HC Deb 14 February 1939 vol 343 cc1579-90

(1) The restrictions imposed by Section one of this Act in relation to dealing in securities shall not apply to the doing of anything by, or on behalf of,—

  1. (a) a member of any recognised stock exchange or recognised association of dealers in securities,
  2. (b) the Bank of England, any statutory corporation or municipal corporation, any exempted dealer or any industrial and provident society or building society, or
  3. (c) any person acting in the capacity of an approved trustee of unit trusts, or in the capacity of the manager of an authorised unit trust scheme.

(2) For the purpose of determining whether or not a person has contravened any of the restrictions imposed by Section one of this Act, no account shall be taken of his having done any of the following things (whether as a principal or as an agent), that is to say,—

  1. (a) effecting transactions with, or through the agency of,—
    1. (i) such a person as is mentioned in paragraph (a), paragraph (b) or paragraph (c) of the preceding sub-section, or a person acting on behalf of such a person as is so mentioned, or
    2. (ii) the holder of a principal's licence, and
  2. (b) issuing documents which, by virtue of the Companies Act, 1929, must conform to the requirements of Section thirty-five or Section three hundred and fifty-five of that Act with respect to the contents of prospectuses, or which in fact conform to the requirements of either of those sections.
or of his having, as a principal, acquired, subscribed for or underwritten securities or effected transactions with a person whose business involves the acquisition and disposal, or the holding, of securities (whether as a, principal or as an agent).

Nothing in this sub-section shall be construed as authorising any person to hold himself out as carrying on the business of dealing in securities.—[Mr. Stanley.]

Brought up, and read the First time.

4.0 p.m.

The President of the Board of Trade (Mr. Oliver Stanley)

I beg to move, "That the Clause be read a Second time."

Those who were Members of the Committee on this Bill will recollect that there was a good deal of discussion during the Committee stage with regard to the scope of the activities which were brought within the purview of the Bill. Clause 1 of the Bill lays down that all who on the appointed day carried on the business of dealing in securities in one form or another should be brought within the purview of the Bill, and in Clause 24, "dealing in securities" was denned. When we came in Committee to discussion of the definition in Clause 24 it was urged that under the definition Clause a number of people and a number of activities would be brought within the scope of the Bill and would in one way or another have to be dealt with—people and activities which could not really be regarded as dangerous from the point of view of share-pushing. The right hon. Member for West Stirling (Mr. T. Johnston) himself moved an Amendment to alter the definition, but he subsequently withdrew that Amendment on my promise that between then and the Report stage I would see if anything could be done to meet him. The hon. Member for Bassetlaw (Mr. Bellenger) also drew attention to the position of insurance companies, and another hon. Member drew attention to the position of the man who merely underwrote a few shares and yet under the existing definition might be brought within the scope of the Bill.

I was satisfied, from the interesting discussions that we had in Committee, that it would be well if I could devise a method to narrow the operation of Clause 1 so as to avoid causing a certain amount of inconvenience to a number of people who, from the point of view of share-pushing, were quite above suspicion. When I looked into the matter I came to the conclusion that it was impossible to achieve this object by a mere alteration of the definition in Clause 24. Therefore I put down this new Clause. If hon. Gentlemen will look at the new Clause they will see that it falls into two parts. The first part deals merely with a matter of drafting. With two minor exceptions all the substance of the first part appears already in Clause 1, lines 10 to 25, and it is merely for the convenience of drafting that by a subsequent Amendment I shall move that they be omitted from Clause 1 and that instead they form the beginning of this new Clause. There are only two alterations in the wording of the first part. I have included industrial and provident societies and building societies among the classes which are exempted, owing to the fact that by tightening up the Clause dealing with these societies we now feel that they are adequately dealt with in their internal business. We have also exempted municipal corporations, and there is also some alteration in the wording of the Sub-section dealing with managers of unit trusts, which is due to the fact that I shall move a subsequent Amendment to define "manager of an authorised unit trust scheme" under the definition Clause.

