The Sun.
London, England, 1841-12-09 00:00:00

STOCK EXCHANGE BUSINESS.

(From the Times.)

A country correspondent having requested us to
afford him and other rural capital sts some insight into
the fornis and regulations according to which the pur-
chase, cab, and ." carrying over" of stock and share:
are effceted by the brokers belonging to the Stock
Exchange," we proceed, in compliance with his re-
quest, to lay before our readers the information re-
quired in as clear and concise a form as possible.
This curious and complicated subject may be ex-
plained and discussed under three &Emit beads—viz.,
first, the parties engaged in stock transaction:, whe-
ther brokers or jobbers ; secondly, tn,ney and time
bargains ; thirdly, the rules and regulations by which
these operations are conducted.
The clearing-house i❑ Lombard-street affords the
greatest faclities to the transactions of the Stock Ex-
change, inasmuch as, without its intervention, difficul-
t:es and embarrassments would present themselves in
the final settlement on adjustment of those transactions,
of an almost insurmountable character. By means of
this clearing-house, all the great monetary transactions
of the day are brought to a close by five o'clock in the
afternoon, whereas, in the ordinary mode of paying or
receiving money, whether in notes or hard cash, their
settlement might not he finally effected for several days
afterwards, to say nothing of the security afforded to all
parties concerned by the' operation of the clearing-house.
The members of the Stock-Exchange are divided
into two distinct classes—viz., the brokers and the job-
bets. It is the business of the brokers to receive and
to execute the orders of merchants, bankers,
capital-
ists, and private individuals, who are " out of the house ;"
the Stock Exchange being amongst its own members
honoured with that dignified appellation.
The jobbers remaiu stationary in the " house," and
ready to act upon the orders thus received by the
brokers. And here it may be as well to explain
the nature and character of the business transacted
by these jobbers, who, being men possessed of more
or less capital, endeavour to tu-n it to account in
the manner we are about to explain. It is their
business to be always prepared to make a price
to the brokers whenever the latter present them-
selves ; the readiness which they display iu offering
to do business to large amounts at the apparently
small difference of one-eighth per cent, would appear
extraordinary, were it not that they are so numerous
that an eager competition is excited amongst them for
the favours of the brokers. When one of the latter ap-
pears in the market, he is surrounded by a knot of job-
bers, who announce themselves ready to buy or sell
whatever amount of stock he has to deal in at a price
varying only one-eighth per cent. For instance, if a
broker has to do business in 5,000/. Consols (the market
price being about 90), the jobber offers to buy his 5,0001.
at 90, or to sell him that amount at 94, without being
in the slightest degree aware whether the orders of the
broker are to buy or to sell, and thus taking upon himself
the risk of selling that which he does not possess, or of
buying what he does not intend to keep ; his only object
being to undo his bargain, at a difference of one-
eighth per cent. (or even less) with another broker,
who may have to effect an operation the very reverse of
the other, which one-eighth;or even one-sixteenth con-
stitutes his profit.
The business of the jobber is one of loss as well as
profit : he would soon grow rich were be sure of reali-
zing his one-eighth per cent. on all his transactions.- He
runs, however, considerable risk, inasmuch as, after hav-
ing concluded a bargain, and whilst endeavouring
to obtain a profit thereon, the market may sud-
denly change, either in consequence of extended
sales or of continued purchases by other indivi•
duals ; he is thus exposed to a lose. A clever and
experienced jobber will, however, often extricate
himself from his unpleasant and awkward situa-
tion, either by borrowing stock to deliver to the
broker, or money wherewith to pay for the stock
(as the case may be) ; and thus wait for the more
favourable opportunitY of undoing his bargain. He
may also have recourse to an " option," a transac-
tion, however, which besides being illegal and not
recognised by the Comillittee of the Stock Exchange,
is chiefly confined to the speculators within the
house, and is, moreover, so intricate and complicated,
and at the same time depends so much upon the opinion
and caprice of the parties who deal in them, that any
explanation respecting it would be extremely difficult,
if not utterly superfluous.
Vs ithout the intervention of the jobber, therefore,
it will be seen that there would exist a vast diffi-
culty in effecting the transactions which daily take
place : the jobbers are, in fact, the " middle-men,"
who stand in the house in the character of dealers,
always ready to buy or sell, thus obviating the ne-
cessity of the broker's going in quest of a second
broker, with whom he might transact his business ;
or in other words, whom it might suit to buy what
the other broker had to sell, or vice versa. Again,
even if one were at hand, he might not be able to
concur in the actual amount of stock which the
other wished to deal in, whereas the jobber is ready
to do business to any amount, even to the smallest
fraction, and hence a great deal of time is saved. It
often happens that a broker who bas to dispose of
shares not currently dealt in, is frequently obliged
to wait for months before he can find a purchaser ;
whereas, in the case of stock, the jobbers offer them-
selves as buyers or sellers at a moment's not'ee, and
thus offer facilities for transactions in the public funds
which could ❑ot be effected without them.

