New-York tribune., 1913-09-22
FINANCE & INVESTMENT
Arbitrage Business
(FORTY-SIXTH ARTICLE)
BY Marc M. Reynolds.

One Of the most interesting and most
important divisions Of trading on stock
exchanges is the arbitrage business con-
Quoted between the stock exchanges OF
the principal financial centres. Arbitrage
transactions act as a balance in trading
and prevent wide variations in the prices
Of securities that are dealt In on more
than one exchange. Arbitrage business
Is made possible between New York. Chi
cago, Pittsburgh. Philadelphia and Bos-
ton exchanges I'm the issues quoted on
two or more of these exchanges. and
when there is any activity in the securi-
ties selected on the same day.
TO understand how prices may differ
on the different exchanges. 1t is only
necessary to refer to the effect of local
news on each particular exchange. ~ an
organization or corporation had It's chief
Office in Chicago, for instance, and some
news should be circulated In Chicago,
such as the passing Of dividend by an
important local corporation, big strike'
bank failure. etc. the Chicago Stock EN-
change would be depressed, and the par
ticular security in which arbitrage deal
ings were carried on would necessarily
be affected. and probably would decline
along with the general list, while In New
York a strong market in securities gen
orally might prevail. which In turn woulo
assist in supporting the particular stock
on the New York Stock Exchange. In
that way the stock might be purchased
in Chicago on the first reaction and sold
simultaneously in New York before the
effect had been reflected on the Eastern
exchange The principal aroitrage DUST
ness is carried on between New York ana
London. and there are houses having m
ternational connections that make a
specially OF arbitraGe dealings between
these two important financial centres. on
every day when there is activity IN trad
ing prices on the stock markets pass
through various changes and move back
ward and forward.
In London the trend may be upward
while in New York the reverse may be
the order. sometimes for one day ana
frequently for several days Brokers
who specialize In erbitrage transactions
take advantage OF these fluctuations and
variations in prices between exchanges
and are enabled to do a large and re-
munerative business by trading stimuli
taneously in two markets. II requires
keen knowledge of conditions, rapiuily
of action and a fine system OF calculat-
ing temporary differences In the prices
Of securities on the two exchanges op-
Grated in.
Operations on large scale between the
Boston Exchange and the New lorh
curb are sometimes conducted. and al
times In the mining share markets be-
tween the San Francisco Stock EXCHANGE
and other mining exchanges and inc Ne"
York curb there are arbitrage uansac'
tions. Considering the apparent oppor-
tunity for profitable operations 1t Is some
times wondered why more firms 90 ho'
engage In that branch Of stock exchange
business There are reasons why theS
do not. one Of which is that II requires
q large amount OF capital, the prontS
necessarily are small on the average ana
the ordinary Stock Exchange house pre-
fers 20 make larger profits on smaller
investment. especially In this country
Again. while the arbitrage business III
tho abstract Is very simple. II requires
such remarkable skill and judgment thai
I'm reality Il is very difficult
A New York arbitrage house must nave
very responsible London correspondent
with whom II has an arbitrage account
IN common so that they share pronts and
losses equally. Most OF the large arpi-
TRACE houses have been established TOT
long time. consequently have strong IN
tarnational connections. Owing TO the
difference I'm time between New York ana
Iondon. which allows the London Stock
I-vcbange hve hours advance over the
New York institution. there Is practically
only abou: an hour each day. between II
a m and II a. m, New York time, WheH
arbltrage dealings can be carried on De
tyeen.the two exchanges. although trao-
inc is conducted for a short time on the
exchange floor In London after regular
hours However. arbitrage business Is no'
discontinued at II a m, New YORK tine'
a. immediately after the London STOCK
Exchange closes the London curb. OF
sborters' Court. begins business. The
London curb Is distinctly different IRON
the New York curb as regards member
shin. AS the London curb rs composed oi
members Of the London Stock Exchange
and is surrounded by the walls OF tho
o,,.bs,pe also by the offices OF the cable
co,pnauv Transactions in American Sc
o,,-i,i,e nm the Shorters Court frequently
arc continued until the New York Stoch
Exchange closes AT 8 p. m, London tiine
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