Stock Exchange Audits

The sudden failure of the old and and highly respected Stock Exchange firm of Day & Heaton, caused by the defalcations of one of its partners, has proved a severe shock to stockbrokers in Manhattan. It has led them to wonder who could be trusted, and to give more careful attention to the details of their own business.

Two years ago, the Exchange inaugurated a questionnaire system, whereby all member firms doing a margin business in securities for cus- tomers were required to answer a list of questions concerning their condition prepared by the authorities of the Exchange. This system has proved a splendid success as far as it goes. It failed, however, to provide against false returns being made by unscrupulous parties. After the Day & Heaton insolvency, the Exchange has taken the further step of requiring its members doing a margin business to have their books and accounts audited at least twice a year by public accountants. The dates of these audits will coincide with the answers to be made to the questionnaire.

In the Day & Heaton failure, it was found that George R. Christian, the defaulting partner, had used securities left for safekeeping with his firm. In its new regulations, the Exchange requires all firms with such securities in safekeeping to report to the Exchange at least once each year concerning them, after verifying and checking them up.