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THE STOCK EXCHANGE FROM WITHIN
THE STOCK EXCHANGE FROM WITHIN
THE STOCK EXCHANGE FROM WITHIN BY W. C. VAN ANTWERP Garden City New York DOUBLEDAY, PAGE & COMPANY 1914 Copyright, 1913, by William C. Van Antwerp All rights reserved, including that of translation into foreign languages, including the Scandinavian 31ST THOUSAND First printing, Jan., 1913. Second printing, Apr., 1913. Third printing, June, 1913. Fourth printing, Feb., 1914....
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PREFACE
PREFACE
In so far as these pages reflect the thoughts of a busy stockbroker, distracted by many duties and lacking in literary skill, they have but little merit and the writer entertains no illusions regarding them. But in the many quotations from the writings of the world’s foremost economists that are here presented, and in the various legal and historical precedents cited, perhaps it is not too much to hope that this book possesses some slight value as a contribution to the vexed and vexing discussio
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CHAPTER I THE FUNCTIONS OF THE STOCK EXCHANGE
CHAPTER I THE FUNCTIONS OF THE STOCK EXCHANGE
Every now and then some one who has not given much thought to the matter asks the questions, “Of what real use is the Stock Exchange?” “What does it accomplish?” “Is it a necessary and useful part of our economic life, or is it merely a means of promoting speculation and gambling?” These are fair questions, and they are asked in good faith. To be sure they have been answered many times by writers on economic subjects, but the trouble is that in our hurried American life we do not read the econom
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CHAPTER II THE USES AND ABUSES OF SPECULATION
CHAPTER II THE USES AND ABUSES OF SPECULATION
Somewhere in each one of us lurks Stevenson’s spirit of “divine unrest,” the parent of speculation. To-day, as in wise old Greece in the morning of the world, philosophers sit under every tree, speculating upon the phenomena of the universe, and upon the practical application of them to the needs of humanity. Thus Archimedes came to know of things that we now call Copernican, seventeen centuries before Copernicus was born; thus Columbus and his argosy sailed into the great unknown, speculating u
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CHAPTER III THE BEAR AND SHORT SELLING
CHAPTER III THE BEAR AND SHORT SELLING
The operations of “bears” in the great speculative markets and the practice of “short selling” are riddles which the layman but dimly comprehends. Buying in the hope of selling at a profit, and if need be, “holding the baby” for a long time and “nursing” it until the profit appears, is simple enough; but an Oedipus is required to solve the enigma of selling what one does not possess, and of buying it at a profit after the price has cheapened. It is the most complicated of all ordinary commercial
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CHAPTER IV THE RELATIONSHIP BETWEEN THE BANKS AND THE STOCK EXCHANGE
CHAPTER IV THE RELATIONSHIP BETWEEN THE BANKS AND THE STOCK EXCHANGE
“A million in the hands of a single banker is a great power,” said Walter Bagehot; “he can at once lend it where he will, and borrowers can come to him because they know or believe that he has it. But the same sum scattered in tens and fifties through a whole nation is no power at all; no one knows where to find it or whom to ask for it.” This explains the power of Wall Street. Money flows there for the same reason that water flows downhill. The great agricultural districts of the West, for exam
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CHAPTER V PUBLICITY IN EXCHANGE AFFAIRS; CAUTIONS AND PRECAUTIONS
CHAPTER V PUBLICITY IN EXCHANGE AFFAIRS; CAUTIONS AND PRECAUTIONS
If a list of “don’ts” were compiled for the public that is interested in the Stock Exchange, the first prohibition would be “don’t believe all you read in the newspapers”; at least do a little independent thinking before jumping at conclusions. The relationship between the Stock Exchange and the metropolitan press is, with perhaps one exception, cordial in the extreme. The newspaper man is a thinking person; if he were not he could not hold his job. He knows, for example, that the Stock Exchange
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CHAPTER VI PANICS, AND THE CRISIS OF 1907
CHAPTER VI PANICS, AND THE CRISIS OF 1907
A panic is a state of mind. It cannot be regulated by statute law nor preached down by press or pulpit. At such times, suspicion, apprehension, and alarm take possession; reflection and sobriety are crowded out; men do and say irrational and unreasoning things; incidents trifling in themselves are exaggerated into undue proportions; all kinds of difficulties are conjured into the imagination. The best that can be said of such a phenomenon is that it is of brief duration. 59 In Wall Street, where
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CHAPTER VII A BRIEF HISTORY OF LEGISLATIVE ATTEMPTS TO RESTRAIN OR SUPPRESS SPECULATION
