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E-text prepared by the Project Online Distributed Proofreading Team () from digital material generously made available by Internet Archive/American Libraries (http://www.archive.org/details/americana) Note: Images of the original pages are available through Internet Archive/American Libraries. See http://www.archive.org/details/newyorkstockexch00kahnrich THE NEW YORK STOCK EXCHANGE AND PUBLIC OPINION by OTTO H. KAHN Remarks at Annual Dinner Association of Stock Exchange Brokers Held at the Astor Hotel, New York January 24, 1917 Published by The New York Stock Exchange The New York Stock Exchange A couple of weeks ago I went to Washington to contradict under the solemn obligation of my oath a gross and wanton calumny which, based upon nothing but anonymous and irresponsible gossip, had been uttered regarding my name. On my way between New York and Washington, thinking that, once on the stand, I might possibly be asked a number of questions more or less within the general scope of the Committee's enquiry, I indulged in a little mental exercise by putting myself through an imaginary examination. With your permission, I will read a few of these phantom questions and answers: Should the Exchange Be "Regulated"? Question: _There is a fairly widespread impression that the functions of the Stock Exchange should be circumscribed and controlled by some governmental authority; that it needs reforming from without. What have you to say on that subject?_ Answer: I need not point out to your Committee the necessity of differentiating between the Stock Exchange as such and those who use the Stock Exchange. Most of the complaints against the Stock Exchange arise from the action of those outside of its organization and over whose conduct it has no control. No doubt there have at times been shortcomings and laxity of methods in the administration of the Stock Exchange just as there have been in every other institution administered by human hands and brains. [Sidenote: _Should the Exchange be regulated?_] Some things were, if not approved, at least tolerated in the past which are not in accord with the ethical conception of to-day. The same thing can be said of almost every other institution, even of Congress. Until a few years ago, the acceptance of campaign contributions from corporations, the acceptance of railroad passes by Congressmen and Senators were regular practices which did not shock the conscience either of the recipients or of the public. Now they have rightly been made and are looked upon as crimes. Ethical conceptions change; the limits of what is morally permissible are drawn tighter. That is the normal process by which civilization moves forward. The Stock Exchange has never sought to resist the coming of that higher standard. On the contrary, in its own sphere it has ever endeavored to maintain an exemplary standard, and it has ever shown itself ready and willing to introduce better methods whenever experience showed them to be wise or suggestion showed them to be called for. [Sidenote: _Should the Exchange be regulated?_] In its regulations for the admission of securities to quotation, in the publicity of its dealings, in the solvency of its members, in its rules regulating their conduct and the enforcement of such rules, the New York Stock Exchange is at least on a par with any other Stock Exchange in the world, and, in fact, more advanced than almost any other. The outside market on the curb could not exist if it were not for the stringency of the requirements in the interest of the public which the Stock Exchange imposes in respect of the admission of securities to trading within its walls and jurisdiction. There is no other Stock Exchange in existence in which the public has that control over the execution of orders, which is given to it by the practice--unique to the New York Stock Exchange--of having every single transaction immediately recorded when made and publicly announced on the ticker and on the daily transaction sheet. I am familiar with the Stock Exchanges of London, Berlin and Paris, and I have no hesitation in saying that, on the whole, the New York Stock Exchange is the most efficient and best conducted organization of its kind in the world. [Sidenote: _Should the Exchange be regulated?_] The recommendations made by the Commission appointed by Governor Hughes at the time were immediately adopted in toto by the Stock Exchange. Certain abuses which were shown to have crept into its system several years ago were at once rectified. From time to time other failings will become apparent--there may be some in existence at this very moment which have escaped its attention--as failings become apparent in every institution, and will have to be met and corrected. I am satisfied that in cases where public opinion or the proper authorities call attention to shortcomings which may be found to exist in the Stock Exchange practice, or where such may be discovered by the governing body or the membership of the Exchange, prompt correction can be safely relied upon. Sometimes and in some respects, it is true, outside observers may have a clearer vision than those who are qualified by many years of experience, practice and routine. If there be any measures which can be shown clearly to be conducive towards the better fulfilment of those purposes which the Stock Exchange is created and intended to serve, I am certain that the membership would not permit themselves to be led or influenced by hidebound Bourbonism, but would welcome such measures, from whatever quarter they may originate. Is the Exchange Merely a Private Institution? Question: _Do I understand you to mean, then, that the Stock Exchange is simply a private institution and as such removed from the control of governmental authorities and of no concern to them?