Having thus endeavoured to explain the difference
between broker and jobber, and confined our atten-
tion hitherto to money transactions, we next pro
teed to describe the nature of " time-bargains," which
form so essential a feature in stock business. Indeed,
the very existence of the Stock Exchange, as at
present constituted, depends upon speculations in
time-bargains, for where there exists a body of GOO
members, the actual bona fide business would not he
sufficient to provide .employment for them all, not-
withstanding the magnitude of the national debt.
Time-bargains consist of purchases and sales of stock
made for a certain fixed period, regulated by the
Committee. There can be little doubt that they had
their origin in the business which has always been
teansacted in the funds during the periods when the
stocks are shut. For instance, Consols usually close
about the beginning of June and December ; that is
to say, the transfer books at the Bank are shut for
the space of five or six weeks, in order to afford time
for the preparation of the dividend-warrants, which
are paid in the following July and January. Hence
it is clear that a person wishing to buy or sell that
particular stock during the period referred to, would
be unable to effect his object ; but in order to secure
the price of the day, he buys or sells the stock " for
the opening"—that is, for actual transfer on the day
on which the transfer-books are re-opened. Tnis
mode of doing business is legitimate enough, but this
practice has no doubt given rise to operations of the
greatest magnitude, founded, not on actual necessi
tics, but merely on speeulation ; and this method
being found convenient for one period, has been con-
tinued on other occasions, without, however, possess-
ing the same pretext for is adoption. Periodica,
dates have, consequently, been fixed upon by the
Committee, similar to the " opening" at intervals of
about six weeks, making altogether about eight
" settling days," as they are called, in the course of
the year. Oa these " settling days" are arranged and
adjusted all the bargains made during the preee ling six
weeks, for that particular day ; those who sold stock
hatieg to deliver it on the one hand, arid those who
purchased having to accept and pay for on the other
But as the msjority of the specu'ators have no intention
of doing either the one or the other, their bargains hay-
.ng been of a purely speculative character, foanded on
their ant:cipations of a rise or fall in the value of the se-
curities, so wha`ever difference may exist between the
price at which a party commenced his speculation, and
that at which he finally, closed it, is settled on this im-
portant day ; and his operations most likely not having
been confined to the aims jobbers, but having been of
fected with sev‘aial, it becomes necessary to balance
them with the parties concerned, and much the same
process takes place on this occasion as that practised a•
the bankers' clearing-house, by establishing balance-
between each other. Whatever balance remains un-
ttled is adjusted by the names of the bone fide pur-
chaser of the stock (who intends to pay for it) being
passed from one broker, or jobber, or speculator, to an-
other until it comes into the hands of the party who in-
tends to deliver or transfer the stock, by which mean:,
al the irtermediate persons through whose hands it
passes (the price given by the purchaser being marked
on the ticket) ase enabled to close their accounts with
each other at that particular price, and to pay and re-
ceive the differences accordingly. In short, all trans-
actions kept open until the settling-day must then
be closed, and the party who delays this operation until
the last moment is often exposed to a loss, from the dif-
ficulty of finding others, who, having adjusted their own
accounts, are unable or unwilling to enter into a fresh
transaction on this " day of reckoning," whereby he is
compelled to pay something extra in the price to those
who have it in their power ta afford him this facility, in
order to enable him to settle his account.

But, a 3 many of the bargains made for this particular
day ate really bona fide- transactions, the stock bought
and sold being in point of fact delivered by the actual
holder and taken by the new purchaser, let us briefly
explain how this is effected. This process is one of
daily occurrence and is not necessarily confined to f,
icttling-day,
although on such occasions it usuall:
amounts to a considerable item, from its having ex-
t2nded over a wider period. In either case, however,
the following is the way in which the matter is settled
between the broker and his principal who has sold stock :
—The broker usually passes his check for the proceede
of the sale to his principal, taking the precaution of
crossing it—i.e., writing a banker's name across the
check. When, however, Bank of England notes are
demanded in lieu of crossed checks (as is sometimes the,
case), the bargain is made accortlaigly : in this case, the
jobber who buys the stock provides them either by bor-
rowing of those who happen to have large balances at
their bankers, or from their own private bankers. The
notes so borrowed by the jobber are then paid over tc
the broker, and by him to his principal. This operation