A study of the operation, regulation and economic position of exempted securities exchanges

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Content A STUDY OP THE OPERATION, REGULATION, AND ECONOMIC POSITION OP EXEMPTED SECURITIES EXCHANGES A Thesis Presented to the Faculty of the School of Commerce University of Southern California In Partial Fulfillment of the Requirements for the Degree Master of Business Administration by Robert Wylie Dorsey January 1949 U M I Number: EP43212 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a com plete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI EP43212 Published by ProQ uest LLC (2014). Copyright in the Dissertation held by the Author. Microform Edition © ProQ uest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United S tates Code ProQ uest LLC. 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 4 8 1 0 6 -1 3 4 6 cWfcft Hi J>7ir This thesis, written by ......... Robert__W*„Ppr8ey_ ......... under the guidance of hx.a.... Faculty Committee, and approved by all its members, has been presented to and accepted by the Council on Graduate Study and Research in partial fulfill ment of the requirements for the degree of ..... . Dean Date.. . J . a n y a . x * y . . . . i 9 ^ 9 ..... ittee TABLE OF CONTENTS CHAPTER PAGE : I. EXEMPTED SECURITIES EXCHANGES AMD THEIR POSITION IN AMERICAN FINANCE .......... 1 . II. CONDITIONS OF EXEMPTION FROM REGISTRATION UNDER THE SECURITIES EXCHANGE ACT.............. 9 III. ORGANIZATION AND METHODS OF OPERATION....................................... 27 IV. COMPARISON OF THE WORK OF ORGANIZED SECURITIES EXCHANGES WITH THE OVER-THE-COUNTER MARKET.............. 41 V. SUGGESTIONS FOR IMPROVEMENT IN THE. SERVICE RENDERED BY EXEMPTED SECURITIES EXCHANGES ............... 52 BIBLIOGRAPHY................... . ....................... 59 APPENDIX A. STOCK LISTS OF EXEMPTED EXCHANGES................ 62 I. Golorado Springs Stock Exchange............ 63 II. Honolulu Stock Exchange . 64 III. Richmond Stock Exchange .................. 65 IV. Wheeling Stock Exchange .... .......... 66 B. STATISTICAL TABLES.............. ................ . 67 Table I. Number of Issuers and Securities, Basis for Admission of Securities to Dealing, and the Percentage of Stocks aid Bonds, for Each Ex- iii APPENDIX Table 'II Table III. PAGE change, Admitted to Dealing on One or More Other Exchanges as of June 30, 1947 ............... 68 Market Value and Volume of Sales Effected on Exempted Securities Exchanges for the Fiscal Year Ending June 30, 1947 ........... 69 Bid and Ask Prices of Dually- Listed Common Stocks of Rich mond and Wheeling Exchanges Compared with Closing Bid and Ask Prices on the Hew York Stock Exchange, July 1, 1948 . . 70 CHAPTER I EXEMPTED SECURITIES EXCHANGES AND THEIR POSITION IN AMERICAN FINANCE At the present time there are 24 securities exchanges operating under the jurisdiction of the United States Securi ties and Exchange Commission. Of these, 19 are registered as National Securities Exchanges under provisions of the Securities Exchange Act of 1934. The other five, with which this study is chiefly concerned, are exempted from registration under discretionary powers granted to the Commission by the act. The five exempted exchanges are the Colorado Springs Stock Exchange, the Honolulu Stock Exchange, the Minneapolis- St. Paul Stock Exchange, the Richmond Stock Exchange and the Wheeling Stock Exchange. Although these exempted exchanges, and for that matter most of the registered exchanges, handle only a comparatively small part of the securities business conducted in the United States, they have continued in business through the years and serve useful functions in the financial life of the communities in which they are located. They provide a market for local stocks, such as bank stocks, which are of interest chiefly to local investors> they provide a convenience for local brokers and dealers; and they provide specialized markets for certain types of stocks such as the mining stocks listed by the Colorado Springs Stock Exchange and the drug stocks listed by the Wheeling Stock Exchange. Since the New York Stock Exchange alone normally handles about 85 per cent of the securities transactions of all organized exchanges and the New York Curb Exchange about seven per cent, it is obvious that the New York exchanges furnish the principal marketplace for securities trading. The services of these exchanges are instantly available to in vestors all over the nation through teletype and ticker services in brokerage houses in all of the major cities. For large cor porations, then, there is little advantage in having their stocks listed on the small exchanges, nor is there much advantage to individual buyers and sellers in the use of local facilities when the much larger market provided by the New York exchanges is available to them. Since the usefulness of local exchanges is limited, their volume of transactions also is limited. With the commanding position of the New York exchanges it is only natural that the literature dealing with securities markets tends to overlook the smaller exchanges and their peculiar problems. Although the general nature of the business conducted by all securities exchanges large and small is the same, there are significant differences in the types of stocks listed, the conduct of business, and the degree of government regulation. The picture of a vast trading floor with scurrying messengers and wildly gesticulating traders, which character izes the New York Stock Exchange, hardly fits the small exchanges where continuous trading rarely occurs. The true nature of their business requires a more intensive study than is under taken in most treatises on the subject of securities markets. Although the scope of this work is limited specifically to the five exempted exchanges the material presented and conclusions drawn apply to most of the registered exchanges as well. The dividing line between the two classifications is purely an arbitrary one resting on the administrative decisions of the Securities and Exchange Commission and on the wishes of the exchanges themselves. The power to exempt certain exchanges from registration is granted to the commission by Section 5 of the Securities Exchange Act of 1934 which declares it to be unlawful for any broker, dealer, or exchange to use any instrumentality of interstate commerce to effect a transaction on an exchange subject to the jurisdiction of the United States: ...unless such exchange (1) is registered as a national securities exchange under Section 6 of this title, or (2) is exempted from such registration upon application by the exchange because, in the opinion of the Commission, by reason of the limited volume of transactions effected on such exchange, it is not practicable and not necessary or appropriate in the public interest or for the protec tion of investors to require such registration. That the dividing line in practice is not purely one of size can be seen from the fact that during the year ending June 30, 1947, for example, seven of the 19 registered exchanges actually did a smaller volume of business than the Honolulu exchange, largest of the exempted exchanges.-*- The Chicago Board of Trade^ although registered as a national securities exchange had a volume of only §66,000 worth of securities traded during this period as compared with §274,000 for the Colorado Springs Exchange which had the smallest volume among the exempted exchanges. It appears that the commission can deny exemption if it deems it to be in the public interest regardless of the size of the exchange, nor is there any reason why a small exchange cannot apply for regis tration as a national exchange rather than exercising its prerogative of applying for exemption. Many of the registered exchanges are similar to the small exempted exchanges in that they do not have a regular trading floor and transactions are completed at **calls” which occur at specified times during the trading day. At these ”calls” the various stocks are read off and bids and offers of members 1. United States Securities and Exchange Commission, Thirteenth Annual Beport, (Washington: United States Government Printing Office, 1948), pp. 164-5. Total market value of transactions on the Honolulu exchange for this period amounted to §6,161,000. Figures for registered exchanges with smaller volumes are: Baltimore, §5,314,000; Chicago Board of Trade, §66,000; Hew Orleans, §2,206,000; Salt Lake City, §3,428,000; San Francisco Mining, §1,326,000; Spokane, §1,524,000; Washington, §1,924,000. 2. It should be noted that the Chicago Board of Trade is primarily a commodity exchange and that its transactions in securities are only incidental. 5 present compared, and transfers completed where agreement can be reached. There Is also no significant difference in the type of stocks listed on smaller exchanges regardless of their registration status. Differences between these exchanges lie principally in their legal status and it can be concluded that regarding matters of operation and economic position what applies to the one group applies equally to the other. The question of ex tending exemption to more exchanges can be considered on the basis of findings in respect to the exchanges now enjoying that privilege. Information available to the reading public and to those interested in the subject of small securities exchanges from an academic point of view is inadequate. Aside from the immediate localities served by these exchanges reports of their transactions are not carried by newspapers or financial publications. There is, of course, not sufficient interest to justify this coverage. Brokers from other localities seldom make use of the facilities of these exchanges for executing orders of their customers and there appears to be very little opportunity for arbitrage on these exchanges. 3. See Meeker, <J. Edward, The Work of the Stock Exchange, (Hew York: The Ronald Press Company, 1930), p. 502. 6 Their quotations on stocks dually traded on large exchanges cannot vary substantially from the priees set on the larger exchanges becaiise of* the ready accessibility of the larger markets to buyers and sellers. Texts dealing with the securities markets and invest ments spend little time on the smaller exchanges and concentrate their description of exchanges on the New York Stock Exchange and the New York Curb Exchange with only passing mention of the regional exchanges.4 Since the former are the principal markets for stocks this emphasis is entirely justified, but it leaves the questions of those who are interested in the problems of the smaller exchanges unanswered. While interest in the smaller exchanges is limited, a study of them would seem worthwhile to fill a gap in the 4. For an example, Dice and Biteman in their book, The Stock Market, describe the market for stocks as follows; hThe market for stocks centers almost entirely in stock exchanges in New York and other large cities. In New York City are found the New York S^ock Exchange and the New York Curb Exchange. Boston, Philadelphia, Baltimore, Pittsburgh, Chicago, Cleveland, Cincinnati, St. Louis, Kansas City, Denver, Los Angeles, and San Francisco have exchanges doing a consider able volume. Besides these stock markets there are exchanges in many of the smaller cities. • ’The stocks bought and sold on the exchanges outside of New York are for the most part issues of local corporations or stocks dually listed.” Dice and Biteman, The Stock Market, (New York; McGraw-Hill, 1941), p. 5. This is the only reference to the smaller exchanges in this volume except for a more detailed description of the Chicago and San Francisco exchanges, pp. 102-5. coverage of securities markets as well as to broaden the knowledge of those interested in the subject in a general way. Information concerning these exchanges can be secured from the Securities and Exchange Commission and from the exchanges themselves. Library material is of very little assistance. Succeeding chapters will be devoted to the legal status of exchanges exempted from registration under the Securities Exchange Act of 1934, the organization and operation of exempted exchanges, the business of exempted exchanges as compared with larger exchanges and over-the-counter markets, and conclusions as to their economic value and possible changes in legislation which could increase their value to the business community* Some general questions to be considered include: 1. Would it be advisable to set up securities exchanges in more of the smaller cities? 