The New York Stock Exchange in the Crisis of 1914 by Henry George Stebbins Noble (portable ebook reader .txt) 📕

zeal of an outsider who while trying to pilot the

Committee into safe waters succeeded in running it on a reef of his

own creation.

 

Immediately on ascertaining the true situation the following notice

was sent out on Saturday:

 

     "The Special Committee of Five announces that having consummated

     its plan for bond transactions on the Exchange under certain

     specified restrictions, the same will, in accordance with the

     Constitution of the Exchange, be submitted to the Governing

     Committee at the regular meeting to be held on the 24th inst. If

     the recommendations of the Special Committee are adopted by the

     Governing Committee the plan will go into operation at an early

     date."

 

Some of the newspapers having announced positively that this new move

with regard to bonds would take place on Monday, the 23rd, they were

very indignant that it should be postponed without supplying them with

a good and sufficient reason. The Committee, on its part, feeling

that it was undesirable to publish the details of an awkward

misunderstanding with a public official, who would not want his name

dragged into a matter that he had in no way concerned himself with,

refused to furnish the reason. This at once let loose upon them those

vials of reportorial wrath which, up to that time, they had been

fortunate in escaping. One journal amicably stated that this incident

merely emphasized a fact which had all along been obvious, namely that

the Committee were, and had been from the start, totally incompetent

to perform the task intrusted to them.

 

While a gentle shower of epithets fell upon their devoted heads the

Committee proceeded with their work and, having obtained the necessary

authority from the Governing Committee, they sent out the following

ruling on November 24th:

 

     "That so much of rule No. 21 as applies to dealings in listed

     bonds through the Clearing House be rescinded, to take effect at

     the close of business on Friday, November 27th, 1914. Beginning

     on Saturday, November 28, 1914, dealings in bonds listed on the

     Exchange will be permitted on the floor of the Exchange between

   the hours of ten and three o'clock each day except Saturday, when

     dealings shall cease at twelve o'clock noon. Such dealings to be

     under the supervision and regulation of the Committee, and to be

     for 'cash' or 'regular way' only and not below the minimum prices

     as authorized by the Committee from time to time. Transactions at

     prices other than those allowed by the Committee, or in evasion

     of the Committee's rules, are prohibited. All rules of the

     Exchange governing delivery and default on contracts covered by

     this resolution shall be in force on and after Saturday, November

     28th, 1914, but the closing of contracts 'under the rule' shall

     be subject to the foregoing provisions."

 

Thus on Saturday, November 28th, the doors of the Stock Exchange were

once more thrown open and a restricted market in listed bonds was

established on the floor under the watchful eye of the Committee of

Three. There was some hesitancy at first as to whether these bond

transactions should be quoted on the ticker in the accustomed way, but

before the day of opening came it was decided to report them as usual.

By requiring that all trades should be for "cash" or "regular way"

and, in a subsequent ruling, by instructing all purchasers of bonds to

report to the Committee when such bonds were not delivered by 2.15

P.M. on the day following the purchase, it was hoped to impede any

sudden or violent liquidation of foreign securities.

 

       *       *       *       *       *

 

The restoration of the bond market to the floor was a complete

success, and at about the same time a general revival of public

confidence showed itself in a rise in prices first in the street

market and then in the Stock Exchange Clearing House itself.

Encouraged by these symptoms the Committee of Five at once formulated

a plan for carrying the reopening a step farther. A list of stocks

which were not international in character was made out and submitted

to the Bank Clearing House Committee, and with their concurrence it

was decided to place these upon the floor of the Exchange to be traded

in at or above certain prescribed minimum prices.

 

At a meeting of the Governing Committee on December 7th the following

resolution was adopted: "That the Committee of Five is hereby

empowered to permit dealings on the floor of the Exchange in such

stocks as it may designate under restrictions prescribed by it. That

the Committee of Five is hereby authorized to enforce stock loan

contracts whenever in its judgment it may deem best so to do, and that

the resolution of July 31st, 1914, be modified in this respect."

 

A list of minimum prices was fixed upon that averaged some two or

three points below the closing prices of July 31st, and on December

11th the Committee issued a ruling prescribing the conditions for the

partial resumption of stock dealings on the Exchange. We here present

it in full:

 

     "The Special Committee of Five rules that Rule 13 be rescinded,

     in so far as it applies to stocks admitted to dealings in the

     Exchange from time to time by the Committee of Five, said

     rescission to take effect at the close of business on Friday,

     December 11, 1914.

 

     "Beginning on Saturday, December 12, 1914, dealings in certain

     specified stocks listed on the Exchange will be permitted on the

     floor of the Exchange between the hours of ten and three o'clock

     each day except Saturday, when dealings shall cease at twelve

     o'clock noon.

 

     "Dealings in such stocks as shall be specified by, and be under

     the supervision and regulation of the Committee, shall be for

     'cash' or 'regular way' _only_ and not below the minimum prices

     authorized by the Committee from time to time. Transactions at

     prices below those allowed by the Committee, or in evasion of its

     rules are prohibited.

 

     "A list of stocks to be admitted to dealings on the Exchange

     accompanies these rulings. Minimum prices on same will be

     announced on December 11, 1914.

 

     "All stocks quoted on July 30th at or below 15 per cent., or $15

     per share, may be dealt in without restriction as to price, but

     are included in the list for your guidance, and will be marked

     'Free' in the price column.

