Evening star., 1934-02-18
Full Text Of Provisions
Given Out Before Bal
timore Session.
DRASTIC RULES MADE
TO SAFEGUARD PUBLIC
Revival Of Orderly Capital Mar.
\ ket Under Uniform Standards
Also Is Sought.
BY EDWARD C. STONE.

Investment bankers from Maryland,
District of Columbia, Virginia. West
Virginia, North and South Carolina
will meet in Baltimore tomorrow to
consider the proposed rules of fair
practice for American investment
bankers. All dealers in securities in
this territory have been invited to the
meeting, whether or not they are
members of the Investment Bankers
Association. The meeting is one of
26 which are being held simultaneous
~ in cities all over the United States.
The full text of the proposed rules
Is being made public for the first time
today 1t discloses the fact that the
investment bankers propose reforms
from within the business ITSELF and
recognize that the interests Of the
investor are primary and transcend
every other interest of the investment
banker" The rules also propose a
registration OF bankers who will abide
by the C. -.,e as finally drawn.
The meeting will be presided over
by Edward Z. Dunn of Robert Garrett
& Sons, Baltimore. Y, E. Booker of
Washington is vice chairman of the
Southeastern group.
Would Eliminate Abuses.
Rules to be considered are those
which were prepared by the Code
Drafting Committee of the association
and approved by the board of COVER
nors. The purposes of the proposed
rules of fair practice are stated as
follows by Mr.. Dunn:
To protect the investor by eliminat-
ing abuses of the past and providing
safeguards for the future.
To stabilize the business of invest
ment banking and help revive q
healthy, orderly capital market.
To establish and enforce uniform
high standards of business practice.
The rules are stringent and definite
They do not favor the big investment
banker as against the small one, nor
the metropolitan dealer as against
the firm in a small community, or
vice versa, Mr.. Dunn said. -
The rules prescribe four major es-
eentials:
Four Major Essentials.
l. Investment bankers must insist
that corporations whose securities
they sell to the public will discuss
periodically all essential information
to help investors know what their Sc
curities are worth. Full, accurate and
continuing information is required.
2. Investment banking practices
shall be so conducted as to place the
selling Of securities on high plane,
eliminating both high-speed distribu-
tion and high-pressure selling.
3. The fair practice rules must be
observed in both letter and spirit and
machinery for their enforcement is
set up by the business itself, thus pro-
viding the necessary policing power.
4. Finally, tribunals are established.
To these any investor may bring his
grievance. .,r,
While the securities act requires
Information about securities only
when they are issued to the public,
the proposed rules would oblige cor
porations to supply information con-
tinuously as long as their securities
remain in the hands of the public,
said Mr.. Dun.
Doorbell Selling Blamed.
mo less important to the high eth
ioal conduct of investment banking
than the disclosure of facts, is the
necessity for correction of abuses in
selling The conviction is that securi-
ties should not be pushed on invest
ors by high-pressure methods. The
corrections of selling evils in the Sc
curities business is no easy task, but
1t is, nevertheless, one to be dealt with
effectively.
1t is provided that every investment
banker shall strictly supervise the
methods of his statesmen and their
efforts in relation to offers of securi-
ties for sale, and that no sale shall be
confirmed unless it has been approved
by the investment banker or respon-
sible executive of the investment
banking firm.
So-called doorbell selling of securi-
ties is absolutely banned. 1t is in
tended that the purchase Of securi-
ties shall result not from the mere
selling ability of salesman, but from
a meeting of minds of the investor
and his investment banker, keeping in
view the particular financial circum-
stances of the investor himself.
Uniform Prices Demanded.
The rules call for important dis
closures by investment bankers of
their financial interests in transac-
tions with the public. The invest
ment banker hereafter would have to
disclose to all customers whether he
Is acting as principal or agent, and
If as agent, whether for buyer or
seller.
One Of the most significant sections
OF the proposed rules not only pro-
vides for a uniform price at which
new issues of securities shall be sold
to the public, but also definitely
strikes al selling 10 preferred lists.
Further. the practice of favoring one
client over another, by paying more
than the market value for q security
taken in a trade, is prohibited.
OF particular interest to the In
vesting public are the provisions in
the proposed rules for their admin
astration and enforcement. # ap-.
proved by the N. r. A., the fair prac-
tice rules will have the force Of law
under the national industrial recovery
act.
Outstanding In the rules of fair
practice in the creation Of tribunals
throughout the whole country. These
are known as Regional Code Commit