Evening star., 1933-08-04
RULES ON MARGINS
STUDIED CLOSELY
Big Headlines About Curb
Have No immediate
Market Effect.
Special Dispatch to The Star.


NEW YORK, August 4.-The rules on
margins announced by the New York
Stock Exchange were the main topic of
conversation in the Street Thursday
and today. They had no immediate
market effect, despite the big headlines,
Stock Exchange Curbs Gambling"
The legal verbiage in which the ex-
change usually makes its announce
ments to members and the public caused
neutrality-suspicious., which, temporarily
at least turned margin clerks into in
formation clerks, as every little fellow"
and his brother and sister telephoned
to find out how he was affected by the
rules.
The regulations for the first time fix
q definite percentage for margins, which
heretofore we're to be merely adequate. "
BY doing this 1t takes one step toward
recovery, act, as it eliminates unfair
competition to the extent that one
brokerage house cannot tempt q Gus
toner away from another house by
offering him more attractive margin
terms.
Protection Stressed.
Furthermore, the rules tend to pro-
tect the little fellow"-the man carry
ing 5000 of securities or less, who
forms in many houses from 20 to 80
per cent of total accounts-from shoe
string trading. 1t Is the thinly mar
gined accounts that always aggravate
falling markets, for such accounts must
be sold If more cash Is not at once
forthcoming. And usually such thinly
marRined accounts have to be sold out,
for the little fellow" had up all the
cash he can afford.
In q sense this new ruling may tend
to check buying activities after Septem-
ber IS, when 1t Is effective. for many
traders will take long-term rather than
short-term positions. It other WORDS
they will become like the average Brit
ish trader. who Is content to make
few dollars over a period OF weeks or
months rather than as at present. when
most Americans that enter the stock
market expect to make 10 points over
night. <-,.
70 the extent that larger margins
slow buying they will slow the nooo OF
brokerage commissions and, OF course,
necessitate smaller staffs, but securities
markets are not likely to experience
sudden ups and downs. so prices VIII
gradually rise and fall and therefore
markets will be more stabilized.
Misinterpreted Easily.
In some quarters the ruling Is ex-
pected to make the small trader 60 In
more for the lower-priced stocks, as
the total amount involved and there
fore the margin required would be less.
The announcement invited m1s1nter-
pretation when 1t was stated that Gus
! TONERS having accounts OF less than
81, 600 must have margins OF 81 per
cent, while those above $1,000 must
have margins of 80 per cent. Ine
Committee on Business Conduct, now
ever, stipulated that it would REQUIRE
q minimum margin Of 80 per cent OF
the debit balance Of more than $4,000
and a minimum margin Of SO per cent
of the debit balance of 5000 or less. "
The debit balance refers to what
YOU owe on the securities bought, not
the total sum paid for the securities.
A trader buys so shares Of stock sell
ing at $40 a share. He must pay 81 1000.
Suppose the trader put up $3.50 Tor
margin, his covering would be more
than ample because his debit balance
would be 81 900 minus $3.50, or $3.50,
and so per cent of $3.50 IS $325.
Now suppose a trader purchased 100
shares of American Telephone, selling
around $124 a share and requiring pay
ment of $12,400. His margin require
ment, under the 30 per cent ruling,
would be about $4,000 because that
amount from $12, 400 leaves q debit
bal-nce of $4,000, and 80 per cent OF
that Is $2,850.
tcopyright. 1933)