THE MARKET AND THE PRICE a corporation can do to make its securities more marketable will help it command a higher price for them. Though that sounds rather a truism, marketability has something of a special meaning with refer ence to securities, and a corporation can do many things of detail, besides offering its es sential assurance of payment, to give its se curities a broader appeal and therefore help them pass more readily from hand to hand.
The discussion at this point is not dealing with the fundamental things in connection with corporation security-issues. The more a corporation offers of income and control and the less of risk, obviously the readier accept ance its securities will find. We have already dealt with these fundamental considerations in the chapters on "The Instruments of Cor poration Finance" and "Trading on the Equity." By price, too, we mean here the es sential thing which is measured, not by the market quotation in dollars, but by the re turn the man who furnishes the capital demands for his funds. What sounds com Alex in words is simple enough in figures. This is only to say that a 4 per cent 20-year bond at 91, yielding approximately 4.70, is selling essentially higher than a 5 per cent 20 year bond at 1021, yielding approximately 4.80.
If a security has a quick close market it possesses a quality of value which will add to the price people will pay for it something be yond what they would pay for the amount of control and freedom from risk the security offers. A " quick " market is one in which a security may be sold without delay. The "closeness" of a market depends on how great a difference there is between the buying price and the selling price of a security at any given moment. A market for a particular se curity may be so close that the buying and selling price are only an eighth apart; in that case a man would be able to buy at, say, 99-a and to sell at 994. Such a transaction is often possible in bonds of the big, active, railway issues, and results from the competition for business among dealers and brokers off the stock exchange. Since members of the stock exchange cannot do business for less than one eighth commission, such a transaction would be closer than any that could be put through the exchange, where there would have to be a real difference of a quarter of a point in price just to cover commissions. However active
and steady quotations might be on the ex change, so that a whole series of transactions went through at 994, and apparently a man could either buy or sell at that price, really the seller would be getting 998, after paying his one-eighth commission, and the buyer for the same reason be paying 998. Off the ex change dealers and brokers who are not mem bers can " split " the commission, and in order to put through a transaction frequently do. Indeed, they sometimes do business on so small a profit as one thirty-second of one per cent. Such a close market as this represents the extreme and carries with it the corollary of being a quick market. Since it is the degree of stress in the working of demand and supply on each other that makes both, the speed of a market bears a direct relation to the distance apart of a market. A quick market is at the same time a close market, and a slow market is a wide one. These are expressions of a gen eral state of affairs. In the market for any particular security, it may be necessary to sacrifice something of speed in order to get the closest possible quotations, and conversely to abandon something of closeness in order to get the greatest speed.
Transactions such as those just mentioned indicate the highest degree of closeness.
With regard to quickness of a market it may be possible in a given security to put through a transaction either way, buying or selling, in a matter of seconds. A security with a wider, slower market might have its buying and selling prices half a point apart, and re quire several hours to find either a seller or a purchaser. So on, all the way to a difference of from five to ten points between the buying and selling prices and a time of several days or weeks required to find perhaps either seller or purchaser. Beyond these points of market width and slowness, a security can hardly be said to have any market at all. It may never theless involve little risk of loss of income, and, if a bond or other evidence of debt, of principal, and may be yielding the holder an excellent return.