New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1911-04-15
INSANE THEN, RICH NOW A NEW EXCHANGE RULE
Members Must Charge Commits
Sions on Arbitrage.
LIKELY TO REDUCE PRACTICE
Trading of This Sort, Chiefly Be-
tween New York and Lon
don, by Gable.

The Governing Committee Of the New
York Stock Exchange has decided that the
business Of arbitraging as AZ present con-
Quoted. involves a violation Of the COM
mission law. and has adopted resolution
which will insure the payment OF the
regular commissions on arbitrage business
and incidentally will probably reduce
materially the volume Of transactions III
that field Last December the Governing
Committee appointed a special committee
of five To investigate the subject explain
ing its action In the following statement:
The Committee on Commissions re
ports. after investigation. that the arbttrase
/ business as conducted between this ex-
! change and the European exchanges mas
! practically nullifed the commission "a"
OF this exchange. ana recommends M
the matter he referred 10 a committee OF
| five for action
Between twenty and thirty Stock Ex'
| change houses are accustomed TO carry
on arbitrage opera tons in addition to their
ordinary brokerage business and represen-
tatives OF all Of these firms have been be
fore the special committee. in concurrence
with the conclusions reported by wh,ch
body the Governing Committee has passeo
| this resolution
| Resolved Whenever "A nor. memper OF
| this exchange shall cause to be executeu
/ In anv market outside of the United states
any order or orders for the purchast OF
sale of securities listed on ms eAcnamsi
! other than government state OF nun aIo
| cInal securities and said purchase or sale
shall be accepted by member or hrin
! who arc members of this exchange loi 'ne
| account of said non-member. one-elsn lI ~
! ! ner cent commission shall ne chaI So
| said non-member In addition 10 any com
mission charged by the party OF P"i"
making the transaction
The one-eighth per cent commission Is inc
regular rate which Stock Exchange ihen'-
bers are Obliged to charge all non-memoer
customers for the execution Of buying anu
selling orders in stocks. and severe penal
,iee arc visited upon members found guilty
OF splitting commissions
The business OF arbitraging, when j.
chiefly done between this city and London
is conducted under Joint account '~nich
means for their mutual benefit or risD be-
tween a New York Stock Exchange nrih
and a London Stock Exchange house ana 10
based upon the differences OF prices usuanS
ruling in a given stock in the two niarhets
at the same time. The transactions are
conducted by cable. as practically ihsta"-
taneous execution Of orders is usually nee
essary for the reaping Of proht Ohder
the system which for years has been In
operation IT has been profitable to make
arbItrage sales or purchases when the oil =
ference in price between New YORK ana
London is as trfing as one-eighth per cent
Suppose. for example. that Union facihc
is selling in New York at 1854 and IN Lon
don at the equivalent OF 1854 the price
difference. of course. being often CONSIDER
ably larger. The New York broker buys
/ 90 shares here and sells 100 In London
AZ the one-eighth advance, and wheh the
nrices reach parity. which result the ou!-
ing I'm the lower market and selling IN the
higher tends To produce. the operator closes
his transaction by buying where he SOLO
and selling where he bought his proht De-
ing REPRESENTED in the original difference n
nrice less the cable tolls and the stock
transfer tax This scslping proht Is neces-
| sarilv made possible only through absence
Of tho necessity OF paying commissions
/ Rut the local broker, operating in Joint
! account" with the London broker. is acting
/ for himself a 6 we'll as for the London man.
and on that theory charges no commission
Under the new Stock Exchange ruling,
/ however. tho regular one-eighth per cent
I commission Is henceforth 70 he exacted
from the London broker. and the virtual
splitting Of commissions" will no longer
| be countcnanced.