2. Should we do away with the provision of the Securities Exchange Act allowing for exemption from registration, or would it be advisable to extend the exemption to all but the larger exchanges? 3. Could the business of the smaller exchanges be handled better by over-the-counter markets? 4. What is the attitude of business men toward listing their stocks on local exchanges? No attempt will be made to define terms which are familiar to students or professional people in the securities field. Definitions of these terms can be found in any of the standard texts on securities markets and investments listed in the bibliography appended to this work. CHAPTER II CONDITIONS OP EXEMPTION PROM REGISTRATION UNDER THE SECURITIES EXCHANGE ACT Any securities exchange wishing to do business within the jurisdiction of the United States must apply either for registration or exemption from registration to the Securities and Exchange Commission. Small exchanges whose business is essentially local in character may apply for either status. The same form (Securities and Exchange Commission Form 1) is used both in applying for registration or exemption and requires the same information in either case with minor differences. The application must eontain detailed information concerning the organization, membership, and conduct of business of the exchange. Principal items of information regarding the organiza tion which are required in the registration statement include the name of the exchange; the location of offices and trading premises; information concerning officers, directors, and members of all standing committees and their functions; the name and address of counsel; and information concerning affil iated or subsidiary businesses. In regard to their membership exchanges must disclose classes of membership (e.g., full membership, associate member ship, etc.), conditions of such membership, fees, and number 10 of members of each class. It must be stated what specific rules the exchange has for the expulsion, suspension, or dis ciplining of a member for conduct or proceeding inconsistent with just and equitable principles of trade. Information must be furnished concerning financial and other reports required of members and member firms either regularly or periodically. Also to be disclosed are rules of the exchange in respect to insolvency of members, limitations on indebted-- ness of members, and other provisions assuring financial responsibility. Under the heading of conduct of business, the commission wants to know the days and hours of trading, whether trading is continuous or on call, commissions, minimum units of trading, rules covering margin accounts, rules regarding loans and borrowings of money or securities, rules governing short sales, method of executing certain special types of orders such as stop-loss orders, means of settling disputes between members, rules governing certain classes of members such as specialists and floor traders, complete information regarding conditions of listing and delisting stocks including information required of the companies whose stocks are listed, method of recording and reporting sales, and other pertinent information. The exchange must also indicate its willingness to abide by the provisions of the Securities and Exchange Act of 1934 and to abide by the rules set forth thereunder by the Securities and Exchange Commission. 11 If in submitting this information the exchange wishes to be exempted from registration, five additional questions must be answered* These questions ooncem the number of transactions on the exchange during the past 12 months, average number of members present at trading sessions, estimated number of orders executed on the exchange originating from out- of-state buyers and sellers, rules of the exchange designed to curb certain trading practices declared by the Securities Exchange Act to be illegal, and any other special circumstances regarding the exchange which It wishes to bring to the atten tion of the Commission in its petition for exemption. These questions are designed to give the Commission specific information regarding the volume of business, the extent of operations, and other pertinent data upon which to base a decision as to whether or not it is in the public interest to exempt the exchange from, registration. It can be inferred that there are no objective standards by which to measure the qualifications for exemption and presumably much would depend upon the inclination of the Commission at the time of applica tion. All applicants for registration, or exemption therefrom, must attach to the application detailed exhibits supplementing the data presented. Copies of the constitution and by-lav/s, lists of members, lists of co-partners or other associates of members who may deal through the exchange, and complete lists 12 of securities admitted either to full or unlisted trading are examples of the exhibits required. After an application for exemption from registration has been received in proper form and favorably acted upon, the Securities and Exchange Commission requires the exchange to sign an agreement to assure that the grant of exemption will not be inappropriate in the public interest. The conditions of this agreement are such that in essence the exchange is binding itself to do almost all of the things which presumably exemption under the law would free it from. Penalty for non conformance is revocation of the exemption by the Commission as stated in the first paragraph of the agreement. The agreement accompanying exemption is substantially as follows: PROVIDED HOWEVER, that the Commission may after approp riate notice and opportunity for hearing, by order withdraw said exemption if the Commission finds that, for any reason said withdrawal is necessary or appropriate in the public interest or that said Exchange has violated or has failed to enforce, insofar as is within its power, compliance with any of the following conditions: (1) that said application for exemption from registra tion on Form 1 shall be kept up to date in accord ance with Rule X-6B-4J (2) that the provisions of Section 7 of the Securities Exchange Act of 1934 and the rules and regulations of the Federal Reserve Board heretofore and here after prescribed thereunder, and of Sections 8, 9 (except 9(e) ), 10, 11, 17 and 19 (b), and the rules and regulations heretofore and hereafter prescribed thereunder, shall be complied with by said exchange, the members thereof and the issuers of securities listed or admitted to unlisted 13. trading privileges thereon as if said exchange were a national securities exchange and said securities were registered thereon: (3) that the issuer of any security listed on said exchange on December 1, 1935, shall be required to file annually with said exchange (and file with the Commission such duplicate copies thereof as the Commission may require) as soon as possible after the close of each fiscal year, a document setting forth the balance sheet and analysis of surplus account as of the close of said year and a profit and loss statement for said year; (4) that after December 1, 1935, no security shall be admitted to listing and continued thereafter as a listed security on said exchange unless - (a) the requirements prescribed for the registra tion of said security on a national securities exchange pursuant to the provisions of Section 12(a), (b), (c) and (d) of said Act and the rules and regulations heretofore or hereafter prescribed thereunder, are complied with; or (b) the requirements prescribed for the exemption of said security from registration on a national securities exchange are complied with; and (c) the issuer of said security files the same information, documents and reports with said exchange (and files with the Commission such duplicate originals thereof as the Commission may require) as are required by the provisions of Section 13 of said Act and the rules and regulations heretofore or hereafter prescribed thereunder, of an issuer of any such security registered or exempted from registration on a national securities exchange. (5) (a) that after January 15, 1938, said exchange shall not extend unlisted trading privileges to a security unless, in respect of such security, the requirements prescribed for the extension of unlisted trading privileges pursuant to the provisions of Section 12(f) of said Act, as amended, and the rules and regulations prescribed thereunder are com- 14 plied with by said Exchange as if it were a national securities exchange; and (b) that with respect to the suspension or termination of unlisted trading privileges in a security, the provisions of Section 12(f) of said Act, as amended, and the rules and regulations prescribed thereunder, shall be complied with by said Exchange as if it were a national securities exchange. (6) that such reports as may be required by the Commission with respect to quotation of and amount and dollar value of transactions in, securities listed or admitted to unlisted trading privileges on said exchange, shall be filed with the Commission; (7) that the rules of said exchange shall include provision for the expulsion, suspension or dis ciplining of a member for conduct or proceeding inconsistent with just and equitable principles of trade, and shall declare that the willful violation of any of the conditions of this exemp tion shall be considered conduct or proceeding inconsistent with just and equitable principles of trade; (8) that said exchange and the members thereof shall be subject to and comply with such additional conditions relating to said exchange and its members as the Commission may from time to time prescribe; PROVIDED FURTHER, that the Commission may, after appropriate notice and opportunity for hearing, by order deny, suspend the effective date of, suspend for a period not exceeding twelve months or withdraw the listing of a security if the .Commission finds that the issuer of said security has failed to comply with the conditions of this exemption; and PROVIDED FURTHER, that the Commission may, after appropriate notice and opportunity for hearing, by order suspend for a period not exceeding twelve months or expel from said exchange any member or officer thereof whom the Commission finds has violated or has effected any transactions for any other person who, he has reason to believe, is 15 violating in respect of such transaction, the conditions of this exemption.1 According to this agreement an exchange granted exemp tion under the rules laid down by the Commission binds itself to comply with all or parts.of Sections 7, 8, 9, 10, 12, 13, 17, and 19 of the Securities Exchange Act. Provisions of these sections are briefly as follows: Section 7 - Empowers the Federal Reserve Board to impose margin requirements for purchases of securities on credit and makes it unlawful for any member of an exchange or any broker or dealer who transacts business through any such member to extend credit on securities to any customer in contravention of the rules prescribed. Section 8 - Makes it unlawful for any member of an exchange to borrow money on any security except through banks which are members of the Federal Reserve System, or non-member banks which have signed an agreement with the Federal Reserve Board to abide by the provisions of this act and other acts prescribing regulations pertaining to securities which are applicable to member banks and any regulations which the Board may make thereunder. A limit is also placed upon the maximum indebtedness of brokers. Commingling of a customer’s securities 1. Taken from letter from Securities and Exchange Commission, May 14, 1947, signed by James A. Treanor, Jr., Director, Trading and Exchange Division. 