Review Of Policy On Second Market

Press, Volume CVI, Issue 31346, 17 April 1967, Page 17

Review Of Policy On Second Market

"The Press" Special Service

The Stock Exchange of Melbourne is preparing a dossier on members’ dealings with the second market to facilitate a review of its policy towards the small competing outside operation, according to a recent article in the “Australian Financial Review.”

The exchange is gathering Information about all known deals with the second market itself, its employees and directors.

Other exchanges are believed to be gathering similar information. When collated, the information is expected to form the basis of a review of the official associated exchanges’ attitude towards the second market.

At present, the official A.A.S.E. policy is one of nonintervention.

However, there is believed to be strong pressure among Sydney brokers for a harder line and some sympathy for such an approach in Melbourne, in Brisbane and in the Adelaide club, the newspaper said. The harder line would prob. ably involve a complete ban

on stock exchange members dealing with the second market or its known agents. Early trading patterns which emerge from the second market’s published information indicate that such a ban could be of major consequence.

Senior exchange operators claim that the bulk of the second market’s business has been done with established brokers.

They suggest that changes in open market prices have often enabled the second market to complete a transaction through an established broker at a limit set before the change.

The second market would therefore be acting as one of the two brokers to the transaction, displacing only one established broker. This theory would explain the high proportion of “overnight” deals reported by the second market. Separate specific action would be necessary to enable brokers to compete with the second market in another competitive area—its ability to canvass anyone for business.

The various exchange regulations preclude brokers from freely canvassing for business through provisions preventing them from contacting another broker's client

These provisions have been invoked on several occasions and members fined. The second market has no such disability. To meet this competition, the exchanges would have to change some of their key regulations and with them the whole approach to business of most of their members.

At this stage such changes are unlikely, the paper added.