The New York Stock Exchange in the Crisis of 1914 by Henry George Stebbins Noble (romantic books to read TXT) 📖
- Author: Henry George Stebbins Noble
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House Committee, the representatives of the bond houses, and the
Committee of Five. At the first of these meetings the bank Presidents
leaned very decidedly to the views of the Stock Exchange, and it was
decided to postpone any consideration of a departure from the status
quo for at least a fortnight.
The general situation remaining very critical all through August, no
further steps were taken until September 8th. By that date a new
factor had intruded itself into the situation. Certain corporate
obligations were about to come due and the refunding of these
obligations, whether in fresh issues of bonds or in short term notes,
was going to make it necessary to withdraw the prohibition against
placing investment securities upon the market. When this necessity
became clear it was decided that some strict supervision and
safeguarding of the sale of bonds and notes was necessary and the
so-called "Committee of Seven," appointed by the bond dealers, were
requested to formulate a plan for this purpose. This Committee of
Seven consisted of members of the firms of: Brown Brothers & Co.;
Guaranty Trust Co.; Harris, Forbes & Co.; Kissel, Kinnicutt & Co.; Wm.
Read & Co.; Remick, Hodges & Co., and White, Weld & Co.
On September 9th, this Committee issued the following notice to bond
dealers:
"Your Committee is pleased to report that New York City's
financial needs have been taken care of satisfactorily, thereby
considerably clearing the foreign exchange situation which
existed when our communication of September 3d was sent out.
"The Committee is therefore of the opinion that the placing of
securities owned by dealers with their private customers should
be approved where the securities can be sold without disturbing
the collateral loan situation and your Committee will be glad to
continue to advise whenever such opportunities arise. Anything
tending toward public quotations or the creating of the
impression of an active or even semi-active market would
unquestionably seriously disturb the loan situation.
"Transactions with bargain hunters should not be countenanced and
your Committee will not approve the closing of transactions
coming under this head. Prices should conform to the spirit which
has prevailed during the past few weeks.
"Recognizing the support which banks and other lenders of money
have given to dealers in securities, it should be the policy of
such dealers when securities are sold to apply the proceeds
toward the liquidation of loans.
"The Committee has considered questions of maturing obligations
of cities and corporations and believes that the present
situation does not warrant any attempt to issue long time bonds,
but that such refunding should be accomplished through short time
financing.
"The Clearing House Committee and the Stock Exchange Committee
have expressed appreciation of the coöperation shown by the
dealers in listed and unlisted securities and if all will
endeavor to live up to the spirit of the policy thus far adhered
to we are sure there will be no cause for criticisms on the part
of the banks or the Stock Exchange Committee.
"Your Committee of Seven will continue to meet in the Directors'
Room of the Chase National Bank daily, from 11 A.M. to 12 M., for
advice on any cases where we can be of any assistance whatever."
The practical plan adopted was as follows:
Bond houses having securities of their own for sale could place them
with their clients at prices approved by the Committee of Seven. All
purchasers and sellers of bonds, acting as brokers only, were required
to file their orders with the Committee of Seven when dealing in
unlisted bonds, and with the Stock Exchange Clearing House when
dealing in listed bonds, and these two agencies were empowered to
determine minimum prices below which sales could not be made.
It will be seen that a very important step in the direction of
relaxation of restraints was here taken. Not only was the prohibition
of all dealings which had marked the beginning of the crisis
withdrawn, but prices below the closing sales of July 30th were to be
permitted subject to the supervision of a Committee.
* * * * *
As has already been stated, the Committee on Clearing House had their
hands full from the time the Exchange closed, first with bringing
about the settlement of the contracts of July 30th, and secondly with
carrying on the business of making new contracts for members wishing
to trade in securities at or above the closing prices. It was
impossible, therefore, for the members of that Committee to give
personal attention to the difficult problem of determining the prices
below which listed bonds should not be sold. To meet this difficulty
it was decided that a small additional Committee of men known to be
thoroughly familiar with the bond business should be organized, and
that it should be their duty to control the liquidation of listed
bonds.
The carrying out of this plan at first met with a technical obstacle.
The power to appoint a Special Committee rested exclusively with the
Governing Committee of the Exchange; in order to secure action a
special meeting of that body would have to be called; in the early
weeks of September sentiment was still in so critical a state and
every act of the Exchange was so keenly watched that it was feared the
holding of an extraordinary meeting might start rumors and cause
alarm. In view of these considerations the Committee of Five hit upon
the makeshift of inviting three members of the Governing Committee,
who possessed the desired qualifications, to volunteer their services
as an advisory body in the matter of fixing prices for listed bonds.
The three members selected were Messrs. C. M. Newcombe, Vice President
of the Exchange, W. H. Remick, and W. D. Wood.
On the 19th of September these three gentlemen cheerfully undertook
the difficult and onerous task urged upon them, and for three months
they abandoned their own private interests and devoted their entire
time to it. Owing to the intelligent and judicious manner in which
they handled the delicate problem of conducting a liquidation in
listed bonds that should at once be effective and yet not lead to
demoralization, they placed themselves among the foremost of those to
whom the financial community owes a debt of gratitude.