16 with those of others without the written consent of the customer is prohibited as is the lending of any customer's securities without written consent. Section 9 - Makes it unlawful for any member of an exchange to engage in various manipulative practices designed to show false activity in a stock, to rig the price, or to otherwise deliberately mislead a prospective purchaser. Section 9(e) which gives the injured purchaser the right to sue at law for recovery of damages incurred by reason of manipulation is not made applicable to exempted exchanges by the exemption agreement. Section 10 - Allows the Commission to prescribe rules governing short sales and stop-loss orders and makes it unlawful for any person making use of an exchange to effect any transaction in contravention of such rules. Section 11 - Gives the Commission power to prescribe rules segregating and limiting the functions of members, brokers, and dealers. Under this provision the Commission has set up regulations regarding the activities of odd lot dealers, specialists, and other special brokers and dealers. Section 12 - Declares that it shall be unlawful for any member, broker, or dealer to make use of the facilities of any exchange to effect any transaction in any security not properly registered on the exchange or exempted according to regulations set forth in the section. Such registration is 17 to be accomplished through application to the exchange and upon furnishing pertinent information regarding the nature of the business, its management, and its financial condition as prescribed bj the Commission and upon furnishing duplicates of the information presented to the Commission. Section 12(f) dealing with the admission of securities to unlisted trading privileges is an amendment to the original act providing that unlisted trading privileges can be continued on securities admitted to such trading prior to March 1, 1934, and may be extended to any security which is duly registered on any other national se curities exchange. Section 13 - Requires the issuers of securities registered on exchanges to file such periodic reports as the Commission may prescribe as necessary or appropriate for the proper protection of investors and to insure fair dealing in the securities. Section 17 - Empowers the Commission to require all exchanges, members, and others dealing in securities to make and preserve for such period as may be required all records, papers, correspondence, etc., prescribed from time to time by the Commission or the Federal Reserve Board. This informa tion must be made available to these agencies whenever requested. Section 19(b) - Gives the Commission power to require changes in the rules aad practices of an exchange where it is deemed necessary or appropriate in the public interest. 18 A number of sections of the act, such as the first four which are general provisions setting forth the name and pur pose of the act and establishing the Securities and Exchange Commission, do not contain regulative provisions. Others such as Section 15, dealing with over-the-counter markets, do not affect securities exchanges. Disregarding these, there are actually few provisions of the act with which exempted exchanges do not need to comply. Even in these cases there is no assurance that the Commission may not at any time change its rulings to require compliance. Under present regulations an exempted exchange is not required to pay the registration fee of one five-hundredth of one per cent of the aggregate dollar volume of sales assessed annually under Section 51 of the act. This could hardly be considered a great advantage since this fee is relatively small and in any case is passed on to the customer in the broker's fee. Sections 14 and 16 do not apply to securities listed exclusively on exempted exchanges. These deal with the regulation of the use of proxies on listed securities by brokers and others carrying these for the accounts of customers, and with the disclosure of beneficial ownership of equity securities listed on national exchanges by large stockholders and company officials. The latter provision affects corporations listing their securities on the exchange 19 and does not apply to the exchange directly. There might be some' small inducement here for companies to use the facilities of small exchanges. This, of course, could only apply to local issues since larger companies would have to make use of the facilities of the national exchanges. The exempted exchanges and the issuers of securities listed only on these exchanges in many 'cases do not have to furnish periodic reports as frequently to the Securities and Exchange Commission as do the registered exchanges and naturally are not subjected to as rigid surveillance since their importance does not warrant it. In certain other cases such as in delisting of securities the exempted exchanges are given a little more freedom. They may delist a security merely by notifying the Commission while the registered exchanges in many cases must obtain previous permission before delisting. It is apparent that many of the registered exchanges could qualify for exemption if they so desired. However, with so few advantages to be gained from such exemption it is not surprising that they have applied for registration instead. Perhaps also there is an element of prestige in being recognized as a national securities exchange and an added assurance to those who make use of the exchange that it is being properly supervised. It is hardly likely, however, that the latter considerations would be sufficient for applying for registration if exemption actually meant freedom from 20 regulation by the Securities and Exchange Commission Twenty-two exchanges made application for exemption during the course of the first ten years following the original registration on October 1, 1934. Ten exchanges have been granted exemption. These ten include, in addition to the five presently operating under that classification, the Milwaukee Grain and Stock Exchange, Seattle Stock Exchange, Standard Stock Exchange of Spokane, Chicago Curb Exchange Association, and San Francisco Mining Exchange. The Milwaukee and Seattle Exchanges subsequently suspended operations as stock exchanges. The Standard Stock Exchange of Spokane later applied for registration as a national exchange and is at present operating under that status as the Spokane Stock Exchange. The San Francisco Mining Exchange also became a registered exchange and is still doing business. The Chicago . Curb Exchange Association became a registered exchange but later suspended operations.^ The remaining exchanges which made application for exemption either withdrew their applications and suspended operations voluntarily or could not meet the require ments of the Securities and Exchange Commission and were not acted upon favorably. Many of these exchanges had conducted 2. See Securities and Exchange Commission, Tenth Annual Report, (Washington: United States Government Printing Office, 1945), p. 34. 21 at best a haphazard business without clearly stated rules and procedures and in many instances amounted to over-the-counter markets dignified with the name MStock Exchange”. A number of them had been started during the boom days of the twenties and had no long standing tradition and reputation behind them. It is interesting to note that every one of the six stock exchanges, which were registered in 1934 and subsequently have gone out of business, began their operations during the fiscal year 1928-29.^ Since their original applications have been approved, both the registered and exempted exchanges have been obliged to file an amazing number of amendments and supplements to their registration statements. During the ten-year period 1934-44, an average of 230 of these amendments and supple ments were filed annually by the exchanges.4 An inquiry to the Commission regarding the availability of photostatic copies of registration statements and amend ments for the five exempted exchanges revealed that this material comprises a total of 2,170 pages.^ The file on the Honolulu Stock Exchange to take one example contains 751 pages of material. Of these, 38 pages make up the original 3. Ibid., p. 34. 4. Ibid., p. 35 5. Information contained in a letter from Y. P. Avery, Director, Securities and Exchange Commission, July 9, 1948. 22 application for exemption filed on October 10, 1934, There are 235 pages of exhibit material, 450 pages of amendments, and 28 pages of record of action material. The size of the files for the other exempted exchanges range down to 249 pages for the Colorado Springs Stock Exchange. These figures evidently do not include the periodic supplements required under the rules of the Securities and Exchange Commission. Amendments and supplements to applications for exemp tion from registration as a national Securities Exchange are covered by Rule X-6B-4 of the Securities and Exchange Commis- sion. Provisions of this rule are as follows: Every exchange applying for exemption from registration as a national securities exchange or granted exemption from such registration shall keep its application for such exemption up-to-date in the manner prescribed below: (a) Amendments — Promptly after the discovery of any inaccuracy in such application or in any amend ment or supplement thereto the exchange shall file with the Commission an amendment correcting such inaccuracy. (b) Current Supplements — Promptly after any change which renders no longer accurate any information contained or incorporated in such application or in any amendment or supplement thereto the exchange shall file with the Commission a current supple ment setting forth such change, except that no current supplements need be filed with respect to changes in the information called for in items 26, 27, 28, and 30 and in exhibits B, C, D, and E. Current supplements filed to support the termina tion of listed or unlisted trading privileges in 6. Securities and Exchange Commission, General Rules and Regulations Under the Securities Exchange Act of 1954, (Washington: United States Government Printing Office, 1946), pp. 502-3. 23 any security admitted to dealing on the exchange shall include a brief statement of the reasons for such termination. (c) Periodic Supplements — (1) Promptly after the end of each quarter of each calendar year the exchange -shall file with the Commission a supplement setting forth the information called for in exhibits C, D, and E as of the end of such quarter* (2) Promptly after the close of each calendar month the exchange shall file with the Commission a supplement setting forth, with respect to each security listed on the exchange or admitted to unlisted trading privi leges thereon, the number of shares of stock or the aggregate face amount of bonds bought on the exchange during such month. (3) Promptly after the close of each fiscal year of the exchange, it shall file with the Commission a supplement setting forth its balance sheet as of the close of such year and its income and expense statement for such year. Promptly after the close of each fiscal year of each affiliate and subsidiary then listed in such application or any amendment or supplement thereto in answer to item 7, the exchange shall file with the Commission a supple ment consisting of the balance sheet of such affiliate or subsidiary as of the close of such year and the income and expense statement of such affiliate or subsidiary for such year. (d) Every amendment or supplement shall be filed in triplicate, at least one of which must be signed and attested, in the same manner as required in the case of the original application for exemp tion, and must conform to the requirements of rule X-2 and form 9-A. All amendments and supplements shall be dated and numbered in order of filing. One amendment or supplement may include any number of changes. In addition to the formal filing of amendments and supplements above described, each exchange shall send to the Commission three copies of any notices, reports, circulars, loose-leaf insertions, riders, new editions, lists, or other records of changes covered by amendments or supplements when, as and if such records are made available to members of the exchange. 