BROKERS AND SHARES

Dominion, Volume 4, Issue 1218, 29 August 1911, Page 2

BROKERS AND SHARES

OVERSELLING AND LENDING. SUGGESTED REFORMS. (By Telegraph — Special Correspondent.) Auckland, August 28. Boos the Stock Exchange need reorganising? This question is exercising the minds of many reputable brokers in Auckland. A number are of opinion that certain methods have crept into tho Exchange which have resulted in tho public losing confidence in tho institution, the outcome being that business has for some timo been exceptionally dull. The chief cause of this dullness is asserted to be the practice of overselling. Tho majority of the brokers, it is stated, hare been endeavouring to carry on a legitimate business, but. it is alleged that a minority have been carrying on .the practice of overselling to a large'extent, with the result that a reaction against the Exchange has set in. In this .reaction tho legitimate brokers nro the chief sufferers, the oversellers still continuing to thrive. It is stated that the practico of overselling was practically unknown in Auckland prior to ten years ago. Tho practice is simply this; A demand sets in for certain shares, and a broker will sell by hundreds or thousands, as the case may be, shares which ho does not. possess, and has no authority to sell. The effect of persistent telling is that the market becomes weaker, and as the shares fall iu value, the broker buys in at a lower price than lie told at, and thus meets his obligations. Of course, the shares might not come down in price, and in that case the overselling broker comes out the loser, but in a market like the Auckland Exchange it is considered that tho chances are 99 to 1 in favour of the overseller. No doubt there are syndicates outside tho Exchange who have carried oi the practice of overselling, but their work would bs quite ineffective if they were not backed up by certain brokers. Overselling, it is asserted, has been responr eible for introducing the spcculatvie broker who buys and sells on his own account, to the detriment of liis unfortunate clients. , Another custom that has .also grown up with overselling is that of "lending" chares. A broker, say, has oversold shares, and finds that ho has no shares to transfer to a buyer who is pressing for settlement. Ho goes to another, also an oversellcr, and borrows some shares to meet (he pressing obligation, An ex-broker, who resigned his scat some timo ago, declared to a reporter that under present conditions the Exchango was a good place, to bo out of, as it was impossible for resectable brokers to make a legitimate living unless certain methods wore altered. Certain of tho brokers contend -that reform should como from within the Exchange, and discussions ■ have from time to time taken placo with a' view to having things altered, but so far there has been no tangible result. Other brokers contend that reform enn only lie brought about by Parliament legislating in the matter, as the Exchange rules, which arc excellent in themselves, can be broken by a combination of irombers. One of the remedies nroposod for overselling is that the seller's name should be placed in the contract note when mining shares are being sold. This is considered to be cno of the radical cures for the practice, and there are not wanting brokers who would bo glad if the Government legislated in this direction. There are also brokers who contend that brokers have no right to bo dealers in shares, as this practico is not in tho interests of their clients, and legislation in this direction is not without supported.