Substantially the first part of the new Clause is merely a reproduction of words which already occur in Clause 1 of the Bill. The effective part of the new Clause is the second part, and briefly I shall describe the purpose of it. Anyone who purports to or does carry on the business of dealing in securities as defined in Clause 24 will be within the scope of the Bill, but this new Clause provides that certain activities shall be ignored when we are looking to see whether or not a man is in fact carrying on the business of dealing in securities. The transactions which are to be ignored for this purpose are, first of all, any transactions which are done with the persons or bodies set out in Sub-section (1) of the Clause. Then we have any transactions which are done with a holder of a principal's licence under the Bill; then any issuing of documents which conform, or must conform, to the requirements of the Companies Act with regard to prospectuses; and finally the specific transactions which are set out in lines 23–25 of the new Clause, that is, having, as a principal, acquired, subscribed for or underwritten securities or effected transactions with a person whose business involves the acquisition and disposal, or the holding, of securities. It is quite true that if the new Clause is added to the Bill a number of activities which before might have brought a person within the scope of the Bill will now be excluded from it. Of course everyone must realise that there is always a danger that when we are trying to escape from the risk of imposing too onerous conditions on people of whom we have no reason to be suspicious, we may fall into the other extreme of imposing too light obligations on the people whom we want to catch. The proposals of the new Clause will undoubtedly relieve a good deal of inconvenience and irritation that we desire to avoid, but it will not open the door for those practices which in this Bill we are trying to defeat. The essence of successful share-pushing is a sale to the public. If you can prevent, except under control, sale of securities to the public, then I think you will defeat the ingenuity of any share-pusher successfully to carry on his profession.

If hon. Members will look at the transactions which are excepted by the second part of the new Clause they will see that they are all transactions which do not involve sale of securities to the public, and that any sale of a security to a member of the public must still come under the purview of Clause 1. I must say that as a matter of practice, and certainly as a matter of the experience of my Department in dealing with various cases of share-pushing, transactions which are done through the various classes mentioned in Sub-section (1) do not prove, and have not proved, an adequate medium for the guile of the share-pusher. Similarly, of course, hon. Members will see that to allow a man to acquire or subscribe to or underwrite shares himself does not give him any opportunity for selling shares to the public; and finally we feel that a transaction with a person whose business involves the acquisition or disposal of shares, in other words a transaction with a professional investor, is not a transaction with which this House need really concern itself, because the professional investor ought to be quite capable of looking after himself without the protection of the law. Our task is not to protect the professional man whose business it is to know about stocks and shares, but to try to protect the public, and especially the more gullible sections of the public from dealing where it is very easy to impose upon them.

In this new Clause I have tried to meet the general wishes of Members of the Committee that something should be done to exclude individuals and transactions which all felt should not fall under the scope of the Bill, and at the same time to avoid throwing the door wide open to a new avenue of share-pushing. In this new Clause I think the balance between the two extremes has been fairly kept. I believe that the new Clause will do away with nearly all the grievances to which attention was called in Committee, and I do not think that in practice it will give any increased opportunity to the share-pusher. It is in the hope that I have thus met the wishes of Members of the Committee that I have moved the Second Reading of the new Clause.

4.13 p.m.

Mr. T. Johnston

I think I can speak for every hon. Member on my side who was a Member of the Standing Committee when I say that this new Clause meets the points raised upstairs. We certainly have now protected municipal corporations, which were not protected previously. We have certainly protected industrial and provident societies and building societies. The second part of the new Clause deals in a different way from the way that we recommended in Committee, with the solicitor in practice who dealt: occasionally in the buying and selling of securities and of whom it was difficult to say that he was in the business of dealing in securities. We proposed in the Committee that where a solicitor drew a commission from the sale or purchase of securities he was acting as a stockbroker and not as a solicitor, and we endeavoured to get a solicitor in such a case brought within the scope of the Bill. But the President of the Board of Trade has taken a different view. He says now that a solicitor in such a case ought not to be regarded as a stockbroker and that he will deal with him in another way. He says that any solicitor who purchases or sells stock for a client through a recognised stockbroker or through an exempted dealer in securities will escape the necessity of being registered.

