The Saint Paul globe. (St. Paul, Minn.) 1896-1905, 1899-10-16

who Is obliged to borrow $5o,O0O the bank
will require stock collateral having a.
market value of 100000 or $4,000, accord
ing to the character Of the securities
| used.
INTEREST ACCOUNT TRICKS.
The interest which Sharp has to pay
upon this loan is an important factor
brokers make considerable profit on in
| terest accounts" The customers are of
| course, charged with the interest, and
this is one of the tricks of the brokers'
trade. If the prevailing rate for money
| Is 4 per cent, the customer is usually
| charged 5, and the customer has to pay
interest on his full debt TO the broker.
Lamb will have to pay Sharp & Quick
per cent on $4,000, and the other GUS
| toners will have to do the same on their
stocks. Consequently the firm will get
| on this day interest on all the stock it
purchased, which, according to the clear
| ing house sheet. amounted to $500 01O
| But the firm settled it's debt to the clear
ing house by paying only $50,000-it had
to borrow and pay interest only on that
amount. 1t can readily be seen that in
terest accounts pay handsome profits
LENDING STOCKS TO SHORTS.
The other way in which Sharp &c
| Quick may get the necessary $50, 600 is by
lending stock. "Short selling" as will
be shown later on, is the selling Of Dor
rowed stock, and there IS on the stock
exchange what is known as a loan
| crowd" where stocks are offered to spec
ulators who have sold short" and VINO
have to borrow what they have sold in
| order to deliver 1t. If Sharp lends the
hundred shares OF st. Paul which he
| bought for Lamb, he receives from the
borrower check for its market value,
and on this money he pays the borrower
| the rate of interest prevailing for call
| leans If there is scarcity of the stock
he will get a concession from the Dor
| rower-he will arrange to pay d lower
rate Of interest for the cash collateral.
| He may even lend his stock fiat" which
| means that he may get the use Of the
money and have to pay no interest at
| all. Stocks are loaned fiat when they are
scarce in the loan crowd and when
! shorts have to make great concessions
! in order to get them. In fact, oftentimes
| the shorts pay premium for borrowing,
! in addition to giving the lender free use
! of the money put up as security.
HOW STOCKS ARE DELIVERED.
| But where is Lambs stock? How uOes
his broker, Sharp, get what he has bought
| and paid the clearing house for? ProPa-
| bly, he doesn't get it at all; and, in any
| event, he doesn't get it from Sly, from
! whom he bought it. If Sharp had another
| customer who on-the same day sold 100
| shares of ST. Paul lie gets no stock at al,
| for the hundred shares bought for Lamb
| and the hundred shares sold To-. the other
customer make what gamblers call
| stand off, However, in Sharp's office
| on this day there was no seller of St
| Paul, and consequently there Is due le0
| shares of0the stock But suppose that
| Sly, who sold the stock, also purchased
! 100 shares, and hence does not have to
IL aln 4
! arranges all this. The clerks there bal
ance all the purchases and sales Of St
| Paul made on the exchange during the
| day and find that Sharp < Quick are
| owed 100 shares, and that some other
| broker who sold without buying, )r sold
more than he bought, owes a like
| amount; thereupon Sharp & Quick are
| sent a notice telling them who is to deliver
| the stock to them, and the other broker
| is notified to deliver 100 shares 20 Sharp
& Quick. The delivery is male on the
| day following the sale, and Sharp then
has the stock to use as collateral or to
lend out.
STOCK READY TO BE SOLD.
And so Lambs stock is at last secured,
and he has it until he gives the order to
selI-or, more properly speaking, his ac-
count stands credited with it until that
| time. And when he gets ready to sell, at,
say 1876, he writes out another order, the
clerk at the board phone sends it over his
wire to the stock exchange, Quick gets it,
and, rushing to the ST. Paul crowd sells
this time, instead of buying, and III The
regular order of events Lamb gets an
other written report, which reads: I'VE
have sold for your account and risk 10
shares of st. Paul at 49, And he closes
! up his trade" richer by $500, having CIV
! en- his broker commissions and interest
| Oh, IN
ingly, a great. and intricate machine, of
| which he WotS not.
THE MYSTERY OF SHORT SALES.
| A word as to selling short"-the most
| difficult OF all Wall street transactions
to understand. To the lay mind it is an
mpossibility to sell what one has not got.
Yet it is done in Wall street in hundreds
of thousands of shares every day.
Let US suppose that Sly, who sold tie
hundred shares of St. Paul to Quick, was
acting for a customer who believes that
the stock is going to depreciate in vdiue
and who wants TO make money out OF
the expected shrinkage, who sells at 100
with the hope of buying back at Us or
lower; the idea being to sell the stock
when it is worth $4,000 for the hundred
shares, and to buy il back when. al 1E5,
it is worth $l2, 800, thereby making SEQ
on the transaction. In Lambs case. if ST.
Paul goes down in price there will be
loss. In the case of Siy's customer there
will be a loss if the stock goes up. Lamb
wins when Sly's man loses, and vice
versa.
This customer of Sly's has no st. Paul
to sell, and consequently after Sly has
said Sold" to Quick he must go into the
loan crowd" before described, and Dor
row 100 shares of st. Paul, for which ne
must deposit with the lender $4,000. On
49, h iy1tn a la .
per cent.
This stock he delivers to whoever the
clearing house designates, and 80 is
"short" for his customer. II the man
from whom he borrowed vans the stock
at any time before the customer is ready
to buy 1t back Sly must repeat the Dor
rowing operation and supply the first
lenders demand with hundred shares.
newly borrowed And so he keeps on Dor
rowing and paying back the stock until
his customer is ready to cover" or buy
in what he sold short. In each ease.
when he returns the stock the amount of
the cash deposit is returned to him, with
interest When finally his customer is
ready to Cover the money returned is
used to pay for the stock bought in.
All this is only u bare outline of what
keeps Wall street busy. The magnitude
of the stock exchange scheme and the in
tricacy of the machine must be known to
be appreciated And it appears all the
more wonderful when it is considered
that what has been described takes place
every day in hundreds of thousands Of
shares. sometimes over 100000 and each
transaction is cleared up and settled
within twenty-four hours of its begin
ming.
RARITY OF HYDROPH0BIA.
The Popular Name Of the Dreaded