* * * * *
By the latter part of September methods, as described above, had been
found for facilitating a restricted liquidation of listed stocks, and
of listed and unlisted bonds. Nothing, however, had been done to make
an outlet for unlisted stocks. The "Curb" market and certain prominent
unaffiliated houses dealing in these securities had loyally played
their part in suspending dealings, but symptoms began to show
themselves of possible revolt, and the Committee of Five set to work
to find a safety valve for this department also. The device of a
supervisory Committee had proven so efficacious in other directions,
that it was naturally turned to in this instance. The circumstances
differed, however, in one particular. The bond dealers had
spontaneously created for themselves the very efficient Committee of
Seven who took their affairs in hand, but the interests involved in
unlisted stocks did not show the same solidarity, and it was necessary
for the Committee of Five to take a hand in initiating action.
With this end in view they consulted Mr. Herbert B. Smithers, of the
firm of F. S. Smithers & Co., concerning the feasibility of having a
committee formed to pass upon and control a resumption of dealings in
unlisted stocks. Mr. Smithers was singled out for the reason that he
was a member of the Stock Exchange whose firm was among the most
prominent dealers in these securities, and the prompt and energetic
way in which he undertook the task proposed to him soon convinced the
Committee that they had not erred in resorting to him. He set about
organizing a Committee at once and on September 24th he appeared
before the Committee of Five accompanied by Messrs. A. C. Gwynne, F.
Hatch, A. H. Lockett, and E. K. McCormick. These gentlemenannounced that they were willing to act, with Mr. Smithers as their
Chairman, and a plan for the control of the market in unlisted stocks
was agreed upon.
In order to clothe this Committee (which included two Stock Exchange
members, two representatives of prominent outside dealers, and the
President of the Curb Association) with authority, the Committee of
Five directed members of the Exchange to submit proposed dealings in
unlisted stocks to them and abide by their rulings. The Stock Exchange
Committee could, of course, only control its own members, but it being
a fact that a very large part of the unlisted business emanated from
Stock Exchange houses, it was probable that their action would
determine that of unattached dealers. This expectation was, in the
main, borne out, and business in unlisted stocks began to be carried
on actively under the jurisdiction above described.
It is necessary to record, however, in the interest of preserving a
correct picture of the happenings of this momentous time, that the
smooth and gratifying operation of the various other Committees, which
sprang into being to handle the numerous problems presented, was not
entirely repeated in this case.
The conditions surrounding unlisted stocks seemed on the surface to be
identical with those pertaining to unlisted bonds. In both cases a
business that was partly in the hands of Stock Exchange members and
partly in those of outside concerns was to be presided over by a mixed
Committee representing both interests. In the case of the Bond
Committee of Seven this supervision was accepted and cheerfully lived
up to by practically all concerned. A different situation soon
developed in unlisted stocks. Almost immediately certain individuals
in the business began to assert that the unlisted Committee was a self
appointed body which did not represent the people most concerned, and
that being themselves dealers in the properties the trades in which
were under their supervision, these gentlemen could not be trusted to
act fairly in making their rulings. After much preliminary growling
which vented itself in interviews with the Committee of Five, this
antagonistic sentiment crystallized into a written protest.
On October 1st, the following statement was presented to the Committee
of Five.
"GENTLEMEN:
"Owing to a general feeling of dissatisfaction amongst members
and non-members of the New York Stock Exchange resulting from the
formation of a Committee of Five to supervise dealings in
Unlisted Securities, we, the undersigned, desire to suggest the
following recommendations for your consideration:
"_First_: The personnel of the Committee be changed to the effect
that same be composed of parties not identified as dealers.
"_Second_: That in stocks which have an open or active market,
transactions may be made without restriction or necessity of
report to the Committee, when at or above the closing prices of
July 30, 1914.
"_Third_: That where securities have not had an active or open
market the bid prices as published in the _Chronicle_ of August
1st, be accepted as the closing prices.
"_Fourth_: That in the case of securities where the Committee may
deem it possible to trade at prices below those prevailing on
July 30th, they establish minimum prices good for as long a time
as the Committee deems practical, and that a list of these prices
be furnished to those making application for same."
"We think that if the above recommendations are put into force,
it will do away with the criticism which has been made as to the
Committee as at present constituted, and by so doing increase the
efficiency of this Committee on Unlisted Securities, by securing
thorough and hearty coöperation on the part of all brokers and
dealers in these issues."
In reply to this appeal the Committee of Five pointed out that
whenever, in other cases, the action of a Committee had been invoked
to supervise the transaction of business, confidence in the integrity
of that Committee had been general and unquestioned. The Committee of
Seven, the Committee on Clearing House, the Committee of Three, and
the Committee of Five themselves had all been vested with dictatorial
powers over a business in which their members were personally engaged.
In order to render trading in unlisted stocks a possibility, at the
time, similar powers must be granted and similar confidence must be
given to some one. The Unlisted Stock Committee were not
self-appointed because they came into being at the instigation and
suggestion of the Committee of Five, and to disband them after they
had started upon their work, substituting other individuals in their
places, would merely stimulate fresh antagonism that might wreck the
entire project. The fact that these men were dealers in outside
properties especially fitted them to pass upon the reasonableness of
the prices that were to be made, and there was no more reason to
question
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