On the whole the right hon. Gentleman has found a better way than the way that we proposed in Committee. The solicitor who occasionally engages in this business, if he buys or sells through a recognised broker, we do not now touch, but if he engages in the business or holds himself out to be engaged in the business of buying or selling stocks or shares, I take it that he still requires to be registered individually as a dealer, and therefore he will come within the terms of the Bill. It is right that that should be so. In Scotland last year a number of solicitors who were engaged in the buying and selling of shares had to be disbarred from their profession because of what they did to their clients. It is not right that the community should be required to wait until long years afterwards before a solicitor is caught at this game and disbarred before his nefarious activities can be stopped. Therefore, we think that, on the whole, the right hon. Gentleman has taken the better way. Provided a solicitor buys and sells through a recognised dealer registered under the Bill the Board of Trade can keep control of the registered dealer, and the registered dealer in his turn is bound to impose some kind of discipline on the people who deal with him. If the Government keep control of the registered dealer then, as far as I can see, the new Clause meets the wishes of those who desire to have the firmest possible form of control without in any way affecting legitimate interests.

4.17 p.m.

Lieut.-Colonel Sir A. Lambert Ward

The Clause undoubtedly improves the Bill in many ways, but, at the same time, I think it is somewhat indefinite, and does not touch in any way the rather vital question which has been raised on several occasions, namely, the definition of what actually dealing in securities really means. To the legal mind it is a question of fact, but to the lay mind that is a phrase which is always used when they cannot give any better definition. Let me put the question from a personal point of view. I buy stocks and shares as an investment from a registered dealer; it is very doubtful whether I can buy them from anyone who is not registered. But having bought them, I can certainly sell them only through a registered dealer. I cannot sell shares to a friend or to my brother without the transaction going through a member of a recognised stock exchange.

Mr. Stanley

It is only if the hon. and gallant Member carries on the business of buying and selling shares.

Sir A. Lambert Ward

But we have no definition of what "carrying on the business" means. It is possible for me to sell something to my brother once, but if I do it two or three times I may bring myself within the purview of the Bill.

Mr. Stanley

Perhaps the hon. and gallant Member's brother would not buy from him two or three times.

Sir A. Lambert Ward

The right hon. Gentleman has certainly a poor opinion of me. As it happens, I have no brother, but I think if I had he would have a higher opinion of me than the right hon. Gentleman has. But the President of the Board of Trade has not controverted the statement I have made. Let me put another case. I have a friend abroad who thinks he has got hold of a good thing. He does not usually work through a broker, and he cables to me asking me to buy a certain amount of certain stocks and shares. As far as I can see I am rendering myself liable to six months' hard labour if I do. These, after all, are cases which do not occur very often, but I think some attempt should be made to make clear who actually is a dealer and to what extent an amateur, if I may call him so, may sell to his friends or to his family, or on behalf of people for whom he is a trustee, without rendering himself liable to all the pains and penalties under the Bill.

4.21 p.m.

Mr. H. G. Williams

The right hon. Gentleman in his new Clause has met a number of the points which were raised in Committee, including the underwriter point to which I drew attention. As far as the hon. and gallant Member is concerned, I do not think he need worry. I am not a lawyer, but it is quite clear that "carrying on the business" is something different from carrying through an occasional and isolated transaction. The test is, are you engaged in doing it regularly? If you do it occasionally, it is not "carrying on the business," and in practice there will be very little doubt about whether a person is or is not carrying on the business.

4.22 p.m.