24 In addition to Federal regulation, securities exchanges are subject to the laws of the states and territories in which they are located. Exchanges outside of the state of New York have some advantage in the generally less rigid state laws governing securities exchanges.' Some states such as Ohio and Michigan, however, have much more stringent laws governing the issuance and sale of securities which indirectly affect the operation of the stock exchanges. One of the chief advantages enjoyed by other exchanges over those in New York is the freedom from the tax imposed on securities transactions by that state. When a buyer or seller can be found locally at an acceptable price, it is preferred to complete the transaction on the local exchange thus saving the customer the amount of the New York tax. Due to the limited scope of the market this is not always practicable and a large proportion of orders to buy and sell stocks dually listed must of necessity be executed on the New York exchange. A study of the Securities Law of the State of West Virginia reveals no reference to specific regulations placed upon securities exchanges. Provision is made for the regis tration of certain security issues with the State Securities Commissioner, which is an ex officio title held by the State Auditor. This registration is not required of banks, rail roads, and other companies which are within the jurisdiction of other regulative bodies, nor is it required for new Issues 25 of securities previously listed on an approved stock exchange and under the jurisdiction of the United States Securities and Exchange Commission. The Securities Commissioner can at any time order sale of any security to be stopped within the state if it does' not meet the requirements of the law. This power has been used upon occasion to stop the sale of securities still being traded in most other states. For example Cities Service securities were barred from sale in this state during the early thirties. All dealers in securities and all salesmen employed by them must register with the State Securities Commissioner. An annual registration fee of §25.00 for dealers and §5.00 for salesmen is assessed. Financial information from securi ties dealers must be furnished as the Commissioner may require. The Wheeling Stock Exchange deems that this furnishes sufficient assurance for the financial responsibility of its members. Article III, Section 6, of its constitution adopted on September 13, 1934, states: Inasmuch as the West Virginia Securities Act of 1933 provides that all security dealers in the State of West Virginia shall be registered under the supervision of the State Auditor of West Virginia, and inasmuch as no person or firm may legally sell securities within this State unless he is so registered, and as it is a requirement of the West Virginia Securities Act of 1933 that the Auditor of the State of West Virginia may require of all registered dealers financial statements at regular intervals, the Wheeling Stock Exchange makes no provision for requiring financial statements from Its members, deeming this to be unnecessary and superfluous. 26 Regulations of the mrious states are not uniform and in general are inadequate to regulate a business which by nature is largely interstate* Except in cases like the Hew York tax, state laws interfere very little with the securities markets. CHAPTER III ORGANIZATION AND METHODS OP OPERATION With the Honolulu and Minneapolis-St. Paul exchanges excepted, the exempted exchanges seem to have passed their days of glory. The Colorado Springs Stock Exchange for instance carries on as a market place for the securities of the few enterprises surviving from the old Cripple Creek mining days and successor companies. Once doing a heavy business in the highly speculative mining ventures, tran sactions on the exchange have dwindled until as Mr. G. M. Balkam, secretary of the exchange, writes in a letter dated July 30, 1947, n0ur business volume is hardly worth mention ing. We are simply trying to carry on with our old time stoeks, and to provide a market for them.” The present Colorado Springs Stock Exchange was organized in 1925 as successor to the Colorado Springs Mining Stock Association which had operated since early Cripple Creek days. The Richmond and Wheeling exchanges also have been operating for many years. The Richmond exchange was founded on April 15, 1873, and has been in continuous operation since. In recent years, its business has declined — parti cularly since the institution of Securities and Exchange Commission regulation has cut down the number of companies wishing to have their securities- listed. The Honolulu Exchange was founded in 1898 and continues to do a fair volume of business due chiefly to its geographic location outside the continental limits of the United States. The Minneapolis-St. Paul Exchange, founded during the boom year of 1929, continues to do a sufficient volume to justify its existence. It is one of the few exchanges founded during the twenties which has survived. ?/ritten records of these exchanges have not been found to exist in such form as to allow presentation of a detailed picture of their operations through the years with-? out sifting through source material to an extent that would hardly be worthwhile. Since the passage of the Securities Exchange Act, however, a record of their activities is available from the Securities and Exchange Commission and much of it is contained in the Annual Reports of that body. Changes have been made in the rules and regulations of the exchanges to comply with the Securities Exchange Act and with the regulations imposed by the Securities and Exchange Commission. The Commission makes monthly summaries of bids and offers for securities traded on the exchanges and transac tions completed. The securities of many companies, which were unable or did not wish to comply with regulations governing securities traded on the exchanges, have been dropped from listed aid unlisted trading. Membership of the exchanges has also dwindled 29 as regulations have imposed more burdensome restrictions on members. Active members are now almost entirely brokers who are themselves regulated by the Securities and Exchange Commission so that the requirements of membership in the exchanges do not impose additional burdens to outweigh the few advantages to be gained. Business continues on the small exchanges -- perhaps because of long formed habit; perhaps because of the hope of better days to come. Conduct of business is little changed from the old days although rules are more rigidly enforced in keeping with the requirements of the Securities and Ex change Commission. All of the exempted exchanges operate as call markets but with extreme informality in some cases. The Wheeling Stock Exchange for example transacts its business almost entirely by telephone without having a formal meeting of the members at fixed times. One of the member firms conducts the business of the exchange in connection with its regular brokerage business and acts as the clearing agent for tran sactions between members. The exchange does not maintain quarters of its own. A record of bids and offers is made as reported by the various members and transactions are recorded as bids or offers are accepted. There are no minimum trading lots but quotations are not made on less than ten share lots. Information is supplied to the four brokerage houses that maintain membership in the exchange and prices are marked on their boards for information of customers. A daily quotation sheet Is made available to Interested parties. Expense of maintaining the market is negligible. There are no fixed assessments and expenses are prorated among the members at the end of each month. As of July 1, 1948, there were 18 companies having stock traded on the Wheeling exchange. There were 20 issues admitted to listed and unlisted trading, as both preferred and common of Wheeling Steel Corporation and the Continental Baking Company were traded. Since Wheeling was the original headquarters of Sterling Drug, which still maintains some offices and manu facturing facilities there, considerable interest in drug stocks exists. In addition to Sterling other drug stocks listed are Bristol Myers, Rexall, Vick Chemical, and Life Saver Corporation. All were formerly included in the old drug trust that was broken up on 1955 as a result of anti trust action by the government. Postoria Glass Company, which has a plant in nearby Moundsville, and Hazel-Atlas Glass Company, which has its offices and main plant in Wheeling, have their common stocks listed on the exchange. Wheeling Steel Corporation has its common stock listed and the $5.00 preferred admitted to unlisted trading. The United States Stamping Company has 31 its common stock listed. M. Marsh and Son, manufacturers of Marsh Wheeling stogies, and Wheeling Tile Company are leading local concerns with their common stocks listed on the exchange. Continental Baking Company preferred and common are admitted to unlisted trading. Six local bank stocks complete the list of securities traded. Of the 18 companies having their stocks traded on the Wheeling Exchange eight are also listed on the New York Stock Exchange. They are Bristol-Myers, Life Savers, Sterling Drug, Rexall Drug, Vick Chemical, Hazel-Atlas Glass, Wheeling Steel, and Continental Baking. There are now seven members of the Wheeling Stock Exchange all of whom are representatives of four local broker age offices. The exchange had the same number of members when it applied for exemption in 1934, but at that time six different brokerage firms were represented as compared with four at present. In 1934, there were 24 companies with stocks listed on the exchange. A total of 31 issues were listed plus four issues of bonds. Seventeen of the 18 companies now having stocks traded on the exchange also had stocks listed in 1934. The United States Stamping Company has been added to the list during the intervening period while seven other companies have delisted their stocks. Of these seven, five were local companies including two banks which have since been merged 32 with larger banks. No bond issues are listed by the exchange at the present time. Among the rules of the Wheeling Exchange of special interest is a provision that no transaction can be made on the Wheeling Exchange in any stock also listed by the New York Stock Exchange or the New York Gurb Exchange unless the price is WLthin the current bid and ask spread quoted at the time by the larger exchange. This precludes any arbitrage transactions on the exchange. A more formal business is conducted by the Honolulu exchange which might be considered as typical of small stock exchanges. A summary of their rules and procedures will serve to illustrate the organization and operation of these exchanges. The constitution of the Honolulu Stock Exchange gives as its objects in Article I the following: Its objects shall be to furnish exchange rooms and other facilities for the convenient transaction of their business by its members; and to maintain high standards of commercial honor and integrity among its members; and to promote and inculcate just and equitable principles of trade and business. The membership of this exchange is limited to 15. Unlike the New York Stock Exchange, which limits its member ship to individuals, the Honolulu exchange allows memberships to be held by co-partnerships or corporations. Any individual, corporation, or co-partnership engaged in the stock and bond brokerage business in Honolulu may be admitted to membership. Corporations or co-partnerships have the same standing in relationship to the exchange as individuals and are represented in the business and transactions of the exchange by a partner, officer, or regular employee certified in writing to the secretary of the exchange. The official representative may be changed from time to time upon notification