The New York Money Market

Related Agencies.

Mention must be made of the related agencies. There are money brokers who act for the banks on the floor of the stock exchange ; there are acceptance firms and dealers who, for a small commission, help to create, assemble, distribute and perhaps again subsequently to turn over, acceptances in the market ; there are the commercial paper houses and the dealers who handle the marketing of single-name promissory notes. Fi nally reference may be made to a fringe of individual money brokers and middle-men who function as intermediaries between borrowers and lenders.

On the demand side of the market the alignment is equally diverse. First may be mentioned the stock exchange brokers who finance their customers' marginal operations. From 5o to 8o% of the funds needed by the brokers for this purpose are obtained from the market in call and time loans. On the demand side also are arrayed the bond and security dealers. They not only arrange for financing new issues but also carry on extensive over-the counter bond trading. They are heavy borrowers from the banks. The acceptance dealers also figure primarily on the demand side. They borrow on call or on time from the banks and in times of unfavourable money rates they may get direct relief from the Federal reserve bank through the open market.

Classed with the acceptance dealers are the commercial paper houses. They too have to borrow in order to carry their lines of paper pending its final sale to the ultimate purchaser. Finance companies of divers kinds also play a considerable role in the mar ket. They handle "instalment" or "conditional sales" paper aris ing in sundry fields. They finance the dealers in automobiles, pianos, radios and numerous other articles sold in America on the instalment plan.

Lastly may be mentioned the host of other corporations, firms and individuals who require funds. These borrow to some extent on stock exchange collateral, on the security of warehouse receipts covering the great staples, or on some other satisfactory form of property. The prevailing American practice in such firm or indi vidual borrowing, however, is based upon the extension of un secured "lines" of credit involving the use of the single-name promissory note.

Operation of the New York

most sensitive element in the New York market is the "call-money" market. Call loans are made principally on stock exchange collateral but to some extent, also, on bankers' acceptances and other acceptable security. They may be negotiated directly with the banks, or obtained through money brokers or at the "money desk" in the stock exchange. The nature of the call loan makes it a very satis

factory short-term investment for the lender. It is not only amply secured but is, as well, subject to repayment at the lender's re quest. Rates on call loans are relatively low due to the narrow ness of the field in which they can be employed as compared with the abundance of funds the market supplies. Owing to the highly competitive nature of the market call rates are extremely sensi tive. The money flowing into the call market is made up of tem porary surpluses. This money comes from all over the country. While call loans are extended through the New York banks, in many cases these act simply as the agents of banks in other centres throughout the country. Indeed, the New York institutions often lend in the stock market more of out-of-town money than they do their own. The members of the stock exchange are also heavy borrowers of time money. These borrowings may be ar ranged through the money brokers or they may be negotiated by brokerage firms with their own banks.

Acceptances.

Less sensitive than the call-money market is the bill market. This is the market in which primarily bankers' accept ances, but to a slight extent also so-called "trade acceptances," are dealt in. The foundation for the bill market was laid by the Federal reserve act. The market was built up after 1916, and by 1928 acceptances outstanding exceeded one thousand million dollars. Acceptance procedure has developed primarily in con nection with foreign trade, but a beginning has been made in applying it also to domestic trade. Acceptances are ordinarily purchased by dealers who offer them for sale to banks, firms and individuals with funds to invest. The bills may change hands several times before maturity. The rate at which acceptances are discounted is spoken of as the "open-market" rate and it is deter mined by competitive conditions of demand and supply.

The reserve banks are heavy buyers of acceptances. These in stitutions have constantly endeavoured to develop the acceptance market. They stand ready to take eligible bills without limit at the open-market rate. Dealers in acceptances are thus never left with an unsold surplusage. This attitude on the part of the reserve banks assures the maintenance of an open market. Member banks themselves will often sell holdings of their bills to the Federal reserve banks to replenish reserves. The acceptance market thus helps to promote general flexibility of the credit system.