Mr. Dingle Foot

I beg to move, as an Amendment to the proposed new Clause, in line 9, at the end, to insert: (d) any solicitor dealing in securities for, and on behalf of a client. I am moving the Amendment in order to ask the right hon. Gentleman to throw a little more light on the position of solicitors. As he is no doubt aware, the provisions of the Bill are regarded with a certain amount of alarm by solicitors in Scotland. As part of a solicitor's ordinary business it happens that transfers are carried through in many cases without the assistance of stockbrokers. I understand it is the common practice to divide up the securities among the beneficiaries under a trust, who are usually members of the deceased's family, and in some cases to transfer the whole of the securities to a residuary legatee. It frequently happens that these transactions are carried through by the solicitors. It does not seem to me that the position is entirely covered by the new Clause, and I should have thought it would have been more satisfactory to include solicitors among the exempted classes. The right hon. Gentleman has referred to other organisations, the Stock Exchange, whose members are subject to some form of discipline other than that imposed by the Bill. I should have thought that this clearly applies to the solicitors' profession. At any rate, this is a matter which has been regarded with some alarm by solicitors in Scotland, and I should like to have more explanation on the point.

Mr. de Rothschild

I beg to second the Amendment.

4.24 p.m.

Mr. Stanley

This is not an Amendment which I can ask the House to accept. The hon. Member for Dundee (Mr. Foot) has drawn attention to the fact that certain classes are exempted on the ground that they impose internal discipline on their members, and he says that as solicitors are under an internal discipline, why should they not be exempt? The answer is that whereas the internal discipline of the Stock Exchange is directed entirely to prevention of exactly the kind of abuse we want to stop, the internal discipline of the solicitors' profession makes no provision for Stock Exchange transactions at all. If the Law Society or the corresponding bodies dealing with solicitors in Scotland were to adopt rules which in the view of the Board of Trade amply safeguarded the discipline of their members, not as solicitors but as people dealing with stocks and shares, they would be entitled to come to the Board of Trade and ask for exemption on the ground that they were a recognised body. But I feel that it would be quite wrong to exempt solicitors. What is the position? As long as a solicitor buys and sells shares through a stockbroker he is exempt, but the transaction which would bring him within the Clause is where a solicitor himself sells shares to the public. Although the vast majority of solicitors are people whose reputations are beyond doubt, you find occasionally black sheep in their profession. The right hon. Member for Stirling (Mr. Johnston) has told us of several black sheep who have been brought to light—

Mr. Johnston

Twenty-four of them.

Mr. Stanley

The hon. Member will realise that, in so far as it is part of the practice of a solicitor who has charge of a deceased's estate, which includes a certain number of shares which it is difficult to sell, in so far as that is an individual transaction relating to the estate, no court would hold that he was carrying on the business of dealing in stocks and shares, but if that is done regularly, if it becomes part of his business to buy from one client or a member of the public and sell to another client or to another member of the public, then, whether he calls himself a solicitor or not he is carrying on the business of dealing in stocks and shares, and, like everyone else, must come under the discipline of the Bill.

4.28 p.m.

Mr. Silkin

As far as I know, members of the solicitors' profession do not ask for any provisions which are not offered to other sections of the community. I do not know whether the Popular Front has suggested this Amendment as one of the blessings they desire to impose upon us, but we have not asked for this blessing. If a solicitor is engaged in an ordinary transaction on behalf of his client he would expect to be exempt, but if he is engaged in dealing in securities for and on behalf of clients he may well expect to come within the definition of those who should be registered, and I think he ought not to ask for exemption. It is easy for a solicitor to become a cloak for illegal and improper practices, and it seems to me that the Amendment would permit this. I am glad that the Minister is not prepared to accept the Amendment.

Amendment negatived.

4.30 p.m.

Mr. Spens

I beg to move, as an Amendment to the proposed new Clause, in line 18, to leave out "and."

This is one of three Amendments which I have been asked to move by the Institute of Auctioneers. It appears that there are certain firms in this country who do business by selling at public auction stocks and shares, mostly con- sisting of blocks of shares in public utility companies. It occurs, for instance, when they are selling up the assets of a local bankrupt firm or the assets of an estate. The transactions are not frequent, but it may very well be, and probably it is in certain cases, that one or two firms who repeat these sales sufficiently often may be said to be carrying on the business of dealing in securities, within the wide wording of the definition.

