The Paperwork Predicament

The nation's overburdened stock markets called time out last week, but investors didn't seem to hear the whistle. Stock exchanges and the over-the-counter market took a one-day holiday to let brokerage houses attack a mountain of paperwork that has swamped clerical staffs. The shutdown was the first of three consecutive Wednesday closings to be followed by a similar non-trading day on Friday, July 5.

When the markets opened last Thursday, a burst of trading toppled volume records not only on both major stock exchanges but also, by brokers' estimates, in the over-the-counter market. On the New York Stock Exchange, volume soared to an all-time peak of 21,350,000 shares. It was the third time since April 1 that Big Board turnover had reached new heights, eclipsing by ever-increasing margins the 39-year-old record of 16,410,000 shares traded on Oct. 29, 1929, when the market suffered its worst crash. On the American Stock Exchange, a center of speculation that worries many brokers, volume surged to a new high of 10,810,000 shares.

Bedlam. In the over-the-counter market, which operates by telephone, the pace grew frantic enough to overstrain physical facilities and disrupt trading. "It's absolute bedlam," said one dealer whose entire switchboard lit up at once. "We just pulled all the cords out and started fresh." Other brokers encountered long delays reaching marketmakers. Such tie-ups often hurt investors, as prices rise before their orders can be placed. Goodbody & Co. stopped giving quotations and White, Weld & Co. halted its over-the-counter operations an hour before the new and foreshortened 3:30 p.m. official closing time. Despite all the activity, most indexes showed that stock prices fell slightly last week; the Dow-Jones industrial average slipped 1.26 points to close at 913.62. Many brokers dismissed the declines as a mere pause before a traditional summer rally.

The paperwork snarl--by a considerable margin the worst in Wall Street history--began when President Johnson's Viet Nam peace moves sent stocks on a spring spree. Since April 1, Big Board trading has averaged 14 million shares a day, up 40% from the first quarter. The smaller American Exchange has been hit by a 50% increase to 7,500,000 shares a day. In consequence, brokers have been unable to deliver stock certificates to customers within the allotted five business days after they are bought or sold. Compounded by increasing clerical errors, the discrepancies and slippages by last week had reached a point where an estimated $4.5 billion worth of undelivered stock was caught in the clotted pipelines. "There aren't enough people, there's not enough space and there's not enough equipment to cope with the volume," said Partner Paul Tobin of the Manhattan brokerage firm of Paine, Webber, Jackson & Curtis.

On the Night Shift. Most Wall Street firms have abandoned their traditional 9-to-5 day, working clerical staffs overtime and Saturdays, often hiring night shifts to help with the load. Even with newly instituted training programs, brokers complain that they cannot find enough qualified help, though able receiving and billing clerks often earn $200 a week. "Clerical workers no longer apply for a job," says Vice President Charles Rosenthal of L. M. Rosenthal & Co. "They come over for coffee and doughnuts and discuss their careers."

Responding to strongly worded advice from President Robert W. Haack of the N.Y.S.E., several brokerage firms have begun taking direct action to cool the speculative fervor. E. F. Hutton & Co. announced that it will forbid its salesmen to solicit orders to buy stocks selling for less than $5 a share and will allow them no commission on such orders. Merrill Lynch, Pierce, Fenner & Smith, the nation's largest securities concern, said it plans to increase restrictions on margin accounts.

Belated Computers. Such strictures represent a considerable change of thinking in an industry long attuned to stressing sales above everything else. It was 1952 before the tradition-minded Big Board finally gave up Saturday trading--and it did so then in part because brokerage firms were having trouble finding people willing to work a six-day week. Now lack of machines is an equally vexing problem--Wall Street's tardiness in mechanizing its back-office operations is a fundamental cause of its prosperous predicament.

Last month the N.Y.S.E. belatedly began a computer-run Central Certificate Service, which will do away with the physical transfer of stock certificates held in brokers' names. These account for 75% of Big Board trading, but it will be next year before all N.Y.S.E. stocks are in the computer, and 1970 or later before the system takes in the snarled over-the-counter market. In the meantime, the prospect is that the stock markets will continue to be plagued by paperwork.

This file is automatically generated by a robot program, so reader's discretion is required.