CHAPTER VII A BRIEF HISTORY OF LEGISLATIVE ATTEMPTS TO RESTRAIN OR SUPPRESS SPECULATION
In the Middle Ages the notion prevailed that there was a just and equitable price for everything, and that any person who tried to obtain more than this price was a sinner. Trade for gain was anathema; the man who bought the principal commodities of that time, such as corn or herrings, with a view to selling them at a profit, was guilty of “craft and sublety”—as the old English statutes read—that infallibly cost him his goods and brought him to the pillory. Thus in the year 1311 one Thomas Lespi
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CHAPTER VIII THE DAY ON ’CHANGE, WITH SUGGESTIONS FOR BEGINNERS
CHAPTER VIII THE DAY ON ’CHANGE, WITH SUGGESTIONS FOR BEGINNERS
The stockbroker’s praises are never sung; if he has good qualities, one seldom hears of them. Doctor Parker once defined the Stock Exchange as the “bottomless pit”: Doctor Johnson said a broker was “a low wretch”; politicians vie one with another in painting him a parasite and a social excrescence. Impatient idealists who would take a short cut to perfection assert that he is of no real economic value, and would enact laws to restrain him. In the novels and on the stage he becomes sleek, cunning
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CHAPTER IX THE LONDON STOCK EXCHANGE, AND COMPARISONS WITH ITS NEW YORK PROTOTYPE
CHAPTER IX THE LONDON STOCK EXCHANGE, AND COMPARISONS WITH ITS NEW YORK PROTOTYPE
There were Exchanges in London in the sixteenth century. Merchants from Lombardy had given their name to a street, and had flourished so well that they had branched out in the business of money-changing—that is, of exchanging worn, abrased and clipped coins, foreign and domestic, for those of standard weight and fineness. As trade increased and the first faint signs of progress in the matter of wealth began to develop, it was seen that this business of exchanging money was sufficiently important
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CHAPTER X THE PARIS BOURSE; A MONOPOLY UNDER GOVERNMENT
CHAPTER X THE PARIS BOURSE; A MONOPOLY UNDER GOVERNMENT
“Patriotism makes it a duty for us to acknowledge the fact that the Bourse represents one of the live forces of France,” wrote Anatole Leroy-Beaulieu in one of the finest tributes ever paid to a Stock Exchange. “It has been for France an instrument of regeneration after defeat, and it remains for us a powerful tool in war and in peace. Let us recall the already remote years of our convalescence, after the invasion, years at once sorrowful and comforting, when with the gloom of defeat and the suf
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THE SUBJECT IN GENERAL
THE SUBJECT IN GENERAL
Markets have sprung into being wherever buying and selling have been conducted on a large scale. Taken in charge by regular organizations and controlled by rules, such markets become exchanges. In New York City there are two exchanges dealing in securities and seven in commodities. In addition there is a security market, without fixed membership or regular officers, known as the “Curb.” The exchanges dealing in commodities are incorporated, while those dealing in securities are not. Commodities
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THE NEW YORK STOCK EXCHANGE
THE NEW YORK STOCK EXCHANGE
The New York Stock Exchange is a voluntary association, limited to 1100 members, of whom about 700 are active, some of them residents of other cities. Memberships are sold for about $80,000. The Exchange as such does no business, merely providing facilities to members and regulating their conduct. The governing power is in an elected committee of forty members and is plenary in scope. The business transacted on the floor is the purchase and sale of stocks and bonds of corporations and government
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THE CONSOLIDATED STOCK EXCHANGE
THE CONSOLIDATED STOCK EXCHANGE
The Consolidated Exchange was organized as a mining stock exchange in 1875, altering its name and business in 1886. Although of far less importance than the Stock Exchange, it is nevertheless a secondary market of no mean proportions; by far the greater part of the trading is in securities listed upon the main exchange, and the prices are based upon the quotations made there. The sales average about 45,000,000 shares per annum. The fact that its members make a specialty of “broken lots,” i. e.,
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COGNATE SUBJECTS
COGNATE SUBJECTS
Connected with operations on the Stock Exchange are a class of manipulations originating elsewhere. The values of railway securities, for example, depend upon the management of the companies issuing them, the directors of which may use their power to increase, diminish, or even extinguish them, while they make gains for themselves by operations on the Exchange. They may advance the price of a stock by an unexpected dividend, or depress it by passing an expected one. They may water a stock by iss
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THE CURB MARKET
THE CURB MARKET
