Italy. Stock exchange legislation. Rise in the rate of discount. Reaction in security prices

«The Economist», 4 aprile 1925, pp. 657-658

Turin, March 31

The Royal Decree of February 28th, to which I called attention in my last letter, had an eventful sequel in March. No other economic problem was talked of in financial circles; newspapers were full of rumors on new drastic impending legislation, and a very interesting debate took place in the Senate. The market took no notice at the section of the Decree which re- established supervision on foreign exchange dealings; but was greatly alarmed at the section four which prohibited brokers from accepting orders of purchase from principals who did not pay in cash 25 per cent. of the price of securities bought for the end of month settlement. They said that the regulation made Stock Exchange dealings almost impossible, because nobody would be willing to pay in cash a big percentage of the purchase price of a security which might be sold before the end of the month’s settlement. There was, therefore, a rush of forced sales on the part of disconcerted bulls. Prices went tumbling down by hundreds of points in a few days. The Finance Minister felt obliged to revise the Decree, and a Treasury minute ordained that for purchases to be settled at the end of March and April (our Stock Exchange settlements are monthly) the percentage to be paid down be reduced to 5 per cent., to 10 per cent. for May settlement, and to 15 per cent. for June settlement, so that only for July settlements will the percentage be the normal one of 25 per cent.

But a more profound impression was exercised on the Stock Exchanges by a new royal legislative Decree of March 7th, followed by a Ministerial Decree of the same day, which fixed the maximum number of the exchange and securities brokers (agenti di cambio) at the following figures: 60 at Milan, 45 at Genoa, 39 at Turin and Rome, 30 at Trieste, 15 at Naples, 5 at Florence, 4 at Bologna, and 3 at Palermo Bourses. Banks were excluded from the parquet, or from the privilege of open dealing at high voice (alla grida). All brokers were forbidden to deal in securities on their own account, which was somewhat of a novelty in Italy, where the distinction between brokers and jobbers is practically non-existent. The guarantee (cauzione) to be deposited by brokers was to be suddenly raised from 50,000 and 100,000 lire to 1,000,000 lire for the brokers in the Milan and Genoa Bourses, to 800,000 for Rome, Turin, and Trieste, 500,000 lire for Naples, Florence, Bologna, and Palermo. All present brokers’ charges were declared void as from June 1, 1925. The Government will select a third of the number assigned to each Bourse: 20 for Milan, 15 for Genoa, and so on. The first third selected by the Government’s patronage will select the second third, and the two thirds will coopt the remainder. All brokers will henceforth be united in a Corporation, which will have a charter, and be responsible, up to a certain amount, for the obligations of its several members.

The Decree, which was copied almost verbatim from the Statutes of the Compagnie syndicale des agents de change of Paris, produced consternation in the brokers’ circles. After long-drawn negotiations another Treasury Minute was published, which assured existing brokers that due regard will be had to acquired rights. The promise was not explicit; but it seemed to respect the principle of the life-tenure of present brokers’ offices.

On March 7, 1925, another Ministerial Decree increased the official rate of discount from 5.5 to 6 per cent., and the rate of interest on advances on securities from 5.5 to 6.5 per cent. The Minister of Finance was evidently of the opinion that speculation was rife in the Italian Bourses, which was very much akin to a flight from the lira toward goods and securities representing goods, and he endeavoured to check this mania by (1) making speculation difficult with the 25 per cent. cash payments, (2) reducing the number of brokers, (3) increasing the price of money for speculative dealings. Perhaps this last remedy was the only useful one. Money was certainly too cheap, and its cheapness worked against the revaluation of the lira, which last the Minister declared to be his aim during the Senate debates. But it is too soon to say if the dear money will reduce the paper issue and the level on internal prices and better the foreign exchange level.