Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-02-07
BY J. C. ROYLE.
Special Dispatch to The Star.

Special Dispatch to The Star.
NEW YORK, February 7.-"Tape
readers" Of the country may find them
| selves puzzling over a new and un-
known language as result of change
| in the rules just made by the New York
feet widely the trading in securities
and will be Of Nationwide and even of
international Importance.
| This new ruling will make possible a
secondary distribution of securities by
Stock Exchange houses. In effect it
puts Stock Exchange members on an
absolute equality with the private in
dividual or with the investment banker.
| The rule permits Stock Exchange
houses to apply to the Board Of Cover
nors to sell securities to firms and in
dividualS throughout the country in
stead of combining their purchases and
sales to dealings with other members of
the exchange.
/ Present Procedure.
| At present each transaction of a Stock
Exchange house must pass through the
! clearing house and be recorded The
number Of shares sold, the names of the
purchaser and seller and the price are
known. The volume and price of such
| dealings are distributed over the ticker
services and many depend on reading
| the trend" of these transactions for
guidance in conducting their operations.
Under the new ruling, the applying
| house must give the governors full de-
tails of how, why and ct what price
| they acquired the block of securities
they desire to sell. This information, if
permission Is given, is not, however,
passed on to any one, not even fellow
members of the exchange, The apply
ing house may be permitted to "peddle"
the securities involved through its
branch houses or representatives as it
sees At.
This new departure in investment
| finance has already aroused wide dis
cussion among the members of the ex-
change. Opponents and proponents Of
the plan are equally emphatic. Its pro-
mitigation grew out Of the failure of a
big Stock Exchange house in recent
months and out of the severe depres-
sion Of the last year and a half. Banks
| loan money on securities. In some in
stances they found themselves obliged,
through inability of the borrowers to
meet demands, to take over large blocks
| of stock.
Stock Exchange houses were in SINH
lar predicaments through failure of Gus
toners to supply sufficiene additional
margins. They realized that to throw
| large blocks of stock on the unready
market would be to depress the price to
point where the safety of their trans
! actions was endangered. Primarily the
new ruling is directed to a relief of such
| situations.
Arguments ON Ruling.
Supporters of the measure declare
that it will take away from the market
the dark cloud of distress securities
which, in times of depression, always
overhangs it. They say it will en-
able holders to spread sales so thinly
that they will not be/a burden which
the investors must labor to carry. They
add that it is of special value in new
| financing, since the outside sales will
be mainly for investment and not for
| speculative purposes and the market
will not be faced with the possibility
of having large speculative holdings
dumped on it If it advances a point
| or so.
Opponents of the measure, on the
other hand, declare that it prevents
purchasers of securities from knowing
what actually is going on in the stocks
in which they are interested. They say
1t may be evident that one large inter-
est Is buying, say, 10000 shares of
United States Steel in the open market
| and selling 10000 shares through sec
ondary distribution channels. They as
Sert that because of this manipulation
will be possible and one may never
know whether the value of a security
as shown in the daily stock market
quotations IS inflated or not.
In answer to this, the advocates of
the new rule say 1t has always been
possible for the individual, or even for
the investment banker, to do this and
that the new measure simply gives the
exchange members an equal status
They point to the fact that one big in
vestment bank year ago thus disposed
of big block of one of the prominent
copper shares without unSettling the
market until the line was closed out.
Arguers against the measure continue
that the protection which an investor
has in dealing with a stock listed and
traded in on recognized and regulated
exchange is taken away. In answer the
other side declares that the quotations
on the regular board will still represent
selling values, since any range between
the inside and outside market would be
taken advantage of Immediately and
would correct itself at once-that is, If
a stock were selling at 40 on the Stock
siders would Immediately buy it at 35
would be equally effective, in that If
they could buy stock at 35 on the ex-
change and it was selling at 40 out
side, sufficient purchases would be made
at once to level the range.
At all events, the alteration promises
to mark a new era in American invest
ment finance, especially in the placing
of new issues.