made before 3 P. M. on the business day following the default.1 The neglect or failure of a member or firm to exchange Clearing-House tickets constitutes a default, and the contract may then be closed "under the rule," except that the time limit for delivery of notice of intention to close is 10:30 A. M. of the following business day and the time for closing is not before 10 A. M.2 Rules regulate delivery on half-holidays. 3

3

The Stock Exchange Clearing-House acts as the common agent of the members in receiving and delivering the securities designated by the Clearing-House Committee.1

To constitute a good delivery all deliveries on sales of stock must be accompanied by a stamped sales ticket.5

An important regulation is that governing the closing of contracts "under the rule." When the insolvency of a member or firm is announced, members having contracts subject to the rules of the Exchange with such member or firm must proceed to close them without unnecessary delay. If the securities involved are quoted on the Exchange the closing must be on the Exchange, either officially by the Chairman, or by personal purchase or sale. If they are not dealt in on the Exchange

1Art. XXVI, Sec. 1.

'Art. XXVI, Sec. 2.

'Art. XXVI, Secs. 4, 5.

'Art. XXVII.

'Resolution of November 9, 1910.

See also Laws 1909, Chap. 61, Penal Law, sec. 270, as amended, providing for stamp taxes, infra p. 236.

they must be purchased or sold in the best available market. If the contract is not so closed, the price of settlement is the price current when it should have been closed.1

A contract not fulfilled according to its terms may be officially closed "under the rule" by the Chairman.2 Written notice of intention must be given the defaulting party before 2:30 P.M., and the contract cannot be closed before 2:35 P. M.3 When a loan of money is not paid before 2:15 P. M. of the day it becomes due, the borrower is considered as in default, and the lender may sell "under the rule" so much of the pledged securities as may be necessary to liquidate the loan.a

Mutual cash deposits not exceeding ten per cent. may be required by either party to a contract at any time,5 and the holder of a due-bill issued for the dividend on stock contracted for may require the maker of the duebill to deposit the full amount in a trust company, payable to the joint order of the parties. Failure to

1Art. XXVIII, Sec. 1.

6

A brokerage firm sold stock for an undisclosed principal and soon after notified the Exchange of its insolvency. The buying broker closed his contracts under the rule, settling by the payment to the receiver of differences on this and other contracts. The owner of the stock demanded that they take and pay for it. It was held that the owner could not recover the purchase price in an action against the purchasing broker, the announcement of the failure being a request to the defendant to close his contract. (Kent v. De Coppet, 149 App. Div. 589.)

2Art. XXVIII, Sec. 2.

3Art. XXVIII, Secs. 2, 3.

'Art. XXVIII, Sec. 10.

"Art. XXXI, Sec. 1.

'Art. XXXI, Sec. 2.

comply with a demand for a deposit constitutes a default, and the other party may have the contract reëstablished "under the rule."1

The time when a security becomes "ex-dividend" and "ex-rights" is regulated.2

A charge of one per cent. may be made for collecting dividends; but no charge may be made for collecting dividends accruing on securities deliverable on a contract.3 Offers to buy or sell dividends may not be made publicly on the Exchange under penalty of a fine.4

. Corporations whose shares are listed must maintain a transfer agency and a registry office in the Borough of Manhattan acceptable to the Committee on Stock List.5 Thirty days notice must be given of a proposed increase of capital stock before it can be listed. Shares may be registered on the conversion of convertible bonds, and listed on notice to the Exchange. The Governing Committee may suspend dealings in any securities quoted on the Exchange, or summarily remove any securities from the list.8 After admission of a security no change

1Art. XXXI, Sec. 4.

'Art. XXXII, Secs. 1, 2.

'Art. XXXII, Sec. 3.

7

'Art. XXXII, Sec. 4.

"Art. XXXIII, Sec. 1.

Under this article, the transfer and registry offices must be maintained separately. This is insisted upon by the Exchange in order that every precaution may be taken against fraud.

'Art. XXXIII, Sec. 2.

'Art. XXXIII, Sec. 3.

Art. XXXIII, Sec. 4.

in the form of certificate, or of the transfer agency or the registrar of shares or of the trustee of bonds may be made without the approval of the Committee on Stock List.1

When the Committee on Stock List is of opinion that the outstanding amount of any listed security has become so reduced as to make further dealings inadvisable it may direct it to be taken from the list.2

3

Commissions must be charged on all purchases and sales of securities. These must be absolutely net, without any rebatement, direct or indirect; and no bonus or share of commission may be given directly or indirectly for business procured for a member. The employment of clerks in nominal positions because of the business obtained by them for their employers is a violation of this rule.1 The custom of "bunching" orders and not charging any commission to an associate in the sale is prohibited. The rates of commission which may be charged members and non-members are fixed by the rules." Transacting business in commodities without commission, or for a nominal commission, for a customer dealing in securities is a method for rebatement of commissions

5

1Art. XXXIII, Sec. 5.

'Resolution of March 27, 1895.

'Art. XXXIV, Sec. 1.

'Resolution of January 23, 1901.

'Resolution of June 12, 1912.

"Resolutions of November 23, 1881; October 24, 1894; April 13, 1910; April 12, 1911; June 12, 1907; December 28, 1911, and January 24, 1912.

and a violation of the commission rule. And giving reciprocal business in commodities dependent on the amount of Stock Exchange business received is also a violation.1 A proposition for the transaction of business at less than the minimum rates of commission provided by the rules is a violation of the commission rule.2 A suspended member is not entitled to have his business. transacted at members' rates of commission, except in the case of a member suspended by reason of insolvency.3 The penalty for violation of the commission rule is, for the first offense, suspension for from one to five years; for the second offense, the penalty is expulsion.1 Arbitrage trading with cities in the United States based upon quotations from the Exchange, and arbitrage business by joint account, or account designed to produce the same result, having been found to nullify the commission rule, is forbidden."

An arrangement with a customer for special or unusual rates of interest, or money-advances upon unusual terms to give the customer special advantages is a violation of the commission rule.6

The Governing Committee is of opinion that a member who relieves a customer from any part of the Stamp Tax violates the commission rule.”

Resolution of April 14, 1897.

2Art. XXXIV, Sec. 4.

'Art. XXXIV, Sec. 5.

'Art. XXXIV, Sec. 6.

'Resolution of January 26, 1898; resolution of April 20, 1911.

"Resolution of March 26, 1902.

"Resolution of May 24, 1905.

See Tax Law secs. 270-277 infra p. 236.