 

     "All stocks admitted to dealings as above, which were being

     cleared through the Stock Exchange Clearing House at the close of

     business on July 30, 1914, will be similarly cleared from the

     opening of business on the 12th day of December, 1914.

 

     "All stocks admitted to dealings, which were being dealt in

     'Ex-Clearing House' at the close of business on July 30, 1914,

     will be similarly dealt in from the opening of business on the

     12th day of December, 1914.

 

     "Stocks admitted to dealings on the Exchange will cease to be

     dealt in through the Stock Exchange Committee on Clearing House.

     Stocks not so admitted will continue to be dealt in through the

     Committee on Clearing House until further notice.

 

     "All rules of the Exchange governing delivery and default on

     contracts covered by these rules shall be in force on and after

     the 12th day of December, 1914, but the closing of contracts

     'Under the Rule' shall be subject to the foregoing provisions.

 

 

     STOCKS LOANED

 

     "The Loan Market for stocks will reopen at ten o'clock, A.M. on

     the 12th day of December, 1914, for such stocks _only_ as are

     admitted to dealings on the Exchange, from and after which date

     all rules of the Exchange governing the borrowing and loaning of

     such stocks shall be in force, but the closing of contracts

     'Under the Rule' shall be subject to the foregoing provisions.

 

     "The above rule shall apply to stocks borrowed and loaned prior

     to and since July 30, 1914.

 

     "Borrowed and loaned stocks will be cleared as before July 30th

     last, but only in cases where such stocks are admitted to

     dealings on the Exchange.

 

     "Loans of stocks _not_ admitted to dealings on the Exchange will

     continue to stand until further notice, unless otherwise agreed

     to by both parties to the contract."

 

On Monday, December 14th, the next business day after the limited list

of stocks had been placed upon the floor of the Exchange, it was

reported to the Committee that the volume of transactions taking place

in the Stock Exchange Clearing House, in the stocks not yet admitted

to the floor, had risen to such proportions as seriously to embarrass

that institution. As this activity was taking place on a rising market

and signs of increasing confidence were constantly multiplying, the

Committee quickly resolved, on the same day, to transfer all stocks to

the floor on the following morning, and notice to that effect was at

once sent out. The unexpected appearance of this notice on the tape

was greeted with cheers of approbation in the Exchange, and on

December 15th the long hoped for reopening of the entire market had

become a reality.

 

       *       *       *       *       *

 

The Committee of Five by this act brought their own rule to a close.

Arbitrary power had been put in their hands to be exercised while the

Exchange remained closed, but now that it was reopened authority

naturally returned to its legitimate channels. The Committee therefore

presented the following report to the Governing Committee on December

15th:

 

     "The Special Committee of Five beg leave to report that in as

     much as the crisis that existed on July 31st, 1914, has passed,

     and financial affairs in this country have resumed a practically

     normal condition, the necessity for the Committee's continuance

     no longer exists and hence they request to be discharged. Before

     being discharged they desire to express their appreciation of the

     trust and confidence placed in them by the Governing Committee.

     They also wish to express to the members of the Exchange their

     appreciation of the manner in which their rulings have been

     respected, even though in many cases it involved great

     sacrifices.

 

     Resolved, That the report of the Special Committee of Five be

     received, and the Committee be discharged."

 

Thus, like the sudden and unexpected shifting of a dream, the

Committee of Five who so recently had almost despaired of fixing a

date for reopening the Exchange, found the Exchange open and

themselves a memory of the past. The abruptness of their exit was

tempered, however, in the following manner. As above described, the

reopening was accompanied by the restraint of certain arbitrary

minimum prices below which securities could not be sold. It was felt

that, owing to the critical and indecisive state of the war, there was

a continuing possibility of some news that might renew a crisis in the

market. While this possibility lasted the maintenance of minimum

prices furnished an automatic check upon sudden panic which would

avoid raising the question of a second closing of the Exchange. In

order to regulate these minimum prices and so change them from time to

time as to keep in accord with normal supply and demand, it was

necessary to appoint a Committee, and the original Five were continued

in office with this sole regulative power. As bonds were similarly

restricted, the Committee of Three also lingered on the scene for the

same purpose. The two Committees performed this unusual function up to

the first of April, 1915, when the very marked improvement in

conditions led to the abandonment of this last vestige of artificial

restraint.

 

It is instructive, as showing the workings of some minds, that

although the Committee of Five, in its capacity of regulator of

minimum prices, issued a public statement that they were under no

circumstances going to valorize or sustain prices but merely expected

to maintain a safeguard against some unforeseen shock to confidence,

many people wrote them urgent letters asking that in certain

properties a minimum should be maintained which would render selling

impossible. It was quite futile to try to disabuse some of these

correspondents of the idea that no decline should be allowed in

properties that they were interested in.

 

       *       *       *       *       *

 

To one who meditates upon the singular experience which was thus

abruptly brought to a close, there are a few features of it which

stand out as meriting the especial attention of all members of the

Stock Exchange. First of all it was most impressively shown what

apparently hopeless tasks can be accomplished by loyal coöperation. If

at any time up to July, 1914, any Wall Street man had asserted that

the stock market could be kept closed continually for four and

one-half months he