Business: SEC Suspicions

In spite of war talk and a crisis in the British Cabinet, prices in stock-markets throughout the world rose hopefully last week. Commodities and bonds were also bullish. Even in Paris,where the news was supposed to be blackest, the Bourse displayed substantial advances in all classes of security.

Striking accompaniment to this upturn was the fact that on the New York Stock Exchange (where the Dow Jones industrial average rose 5 points), odd-lot traders for the first time in three months sold more shares than they bought. For four successive trading days small transactions in lots of less than 100 shares—supposed to be a good index of what the public, as opposed to the professional, is doing in the stockmarket—showed sales exceeding purchases. Since the public had been a consistent buyer during the recent market decline, this suggested to Wallstreeters that the old market adage, “The public is always wrong,” was still true. But SEC suspected something else. It launched an investigation to find out whether the sudden change in odd-lot trading was due to an increase in odd-lot short sales caused by professional speculators seeking to avoid the new restriction of round-lot short selling which went into effect Feb. 8.* Lending weight to SEC’s suspicion was the fact that short sales have risen from 7% to 10% of the odd-lot total since the new restrictions went into effect.

*The rule: each round-lot short sale must be made at a price above the last sale—a minimum increase of one-eighth of a point a share.