Evening star., 1932-03-26
SHORT SALE COST INCREASED
BY NEW STOCK EXCHANGE RULE
Brokers Must Have Customers Consent to
Loan Securities Held in Marein
Accounts After April l.
Special Dispatch to The Star.

Special Dispatch to The Star.
NEW YORK, March ga final
drive Is being made by brokers to obtain
from customers consent to the loan of
stocks held in marginal accounts. Bear
spectators are eagerly awaiting results,
because to date the response has been
varied and only four days remain under
the present stock loan rules.
The principal effect of the new regu-
lation will be that customers will de-
mand higher premiums for the loan of
their stocks. Short selling, however.
will not be discontinued, because bears
Will pay more to borrow stocks so long
as the market indicates that greater
profits may be obtained from selling
than from purchasing securities.
After April l members of the New
York Stock Exchange will not be able
to employ their capital as advanta-
geously as at present. Besides, they
will have to do more clerical work in
the loan of securities. To the extent
that the new rule prevents free and
open trading" the natural play of eco
nomic forces will be checked and react
on security buyers and sellers as well
as their brokers.
Customers Consent Required.
Under present exchange rules a buyer
of stocks on margin signs a loan agree
fment that permits the broker to lend
such securities. A short seller-a per-
son who sells stock he doesSnot own
and therefore has to borrow that stock
in order to deliver it to the purchaser
borrows securities from banks, brokers.
investment trusts, corporations, or from
whatever sources they are obtainable.
The regulations effective April /
state that brokers may not lend secu-
rites held on margin for customers un-
less they have obtained separate
authorization in writing, permitting the
lending of such securities. The present
customers loan agreement will not be
considered as loan authorization. New
customers, as well as present customers.
must likewise give this separate writ
ten consent to the loan of stocks held on
marginal accounts The committee on
business conduct from time to time
will require members to call to the at
tention of all customers their right to
revoke any authorization previously
given for the lending of securities.
Shortly after this rule was announced.
on February 18 last, brokers sent ont,
the required printed forms to obtain
from their customers consent to the
loan Of stock held in marginal accounts,
The response has varied according to
the effort made to obtain such con-
sents. to the customers solicited and
to the character of business handled
by brokerage houses.
In brokerage houses with a small
but selective clientele the response has
been favorable, often amounting to 75
or 80 per cent of the customers and as
much as 80 per cent of the stocks car
ried on margin. Firms with numerous
correspondents, however, do not know
how they stand The form letters had
to be sent to the correspondents, who
in turn sent the letters to their indi-
vidual customers. The latter have re-
piled slowly.
One OF the largest wire firms sent
out 2. 400 form letters. Only 400 re-
plies have been received to date. OF
these only six refused permission to
lend their stocks.
Concerns doing large business with
the general public centered their at
tentlon on big customers. Several firms
have only Is or IS per cent of their
customers signed up, yet the stocks in
VOWED amount to rs per cent of the
total now being carried on margin in
such houses.
The new ruling will have little direct
enect on the handling of loans by branch