Wall Street Can Help Curb Its Excesses

THE New York Stock Exchange spends more than $1,000,000 a year educating the U.S. public on the benefits of stock ownership. But last week the exchange was worried about all the new stockholders it has signed up and the kind of stocks they buy. The exchange increased its advertising budget 25% for a campaign to warn stockholders against tips and rumors, advised: "Hold your money tight when anyone gives you 'the inside dope.' " Merrill Lynch, Pierce, Fenner & Smith, the U.S.'s biggest brokerage house, began to run ads in 210 newspapers entitled "Danger! Inside Tip Ahead." (It was the same ad Merrill Lynch used in February 1947, when the Dow-Jones industrials were at 180 v. 605 currently.) The Securities and Exchange Commission also got into the act; it said that it had observed "indications of increased manipulative activity" and warned that "the amateur who plays the market is asking for trouble."

What had everyone concerned was the biggest public participation in the market since the '20s; a recent survey by the exchange showed that 25% of those interviewed were interested in the market v. 9% a year ago. Nevertheless, many Wall Streeters felt that the warnings were being overdone. Said A. Charles Schwartz, senior partner of Bache & Co.: "It is stupid, after years of a publicity campaign to get more people to buy stocks, to come out now and blow the whistle."

In one sense, Wall Street is now paying for the success of its campaign to recruit small stockholders. Once a stockholder has an account, the high-priced blue chips that he first bought may seem pretty stodgy beside the greater gains possible in more speculative companies. He knows that top growth companies such as Polaroid and Texas Instruments, which have increased several hundred percent in a few years, were once considered risky. Says Stock Exchange President G. Keith Funston: "We have no objection to people buying into small and little-known companies--provided they know what they are doing."

Despite SEC warnings of "manipulation," the stock market today is not manipulated as it was in the '20s. Then, a pool of speculators would buy enough stock to send it scooting up, stir up public interest so that they could unload at the top. Today, pools are not only illegal; stock ownership is so much broader that a pool could hardly operate. Now, stocks are often moved up by the tools of publicity.

Corporations happily supply information to security analysts and customers' men, whose firms turn out some 50,000 market letters annually. Public-relations firms are hired to plug a firm to the public. Their performances are often judged on how high the publicity pushes the stock.

Many of the reports issued by brokers present sober, useful information. But there are also many "blue-sky" writeups that promise great things and fast-buck operators who spread rumors. "The same wild rumor that moved a stock one-eighth a year ago seems to move it eight points today," says Paul Windels Jr., Manhattan district boss of SEC.

Much of the responsibility for wildly gyrating stocks can be blamed on the exchange and brokers. A new investor's first purchase may be a staid mutual fund. Now, according to Mutual Fund Specialist Arthur Wiesenberger, fast-talking customers' men have been switching customers out of mutual funds into highly speculative stocks with the promise of quick killings. Many a customers' man will offer ways to get around the 90% margin requirements. Customers arrange loans with "specialized finance houses," which permit buying with only 10% down. It is this "easy money" that has caused some rapid rises.

Wall Street's concern, as voiced in its ads, is all to the good. But the Street and the corporations it serves can do a great deal more to curb uninformed speculation by their own efforts, instead of wagging a finger at the public. When irresponsible rumors boom a stock, company officials often keep quiet rather than making the prompt denials that would cool it off. Many a stock has been run up on wild rumors when there is so little stock available that any buying or selling sends it rollercoasting. The exchange has the power to suspend trading when the floating supply of stock in an issue is less than 30,000 shares. By raising this requirement the exchange could maintain more orderly markets. The exchanges have dragged their feet so much that the Securities and Exchange Commission and the Federal Reserve Board are investigating questionable activities, are threatening to get tough. All of the warnings have slowed trading. Belatedly, the New York Stock Exchange warned its members against using their facilities "for reckless speculation by the uninformed." It has finally realized that Wall Street's failure to do its own policing will bring more stringent Government regulation.

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