LISTING ON THE STOCK a corporation should list an issue of its securities on the Stock Exchange, it would not, merely by so doing, provide any funds for itself. So far as listing alone is concerned the corporation by the mere authorization of the securities has accomplished as much toward procuring capital. Listing securities does not sell them; it only provides one means for making a market in them; that is, afford ing an opportunity for holders to sell them after they have been sold in the first instance.
We have already discussed the importance of having a market in an issue of securities. An active course of Stock Exchange dealings affords a quick and close, a free and open market, practically the best market possible. For reasons stated in the first volume (p. 2O5) the New York Stock Exchange offers little advantage for creating a market in small issues, and purchasers of securities of small issues do not expect to have them listed there. Investors do expect to see large issues' listed on the Exchange, and with the largest issues expect an active course of dealings there. So, when bankers are offering a large issue for sale, they announce that application has been made to list the issue on the New York Stock Exchange.
They have not already listed it at the time of offering the security for sale for one or both of two reasons. The undesirableness of hav ing the security listed during the time the bankers are engaged in selling it has already been indicated. Such a listing offers a com petitor a special advantage in trading pur chasers out of the security, and a special opportunity for the speculative purchaser to close out his speculation. If the issue is on the Stock Exchange list while the banker still has part of the issue to sell, its appearance there will greatly increase the difficulty of protecting the market. At the same time it is possible for the bankers, especially with a somewhat speculative issue, by developing a course of trading, to utilize the Stock Ex change in disposing of securities. By buying in enough to protect the market, and by taking advantage of the buying of others at or above the price at which the bankers are willing to sell, they may dispose of a large part of an issue by means of the Stock Ex change market.
Besides the difficulty of protecting the market as a cause for delay in listing, the bankers and their counsel may not have had an opportunity to bring the matter before the Stock Exchange authorities in time to have the issue listed before offering it for sale. As we shall see before the discussion is ended, the preparation of an application for listing re quires a large amount of work in itself. All the other work of preparing the issue, getting the proper resolutions of the corporation, drawing up the trust deed, may have kept counsel under such pressure that they could not attend to any further matters. The bur den of meeting the listing requirements is likely to fall on them. The Stock Exchange authorities require that applicants for listing submit specimens of all securities to be listed. It takes some time for the engraving concern doing the mechanical work of preparing and printing the issue to present a specimen for the Exchange authorities to examine. This would be true even for an interim certificate, or subscription receipt as the Stock Exchange Committee terms it, representing the defin itive security while it is in course of prepara tion. Bankers frequently utilize such interim certificates, it may be remarked, to make de livery when they offer the issue for sale. Often the definitive certificate of stock, but more especially the definitive bond, — that is to say, the final piece of paper to represent the security, — cannot be prepared in time for the bringing out of the issue. Time is of the essence when the bankers are bringing out a new issue. Financial conditions often change rapidly. Capitalists may be in an in vesting mood for the present but in the im mediate future may refuse to purchase any thing. The bankers must take no chances of losing their market. This fact explains the interim certificate, and would be sufficient often, if there were no other reason, to ex plain the failure to have the issue listed by the time it is brought out.