to the secretary. The firm holding the membership is held responsible for the acts and conduct of its representative. Also, contrary, to the practice on the New York Stock Exchange, a member may appoint an alternate who may act for him in his absence. A second alternate also is permitted but in this case a fee of flO.OO is assessed for each month or fraction thereof during which the second alternate may be present at the exchange. Appointment of any representative or alternate must be approved by a three-fourths vote of the exchange with a quorum of three-fourths of the members present. All applicants for membership are investigated by the Committee on Membership and must be passed on by it favorably before submissi oh to the vote of the membership. A three- fourths vote with three-fourths of the members present is necessary for admission. A transfer of membership must like wise be approved by the exchange. Sale price agreed upon by the buyer and seller of the seat must be paid to the exchange and goes to the seller only after all claims of members are 34 satisfied. In addition the exchange- receives a transfer fee of two and one-half per cent of the purchase price of the membership• A seat on the exchange is considered as security for the performance of all contracts and obligations to the exchange and to all other members. The seat may be withdrawn and sold by the exchange to satisfy the obligations if necessary. Upon death or expulsion of a member, the seat reverts back to the exchange and will be disposed of by the exchange• The officers of the exchange are the president, vice- president, treasurer, and a three-member Committee on Member ship. All officers must be members of the exchange with the exception of the treasurer. The treasurer may be a corporation. The president is the principal executive officer of the exchange and presides at all meetings other than the regular trading sessions. He appoints all committees except the Committee on Membership, calls special meetings as necessary, and appoints a caller for the exchange. He may suspend temporarily any member of the exchange for infringement of rules pending action by the membership. The vice-president has no duties other than to act in the absence of the president. The treasurer has charge of all funds of the exchange but makes payments only on an order signed by the president and the secretary. 35 A secretary and executive officer is appointed by the president and the Executive Committee with the approval of the exchange members. He carries on the active management of the exchange, keeps the business and financial records and a record of all purchases and sales of stocks and bonds made of the exchange, and edits all exchange publications. The caller presides at all trading sessions. He is charged with maintaining order and adherence to the rules governing transactions between members. He may impose fines of not more than five dollars for each offense upon any member he deems guilty of interrupting the trading, or of disorderly or indecorous conduct. He conducts the call of the listed stocks and bonds and makes a record of sales reported at and made during each session. The standing committees of the exchange include the Executive Committee, the Finance Committee, the Investigation Committee, and the Stock List Committee. The Investigation Committee is charged with the investigation of all charges made against members for failure to fulfill obligations or infractions of rules of the exchange. Any charge brought against a member is made in writing to the president of the exchange and referred by him to the' Investiga tion Committee. The accused member is given three days to reply to charges stating his case in writing upon which the committee meets to consider the case. If charges are admitted 36 or not contested, the president is advised and a date set for a special meeting of the nembership of the exchange to consider disciplinary action. If charges are denied, a full hearing is held by the committee at which interested parties and their witnesses are heard. Recommendations of the committee then are placed before a special meeting of the exchange and necessary action taken. The Stock List Committee considers all applications for listing of securities on the exchange and makes recommen dations to the membership. Ho stock can be listed without majority approval of the members at a regular session or special meeting. Ho listing fee is charged but an annual carrying charge of not less than $35.00 for stocks and $25.00 for bonds Is assessed payable in advance. The exchange holds an annual meeting for the election of officers. Any business that comes before the exchange from time to time is transacted at special meetings called by the president. The daily trading sessions of the exchange are referred to a ! , regular sessions*1. Calls are held twice daily except Saturday when there is no afternoon call. The order of business is as follows: 1. Unlisted securities. 2. Report of between session sales. 3. Reading of record of between board sales. 4. Hotices 5. Galling-the regular list of stocks. 6. Calling bonds at request of members. 7. Calling stocks at request of members 8. Beading of the record of sales. Bids or offers during calls are of course limited to members of the exchange or their alternates. All bids and offers made and accepted in accordance with the rules of the exchange become binding on the members. Incases where there are tv.ro or more claimants for a purchase or sale the caller decides between them subject to an appeal to the membership. Quotations are made only in board lots according to the following schedule: Stocks selling # > .01 and under f> 1.00 — 100 shares Stocks selling $ 1.00 and-under $ 10.00 — 50 shares Stocks selling $ 10.00 and under $100.00 — 25 shares Stocks selling $100.00 and above----------- 10 shares Ho quotation can be made for a bond, excepting United States government bonds, of less than .$500.00 value. Quotations cannot be made for fractions less than one-eighth of a dollar except in the case of stocks selling below one dollar when a bid or offer of one-one hundredth may be made. Bids and offers made "regular way” are for delivery within seven days. They may be made if so stated for delivery at "buyer's option” or "seller's option" not less than seven days or more than 30 days. Trading can be on a "when as and 38 if issued” basis when approved by the Executive Committee. ’ ’Street sales” made between members outside of the exchange may be made a matter of record at the regular meeting with unanimous consent of members present and become binding' in the same manner as those made on the exchange. Trading in puts, calls, straddles, or any options which do not bind the party to actual performance of the sale or purchase is prohibited, and no member can make any transaction in which one of the parties had such option. This provision does not, however, preclude trading in rights, warrants, or convertible securities. The constitution of the exchange takes due note of regulations of the Securities and Exchange Commission and provisions of the Securities Exchange Act of 1934 in prevention of manipulative practices in trading and in dealing with customers. Members are prohibited from holding membership in any other exchange in the Territory of Hawaii, and are not permitted to make purchases or sales for members or associates of any other firm without charging full commissions. Memberships are permitted in exchanges outside of the territory but tran sactions made involving members of such other exchanges must be at net commission rates except for the San Francisco Exchange with the members of which preferred rates of commis sion may be given and received as authorized by a change in the by-laws approved in December 1946. 59 The commission rates effective April 1, 1946, place minimum charges at not less than §7.50 on transactions of §100.00 or more, not less than $4.00 for transactions of §50.00 but less than §100.00, and as mutually agreed if less than §50.00 is involved. -Regular commission rates are as mutually agreed for shares selling below 25 cents per share, and range from four cents per share for stocks selling at 25 cents but below 50 cents to 70 cents per share for stocks selling above §90.00. Base rates of commission for bond transactions are §5.00 per §1000.00 denomination if the total amount involved is not more than §2000.00 par value, $4.00 per bond (§1000.00 denomination) when total par value is over §2000.00 but no more than $4000.00, §3.75 if the total par value exceeds $4000.00. Mutual arrangements are permitted on government, state, territory or municipal bonds, and on bonds with close maturity dates or subject to call within a year. Penalty imposed by the exchange for any infraction of rules governing commissions is a §500.00 fine for the first offense and forfeiture of the member's seat for the second offense. The exchange maintains a "black list" of customers defaulting on obligations to any of the members and other members are not to transact business for such persons until the obligation is discharged. 40 As of June 30, 1947, there were 57 stocks listed on the Honolulu exchange and 37 issues admitted to unlisted trading. Six bond issues were listed and one unlisted. Only 25.5 per cent of the stocks traded on the exchange were also traded on other exchanges.. None of the bond issues were so traded. Among important stocks dually listed on the New York Stock Exchange and other continental exchanges were Pacific Gas and Electric Preferred and Common, Shell Union Oil Corporation, Standard Oil of California, Union Oil of California, Chrysler Corporation, and Home Insurance Company. Other securities having a demand among Hawaiian investors are admitted to unlisted trading. Sugar companies make up the largest group of local listings, there being 22 of them admitted to trading. Other listings include three rubber companies, two pineapple con cerns, and eight utility companies. Conspicuous by their absence from the stock list are banking concerns which in the case of the Wheeling, Minneapolis, and Bichmond exchanges make up a large part of the listed stocks. GHAPTER IV COMPARISON OF THE WORK OF ORGANIZED SECURITIES EXCHANGES WITH THE OVER-THE-COUNTER MARKET The business of all organized stock exchanges -is similar, although, as has been pointed out in previous chapters, there are differences in volume of business, types of stocks listed, methods of operation, and government regulation. An organized stock exchange provides a marketplace where members may meet to carry on trading in an orderly fashion. Prices are fixed in the manner of an auction with the members, either acting for themselves or as agents for others, making bids and offers — counterbids and counter offers — seeking the best price which the market can afford. Supply and demand rule the market in the absence of manipu lative practices. It is the purpose of an organized stock exchange to guarantee this free market and to instill confi dence in the public which will lead them to use the facilities of the exchange to buy and sell the securities traded thereon. The organized exchanges offer several advantages to the investing public. They provide a continuous market for the listed securities. They provide a wider market. They provide up-to-the-minute information on the market's evalua tion of the securities traded. The rules and regulations of the exchange when properly enforced assure fair dealing of 42 members among themselves and with the public. Information concerning the companies whose stocks are listed is made available to the public, and some assurance of the investment value of a company is given through admission of its securities to trading although this cannot be guaranteed. Even though admittedly there have been many abuses in stock trading in the past, the exchanges have nonetheless served well their function of guaranteeing a market for securities. The abuses have been far outweighed by the contri bution in making available large sums of capital for the growth and expansion of business