This is a Bill that deals with what is colloquially known as share-pushing. It is true that these are sales to the public, and I listened with some apprehension to what my right hon. Friend said was his guiding principle in the new Clause, because I realise that in asking for this Amendment I am asking to have excepted from the dealings in shares one type of means of selling shares to the public. It is, however, a very special type, where the advertisements of the shares to be sold are in writing, or verbally given from the rostrum. They are properly advertised, and notice is not sent secretly through the post to individual victims or hawked from door to door, which is the method of the share-pusher. The actual sales are effected in the auction room, and it is impossible to conceive that any auctioneer will ever succeed in getting into the auction room the type of persons who are the normal victims of the share-pusher's efforts. I cannot imagine an auction room filled, for the sale of a few shares in a public utility company, by people who would be the victims of the share-pusher.

Therefore, the circumstances in which these sales take place are entirely different from the manner in which the ordinary share-pusher hawks his goods, and the transactions, although in certain cases they may amount to a considerable sum in the course of a year, are not very frequent. It is impossible for any share-pusher to be able to take advantage of this method of disposing of stocks and shares. In these circumstances, I suggest that it might be possible for my right hon. Friend to accept this particular method of selling shares by firms of auctioneers. Auctioneers already have to be licensed, and it is not every person who could have the right to auction shares.

4.33 pm.

Mr. Denman

I formally second the Amendment, but I should like to add that, in common with the hon. and learned Mover, I am well acquainted with this perfectly beneficent practice of selling shares by auction. There is a particular class of security which is very frequently sold in this way, and that is the reversion of shares. I can hardly imagine that this well-established practice of auction shares was intended to be excluded by the Bill, but no doubt the President of the Board of Trade will make plain the exact effect of the Bill as it now stands.

4.34 p.m.

Mr. Stanley

My hon. and learned Friend moved his Amendment in such a persuasive way that it is difficult to refuse him. However, I am going to face that difficulty. He said, with complete candour, that his Amendment cuts across what I laid down as the principle underlying the new Clause, namely, that the chief danger of share-pushing lay in the ability to sell to the public. Therefore, the exemptions granted in the Clause were the exemptions which did not entitle sale to the public, whereas the Amendment cuts clean through that principle, and would enable auctioneers to sell shares to the public by auction. On that ground I could prima facie reject the Amendment. On the other hand my hon. and learned Friend was perfectly fair when he recounted the normal practice of the auctioneer, and said that a practice of this kind leaves little or no scope for share-pushing.

I think the amount of the shares sold at auction by the ordinary auctioneer is very small, and that there would be very few cases where he would be brought under the terms of the Bill on the ground that he was carrying on the business of dealing in stocks and shares. There are cases, and I know of one particular case, where the whole thing is conducted in the most reputable way; but I have to ask myself not how the business is conducted now, but how it could be conducted after the passage of this Bill; when I have tried to stop up every other avenue for share-pushing and this one has been left open. These people are now conducting these auctions properly, at a time when share-pushers have infinitely easier ways of getting rid of their shares, but if I left this practice to continue it might attract the class which we hope we are driving out of the methods which they are now pursuing.

Therefore, I see considerable dangers that would arise from this practice. Soon after the War this method was adopted by share-pushers in carrying on their activities. It is true that it was not a great success then, because they had other methods which were preferable, but I think it is clear that this is a method which could be made use of by the share-pusher, especially having regard to the power of circularisation which would attach to the exemption of sales by auction under Clause 11. In view of some prospective auction the auctioneer might circulate a catalogue containing particulars of shares which he would not be entitled to circulate otherwise. That would give an opportunity for the share-pusher to use this ability to circularise members of the public, with a view to following up the circular afterwards. I do not think that many cases will be affected by the rejection of the Amendment, or that in those few cases where the auctioneer will come under the scope of the Bill it will be really any substantial hardship or inconvenience to him to get the same permission, which will be readily granted to any honest, reputable person, on the same conditions on which anyone who deals in stocks and shares will be expected to acquire it.

Amendment negatived.

Clause added to the Bill.