There is an unorganized stock market held in the open air during exchange hours. It occupies a section of Broad Street. An enclosure in the centre of the roadway is made by means of a rope, within which the traders are supposed to confine themselves, leaving space on either side for the passage of street traffic; but during days of active trading the crowd often extends from curb to curb. There are about 200 subscribers, of whom probably 150 appear on the curb each day, and the machinery of the
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BUCKET-SHOPS
BUCKET-SHOPS
Bucket-shops are ostensibly brokerage offices, where, however, commodities and securities are neither bought nor sold in pursuance of customers’ orders, the transactions being closed by the payment of gains or losses, as determined by price quotations. In other words, they are merely places for the registration of bets or wagers; their machinery is generally controlled by the keepers, who can delay or manipulate the quotations at will. The law of this State, which took effect September 1, 1908,
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THE COMMODITY EXCHANGES
THE COMMODITY EXCHANGES
Of the seven commodity exchanges in the city of New York, three dealing with Produce, Cotton, and Coffee, are classed as of major importance; two organized by dealers in Fruit and Hay, are classed as minor; and two others, the Mercantile (concerned with dairy and poultry products) and the Metal (concerned with mining products) are somewhat difficult of classification, as will appear hereafter....
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THE MAJOR EXCHANGES
THE MAJOR EXCHANGES
The business transacted on the three major exchanges is mainly speculative, consisting of purchases and sales for future delivery either by those who wish to eliminate risks or by those who seek to profit by fluctuations in the value of products. “Cash” or “spot” transactions are insignificant in volume. The objects, as set forth in the charters, are to provide places for trading, establish equitable trade principles and usages, obtain and disseminate useful information, adjust controversies, an
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THE PRODUCE EXCHANGE
THE PRODUCE EXCHANGE
The New York Produce Exchange was chartered by the Legislature in 1862, under the style of the “New York Commercial Association.” The charter has been amended several times; in 1907 dealing in securities, as well as in produce, was authorized. There are over 2000 members, but a larger number are inactive. Some members are also connected with the Stock and Cotton Exchanges. The business includes dealing in all grains, cottonseed oil, and a dozen or more other products; wheat is, however, the chie
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THE COTTON EXCHANGE
THE COTTON EXCHANGE
The New York Cotton Exchange was incorporated by a special charter in 1871. Its membership is limited to 450. It is now the most important cotton market in the world, as it provides the means for financing about 80 per cent. of the crop of the United States, and is the intermediary for facilitating its distribution. In fact, it is the world’s clearing house for the staple. Traders and manufacturers in Japan, India, Egypt, Great Britain, Germany, France, and Spain, as well as the United States, b
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THE COFFEE EXCHANGE
THE COFFEE EXCHANGE
The Coffee Exchange was incorporated by special charter in 1885. It has 320 members, about 80 per cent. active. It was established in order to supply a daily market where coffee could be bought and sold and to fix quotations therefor, in distinction from the former method of alternate glut and scarcity, with wide variations in price—in short, to create stability and certainty in trading in an important article of commerce. This it has accomplished; and it has made New York the most important pri
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THE OTHER EXCHANGES
THE OTHER EXCHANGES
Of the exchanges which we have classed as minor, those dealing with Fruit and Hay, appear to be in nowise concerned with speculation. No sales whatever are conducted on them, all transactions being consummated either in the places of business of the members or at public auction to the highest bidder. No quotations are made or published. In the case of the other two commodity exchanges, the Mercantile and the Metal, new problems arise. Although quotations of the products appertaining to these exc
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THE EXPERIENCE OF GERMANY
THE EXPERIENCE OF GERMANY
In 1892 a commission was appointed by the German Government to investigate the methods of the Berlin Exchange. The regular business of this exchange embraced both securities and commodities; it was an open board where anybody by paying a small fee could trade either for his own account, or as a broker. The broker could make such charge as he pleased for his services, there being no fixed rate of commission. Settlements took place monthly. Margins were not always required. Under these circumstanc
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