which could not have been utilized had the owners not had assurance of a ready market in case the funds were needed. The preponderant good of the exchanges, however, cannot justify the malpractices that have cropped out from time to time, and intelligent regulation by government that can in any measure protect the public from unfair trading is clearly in the best interest of all concerned. The Securities and Exchange Commission now provides the necessary government regulation of the securities markets, the issues traded thereon, and the brokers and others who use the facilities of the markets. The Commission has not seen fit in carrying out the provisions of the Securities and Exchange Act of 1934 to allow any significant differences in its regulation of large and small securities exchanges. Although the law makes provision for the exemption of small 43 exchanges from registration as national securities exchanges, and presumably from regulation by the Commission, the practice has been to continue substantially the same regulation even when the exchange is granted exemption. This maintains an effective control over all dealings on organized securities markets. The New York Stock Exchange and New York Curb Exchange list the issues of the larger and more widely known corpora tions. Their facilities will not permit them to list small and infrequently traded issues with chiefly local interest throughout the country. The smaller exchanges broaden the scope of organized security trading to some extent, but there are comparatively few of them and their business is declining. They add only a small number of issues to the coverage of the organized exchanges where government regulation is most effec tive. The Securities and Exchange Commission reports only a total of 2,679 issuers having stocks and bonds listed on all exchanges as of June 30, 1947.1 This is only a small proportion of the corporations and other issuers of securities in which some public interest exists. It has been estimated that 95 per cent of all security 1. United States Securities and Exchange Commission, Thirteenth Annual Report, (Washington: United States Government Printing Office, 1948), p. 175. 44 trading is done in the over-the-counter market rather than p on organized exchanges. While there are roughly 100,000 issues of securities in which a measure of public interest exists, less than 5000 are traded on securities exchanges. Even in the case of listed securities many transactions are made over-the-counter. Municipal bonds, United States Govern ment bonds, insurance stocks, bank stocks, and other large classes of securities are almost exclusively traded in the over-the-counter market. A . drop from 4,575 to 4,210 or almost eight per cent in the number of issues traded on all securities exchanges betv/een June 30, 1944, and June 30, 1947, can be attributed at least partially to a loss of business to over-the-counter markets. Even though many of these issues were delisted because of changes in the financial structure of the issuing corpora tions and through maturity of certain issues, the decided drop indicates that there are comparatively few companies previously unlisted seeking to make use of exchange facilities. Presumably they prefer the less stringent regulation of the over-the-counter markets. An examination of over-the-counter quotations reported in the New York Journal of Commerce for Thursday, 2. Dice and Eiteman, The Stock Market. (New York: McGraw-Hill Book Company, Inc., 1941), p. 106. 45 December 23, 1948, reveals such well known corporations as American Overseas Airlines, Bausch and Lornb, Boston and Albany Railroad, Botany Mills, Dictaphone, Hearst Publications, Seiberling Rubber, Stromberg - Carlson, Tennessee Gas and Transmission, Warner and' Swasey, and many others whose stocks are in much greater demand than a large portion of the listed stocks. As unlisted corporations they do not have to make periodic reports of their financial condition to the stock exchanges and to file other reports required of corporations having their securities listed on exchanges. However, they must register their securities under terms of the Securities Act of 1933, and are required by Section 15(d) of the Securities Exchange Act of 1934^ to file nsuch supplementary and periodic information, documents, and reports as may be required . . . in respect of a security listed and registered on a national securities exchange.” Pursuant to this latter requirement the Securities aid Exchange Commission has published Rule X-15D-1 which requires an annual report to be filed with the commission within 120 days after the close of each fiscal year. Certainly this is a much less stringent requirement than the rules applying to listed securities. These annual 3. This section was added to the original law by action of Congress in 1936. 46 reports are not required at all if the total amount of securities issued by the company are in an amount less than $2, 000, 000. 00. Such regulation as has been imposed on securities traded over-the-counter has been considered-mandatory by the Securities and Exchange Commission. The Commission itself admits that ' ’regulation of exchange markets made necessary the regulation of counter markets, since business tends to flow from regulated to unregulated areas.'*4 So far the Commission has been unable to keep nearly as close a check on over-the-counter securities as it has on those traded on exchanges since it has neither the facilities nor the personnel. A degree of regulation of over-the-counter markets has only been possible through registration of brokers and dealers and regulation of their business practices. Trading in securities over-the-counter is considerably different from trading on the exchanges. To maintain a supply of infrequently traded stocks and to prevent wide fluctuations in prices in the stocks for which they have a demand, dealers in over-the-counter securities frequently find it necessary to carry an inventory of these stocks. In * such cases the dealer is acting as principal in both purchase 4. United States Securities and Exchange Commission, Tenth Annual Report, (Washington: United States Government Printing Office, 1945), p. 69. 47 and sale transactions. It would seem from this that the dealer could fix his own price, but this is not entirely the case. In making bids and offers for the stock he cannot vary greatly from the true market value. If his quotations are high he will soon accumulate a larger inventory which can be disposed of only by cutting his ask price. If his quotations are too low he cannot long fill the orders of his customers, especially since many of them are likely to be people who are already interested in the company and aware of the true value of the security. There is also competition of other dealers to consider. Many opportunities exist for the dealer to gouge an ignorant customer since there are usually no publicly quoted market prices by which values can be judged as in the case of O ' securities listed on exchanges. On small corporations particularly it may be impossible for the customer to get information any where, thus placing him at the mercy of the dealer who may pressure him into purchasing the s bock at an Inflated price. The Securities and Exchange Commission holds that it is fraudulent for dealers to sell securities at prices bearing no reasonable relationship to the prevailing market without disclosing the market, but enforcement is difficult. Dealer markups are consistently larger in over-the- 5. See Dice and Eiteman, op. cit., p. 107. 48 counter securities transactions than the brokerage fees fixed by the exchanges. In many cases brokerage fees as well as dealer markups must be paid by the customer. A survey made by the National Association of Security Dealers in 1943 revealed that of 50,000 over-the-counter transactions reported, 71'per cent had been effected at a markup over the current market of up to five per cent. This shows that over one-fourth were sold at markups exceeding five per cent. The average is evidently considerably more than the cost of purchasing securities on the exchanges. It cannot, however, be considered that five per cent is exhorbitant in all eases since many of these transactions were for small lots, and it is also apparent that the cost of maintaining inventories of securities and of transacting business over-the-counter is greater than that entailed in transactions on the various exchanges. However, it would certainly be to the customer’s advantage to be able to buy through an exchange. The Securities and Exchange Commission and the over- the-counter dealers themselves have attempted in recent years to bring some degree of organization to the market. The National Quotation Bureau, Inc., in New York provides a quotation service for all brokers and dealers subscribing to it. It collects daily by telephone, teletype, and mail bids and offers on securities from brokers and dealers all over the nation. Prom the main office and from branch offices in Chicago and San Francisco it distributes these quotations to subscribers each business day. These quotation sheets average 120 pages and in the course of a year may cover as many as 100,000 different issues. This would include from time to time almost all securities traded; but, of course, would give only infrequent coverage for most of them. The collection and dissemination of these quotations expedites the execution of customer's orders and lessens the cost to brokers in locating prospective purchasers and sellers. It also establishes a uniform valuation of the securities by broadening the market to nation-wide coverage. The National Quotation Bureau does not assist in the execution of orders to buy and sell and these transactions must be completed by direct negotiation between the various brokers and dealers. Actual sales are not recorded and published by any agency although bid and ask quotations for the more important stocks are published daily. One of the major steps in improving the over-the-counter market has been the organization of the National Association of Securities Dealers, Inc. As a means of making more effective the Securities and Exchange Commission's control over improper practices of brokers and dealers, the Maloney Act was passed by Congress in 1958 amending the Securities Exchange Act of 1934 to allow the formation and registration of national securities associations. The Commission was given power to 50 regulate such associations and to see that their rules and regulations governing conduct of their members were in line with the standards set up by the Securities Exchange Act. So far the National Association of Securities Dealers, approved by the Commission in 1939, has been the'only such association established. Membership of this association was 2,614 as of June 30, 1947. This represented more than half of the 4,047 brokers and dealers registered with the Commission as of that date. The Association has devoted itself to raising the business standards of over-the-counter brokers and dealers. Its rules prohibit certain unfair and fraudulent acts among members and require disclosure of information where it is deemed advisable in the interest of fair trading among members and with the public. The rules are similar to those required of members of the various exchanges. Rules are enforced by penalties such as censure, fines, and suspension or expulsion from membership. Action of the Association is subject to review of, and appeal to, the Securities and Exchange Commission. The Association has set up a uniform practice code designed to eliminate disputes and misunderstandings between members. This code covers such matters as deliveries of securities, computation of interest, claims for dividends and interest, and publication of quotations. While it has been the intent of Congress to extend the same regulations to over-the-counter markets as have been imposed upon the various organized exchanges, the practical accomplishment of this end has not been achieved. As a result many corporations, particularly the smaller ones, have shied away