MARKETS: Fire Warning

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One evening last week, genial, popeyed Jerome Frank made his maiden appearance as chairman of SEC, at the maiden dinner of Manhattan's Association of Customers' Brokers, at which bigwig brokers like Carle Conway and Paul Shields were much more in evidence than customers' men. Chairman Frank seized the occasion to issue, not an SEC blast against Wall Street, but a solemn warning and appeal for cooperation.

The subject of his warning was brokers' general practice of taking customers' cash deposits and mingling them with their own funds, with the result that if a broker fails, his customers are just some of many unsecured creditors. By contrast, he pointed out that the U. S.'s No. 1 department store (Manhattan's R. H. Macy) "accepts customers' cash for deposit against future purchases. But . . . these deposit accounts are not commingled with the general funds of the store. They are deposited with a totally separate banking company set up under State banking laws and supervised and examined periodically by State banking authorities just like any other bank. The store itself never sees a red penny of these deposits until after a purchase has been made," in fact customers receive interest on them.

Said he: "In the interest of good business, the Street simply cannot afford any avoidable major scandal, involving large losses to customers. ... In the Whitney failure, members of the public generally were not involved because the firm was not doing any large public business. But that was only good fortune. It was even more of a fortunate accident that the recent Elfast insolvency did not involve the public. That was sheer good luck. . . . The time to build fire escapes is not while a fire is raging, but when the building is in good condition."

His proposed fire escape: the creation of "brokerage banks" set up to hold all the cash and securities of brokers' customers.

Said he plainly: ". . . we offer you this choice: 1) You can have more SEC regulation of brokers' activities—regulation designed to insure customer safety, or 2) by the establishment of brokerage banks, you can, as far as this subject of customer protection is concerned, get rid of the SEC and of SEC regulations on that subject. We much prefer the latter: it is far simpler, less expensive, less irritating to you and less difficult for us." from an annual 160 to 220 per bird without increased feeding; annual milk output from 8,000 to 12,000 lbs. per cow.) Thus while Author Prentice is personally one of the least likely U. S. citizens to be threatened by hunger, the subject is one that concerns him practically.