Evening star., 1938-10-31
e. :. {. E.. Plans Reforms
, 10 Protect Public in
Security Dealings
Douglas Reveals Exchange
Already Hos Adopted
14-Point PROGRAM

The Securities Commission an
nounced today a "l4-point reform
program" designed to protect the
public in its dealings with securities
A2lns and to prevent repetition of
t1e Richard Whitney failure.
Chairman William o. Douglas dis
closed the commissions program
Hnd announced simultaneously the
New York Stock Exchange had
Voluntarily adopted it in compliance
with the commission aims.
Douglas said the commission pro-
Gram would prohibit brokers from
hypothecating fully paid up secu-
rites of customers and would closely
INIT the re-pledging by brokers of
securities upon which they had
l1aned money to customers. These
-ules, he said, would be drafted
2rmally very soon and would apply
all securities exchanges through
1t the country.
Roosevelt Impressed.
President Roosevelt commented
-Nt lldN Cii Oil ~ f. ". 1Cpoi L
ealing with the Richard Whitney
"aSe. He said it was a horrifying
document. disclosing as it did prac-
ices which ought to be prevented.
.Yfitney, former president of the
NpCk exchange, now is serving a
I'm in Sing Sing Prison for mis-
9ppropriating customers securities.
The new stock exchange program,
"dopted October 26. but kept secret
,ntil today, provides:
l. Effective January /, no men,
'>er firm will be permitted to owe
more than Is times its net capital,
excluding underwriting capital. The
present limit, although figured on
different basis, amounts to 20
times.
2. No official of the exchange shall
make or receive a loan from any
lAsmber or member firm without
1etmisison of the exchanges Com
mite on Member Firms, unless the
loan is fully secured or is made by
or to the exchange official by firm
Of which he is also a member
3. No exchange official shall par
,cipate in any investigation in which
.1e is financially interested.
More Data Required.
More extensive financial state
>ents will be required of members
5. Firms doing business with the
public must have their books audited
t least once a year by independent
.}uolic accountants.
s. The eXcange will make more
'reQuent and intensive check-up
On the books of members.
7. Members must report to the
0Nchange any loan in excess of
$500. unless it is fully secured, or
II certain other circumstances.
8. Effective April l. 1899, no men,
ser firm. or its general partners
docs not apply to special partners
or employees, which carries margin
accounts for the public may buy or
sell securities on margin for their
own accounts.
3. No member firm may carry an
2cCount for general partner of
9nother firm unless a second general
PARTNER of the other firm gives writ
ten consent.
10. No member doing business as
9n individual tas distinguished from
:, partnership may carry securities
accounts for customers.
IL. More intensive control will be
imposed on customers men and
other employees of members.
Heavier Penalties Due.
II. The exchange will supervise
business practices of members more
closely and impose heavier penalties
for violations.
13. Each member firm must re-
port to the exchange weekly its obl-
cations in underwriting transactions.
IA. The exchange will set up a
central securities depository in which
all securities belonging to the public.
but left in the hands of exchange
members, may be segregated and
protected.
The securities depository plan,
Douglas said, Will be permissiye at
rst, but the New York Stock Ex-
mango will urge its members to
Utilize it,
Douglas made it plain, however,
mat unless securities brokers volun-
Iarlly co-operated in efforts to pro-
|lde safe-keeping for customers Sc
Curlties, the commission would ask
congress for authority to make such
Gction mandatory.