The Daily Alaska empire. [volume] (Juneau, Alaska) 1926-1964, 1937-10-14
Stock Market Regulation
New York Tines

New York Tines
The continued break in the stock market has led
to renewed discussion in Wall Street of the effect OF
the various security regulations and other government
tai measures adopted in the last few years. Attention
has been directed again to the annual report of
Charles r. Gay president of the New York Stock
Exchange published August H. Mr.. Gay con-
tended in that report that excessive governmental
regulation was threatening broad liquid market
for securities and had already created abnormal
market conditions" He then raised the question
whether such a market might not cease to function
n times of stress Situations arising daily,
ne asserted wherein it impossible to buy sell
reasonable amounts Of stock at reasonable prices
orders that could have been executed few years
ago within a few minutes hours now, he asserted
equire days and sometimes weeks with resulting
increased risk to the owner"
1t is instructive to summarize of the controls
which Wall Street believes tending to produce
hese thin, inactive and ilquid markets"
l. Customers of brokerage houses cannot open
n account with margins of less than SIS percent If
tocks decline, their margins allowed to shrink to
30 percent but they not allowed to withdraw funds
Is long as these diminished margins exist. If they
end in funds, the broker is compelled TO use
hem to make up the margin deficiency and cannot
Sc them to buy stocks. The effect of this it is
ontended to prevent these traders from averaging
down. as they other wise might-that is of buying
more stocks at the lower prices and thus providing
the market with support Instead of that these
persons find their accounts frozen even though they
believe that stocks nave reached bargain levels. ii
they must draw out small amount of cash to meet
some special need they may be obliged to sell five
or ten times that amount in stocks before they
do so
2 Floor traders and specialists who not
previously obliged to carry margins, must also
have margins of SIS percent and for the floor trader
this margin must exist from moment to moment. Thus
it is urged that important body Of informed men,
who might provide support for the market in break
cannot extend their buying in falling market but
the contrary may be compelled to sell just at that
time regardless of their judgment of values.
g. Previously when the market broke badly Off
directors and big stockholders of corporations
if they believed that the stock of their company
unduy cheap might step in and buy. Under present
regulations, however officers directors and persons
holding more than 10 percent in the stock of COM
pany must report such transactions to the Securities
and Exchange Commission, and If they resell the
stock within six months it becomes mandatory on
the corporation to them for whatever profits they
may have realized on the ground that these profits
were realized the result OF inside information
Under such circumstances it is commended, few Off
GERS and larger stockholders want to risk such pur-
chases therefore this very important form of support
is not forthcoming.
T. 1t is known that the Securities and Exchange
Commission has been investigating virtually all large
transactons-that is those of about 5000 shares and
over This it is alleged has often taken the form OF
looking into the private affairs of the persons max
ing these transactions and this again has tended to
discourage large buyers.
s. Finally there is the much discussed capital
gains tax" Wall Street has contended that the
effect of this rising market is to keep big stock
holders from selling because the tax they would have
to pay might take the greater part OF their profit
The result is to let the market higher than it
otherwise might Not only is the subsequent break
all the more severe, it is argued, but if that break
runs to the point where it produces losses in some
stocks big stockholders sell to record such losses to
offset them against gains and may also at that time
a
longer costly to them in terms of their income tax
Thus the capitagains tax, it is held emphasizes the
swings of the market in both directions +
No responsible person has argued that these vari-
security controls have been the primary OF
5he recent break in the market, that all of them
should be repealed But the claim that their aggre-
gate effect has been to intensity declines that do
occur cannot be easily dismissed Mr. Landiss state
nent when he resigned chairman OF the SEC, /
hat odd-lot buying providing effective "cush
on for the market cannot be taken very seriously.
Total sales and purchases of oddots in recent months
nave averaged only about Is 16 percent of total
ound lot sales and purchases and in week of severe
Freaks this month purchases of odd-lots on balance
t is TO be hoped that the Securities and Exchange
Commission will examine the criticisms of recent regu
ations in a dispassonate and open-minded and
eastic spirit