes seemed
TO be sufficient for a depositor 60 have
n substantial bank account to Justify
the officers OF bank In giving hin,
letters Of Introduction which imply busi-
ness integrity and responsibility. This
failure on the part OF banks to Invest-
gate character has at times been re-
sponslble for the distribution OF securi-
ties OF doubtful value and consequent
losses TO the public.
THE unit OF trading on the New York
Stock Exchange, as Is well known. is
In lots of 100 shares and yet In actuai
fact, approximately one-third of all pur-
chases and sales now made are in guam