If a broker can make arrangements for these clearings, he need not have any capi tal. He is acting entirely as broker. Desk room, a place to telephone from, and where he can be reached by any one who may want his services, are the material needs of his business. Otherwise his office is wherever he happens to stand.
Since the street broker was the only broker concerned in the transaction, he could put the purchase and sale through cheaper than it could be done on the exchange. There one broker would be acting for the seller and one for the buyer, and each must, by the rules of the exchange, charge a full eighth. So the transaction would cost a quarter of a point on the exchange. The street broker, though expecting an eighth, in this instance has put it through for a sixteenth. Of course, if both the banking houses had been mem bers of the exchange, but without a partner actually on the floor, which would be the usual situation, some floor broker would put the transaction through, as permitted by the rules, for another member on the basis of $2 for an amount of $10,000. Under such circumstances the employment of the street broker would not have had the advantage in the matter of commissions. Even then the street broker would have the advantage of working quietly. A- bid for a large block, $25,000, $50,000, or more, on the exchange would have more of a tendency to stiffen prices than the efforts of a street broker to find some one ready to sell, but not offering to sell for the same reason, namely, the tend ency of an open offer of a good-sized block to depress the market.
Visits of these street brokers and tele phone calls from banking house to banking house indicate the course of the market, and when they result in transactions they make the market. The trading man in the bank ing house becomes intimately acquainted with the ways of the market and sensitive to its indications. From the tone of brokers
and other trading men he knows that the market in X. Y. 5's, which were worth 94 at 10 A.M., has softened, and that if he wished to purchase at 11.30 A.M. he could probably get them at three quarters or better.
One phenomenon, somewhat amusing, shows the sensitiveness and range of this outside general market in securities. Often when the trading man starts an inquiry he finds his own inquiry coming back to him from many quarters. Assume that he starts out an inquiry through a street broker for a good-sized block of X. Y. 5's. The next house at which the broker inquires may not have any, but may surmise that it might get some from another house and its trading man will, phone an inquiry. That house does not have any of the bonds, but, eager to do busi ness, its trading man may recollect that at some time in the past he had been offered a block from Montreal and telegraphs to some Montreal dealer. The Montreal man may have an idea that he could get them in Lon don and cables. The London correspondent may in turn cable to New York, and the trading man of the New York house receiv ing the cable, and knowing nothing what ever of the real origin of the inquiry, may telephone to the very house that first sent the inquiry on the way. Usually the inquiry will come back by a much shorter route to the man who started it. Within an hour after starting the search the trader may recognize his own inquiry in half a dozen telephone calls. This is significant in showing the scope of the market off the exchange, and how far reaching and thorough is the search of the outside market to find a buyer or a seller for a given security at the most advantageous price.