Savannah morning news. [volume] (Savannah) 1868-1887, 1886-09-09
AKBIrRAGE SPECULATION.
A New Scheme Worked by s'hrcwd
Stock Operators.
Fron B adst5c ef'

Wrltlng or tnOS6 VINO nave 10 40 WIN tHs
affairs of W all street, but which to the
greater part of the public refers to mys
FERROUS and unknown part OF the business
of the street. The word itself is OF foreign
origin, and, primarily meaning an exer-
else of judgment, has come In the technl-
cal sense which it contains in the stock
Exchanges jargOu to mean trahc IN
stocks which bear differing values al Inc
same time in different markets. 1t IL one
of the possibilities which the cable
has opened to the speculative activity
OF Wall street and Capel court. be-
tween which The largest operations OF the
kind are transacted. 70 carry II on sue
lcessfully requires two parties, who ope-
rate simultaneously. or nearly so, In both
the London and New York markets, and
is therefore here at least confined to some
OF the largest firms on the street with
such foreign connections. Al present the
operations Of these arbltrage houses, as
they are called, If often considerable
item IN the sum of the share speculation
in Wall street. Their buying or selling,
as the case may be, may be
instrumental In raising or de-
pressing the stock market, and
foreign exchange is often affected by the
Offering of arbitrage bills drawn as part
of operations of this kind. A consider
able portion OF what is called buying or
selling for "forelgn account Is simply
the activity of
"ARBITKA
With a number of active American
Stooks, such as New York Central, Erie,
st. Paul, Louisville and Nashville and
Union Pacific, dealt III on the London
Stock Exchange, there rs ample oppor-
tunty presented tor arbitrage business.
IR view of its magnitude and the fact
that it has never been accurately de-
scrlbed, considerable interest attaches to
an article in a recent number of the Lon
don Statst, under the same title as the
one given above. Although taken from an
English point OF view, it is applicable to
the American side Of such operations,
and tho following extracts give a good
idea Of the business:
TIE afternoon cable race is one OF the
recent developments of stock exchange
enterprise. 1t is carried on In The inter
est of ''arbitrageurs," who buy and sell
Oh the small margin OF difference there
may happen to be between tue London and
New York markets. Arbitrage is also
practiced between London and the conti-
mental bourses, but on smaller scale.
1t is of foreign origin, and foreigners take
tbe lead in 1t even here. The market
which affords the finest scope for 1t is
American always, the daily fluctuations
in these stocks being active and the de-
viations from parity between London and
New York prices being often considera-
BILE. Parity" is a Capel court name
fir equality-that is, equality
between the price of stock in dollars and
in sterling. Roughly speaking, pound
sterling is the equivalent of SIS, but on the
Stock Exchange they have to calculate
hnaF than Tim tn ~
change varies from day to day and the
parity varies with 1t. Every morning it
will be found recorded in Reuters New
York prices. To-day 1t may come over
81 81, meaning thereby that the pound
sterling exchanges for 81 81. Tomorrow
IL may come over 81 80 or 81 IS. In the
former case the dollar price of a stock
would be worth little more IN sterling;
in the latter IL would be worth little
less.
Translating dollar prices into sterling
prices az the exchange Of the day involves
intricate calculation. Tables have been
framed to facilitate thr process, but an
expert "arbitrageur" carries in his head
about all he needs for his purpose. Reu-
ter's prices are given OF course in dollars
and the sterling prices average about 3
per cent. higher. Thus if the Wall street
quotation Tor ST. Paul were an even 100
the sterling equivalent would he 1903, more
or less, according to the exchange at the
time. The two markets, London aud
New York, move together as well as they
can, but not 80 closely that the arbitrag-
eur cannon get HE oar in here and there.
His business is to detect gaps between
tue latest New York prices and the CORE
spending prices in London. If it is only
"a per cent. he will cut in and "scalp" a
ANAL profit.
Tne New York Stock Exchange opens
at 10 O'clock, which in London means
alb 'ut Bin the afternoon. From 3:lb the
cablGs come pouring in. They come to
tue offices OF the arbitrage houses and
are there turned into sterling prices, and
these are compared with the London eri-
ces at TIE moment. Like flash OF light
ming the arbitrageur has to decide what
he will buy and what he will s3ll. He
PUSHES to the house and has his business
done tor him by brokers as smart and
keen AS himself. Then be cables back TO
New YORK 10 "cover'' his transactions,
that Is, 10 buy against what lie has sold
nr to sell against what he has bought. 1t
may he that his partner or agent In New
York has entered INFO transactions which
he must cover here il he can. The game is
PLAYED SIMULTANEOUSLY
from both ends, and, like duplex tele-
Rrapuy, JneIe are generally TWO accounts
0f speculation crossing each other.
Scores of buying and selling may be going
on together, each OF which carries a GER
tain amount OF risk, but the arhitraguer's
hope is TO come out right on the general
balance. In the first cable he opens he
may see New York Central quoted at
ll0A, the parity OF which, at the current
rate of exchange, would be 1l3 AZ In sterl.
ling. The London price at the moment
may be ll4I; il he eau sell at ll4lS be
has fair cnance OF being able TO cover
at New York--that Is, buy against the
sale at the equivalent Of 1l3l6
In sterling. Should the New YORK
market remain as It opened till
his cable arrives and his agent
can execute the order, be will come on
with profit OF * per cent, less commits
sion and cost OF cabling. But he takes
the risk of New York rising in the inter-
val, IN which case bis agent has To cover
at loss or Keep the transaction open.
New York may have gone still weaker,
and the covering purchase may be made
so as to yield per cent. or more. Ii the
arbitrageurs are Duying they put IN
prices, and II they are selling they put
them down. it is only the early bird that
catches the arbitrage worm, and the late
birds are more likely TO be caught them
selves. Capel court and Wall street
are like two arms OF a delcately poised
balance. They are always deviating from
the level. but the slightest touch brings
them back 70 II. BY forestalling that
slight touch the arbitrageur makes his
living.