138 THE WORK OF THE STOCK EXCHANGE
not only to its customers but also to the other houses with
whom it has concluded contracts on the Exchange. Even if
the customer escapes with a slight loss, he is apt to blame his
misfortune on his broker, whose goodwill suffers thereby.
The Stock Exchange takes what precautions it can to pro-
tect margin customers against loss. It enables the margin
surchaser to place a stop-loss order in the market to limit a
possible loss. It exercises great care in the securities which
are listed in its market. Furthermore, it expressly provides in
its Rules (Chapter XII, Sec. 1):
The acceptance and carrying of an account for a customer, whether
» member or a non-member, without proper and adequate margin may
~onstitute an act detrimental to the interest and welfare of the
Exchange.
If, then, the Stock Exchange has not hitherto adopted a
Aat minimum amount of margin, it is not because its members
1o not wish to see reckless dealing prevented, but because such
an inflexible margin rule would prove impractical and useless.
For one thing, as the chairman of the Hughes Commission
pointed out,*® “the right of one private person to extend credit
to another is simply the right to make a contract, which, under
the Federal Constitution, cannot be impaired by any State
Legislature.” Moreover, such a uniform and absolute require-
ment regarding margin would make no allowance either for the
personal nature of all credit, or the vast difference between the
price movements of different securities. Most Exchange houses
would willingly execute orders from well-known customers on
smaller margins than they would accept from a stranger. Simi-
larly, there are many bonds and some preferred stocks which
could be purchased with relative safety on a slight margin,
while other securities, particularly high-priced common stocks,
would be a riskier purchase on a 50-point margin.
The “questionnaire” system adopted by the Exchange in
1922, compelled member firms to possess capital adequate to
eee aoe Wie. “The Hughes Investigation.” Journal of Political Economy,
