Sessional_Paper_1925 — Page 109

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At the last moment occurred the moratorium granted to the native banks, the closing of the Stock Exchange, the postponement of the Settlement and the sudden withdrawal of the extensive credit facilities which had hitherto existed.

At the same time we are of opinion that if the first two factors, (a) and (b), had not been present the results would not have been nearly so serious and would not have affected so large a number of persons.

PART II.

14. We are of the opinion that the various Exchanges have not been properly man- aged and administered. In particular, the following criticisms seem justified from the evidence of the witnesses :

(a) The Committees are so large that nearly every firm belonging to an Exchange has a member or a partner on the Committee. It is obvious that this makes disciplinary measures difficult.

(b) The Articles of Association of the Exchanges appear to make it impossible for the Committees to take action against defaulting members except on receipt of a complaint. Such complaints are rarely forthcoming and consequently members are permitted to continue to trade although they are known to be insolvent At the same time the Committees do not appear to have exercised such powers as they possessed.

(c) A former Vice-Chairman of the Sharebrokers' Association stated in the course of his evidence that he saw no objection to a broker carrying on business while he was insolvent, and this seems to have been the attitude of all the Exchanges provided that admission of liability was made by the giving of promissory notes. It seems to have been considered quite in order for a broker to go on dealing even if he was incapable of meet- ing existing obligations. No formal complaint was made to the Com- mittee in any such case and it has been given in evidence that there has been no recent case of a member of any of the Exchanges being expelled, suspended, or even censured for failing to meet his obligations. The effect of the promissory note system was to undermine the stability of the market although the settlements apparently were carried through without any untoward difficulty. Such a position was absolutely un- sound and when difficulties arose in connection with the June Settle- ment the real position was exposed.

(d) Although brokers guarantee every transaction which they put through they have accepted business with clients as to whose financial stability they have had no knowledge. No business man would enter into the reckless guarantees which some brokers appear to have undertaken. In other

words there has been dealing with persons who obviously could not pay if they lost.

(e) There has been no disclosure by brokers in cases where they have been dealing as principals on their own account and it was even admitted by some that it was customary to charge brokerage in such cases. There is thus every facility and every inducement to the broker to speculate on his own account to a greater extent than he can afford.

(ƒ) There are no rules, or at best insufficient rules, for the conduct of Settle- ment Days or any machinery for the internal working of the Exchanges. (g) It would appear that since the happening of the crisis in June no systematic enquiry has been held by any of the Exchanges into the conduct of its meinbers; at any rate, no public intimation has been made of the expulsion, suspension, or censure of any broker.

(h) We question the advisability of keeping the Exchanges closed for a long period and cannot help feeling that it is unfair to the general body of the public.

15. We, therefore, have cause to believe that the share market has been carrying on its business for some time past on a thoroughly unsound basis and, even if the financial crisis had not taken place on the 22nd June, the time was bound to come in any case when a general slump in the market would have had very serious consequences,