WALL STREET: Old Trick, New Warning

In the booming ’20s, one of the financial shenanigans which helped boost stocks to their shaky 1929 highs was stock splits. For example, a corporation whose stock had been pushed up to $100 might split it by exchanging one share for ten, selling at $10 each. Thus, small-fry speculators were lured in, and the price could be run up again far beyond the stock’s true value.

The current big bull market has made the time again ripe for stock-splitting. So many corporations have done so, or plan to, that Emil Schram, the Stock Exchange’s cautious, conservative president, last week spoke out. Worried lest such tactics bring down tighter governmental regulations, he warned against stock-splitting by corporations whose securities are temporarily high-priced, but which have no stable earnings record. The Exchange may refuse to list such split shares.

The Exchange does not regard all splitting suspiciously. In fact, Schram suggested that corporations which have good earnings records, but high-priced securities, split their shares. This would broaden their base of ownership and ease the shortage of sound, low-priced stocks.

But splitting for what the Exchange regards as purely speculative purposes is out.