In building up such a market the bankers perform a service of value to the corporation for future issues. The dealings constantly advertise the corporation. Its outstanding securities sell at a higher price because of their marketability. Quotations for outstand ing securities make the basis for estimating what their new issues will command. One should take these facts into account when considering the value of the work the bank ers do.
Since we shall not discuss the nature of the market off the exchange as a special topic, we may appropriately consider it here. As the "curb" market is in itself an exchange of a kind, we do not now refer to that in speaking of the market off the exchange. Through the weave of telephone wires the whole financial section of a city, which is a financial center, is one great exchange. Either the sales manager of the banking house, or some special " trader " or telephone man, constantly watches opportunities to do busi ness of a trading nature. Through its sales men the house offers to its clients especially the securities it owns, those "on its list," as the phrase goes. None of these securities may exactly meet the requirements or ideas of the client. He may have definitely in mind some particular issue. The salesman, finding that the securities on his list do not satisfy the client, may suggest some other security obtainable in the market. When the client expresses a preference for such a security, the salesman will communicate with his office and name the price limit the client will pay. It then becomes the task of the trading man of the house to make the purchase; even if it is a listed bond he will probably inquire around the street to see if he can pick it up more advantageously than by putting in an order on the exchange. He may telephone to the trading men in several banking houses in the effort to locate the bonds he wants. For special reasons he may not care to disclose the fact that he is in the market for the security. In that case he will make use of the services of one of the many street brokers who come into his office every day.
Mention of the street broker calls for a further word about him. He is not, as some one might naturally surmise, a member of the curb exchange, but a man who daily makes the rounds of the dealers in securities to see if he can match up orders and by so doing make a little commission for himself. Such a broker may have received an order to sell some C. B. & Q. Collateral Joint 4's.
In the course of his rounds he steps into the office of Jones & Company. On learning that they are not interested in his Joint 4's, or in any other security that he may have an idea he would be able to supply or to sell, he will ask Jones & Company's trading man if he wants to buy or to sell anything. Jones & Company's order may call for some X. Y. Z. Debenture 4's and the trading man may indicate this to the broker, and some idea of the price he would pay, as, say, 984. The broker now has something further to work on. In the course of the next hour of his rounds he may find that Robinson & Company display some interest in selling X. Y. Z. Debenture 4's, but want 98i. The bid and asked price are an eighth apart, with out allowing any commission. The broker may succeed in bringing Jones & Company up and Robinson & Company down an eighth each. That would allow the broker an eighth. It may be that the purchaser will not come up the full eighth, but will make the price he will pay three quarters plus a sixteenth. The offer will be expressed that way instead of 98w. The broker will regret fully put the transaction through on that basis. It means that he makes a commission of only one sixteenth, but after all he has done a piece of business. He may give up his principals and let them clear the transac tion. Very likely, however, one of the houses is taking advantage of his services for the very reason that it does not wish to appear as principal in the transaction. In that case the broker will have to clear the transaction himself. Very likely the broker has desk room in or near the offices of some banking house, which, in return for such services as the broker can render, will clear the bro ker's transactions. This is a matter of some importance, because it involves having a bank account large enough to get a check certified with which to pay for the security. Of course, on delivery of the security the same day the broker will in return get a check in payment to refund the account, so there will be no loss of interest. But for a little while the account will be debited the cost of the bonds. Since the transaction may run up to $50,000 or more, the reader will see that the minutes or hours between the time the broker has to pay for the security and the time he gets paid for it are impor tant ones for him to bridge.