Some orders set a maximum or a minimum price at which they are to be executed; others are to be handled at the best market price, this method being, with the ordinary active issues, far the more satisfactory of the two.
The procedure in handling market orders varies in accordance with the peculiarities of the particular security covered by the order, such, for instance, as whether the bonds are widely held and have an active market, or are closely held and have an in active market, whether it is known that a certain house or houses are actively campaigning to sell the issue and are anxious to maintain a satisfactory price for them, etc.
A metropolitan bank observes the rules of the local stock exchange in all its bond dealings, although only bound to observe them when dealing directly with members of the exchange. On the New York Stock Exchange the rules provide for trading in bonds for "cash," "regular delivery," and "buyer's or seller's option." The usual method is regular delivery, which means that bonds purchased or sold on one day are to be delivered on the next day with interest to the date of delivery; if the purchase or sale is made on Friday or Saturday, the regular delivery day is the following Monday, and if made on a day before a holiday, the first business day after the holiday is the regular delivery day.
In cash transactions the bonds must be delivered the day on which the purchase or sale is made. When trades are made at buyer's or seller's option, it is usual to specify the number of days allowed, and also whether or not the delivery is to be made at the option of the buyer or seller. "Seller indicates that the seller has 20 days from the date of sale in which to make delivery; "buyer means that the buyer may demand delivery at any time within 20 days from the date of purchase. In such trades, interest at the rate specified on the bond is computed up to and including the date of sale, after which interest may either cease or be computed upon the contract price plus accrued interest, at a rate mutually agreed upon. In general, bonds on the exchange are dealt in "and interest," which means that to the price of the bond must be added the accrued interest from the last interest payment to the date of delivery at the rate specified in the bond.
Income bonds and those on which the interest is in default must be dealt in " flat " and must carry all unpaid coupons. Interest is computed on the basis of 36o days to the year and 3o days to the month.
In the bond department all purchases and sales are recorded on tickets, numbered consecutively and having spaces for the name of the buyer or seller, the amount, a description of the securities, their price, and instructions regarding payment and delivery. When trades are made, these tickets are filled out and sent to the accounting and recording section of the department.
The Accounting, Recording, and Custody of Bonds Bought Clerks in the bond cage figure and check the cost of the bonds, and prepare the tickets which go through the bank. These include: i. The debit and credit tickets, which are entered in the general ledger and are then sent to the bookkeepers of the check desk department.
2. The journal ticket, which is retained in the department.
3. An advice of the debit or credit to the customer concerned.
If an account is charged, the proper authority must be attached to the charge ticket and the signature of the official giving such authority must be verified. When an account is charged and the securities forwarded, it is well to send the advice of the amount charged and the securities in the same registered letter.
A set of cards covering all issues of securities owned by the bank is kept for the use of the traders, each issue being listed on a separate card. These cards are ruled with debit and credit col umns and show in detail from whom bonds have been purchased and to whom sold, with the date and price. Opposite the notation of the last sale is an entry of the number of bonds owned by the bank and the price or book value. The bonds may be carried at cost, exclusive of interest, less the price received for any of them when sold. If the market depreciates greatly, conservative banks will straightway write off the value at which the bonds are carried; or the Comptroller of the Currency or the clearing house bank examiners may require the banks to do so.