Big Board Speaks

Because it has probably the worst press of any important institution in the U. S., people have long wondered why the New York Stock Exchange did not do something about it. Last week the Stock Exchange did something. But so long and so stubborn has been the Big Board's silence (except in defense of the status quo), that its gesture was greeted not with applause but simply with amazement. For the first time in its 141 years of existence the New York Stock Exchange spoke officially about the price of a listed stock.

The Committee of Business Conduct spoke, in fact, about the price of two stocks--Pierce-Arrow Motor Car Co. preferred and Pierce-Arrow Class A. Under a recapitalization plan launched soon after Pierce-Arrow was segregated from Studebaker (TIME, Sept. 4), both of these old issues are exchangeable for a single new issue of Pierce-Arrow common--but in different ratios. The holder of one share of old preferred will receive 3.2* of new common; the holder of one share of old Class A will receive one-tenth of a share of new common. Thus in terms of new stock the old preferred is theoretically worth 32 times as much as the old Class A--3.2 x 10.

On the Big Board, however, the Class A was selling at about $3 a share and the old preferred around $17--or less than six times. It was this discrepancy that the Stock Exchange asked its members to point out to any customers who intended to buy or sell Pierce-Arrow stocks. But the Exchange did not say whether the old preferred was too low or whether the Class A was too high. Fact was that the new common was selling at about $5 a share on a when-issued basis, which roughly justified the price of the preferred (3.2 X $5). But the Class A was theoretically worth 50-c- a share (one-tenth of $5) instead of $3. Brokers explained that shorts in Class A had been gently squeezed. Holders were exchanging their Class A stock for the new common, which dried up the supply, and the shorts were not allowed to deliver new common against their Class A contracts. In their efforts to cover, the shorts had held the stock far above its real value. Proof of this developed after the Exchange issued its statement: the Class A dropped only to $2.13 a share, not to 50-c-. In a left-handed way the New York Stock Exchange had also given an object lesson on what may happen to bad, bad bears.

* Not Pierce-Arrow but Peerless Motor Car Corp. jumped into the beer business last summer.

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