Evening star., 1932-04-24
accountant identified as especially sx-
perienced in the field.
Describes Typieal Pool.

accountant identified as especially ex-
perienced In the 1eld.
Describes Typical Pool.
A typical pool, he said, would survey
the situation as to particular stock
and. '"if operating for the rise and salts
fed that the floating supply was small >"
would buy in a holding sufficient to
influence the price. He explained that
orders to buy and sell given stock on
the Exchange floor was usually con-
veyed to a particular broker, special
izing in that stock. and that in recent
pool organization it had been always
considered best to have the specialist
in the pool
When a specialist of that character
turns information as to orders on his
books over to men operating pools,
that is a betrayal of his customers in
terest, isn't it?" Senator Brookhart, Re
publican, Iowa. asked.
Yes. sir" Mr.. Knight replied.
He expressed the opinion that now
adays 1t is not always necessary for
the specialist to cooperate with short
pools" TO get desired results but in
sisted that was the better practice.
Switched to the question OF how
short selling is conducted, Mr.. Knight
explained the system of lenolng stock
pointing out that the lending broker
received the cash value OF shares sup
piled short seller without the obllga-
ton to pay interest on the money ad-
vanced at a rate corresponding with
the call money rate charged by banks
lending on securities. He volunteered
that the "audits of the Stock Exchange
Of members business are merely super
ficial," and asserted that the stock
Exchange houses which have failed did
so because they took a speculative po-
sition themselves"
Gray Restates Findings.
Let me restate your findings. Mr..
Gray said after discussion OF failures,
"A firm generally used its own capital
in speculation, and then when they got
into a position of needing more, they
used their customers equity in securi-
ties to protect themselves, and then
when that was gone, they were in
solvent"
Exactly" Mr. Knight said.
He suggested periodical sudits Tor
Stock Exchange houses. He further
criticized brokers' methods in charging
margin customers a higher interest rate
ON borrowed money than that which
the house itself has to pay TO lenders.
He suggested. also, what he deemed
the most efficient method the COM
mittee might take for obtaining lnfor-
nation as to pool operation generally.
and explained puts and calls as
options to buy and sell stocks on future
dates
The volume Of. new suggestions be-
fore the committee led Chairman Nor
beck TO announce that the Monday
session would be devoted to an eXecu-
tive discussion by the committee as to
the policy to be followed in continuing
the investigation.
viii Ask Subpcenas.
Mr.. Gray will ask that the committee
authorize subpoenas for most Of the
stock operators named in yesterdays
testimony. One such notice, to William
Danforth of New York, reputed to be
Importantly engaged in recent stock
transactions, was issued yesterday, and
the request for the others will be passed
upon tomorrow. Committee members
are understood to favor generally going
forward with the inquiry on the broad
est scale
Mr. Gray put into the record before
closing yesterday correspondence for
warded by Thomas A. Kenny Phila-
delphian, who complained that his New
York Stock Exchange broker was COM
pelling him to sign an agreement under
which securities carried by him on mar
gin could be loaned to short sellers.
These documents indicated, Mr.. Gray
asserted, that customers are virtually
compelled to supply securities for lend
ing to short sellers"
In one of the letters. signed by L. r.
Harrison, secretary Of the Business
Conduct Committee of the Stock Ex-
change to Mr.. Kenny, under date of
March 26, the customer was told that
where you are unwilling to sign such
separate authorization providing fc-
the loan Of securities), there can be no
compulsion upon you that you do so
II your broker does not desire to carry
the account otherwise. your obvious
course is to secure another broker who
is willing to transact your business
without such authority"