Caught Short

He who sells what isn't his'n Must buy it back or go to pris'n.

This old Wall Street jingle is usually reserved for the short sellers (i.e., those who sell stocks they do not own in hopes of buying them cheaper later for delivery). But last week it was the New York Stock Exchange itself that was painfully reminded of the penalties of selling "what isn't his'n." It was caught short on a sale of one of its seats: the membership of Broker Edward Platt to Broker W. Allston Flagg for $74,000. Platt promptly protested the sale. He had indeed once asked the exchange to sell his membership, but later changed his mind and formally withdrew the request.

To deliver on its embarrassing short sale, the exchange promised Flagg the next available seat and at the same price. But when a seat came up for sale last week, the price had soared to $90,000, thanks partly to the booming market. For the exchange to make good would have cost it $16,000, or over 10% of its annual profit. While the officials wondered what to do, the price suddenly broke to $80,000, then $75,000. With that, the exchange scrambled to cover its position, got off at a cost of only $1,000.

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