FINANCE AND COMMERCE

Press, Volume LXXV, Issue 22768, 21 July 1939, Page 13

FINANCE AND COMMERCE

- SHARE-PUSHING IN ENGLAND RULES FOR LICENSED DEALERS The British Board of Trade has published draft rules governing the conduct of licensed dealers in securities. They provide, among other things, for the prohibition of soliciting orders by personal calls and for information of prospectus standard in any offer of unquoted securities.

They cover a wide field and deal with offers of securities for purchase, personal calls, contract notes, and the Keeping of records. They also set out the particulars to be included in any written offer for purchase. So far as offers for purchase are concerned, rules under this head do not apply to securities of the British Government or the Dominions, foreign governments, securities of any corporation incorporated by Royal Charter, or rights in respect of money lent to or deposited with any industrial or building society. It is proposed that no securities; should be offered for purchase in writing and that a licensed dealer should not invite a person to make an offer to purchase unless in the case of securities quoted on or dealt in on any recognised Stock Exchange the offer indicates the Stock Exchange on which they are quoted.

In the case of units of an authorised unit trust scheme the offer must contain the name and address of the manager and the name and address of the trustee.

So far as unquoted securities are concerned, it is proposed that the offer or invitation must be accompanied by a document which conforms to the requirements of the Companies Act, 1929, with respect to the contents of prospectuses or by a written statement which contains specified particulars. These include details regarding the person making the offer and the company concerned, including particulars as to share capital and dividend records during the three years preceding the offer. It is proposed to prohibit personal calls to canvass orders. A personal call includes a communication by telephone. It is provided that a dealer should not. either during or as a result of a call, deal in securities unless the call was made at the request of the other party, nor will a call be regarded as having been made at the request of a person if it results from a circular. Contract Notes Whether as principal or agent, a dealer will have to issue a contract note in respect of every transaction, -redess it is made with a professional .Staler in securities. He will also have wb keep books showing the records of all transactions involving transfers of securities. Other provisions are that a licensed dealer should not enter into any margin or option transaction unless acting as an agent and the transaction is supported by a corresponding transaction with a member of a recognised Stock Exchange. Neither must he involve himself In a transaction in respect of which he Would be entitled to avoid payment by pleading the Gaming Act. Commenting on the rules, the “Financial Times" says that during the passage of the '‘Share-pushing” Act through Parliament, it became clear that , the effectiveness of the measure would depend in no small degree upon regulations to be made by the Board of Trade.

This department, under the act, must both lay down the methods applying to the issue of licences to deal in securities, and the information required from applicants, and regulate the conduct of licensed dealers. The former are still awaited for an indication of the extent to which they will ensure the exclusion of Undesirable characters.

If adopted, they should go a Very long way toward stamping out the practices which have inflicted enor-i mous hardship on victims of unscrupulous share touts. Even if some members of the latter fraternity should be able ultimately to satisfy the requirements preliminary to securing a licence, the methods which have been most productive of evil will be debarred except at the risk of severe punishment, and, of course, loss of the licence.

No hindrance will be placed in the way of legitimate business, since the licensed dealer will have to open to him virtually the same modus operand! as is used by Stock Exchange members and others, who are outside the scope of the restrictions. One excellent feature of the proposed rules is the prohibition of calling upon a person to solicit orders. That method of salesmanship has entrapped many victims, but the stringency of the definition of calling is likely to provide an effective Check upon any such action In the future, except at the request of the potential customer.

Prior unsolicited cireularisatlun brings such a call within the prohibited area. The offer of securities in writing is not debarred, but is only permissible if prescribed details are given. Unquoted Securities

In the case of unquoted, securities the information must be of prospectus standard. A purchaser must be presumed, therefore, to enter info any contemplated transaction with his eyes open. It would be an advantage, however, if the rules dealt more specifically with flamboyant "puffing” circulars, which the act clearly was intended to prohibit, whether they accompany a prospectus or not. If it is essential that the" investor’s freedom to choose his securities should not be invalidated by misleading ' statements, protection against gambles of the “heads I win, tails you lose” variety is no less necessary. That is afforded under the new rules, which, among other things, prohibit licensed dealers from entering into transactions in respect of which the Gaming Act could be pleaded. This means that repudiation of a bargain will carry its own penalties. A valuable safeguard concerning due execution is the provision that a licensed dealer, in making any offer of securities in writing, must declare whether or not he is willing to settle through the potential customer’s bank. In short, while a purchaser cannot be protected against his own errors of judgment, everything that appears feasible is being done to ensure at least that he gets the goods for which he pays.