The Birmingham age-herald. [volume] (Birmingham, Ala.) 1902-1950, 1909-12-12
The Megv York Stock Eachange
BY C. C. sTARKE.

shop holding the stakes, handling the
quotations, deciding the bet, and collect
Ing the commission for services rendered.
In dealing on the New York exchange
the Spectator employees broker to buy
! or sell as his agent. and the broker is In
! no sense principal in the transaction.
The difference Is marked. With this
much of explanation, we leave the buck
etshop, a real enemy of the legitimate
exchange and one that has helped to
bring upon stock speculation the unre-
served criticism OF an outraged public
| conscience.
| Modern commercial development is on
| so vast a scale that it has long since far
| outgrown the individuals purse. Rail
! roads, factories and mines must be
| financed by distributing the risk among
thousands of bondholders and stockhold-
ers. The Pennsylvania Railroad COM
pany alone has about 5000 stockholders.
In fact, few people dream how numerous
and scattered have become the holders OF
corporate stocks and bonds. 1t Is well
such Is the case, for 1t makes for con-
seryatism in legislation, for better man
agement of corporations, and for more
stable conditions in general But to go
back, the moment stocks and bonds be-
came necessary to the business world.
out of that moment came the absolute
necessity for free market in which
these securities might be bought and
sold.
The ability to be converted at once into
cash without great sacrifice Is of more
vital Importance in stocks and bonds than
is the dividend. They must have a pres
ent, everyday cash value. which means q
perfectly free market. The necessity for
such a market seems almost too obvious
to require formal statement. The bitter
est opponent of the stock exchange must
| admit this. or else forfeit all right to
hearing. If It were not so, men would
hesitate to tie up their funds in securi-
ties with no cash value, or with cash
value much depressed by the difficulty
In finding purchaser. Here we have the
real function OF the stock exchange, and
1t plays no mean part in our wonderful
development. 1t is a place where ap-
proved stocks and bonds are listed and
may be bought and sold under the pro-
lection OF rules instituted by its governing
board. 1t has its advantage for the most
conservative and legitimate investor. Can
you conceive of an open, free market for
the investor without at once admitting
the speculator? The one is the compli-
ment of the other. failure to under
stand this has brought upon the stock
exchange the criticism of the thought
less, who, with blind prejudice and its
usual lack of investigation, proceed to
We have tried to point out the necessity
for an open and free market, which is at
once the opportunity for speculation and
the warrant for its existence. Most fully
and freely does the speculator use his OPP
portunity and In various ways. He may
buy outright for cash, intending to hold
for a brief time; he may buy on a mar
gin, allowing his broker to hold the stock
as collateral for the unpaid part of the
purchasa rrice. ha NAV sell short. that
is, may sell stock not yet purchased. In
which case his broker must borrow for
him the stock and deliver 1t to the pur-
chaser; he may buy or sell puts. calls,
and straddles to protect him in his ven
tures-all subject to the rigid rules OF
the exchange. But note well. he must
deliver stock sold by s:15 p m of the
very day of the transaction. or certainly
by a stipulated time on the day follow
ing. This last Is absolutely vital to be
understood by anybody who desires fairly
to study the methods of the stock ex-
change As has been said, II neither the
seller nor his broker has the stock to de-
liver. the broker must borrow It on the
best terms possible, or buy it When 1t
is recalled that hundreds OF thousands
of shares are traded In during the day.
the inconvenience of this salutary rule IL
obvious, and its literal practice would be
impossible This technical Difficulty Is
overcome by the convenient operation OF
the stock exchange clearing house. Here
thousands of shares are cleared after the
days business without the transfer or
stock certificates from one hand to an
other in Just the way that the bank
clearing house matches checks and trans
fers but a small percent of cash. Again,
such Is the facility of trading on the ex-
change the large floor traders, following
the market up or down, deal In thou
sands of shares before the close or the
day, buying and selling the same stock,
and yet find themselves at 2:15 with little
OF stock to deliver or receive. For In
stance, A sells B 100 shares Of Rock Is
land. B sells C 1000 shares OF Rock Is
land and later in the day A buys 1000
shares of the same stock from c. With
these three traders 5000 shares OF ROCK
Island have been bought and sold. and
vet not a certificate OF stock figures in
the transactions, the settlement only re-
curing an exchange of money. In the
same way in ordinary business, mans
promise in the form of g. note IL made
negotiable and is used In the settlement
OF accounts not at all involved In the
original transaction, in short 1t ctrculates
az money. The floor traders word Is as
rood as his bond, and his agreement to
buy or sell, noted in his book at the mo-
ment of trading, will later serve IN clear
ing accounts with his fellow brokers. IL
he falls to balance his sales OF the day
by an equal amount of stock purchased.
then a stock certificate must change
hands This practice IL utterly unknown
or misunderstood by the unimuateo. and
is the cause OF much of the cr1acism
visited upon the exchange
Before condemning the Spectator with
out reserve, It IL well to examine q row
simple transactions for comparison
Mr. has 5000. He buys house Tor
SIC. 600. paws $1,000 cash and gives his note
for the balance, secured by mortgage.
He does not intend to pay this mortsass
until he sells the house, and even tncn
the new purchaser may simply assume
n ana release A, In q month A sells the
house for 81, 900, farms 5000 cash and az
mmption Of mortgage. A now has dealt
In real estate on q margin OF 10 per cent
ana has made $1,000 on the deal. Certains
Nv nobody criticises him on account OF MS
now has 5000. He gives broker an
order 70 buv and deliver to him 100 shares
of stock at so per share. The trade -
Au,v rnade and the stock certificate Il de-
i,vered- In a week the stock sells at 40.
A sails out with a profit of $1,000 less COM
missions. Can anybody critictse him; he
bought for cash: he sold for cash, and
made $1,000 In q week. IT TOOK nun =
month to do the same in real estate.
now has an account at bank and
email line of credit. He orders his broksr
to buy and deliver to him somewhat
larger block Of stock than no can pay
for. The stock arrives, he borrows from
his hank and DAYS for II, putting up the