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   Chapter 45 STOCK AND PRODUCE EXCHANGES

Up To Date Business By Various Characters: 7857

Updated: 2017-12-06 00:03


THE STOCK EXCHANGE

The stock exchanges of the world must not be considered simply as noisy congregations of brokers speculating in securities under the guise of legitimate business. They really play an important and necessary part in the financial mechanism of the country, and are instruments of enormous value in subdividing and distributing capital, and in directing its employment in great commercial and industrial enterprises.

The largest stock exchange of the world is that of London. It is not only the centre of the English market for stocks and securities but, like the Bank of England, it is linked internationally with nearly all the financial centres of the world. Almost every reputable security is marketable in London, either through the ordinary channels provided by arbitrage dealers, who buy in the cheaper and sell in the dearer markets, or through the agency of trusts and investment concerns. The magnitude and extent of the financial resources of the London Stock Exchange are enormous. Its advantages to the business public outweigh altogether the drawbacks imposed by the too-speculative spirit of mankind. It is a great business barometer, extremely sensitive to all conditions likely to disturb the world's finances. The London Stock Exchange has scarcely more than one hundred years of history. In the early part of the century the elder Rothschild was one of the giants "on 'change," and it was in this business that he amassed the great fortune which makes the name of his house a synonym for money power. The membership of the London exchange is not limited to a fixed number, as in Paris and New York. In the Paris Bourse all agents are strictly forbidden to trade on their own account.

The Paris Bourse.

The New York Stock Exchange was formed in 1792. There are 1100 members. Members are elected and must be nominated by two men who will say that they would accept the uncertified cheque of the nominee for $20,000. The initiation fee is $20,000. Memberships have sold as high as $32,500, and the market value of a seat on the Exchange varies only slightly from year to year.

Interior view of New York Stock Exchange.

There are stock exchanges in all large cities, and scattered throughout the country in convenient centres are grain and produce exchanges, cotton exchanges, petroleum exchanges, etc. These exchanges are really the central markets for the commodities they represent. Commodity exchanges deal in actual products, even though the dealers handle nothing but warehouse receipts or promises to deliver. Stock exchanges deal in credits and securities, which may or may not have a tangible value back of them.

There is no reason why bonds and shares should not be publicly dealt in-and in large quantities-as well as dry goods, corn or cotton; but, unfortunately, few stock exchanges confine their transactions wholly to legitimate business. You will look in vain in the quotations for the stock of dozens of corporations whose securities are among the choicest investments. It is upon fluctuations that stock speculations prosper, and it is often true that the largest profits are made on the poorest stocks.

Transactions are quickly collected and reported to the world. In hundreds of offices in New York, Chicago, and other American cities may be seen a little instrument called a ticker, which automatically prints abbreviated names of stocks, with their prices, on a narrow ribbon of paper. These tickers are rented to these offices by the telegraph companies, and as fast as the sales are made the quotations are ticked off in thousands of offices in all parts of the United States.

TECHNICAL TERMS OF STOCK EXCHANGES

The term bull is applied to those who are purchasers of stock for long account, with the purpose of advancing prices, as the tendency of a bull is to elevate everything within his reach. The term bear is applied to those who sell s

hort stock, with the purpose of depreciating values. The bear operates for a decline in prices. The broker's charge for his services is called a commission, which in the New York Stock Exchange is one eighth of one per cent. each way on a par value of the security purchased or sold. A point means one per cent. on the par value of a stock or bond. Stock privileges or puts and calls are extensively dealt in abroad and to some extent here. A put is an agreement in the form of a written or printed contract filled out to suit the case, whereby the signer of it agrees to accept upon one day's notice, except on the day of expiration, a certain number of shares of a given stock at a stipulated price. A call is the reverse of a put, giving its owner the right to demand the stock under the same conditions. A put may serve as an insurance to an investor against a radical decline in the value of stocks he owns; a call may be purchased by a man whose property is not immediately available, but who may desire to be placed in a position to procure the shares at the call price, if they are not below that in the open market when he secures the necessary funds. The speculator usually trades on margins. If he has $500 to invest he buys $5000 worth of stock, his $500 being ten per cent. of the total amount. He expects to sell again before the remaining amount falls due. The margin is usually placed by the speculator in the hands of a broker as a guaranty against loss. Although these brokers are really agents for others, yet on 'change they stand in the mutual relationship of principals. A margin is merely a partial payment, but a broker buying stock for a client on margin is compelled to wholly pay for it. If he has not the necessary capital his usual custom is to borrow from banks or money-lenders, pledging the stock as collateral security. In foreign exchanges the element of credit enters more largely into the conduct of business. Where the credit of the client in London is established his broker does not, ordinarily, call on him for any cash until the next "settlement day." A wash sale is a fictitious transaction made by two members acting in collusion for the purpose of swelling the volume of apparent business in a security and thus giving a false impression of its value. Stocks sell dividend-on between the time the dividend is declared and the day the books of the company close for transfer; after that they sell ex-dividend, in which case the dividend does not go to the buyer. When a company decides not to declare a dividend it is said to pass its dividend. To sell stock buyer 3 is to give the buyer the privilege of taking it on the day of purchase or on any of the three following days, without interest; and to sell stock seller 3 is to give the seller the privilege of delivering it on the day of purchase or on any one of the three following days without interest. Buyer 3 is a little lower and seller 3 a little higher than regular way when the market is in a normal condition. Bucket shops are establishments conducted nominally for the transaction of a stock-exchange business but really for the registration of bets or wagers, usually for small amounts, on the rise or fall of the prices of stocks, there being no transfer or delivery of the commodities nominally dealt in. There are thousands of these counterfeit concerns throughout the country conducted without any regard for legitimate commercial enterprises.

FUTURE DELIVERY

Grain is stored in warehouses until needed for milling or shipment. When we speak of December wheat we mean wheat that is to be delivered to the buyer in December. The carrying charges include storage, interest, and insurance, so that wheat sold for May delivery would necessarily bring a higher price than wheat sold for December delivery. Carrying charges are in favour of the short seller. When sold for immediate delivery it is known as cash grain.

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