from listing their stocks on exchanges. Advantages to the companies are that they do not have to pay listing fees, that where their total securities are less than $2,000,000.00 they are not required to disclose financial information, and that in over-the-counter trading it is possible for the big stockholders to arrange with brokers for standing orders to maintain the market price. Brokers and dealers in many cases prefer over-the-counter trading since it gives them more freedom in bargaining. Where they act as principal their chance of gain is greater, but of course their risk of loss is correspondingly increased. From the customer's point of view it is preferable to buy securities traded on organized exchanges. He has assurance of higher ethical standards on the part of his broker or dealer, and closer supervision of the maintenance of these standards by his government. He has available more adequate information as to the financial standing of the issuers of securities and as to the current market.. The cost of buying and selling securities is less, and transactions are expedited. CHAPTER V SUGGESTIONS FOR IMPROVEMENT IN THE SERVICE RENDERED BY EXEMPTED SECURITIES EXCHANGES - ■ This study has revealed that small securities exchanges are slowly disappearing from the scene of American business. The almost insignificant volume of transactions in securities handled through these exchanges could be taken over by the larger exchanges and the over-the-counter brokers and dealers with scarcely a ripple to be felt in the securities markets. These exchanges were originally established to expedite the handling of securities transactions in local markets and to improve the standards of business conduct among securities dealers and brokers. It canp^jt be said that to some extent they have done both. Questions then arise as to why they are disappearing and as to whether or not it is desirable to have them eventually eliminated. The reasons for the decline of small securities exchanges are many. ¥/ith improved communication and expanded coverage of the larger stock exchanges, particularly the New York Stock Exchange and the New York Curb Exchange, it is inevitable that the bulk of business in dually listed stocks will be handled by them. This still leaves the business in securities of local concerns to the small exchanges, but the evidence 53 shows that their greatest loss of business in recent years has been in these securities rather than in the dually listed stocks of larger corporations. This loss is due chiefly to the desire of small corporations to avoid the more stringent regulations imposed on companies listing their stocks on exchanges. Many have withdrawn their securities from listing and few are seeking the listing of previously untraded issues. Some loss of business of the exchanges must naturally be attributed to the general decline in trading since the 1929 crash and to the limitations imposed in recent years by the high margin requirements of the Federal Reserve authorities. The Securities and Exchange Act of 1934 was primarily aimed at protecting the investor from loss as a result of various unethical practices in trading on the exchanges. It is doubtful that it was realized at the time what complete control of securities markets would entail. The organized exchanges were regulated first since they have always been the most widely publicized and the first object of wrath when investors have lost in securities transactions. The general public is unaware of the vast over-the-counter market in securities and is apt to think the Hew York Stock Exchange is involved even in transactions that are handled completely outside of the exchanges. The strict regulation of exchanges has had the effect of defeating the purpose of the act insofar as it has kept corporations from listing their securities or caused them to remove them from listing. This has been particularly true in the case of the smaller exchanges. The Commission has tried to meet this situation by extending its regulation of the over- the-counter market and has made many recommendations to Con gress in this respect which have been incorporated into the securities law. The wisdom of this course can be questioned on the ground that regulation of the over-the-counter market presents a much more difficult problem than would be faced if the securities were traded on organized exchanges. Moreover, the investor is not as well served when he must deal over-the- counter. A more desirable policy would be to encourage more companies to list their securities on exchanges when there is a sufficient volume of business to warrant it. This would make regulation of trading practices more feasible and would reduce the task of policing the over-the-counter market. It would be impractical to have all trading done on organized exchanges, but any move that would increase the scope of their activities would clearly be in the public interest. The limited facilities of the New York Stock Exchange and New York Curb Exchange would not allow them to list the 55 less frequently traded stocks without impairing the service they now render on the larger and more popular issues. However, there is no reason why the various local exchanges could not expand their listings to take care of more issues of interest to investors in their respective communities providing there were some inducement to do so. There are also many communities, some of which have had exchanges in the past, in which exchanges could operate. Furthermore, if a means could be found to coordinate these various local exchanges and make their facilities available to each other, a considerable part of the trading now done over-the-counter could be more expeditiously handled without requiring com panies to list their securities on a number of exchanges. Assuming that it is desirable to expand the use of small securities exchanges some concrete proposals to bring this about are suggested in the following paragraphs. First the Securities and Exchange Act should be amended to'draw a definite line between registered and exempted securities exchanges and separate rules set up to govern the exempted exchanges. Exemption could be appropriately extended to all but a few of the larger exchanges. Rules for the exempted exchanges should in no case be more stringent than those applying to the over-the-counter market thereby eliminating that barrier for listing of securities. If necessary, regulations can be tightened as the government is 56 able to enforce similar rules in the over-the-counter market. This would in no way be a backward step since apparently the securities are now being driven to the less closely regulated market thus losing to the public the advantages of having them listed on exchanges. Secondly the requirement that securities can be admitted to unlisted trading only if they are admitted to listed trading on a national securities exchange should be lifted in the case of exempted exchanges. There is no advan tage in barring a stock from unlisted trading on an exchange if it means forcing it into trading on the less closely regulated over-the-counter market. Thirdly the Securities and Exchange Commission should adopt a policy of encouraging the formation of local exchanges and increasing the listings of securities thereon. It is more practical for it to supervise the making and enforcement of rules and regulations for fair trading on such exchanges than for such organizations as the National Association of Securities Dealers for example. It would also improve the trading practices of brokers and dealers as more of them became members of these exchanges. Fourthly the Securities and Exchange Commission in cooperation with the exchanges should make a study of means of disseminating information and extending the services of small exchanges to make it possible for brokers and dealers 57 throughout the country to trade through the various exchanges without maintaining membership in all of them. This might be accomplished by allowing minimum commissions to members of the various exchanges, or by allowing the splitting of commis sions among them. Access to a market where a security is regu larly traded would in many cases do away with the necessity of maintaining inventories of these securities. Adoption of these suggestions would result in voluntary listing of many security issues and the admission to unlisted trading of others. However, it is not likely that enough issues would be listed to make it worthwhile unless the attitude of a great many businesses, particularly small cor porations, could be changed. Many of them have no interest in maintaining a market for their securities. Once the stock is sold and the money received by the corporation they are inclined to let the stockholder worry about marketing his shares. Perhaps this lack of interest could be overcome by a campaign of education in the advantages of listing securities and maintaining a market. Where there is sufficient trading to warrant it, unlisted trading provides an answer to this problem. Even some form of compulsion might be called for in the public interest. It is the unqualified conclusion of the writer that small securities exchanges should have a larger rather than a smaller place in American finance. The decline of these 58 exchanges has been due largely to policies of the Securities and Exchange Commission which have hindered rather than helped the accomplishment of the objectives of the securities legislation. These policies have brought about a lessening of the number of issues traded on the exchanges which it regulates instead of encouraging their use. It is believed that policies which would insure greater use of the exchanges particularly by smaller companies would be in the interest of the investing public in providing a fairer and more adequate market, and would facilitate the work of the Commission in policing a large segment of the securities field. BIBLIOGBAPHY BIBLIOGRAPHY A. BOOKS, PAMPHLETS, GOVERNMENT REPORTS, ETC. Atkins, Willard E ., and others, The Regulation of the Security Markets. Washington, D. C.: The Brookings Institution, 1040. 126 pp. Badger, Ralph E., and Harry G. Guthmann, Investment Principles and Practices. Third edition; New York: Prentice-Hal 1, Inc.,' 1942. 895 pp. Bonneville, Joseph H., and Lloyd E. Dewey, Organizing and Financing Business. Third revised edition; New York: Prentice-Hal1, Inc., 1945. 593 pp. Burtchett, Floyd F., and Clifford M. Hicks, Corporation Finance. Revised edition; New York: Harper and Brothers, 1648. 712 pp. Dice, Charles A., and Wilford J. Eitaman, The Stock Market Second Edition; New York: McGraw-Hill Book''Company, Inc., 1941. 486 pp. Guthmann, Harry G., and H. E. Dougall, Corporate Financial Policy. Revised edition; New York: Prentice-Hal1, Inc., 1046.795 pp. Journal of Commerce (New York), December 23, 1948* Loeser, John C., Over-the-Counter Securities Market. New York: National Quotation Bureau, Inc., 1940. 192 pp." Los Angeles Stock Exchange History Organization Operation. Pamphlet of Public Relations Committee, Los Angeles Stock Exchange• Meeker, J. Edward, The Work of the Stock Exchange. New York: The Ronald Press Company, 1630. 720 pp. Securities and Exchange Act of 1934. Public Law, No. 291, 73rd. Congress, with amendments. Washington, D. C.: United States Government Printing Office, 1941. 44; pp. Shultz, Birl E., The Securities Market. New York: Harper and Brothers, 1946. 433 pp. 60 Understanding the Modern Securities Market. New York: Commodity Research Bureau, Inc., 1946. 31 pp. United States Securities and Exchange Commission, General Rules and Regulations Under the Securities Exchange Act of 1534. Washington, D. C.: United States Government 'Printing Office, 1946. , Tenth Annual Report. Washington, D. C.: United States Government Printing Office, 1945. 381 pp. Contains a ten-year survey of activities, 1934-44. ______ , Eleventh Annual Report. Philadelphia, Pa.: Securities and' Exchange""Commission, IU46. 165 pp. _______ , Twelfth Annual Report. Washington, D. C.: United States Government Printing Office, 1947. 