_ Answer: I beg your pardon, but that is not the meaning I intended to convey. While the Stock Exchange is in theory a private institution, it fulfills in fact a public function of great national importance. That function is to afford a free and fair, broad and genuine market for securities and particularly for the tokens of the industrial wealth and enterprise of the country, i.e., stocks and bonds of corporations. Without such a market, without such a trading and distributing centre, wide and active and enterprising, corporate activity could not exist. [Sidenote: _Is the Exchange merely a private institution?_] If the Stock Exchange were ever to grow unmindful of the public character of its functions and of its national duty, if through inefficiency or for any other reason it should ever become inadequate or untrustworthy to render to the country the services with constitute its raison d'être, it would not only be the right, but the duty of the authorities, State or Federal, to step in. But thus far, I fail to know of any valid reasons to make such action called for. Short Selling--Is it Justifiable? Question: _You have commenced your first answer with the words, "I need not point out to your Commission." That is a complimentary assumption, but I don't mind telling you that we here are very little acquainted with the working of the Stock Exchange or the affairs of you Wall Street men in general. What about short selling?_ Answer: I do not mean to take a "holier than thou" attitude, but personally, I have never sold a share of stock short in my life. Short sellers are born, not made. But if there were not people born who sell short, they would almost have to be invented. Short selling has a legitimate place in the scheme of things economic. It acts as a check on undue optimism, it tends to counteract the danger of an upward runaway market, it supplies a sustaining force in a heavily declining market at times of unexpected shock or panic. It is a valuable element in preventing extremes of advance and decline. [Sidenote: _Short selling Is it justifiable?_] The short seller contracts to deliver at a certain price a certain quantity of stocks which he does not own at the time, but which he expects the course of the market to permit him to buy at a profit. In its essence that is not very different from what every contractor and merchant does when in the usual course of business he undertakes to complete a job or to deliver goods without having first secured all of the materials entering into the work or the merchandise. The practice of short selling has been sanctioned by economists from the first Napoleon's Minister of Finance to Horace White in our day. While laws have at various times been enacted to prohibit that operation, it is a noteworthy fact that in every instance I know of these laws have been repealed after a short experience of their effects. [Sidenote: _Short selling Is it justifiable?_] I am informed on good authority--though I cannot personally vouch for the correctness of the information--that there is no short selling on one nowadays fairly important Stock Exchange,--that of Tokyo, Japan. You will have seen in the papers that when President Wilson's peace message (or was it the German Chancellor's peace speech?) became known in Tokyo, the Stock Exchange there was thrown into a panic of such violence that it had to close its doors. It attempted to reopen a couple of days later, but after a short while of trading was again compelled to suspend. Assuming my information to be correct, you have here an illuminating instance of cause and effect. Short selling does become a wrong when and to the extent that the methods and intent of the short seller are wrong. The short seller who goes about like a raging lion [or bear] seeking whom he may devour; he who deliberately smashes values by dint of manipulation or artificially intensified selling amounting in effect to manipulation, or by spreading alarm through untrue reports or even through merely unverified rumors, does wrong and ought to be punished. [Sidenote: _Short selling Is it justifiable?_] Perhaps the Stock Exchange authorities are not always alert enough and thorough enough in running down and punishing deliberate wreckers of values and spreaders of evil omen; perhaps there is altogether not enough energy and determination in dealing with the grave and dangerous evil of rumor mongering on the Stock Exchange and in brokers' offices. But after all even Congress, with the machinery of almost unlimited power at its hand, does not always seem to find it quite easy to hunt the wicked rumor-mongers to their lairs and subject them to adequate punishment. Yet the unwarranted assailing of a man's good name is a more grievous and heinous offence than the assailing, by dint even of false reports, of the market prices of his possessions. I need hardly add that the practices to which I have above referred are equally wrong and punishable when they aim at and are applied to the artificial boosting of prices as when the object is the artificial depression of prices. Does the Public Get "Fleeced"? Question: _We hear or read from time to time about the public being fleeced. There is a good deal of smoke. |
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