Simplifying the Issue

Whatever they may be worth on the market, stock certificates have always had a certain value just hanging on the wall. Christmas shoppers have been known to frame a particularly handsome, ornately engraved share of stock for the man who has everything. Unfortunately, the beauty of certificates lies only in the eye of the holder. To those who buy, sell and keep them in trust, they are a constant headache.

Not only are the large sheets difficult to file, but every time a broker places a buy or sell order, the actual certificates must be sorted out manually and delivered to the buyer by messenger. Because stocks have no uniformly accepted identification numbers, a single issue may be assigned one number by the issuing corporation, a second by the broker who is selling, and a third by the broker who is buying. Such hoary habits, coupled with an unprecedented volume in trading, have created so much paper work that the nation's stock exchanges have been forced to close down every Wednesday since June 12 to catch up, a practice that will continue at least through Aug. 7.

Too Late? Last week a top-level American Bankers Association commit tee called for an end to traditional certificates. The committee, composed of bank and stock-exchange officials, announced that by the end of 1969, it hoped to replace all the certificates of actively traded issues with a standard-sized punch card. Every stock or bond issue will have an eight-digit identification number that will be used on all wire communications, transactions, transfers and dividend claims. Standard & Poor's will spend close to $1,000,000 coding some 1,000,000 stocks and bond issues into two directories, each the size of the Manhattan phone book. It plans to make a profit by selling the directories to brokerage firms, banks and bond houses.

Combined with the new Central Certificate Service, which will eventually allow brokers to leave all stocks traded among themselves in a central clearinghouse, computerized certificates should go a long way toward streamlining back-office operations on Wall Street. But skeptics wonder whether the new measures may not be too late. Due to the paper work glut, brokers are often unable to deliver securities within the legal five-business-day period. Though such "fails" have not yet been a serious problem, technically they now represent a $3.24 billion debt owed by firms caught short of certificates. The situation could become critical if the market were to drop sharply and investors were to renege on orders that had been placed weeks before but not delivered.

Behind the Dip. Last week the market did fall sharply. The Dow-Jones industrial average dropped 13.60 points on the first day, recording the worst setback since June 5, 1967. For the week, the Dow dropped a total of 25.45 points to wind up at 888.47, way below the cherished "support level" of 900. Brokers claimed that the sell-off was a delayed reaction to bad news concerning the Paris peace talks and the Czechoslovak-Russian confrontation, combined with an anticipated economic slowdown as a result of the 10% tax surcharge. Frederick Stahl, chairman of Standard & Poor's, suggested that the midweek closings themselves were partly responsible because they eroded investors' confidence in the mechanics of the market.

Whatever the reason, the dip made the smaller and more vulnerable brokerage houses wonder whether the backlog of paper work could not push them toward the "fail-safe" limit.

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