213 pp. _______ , Thirteenth Annual Report. Washington, D. C.: United States Government Printing Office, 1948. 228 pp. The Wall Street Journal, July 2, 1948. West Virginia Securities Law, (Chapter 32, Code 1931), with amendments. Charleston, W. Va.: State of West Virginia, 1948. 34 pp. B. OTHER SOURCES. Application for Exemption from Registration of the Wheeling Stock Exchange. Piled with the Securities and Exchange Commission, September 26, 1934. (Photostatic Copies.) 25 pp. Constitution and By-laws of the Honolulu Stock Exchange. Revised April 1, 1946. 40 pp. Personal Correspondence of the Author, letters from Colorado Springs Stock Exchange, July 30, 1947; July 7, 1948. , letters from Honolulu Stock Exchange, May 23, 1947; JuTy 12, 1948. , letters from Richmond Stock Exchange, April 29, 1947 July 8, 1948. , letters from Securities and Exchange Commission, May 14, 1947; July 9, 1948. *»• 61 _______ , letter from Wheeling Stock Exchange, July 13, 1948. Personal Interview of the Author with William H. Wheeler, Secretary, Wheeling Stock Exchange, April 4, 1947. APPEHDIX APPENDIX A STOCK LISTS OP EXEMPTED EXCHANGES Table I Colorado Springs Stock Exchange COLORADO SPRINGS STOCK EXCHANGE QUOTATIONS I C> MINES C n m 1 ^ _________ d > . j~ki w .D4 . 0 7 .O ff p-p^. i _ .14 .7J) F ^ R . .04 0 «liW C y-V 14 . iv> IC2& j c. m .03^ , . bh u. a m........ >2 i0 ............ . _ * a l5_...... DIVIDENDS ^*Mrf hftMArtlW EX-DIVIDENDS TODAY h i o O IL S Holly Oil <T.7«5 A s K £D lo.£o H ttiv rv-i -4 > .00 £.£0 M .dua aic O. 4 D. C L l£ l_____ _ _ 1 0 .0 .0 ...... --- Saul 03 a n d ReS|.^'.^yP....... -------- INDUSTRIALS *Utf=Ss&r-&b t - H a B y S u y a r , C o m . wOiOP_ _ Im . _ i - L e o _ BONDS - ■ 3 1 I p o Ifom O i l - iwaJha hFjhs?FMM&*--&oo No.. No- No. n . . . ( JuLf lfl4fe Table II. Honolulu Stock Exchange teaasun&s- « » < —- HONOLULU STOCK EXCHANGE O FF IC IA L D A ILY BU LLETIN ,.„l 0 1 :0 0 A.M. IW& mS u h m' m. T T E j. xiLliaiH « « '. M M T . O f W iii K«| C O O K S T R U S T CO ., L T D , CH arla* h . 0«M. R*p. M r « n a t. o p p i c c r s a n d M S M s a n a I S S S Sf BS SS i a . A . W A L K E R m r « r t a t . P h o n * —*7W* H A W A IIA N T R U S T CO.. L T O . A. H . RICE, JR . R. K . T h w n a s, R ap. A . M. Rica. J r .. Rap. 110 S. K in a » L 227 S. K ino a t. Priana— IJ4S Pftona <8 7 C A P IT A L aecuRiTica C O . C h in n H a, Rap. S2 N . K in o a tra a t Phona—**M E. P . M U RR AY A CO.. LT D . E . P . M urray. Rap. 238 M e rc h an t St. P h a n a — 58*41 . - ^ 5 0 - j / l L ...J.Q .iZ li. U 50-.I/25 ...>.lQ0 cc. ? . 4 0 . j j S L a Z i f i L -..t.3Q-.3/UL ,.,.5Q...3/17’ ....,•15..3/5— .J.25.Auc.U? -tlS JS X -* „..,20. 1271^ ...,11.3/3 .._ ,.J,aj.un.’J.7| ......lOMar.Vki . ..1 5 3/i.O , ...-•..10.J/21. •JODec *43 __-.35l9.ft.VW ...3.Q...3/25 . . . . . 1 0 ...IfiP.es’ J? . Z O H o v ' k S Z W J M .. . 2 0 D ec'/,l " i o b e c ’V i ..^O .A u.E .'.W ..•15pee.'.k5 ......5.0.3712.. ......25.4/15.. ..2.11.4/1.3. .3 0 ? /l? T I5 3/12 -iripMi .20 3/26 i r f y : 37J...5/ 15.. j :.5o .6 /2 J .7 5 6 /1 4 '. ? 0 3 7 1 5 ivooivm . | 5 6/ l S 1 .5 0 6/13 7,0' TJ5“5731' .50''37l4 .3 0 3/15 NAMKS Of STOCK Alex, tc Baldwin, L td.... Am. Factors, L td . C. Brewer Sc Co................ SUGAR STOCKS Bogo M edellin Mill Co- Cebu Sugar Co................ Ewa Plantation Co......... Haw aiian Agri. Co.......... Haw 'n Gom'I & S. Co..... Honokaa Sugar Co......... H utchinson S. Plant...... K ahuku PlanL Co........... Kekaha Sugar C o............ Koloa Sugar Co............... Maui Agricultural......... McBryde Sugar Co......... O ahu Sugar Co________ Olaa Sugar Co................. Onomea Sugar Co...... Paauhau Sugar Co......... Pepeckeo Sugar Co......... Pioneer Mill Co.............. San Carlos Mill Co........ W aialua Agrl. Co ... W ailuku Sugar C o ... W aim analo Sugar Co. PINEAPPLE Haw'n Canneries Co..... Haw’n Pineapple... RUBBER Haw’n S um atra-............. Pahang R ubber Co. '... . Selama D indings. . ......... U T IL IT Y Haw .Con.Ry.7% Cum . Hawaii Con. Ry. 6% n-c. Hawaii Con. Ry. Com..... Hawaiian Electric Co.... H aw n Elec.5%P£d.*,B '\ Haw'n Elec 4 "C"..... H ilo Electric Light........ Honolul u Gas Co........ -Hon. Rapid T ran sit..... V o n . R. Transit 6% Pfc£ Inter-Island S. N. Co..... M utual T el. Co.. ..... O ahu Ry. & Land Co..... Pac. Cas Sc E. 6% P fd ... Pac. Gas. R : E. Coin. — . . O IL x Honolulu Oil Corp...... N orth American Oil Shell Union Oil C o r p .- Standard Oil of Cal........ Union O il of Cal. Com.. MISC. STOCKS ^ Chrysler C orporation.... Consol. Amuse. Co.......... Creameries of America . Home Insurance Co...... Hon. Const’n t Dray..... Hon. Fin. Sc T . w... A P H IL 265 1245' ..1.40 ...55.0 160 .>,60 'ilo 3.0 .530 1.490 ,..ai5 1445 395 39* 30 31... ...5,. ..Jit .1 .8 .4 3 l i 12 .. 194»V ■ n i .3.2... - J i . .21. . . ’ I t . ' ...,3l 12. l i t 38 42* ■J6i 165 3*! 5 if!: .,*« t : i i ■ i i 9 j- I'l'-J ' i l l 155' 7 |' 10 "22ij'3K ' ?'|i " 9 * ' 1 5 ? 2 1 , " 4 " 54" 395 271 4. ...:.?.i. .5 1.500:.. 72 ! ....71. ...97.5 ...7.1 ...8 . 2.14.51 30... 1 .31 i. J 19.9 12, 14,.' . 1 5 1 . 5 } .5 5 : 1 | 2230 173 ' H i 12.5 4, j 4 4 1.0 ..4! '. 4 l ...47.5 .. .II ...2, .5.4 ...5.1. }& .5 29 38 12' 1 '5'i' 11 155 ■ 1 2 f T 2 f , 19 T9F 160 I7J '26' 5-9-47 5-23-47 '$'-'23247 •15-47 ■8-47 •23-47 :i9-4? -'17-47 .17247 215247 •5-47" •1-47 -20-47 -21-47 223147 123147 223147 -21-47 -1-47 • 8-47 -21-47 .20-47 .2I-47 -20-'47 -8247" 15 .11-27-46 "IB 5123- 47' ”355 27 27i 31 5 :II 25 315: 3 185 34 " ' ■ " 3 " I " 1 0 95 13 " " I....... 9 ........ 22* .. 7J 7 y .......... 16 164.......... 4 45 ------ Ilf.. 19 =3 3* 29 30 "13' 14.... 5 5 ....... 4 4f 4 . . . , . . . . T. . 2 | 3 ...... 25 ..43pi.40i .2501 ?4.i 215. 21’ 7 0 132 H'6'5' 17* 1415 10 1125 1330 '610 '1 4 0 ' 10 4 5 0 111. 2.5... 22 IS” '.10 s i r ik 55 7 20# 20# 38 '45 2 4 | 25 i 2 1 2 2 32" 34" 17* 20 74 I l f "n-1'1'17 13f | X8| l'2i 14, 22 "264- 42* 44* m ?z : ! 60" 75" ' i u ; ' 6 6 ' !'275' 5- 15-47 5- 19-47 5-17-67 5-22-47 3-4-47 6 — 6 — 4 6 5-23147 5-21-47 5-22-47 5415-47 5-20-67 5-21-47 1-23-47 5-21-47 5423-47 5-20-47 ' 3-16-40 ' 1-21-46 ,,34; 5-15-47 10" . 4-15-40 -•84 11- 22-30 "73...... 3-13-41 25 " ' 2-'25i46 ' 18* 4 ' ’ " 4 t 2 - f 5v 20# "75# "38 25 "21" "37" 174 '74' 13? 1 2 ? '22 " 334 "44" 54 "374 38i 2 1 z i i 31 ....... 174 17? 7 -J - 8? 10 .. 14 12 122 ' 22....... 40 334 40" , 334 5-20-47 13y 20f "13? '5-21-47 52J 60 ,5 5 5-23-67 •75" 27* ,"25...... 4-29-47 21 224 I 2 2 j! 5-5-47 "'32' 34 134 14? 55 60 25" 25" Q—Quaiterly. M— M onthly. D — Declaration. DATE: FRIDAY MAT 23, 1947 Table III. Richmond Stock Exchange 65 BRANCH & COMPANY Hiw Tom Cura bouMt tuuara) „ In v estm en ts >. |,<J Ea*t M * * “ stw*t R i c h m o n d S t o c k E k c h a m m RICHMOND STOCK EXCHANGE QUOTATIONS R ichm ond, Va., lira umiiHmii •» Ir M akaira trab r lira Bra*. SOra IBM rate <k> M b , ‘ M m < W ara Ora, Irtrara ■ r a m <1 * Brrti.m - W M ctir-i ^ M m Um rraaUr wraijur . tg. Bxdhura H U . Wi B * PUBLIC UTILITY STOCKS Virginia Electric ft Power Co. $5.00 P ref- Virginia Electric & Power Co. Common RAILROAD STOCKS Atlantic Coast Line of Conn.. R. F. ft P., Common------------ Par Bid R. F. ft P. Div. Obligation., R. F. ft P. 6% Goar--------- R. F. ft P. 7% Guar--------- —No 10 - 50 -100 -100 -100 .100 i t Asked BANK A TRUST COMPANY STOCKS Bank of Commerce A Trusts ------ 20 Bank of Virginia.............. ......................................... Central National Bank. -------------- 20 —^.S&L First & Merchants National Bank.-------------------20 Mechanics A Merchants Bank.------------ — 20 Savings Bank A Trust Co-------------- 25 Southern Bank A Trust Co.— ---------------15 -----• —* --- --------g- State-Planters Bank A Trust Co..........................- ....? 7 Virginia T rust Co....................................................... 50 ....fo..... INSURANCB STOCKS Par Lawyers Title Ins. Co. 6% P a rt Pref------------100 Life Insurance Company of Va______________ 20 MISCBLLANBOUS 8BCURITIBS Albemarle Paper Mfg. Co. 7% Pref.------- t o C A . - r t i __ Bid Ashed IQo _ laj ---- JltD. lG *A $i$A W D an River Spotless Co. Com Universal Leaf To! raco 8% Pref... Universal Leaf Tobacco Co-. Miller & Rhoads Pfd. Virginia Skyline Pfd, Virginia Skyline Common i\JL^ iq RB CALL Sales AT CALL Table IV. Wheeling Stock Exchange DAILY QU O TA TIO N LIST W H E E L IN G S T O C K EX CH A N G E C O M P IL E D F O R Robert '.7. Dorsey______________________n t T F J u l y 1 . 1 9 4 8 SID ASK LAST SALE 4UDC 7 0 m/ Bristol Myers 31 3 2 - 1 /8 32 lif e Savers 3 5 - 1 /8 3 6 - 1 /S 36 Sterling Drug, Inc. 3 5 - 3 /4 3 6 - 1 /4 36 U ngrdfhruga Rexall Dru-g 7 7 - 1 / 8 7- 1/ e Vick Chemical 23-3/a 24-1/4 24-i/n Fastoria C W i Company 36 35 H szd-A tka C la n Company 2 2 - 1 /2 23 2 2 - 3 /4 M. M arsh & Son, Common 44 4 0 U. S. Stamping Co. 1 1 12 J | g m iD— i- g W heeling Steel Corp. C om m on 5 3 - 3 /4 5 4 - 1 / 2 5 4 - 1 /4 W heeling Tile Co. 2 0 * * ** No sale since stock was 8 lilt 10 f o l 1 - U N L I S T E D Continental Baking Pfd. 91 9 2 - 1 /4 9 1 - 1 / 8 Continental Baking Com m on 1 6 - 1 /8 1 6 - 3 /4 1 6 - 5 /8 W heeling Steel Corp. $5 Pfd. 0 6 - 3 / 6 8 6 - 1 /8 8 6 - 1 / 2 BANK ST O CK S N ational Bank o f W . Va. 24 5 National Exchange Bank 22 5 215 Whg. Dollar Savings & Trust Co. 7 0 7 3 - 1 /2 Half Dollar T rust & Savings Bank 5 0 86 6 0 South W heeling Bank &. T rust Co. 1 1 0 Security Trust Co. 425 S A L E S Above Quo otT< ■cions Based or n Shares or Mo a Market X APPENDIX B. STATISTICAL TABLES 68 Table I. Number of Issuers and Securities, Basis for Admis sion of Securities to Dealing, and The Percentage of Stocks and Bonds, for Each Exchange, Admitted to Dealing On One Or More Other Exchanges As of June 30, 1947. (United States Securities and Exchange Commission, Thirteenth Annual Report) STOCKS Name of exchange Listed Unlisted Total Per Cent traded on one or more other exchanges Colorado Springs 14 Honolulu 57 Minneapolis-St. Paul 18 Richmond 23 Wheeling 19 37 2 14 94 20 23 22 21.4 25.5 55.0 17.4 45.4 BONDS Colorado Springs Honolulu Minneapolis-St. Paul Richmond Wheeling 6 69 Table II. Market Value and Volume of Sales Effected on Exempted Securities Exchanges for the Fiscal Year Ending June 30, 1847. (United States Securities and Exchange Commission, Thirteenth Annual Report.) (In thousands) Number Total Market of Market Principal market value shares value amount Exchange value (stocks)(stocks) (bonds) (bonds) Colorado Springs t 274 # 274 193 Honolulu 6,161 6,136 372 #25 #24 Minn.-St., Paul 3,932 3,932 189 _ Richmond 672 672 9 Wheeling 398 398 6 Total #11,437 #11,412 769 #25 #24 70 Table III. Bid and Ask Prices of Dually-Listed Common Stocks of Richmond and Wheeling Exchanges Compared With Closing Bid and Ask Prices On The New York Stock Exchange, July 1, 1948. Stock Richmond Wheeling N. Y. S. B.-» Bid Ask Bid Ask Bid Ask Atlantic Coast Line 60 ___ ___ ___ 57-3/4 58-1/4 Universal Leaf Tobacco 22-1/2___ ___ ___ 22-1/2 22-3/4 Virginia Elec. & Power 17 ___ ___________ 16-7/8 17-1/8 Bristol-Myers 31 32-1/2 31 32-1/2 Life Savers________________ ___ 35-1/2 36-1/8 35-1/2 36-1/8 Sterling Drug 36-3/4 36-1/4 ** Rexall Drug 7 7-1/8 7 7-1/8 Vick Chemical 23-3/4 24-1/4 23-3/4 24-1/4 Hazel-Atlas Glass 22-1/2 23 22-1/2 23 Wheeling Steel 53-3/4 54-1/2 53-3/4 54-1/2 Continental Baking 16-1/2 16-3/4 16-1/2 16-3/4 Quotations from Wall Street Journal, July 2, 1948. Not reported. University of Southern CeHfernta UlMe$

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Creator Dorsey, Robert Wylie (author)

Core Title A study of the operation, regulation and economic position of exempted securities exchanges

Contributor Digitized by ProQuest (provenance)

Degree Master of Business Administration

Degree Program Business Administration

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag Economics, Finance,OAI-PMH Harvest

Language English

Advisor McClung, Reid L. (committee chair), Lindsey, H. Lawrence (committee member), Trefftzs, Kenneth L. (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c20-115671

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Rights Dorsey, Robert Wylie

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