Sessional_Paper_1925 — Page 110

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PART III.

16. It is difficult to deal with the situation by legislation. Legislation must be fair and impartial, and there is no more reason why it should be aimed at dealings in stocks and shares than at dealings in any other commodity. Speculation takes place in inany other things besides stocks and shares, and one can instance the great amount of specu- lation which takes place here and elsewhere when times are opportune in various commodities and also in the currencies of foreign countries. The soundness of this view is borne out by the fact that none of the world's big stock exchanges are governed by legislation but by rules made binding by them upon their members and very rigidly enforced in order that the reputation of the particular exchange may be upheld.

17. The obvious remedy then for the present state of affairs in Hongkong is the re- organization of the Exchanges by their members by amending and adding to their rules and, above all, by enforcing strictly those rules when they are made. If the members of the Exchanges will not do this it would be possible by legislation to enact rules which would be binding on every association of share-brokers whether incorporated or not. Legislation which forces certain terms upon parties, whether they wish to have them or not, is not uncommon. For instance the Harter Act in America, the Sea Carriage of Goods Act, 1904, in Australia, and the Carriage of Goods by Sea Act, 1924, in England all incorporate certain clauses in bills of lading whether the parties wish to have them or not. Such legislation should however only be a last resort, as rules adopted and adhered to by an Exchange itself have far greater elasticity.

18. The present administration of the Exchanges appears to need attention in the following respects:---

(i)-The revision of the Articles of Association.

These are the rules under which the Exchanges are governed. Each Exchange might with advantage study the Rules of the London Stock Exchange. A large number of these are not applicable to local conditions, but there are others which certainly should be adopted here bearing in mind that they not only ensure that all dealings with or between members shall be free from fraud or dishonesty but also provide a very valuable protection to the public.

Without attempting to make an exhaustive summary of the Rules in question the following are suggested as particularly important;-

(a) Candidates for admission must be recommended by three persons of reputa- tion who will say that the individual is fit to be a broker. In London there is a pecuniary obligation on those who recommend a candidate. (Rule 33).

(6) A member may not transact business for a principal who to his knowledge is in default to another member unless such principal shall have made a satisfactory arrangement with his creditors (Rule 85).

(e) A member unable to fulfil his engagements shall be publicly declared a defaulter and thereby ceases to be a member (Rule 171 (1)). [Defaul- ters may however be re-elected if they make good their default].

(4) A member may not connive at a failure by accepting less than the full amount of his debt and is liable to refund any money or securities received from a defaulter, provided such defaulter be declared within two years from the time of such compromise, the property so refunded being applied to liquidate the claims of the subsequent creditors (Rule 175). This Rule is aimed at "artificial solvency and "preferential treat- ment" and would of course put an end to the practice here whereby an insolvent broker continues to do business after adjusting his liabilities by means of promissory notes.

(e) A defaulter in order to be eligible for re-election has to disclose the name of every principal indebted to him and also deliver to the Official Assignees of the Stock Exchange, or to his creditors, his original books and accounts and a statement of the sums owing to and by him in the Stock Exchange at the time of his failure (Rule 48).