Evening star., 1934-02-23
Advice Of Economist.

Johnston said the loans by Cities
Service we're made under his super
vision, through Henry L. Doherty &
Co., fiscal agents for the concern.
Ferdinand Pecora, Banking Com
mittee counsel, placed in the record a
series of confidential monthly letters
addressed by an economist for Cities
Service to the Executive Board OF
Doherty & Co., warning OF danger in
the call loan situation.
The letters, written by Charles
Scheer, said a curtailment of the loans
by corporations to brokers would bring
a market reaction.
Johnston testified he did not agree
with the letters at the time.
Cities Service made its street loans
directly to brokers and not through
banks, he added, at interest rates
ranging from to Is per cent.
Seeking to Curb Speculation.
Pecora pointed out that during this
period the Federal Reserve Board was
seeking to curb speculation.
The pending stock market regula-
ton bill would place strict prohi-
bition on such loans, by requiring
brokers to borrow through Federal
Reserve banks
Johnston said he could not tell
how much the company received in
interest on the loans during the
year, but testified the average daily
loan figure amounted to more than
S10.000,000.
At per cent, he said this would
have given the company return of
I,,S faI f1a
interest rate ran up to is per cent.
G. E. Groesbeck, chairman of the
Electric Bond & Share Co., and for
merly president, testified this utility
holding company and associated
companies made 1868 loans during
1929, aggregating S867 ,295 900.
The highest amount outstanding on
a single day, he said, was S187 ,9OO,-
600 on August 27
The daily average for the year, he
added, was s10O,727,O 900.
The Senate Committee planned to
wind up its long inquiry by tonight,
at least for the present, SO hearings
could begin next week on the control
bill itself
Fletcher has quoted President
Roosevelt as saying, however, that
the inquiry should continue as long
as there is need A new lease of life
may be given it later
In continuing his bombardment of
the stock market regulation bill,
before the House Committee, Whitney
testified the proposed legislation would
absolutely prohibit the odd-lot busi-
ness" and the consequences of the
enactment would be very grave"
Defends Specialists.
Whitney defended the activities of
specialists, saying the system was IAN
essential part of the only important
market for securities"
The Fletcher Rayburn bill is aimed
to prevent specialists in certain stocks
from using their inside information
for their own profit.
THE greatest criticism which has
been leveled against specialists and
apparently the evil at which this sec
ton of the bill is aimed, is that they
are allowed to buy and sell for their
own account the stocks in which they
accept orders from Others" Whitney
explained.
Most people believe this allows a
specialist to trade against the orders
which have been intrusted to him and
that, therefore, he is buying and SELL
ing to the disadvantage Of his
customers.
Exchange Rules Cited.
This, OF course, is not true. For
many years the rules of the exchange
have prohibited specialist from
trading against his customers orders.
Whitney said 1t was commonly be-
heved that specialists by reason of
the information which they secure
from orders intrusted to them have
a great advantage in trading for their
own accounts.
If anything, the contrary Is true"
he said, because the specialist is
bound to execute his customers orders
before he may trade for his own ac-
count"
The odd lot business, he said. pro-
vides market for all purchasers and
sellers of listed stocks in amounts of
less than 100 shares.