A stock exchange is primarily a meeting place for buyers and sellers of securities and it is designed to obviate a long and per haps unsuccessful search for a market. The congregation of pro spective purchasers and sellers of securities in one place provides a continuous, quick, competitive, steady, and stable market. The New York Stock Exchange, for illustration, is an unincorporated association of eleven hundred members organized to provide a continuous and regulated market for stocks and bonds; it pro vides rooms and facilities for the conduct of business, and it seeks to maintain a high standard of commercial honor and integrity among its members. It has elaborate rules as to the listing of stocks and bonds, and for the sale and delivery of these.
The New York Stock Exchange is a national institution in that many of its members live in other financial centers of the United States or operate branch houses in other cities and in that its influence dominates the financial fabric of the whole country. Although its members are largely brokers, they also include many capitalists who always employ brokers on the floor of the exchange, their membership simply affording them lower commission charges. The exchange maintains a schedule of commission rates from which members are forbidden to depart. Membership in the exchange entitles the member to a "seat" in the board room and the right to trade either for himself or as broker for others. The monopolistic privilege of trading has a capitalized value, varying with the activity of the market; in January, 1920, no less a price than $115,000 was paid for a seat.
There are five hours of trading, between to A.M. and 3 P.M., and members are forbidden to make transactions, in securities listed or quoted in the exchange, at any other hours, either in the exchange or publicly outside. All trading is done under strict rules, rigidly enforced. Sales are made under highly competitive conditions; bids are made by eighths of i per cent; every active security has its own "post" near which the trading in that security takes place; sales and purchases are made by gesticu lations, and the simplest memoranda are kept of the oral con tracts to buy or sell a security at a price. There is no exchange of securities at the time of sale in the board room. The con stitution of the exchange provides that all offers made and ac cepted are binding on the contracting parties, and few disputes arise as to the terms of the contract. Orders are conveyed to the
exchange floor principally by telephone, the members leasing private wires to their offices.
The stock exchange is the most highly organized and perfect market existing. The number of shares of stock that changed hands on the New York Stock Exchange in 1915 was 172,960,600; in 1916, 235,194.,042; in 1917, 184,176,310; in 1918, 144,118, 469; and in 1919, 316,787,725. The par value of the bond sales for 1915 was $956,543,000; for 1916, $1,152,289,000; for 1917, $1,062,737, 000; for 1918, $2,062,827,000; and for 1919, $3,809,002,65o. Probably not more than one-third of the bond business conducted in New York City is done through the exchange.
The publicity given to transactions on the stock exchange enables an observer to determine the drift of the market. It is more difficult to sense the over-the-counter market. The street brokers come into the bank throughout the day with various orders to buy or sell bonds, usually in fairly large amounts; as a result of the impression gained from his conversation with these brokers, and also from the character of their orders, a dealer may sense a change in the general market atmosphere. To illustrate, a large number of bonds may be offered for sale, but:bids may be few and slow. When this situation prevails, the dealer will probably be chary about buying; if he bids at all, it will be likely to be at a price below current quotations. If by chance the bonds are sold to him immediately at his bid, he will tend to become even more cautious, unless, of course, he has some very definite ideas about market conditions. Or, if the conditions are reversed as when a few offerings are eagerly taken from him, he may stop selling for the time being.
Execution of Orders The bond department executes all orders for the purchase and sale of bonds for the bank's correspondents and customers, both foreign and domestic. No commission for this service is usually charged outside the regular fee the bank may have to pay when a broker is employed. This part of the business, though involving a great deal of work and trouble, is done gratuitously on the theory that if the people acquire the habit of giving their bank all their orders they will very frequently make their selection from the bonds the bank has on hand.