A quick, close market presents an element of distinct value, and the quicker and closer the more valuable. Even if a buyer of securi ties intends to hold them permanently as an investment, it is, nevertheless, worth some thing to him, though maybe not the price he would have to pay, to be able, in event of an unforeseen contingency, to sell his security without too great delay, and at a price not too remote from what he would have to pay for it if he were a buyer. Marketability becomes more and more important as the security is held by a man actively engaged in business with an uncertain demand for funds, or such a financial institution as a bank, which may need to realize on its assets at any time. Every investor must decide for himself in how great a degree he requires marketability, and how much it is worth to him.
It is not our purpose to go into a general discussion of the elements of a securities market, but simply to point out the effect of marketability on price in order to lead to a discussion of things, apart from considera tions of income, control, and risk, which may affect the position market-wise of a particular issue.
Magnitude of an issue exercises a large in fluence in the creating of a market. As be tween an issue of $1,000,000 and one of $20, 000,000, each having the same ratios of equity, earning power, and all the other matters that go to make up the amounts of risk, income, and control in each, the larger issue will prob ably in the long run command the higher price. Its very size means that more people must become familiar with it and interested in it. The volume of dealings after it has once been placed will be greater, and dealings make the market. So the sheer size of an issue influ ences marketability.
This depends on the size of the enterprise, however, and its demand for capital, and is not one of the matters the corporation, as such, really exercises control over, except, as mentioned in the chapter on " Expansion," through looking forward to future needs, and authorizing more securities of a given class than it immediately issues.
A corporation planning an issue of securi ties has, however, an opportunity to arrange it in various ways, aside from the fundament als of income, control, and risk, that will help the securities find a broader and more active market. Obviously we do not use the term "broader" here as synonymous with " wider " as already used, but to indicate the security as appealing to more people.
As one means to this end the corporation can prepare the issue in a way to meet the requirements of the stock exchanges, say the New York Exchange, or more than one, and through its bankers get the issue listed.
Though such a course opens to the issue the possibility of being traded in on the exchange, it does not by any manner of means insure such dealings. Unless the issue is of some magnitude, and has already excited consider able interest among investors, news of the listing is likely to be almost the last thing heard of it from the New York Exchange. The name will continue to appear on the official sheet with a nominal bid and asked quotation, but with no reported transactions whatever. Quoted bid and asked prices are likely to prove wholly illusory on any attempt to put through a transaction. An offer to pur chase at the quoted asked price may fail to bring out any of the paper. At the same time an offer to sell at the quoted bid price may fail to uncover any takers. Listing an issue of from one to several millions in the New York Stock Exchange simply courts a general neglect. Brokers on that exchange stand ready and expect to deal in the entire list, and do not much form into groups especially interested in particular issues, and that fact accounts in part for the neglect of the smaller amounts listed. The organization of the stock exchange market as it stands at present in New York works against them.
Dealers in securities on the London Stock Exchange tend to split into groups, each in terested mainly in a particular part of the list. Doubtless the custom of doing business through "jobbers," who, when approached by a "broker," do not know whether the trans action the broker has on hand is a buying or a selling one, and therefore name both the price at which they are prepared to sell and that at which they stand ready to buy, works in favor of the smaller issues. A jobber must at the same time be interested in both sides of the market. Brokers there do more in the way of acting as actual investment advisors to their clients than here. They feel the need of being well acquainted with the securities they deal in, and in order to get the more intimate ac quaintance tend to restrict their dealings to a smaller number of issues. Those particularly interested in Canada, for example, make a point of dealing in "Canadians," and so on. When even a small issue is listed on the Lon don Exchange it has from the start a little group of brokers interested in it. As a result, issues amounting to no more than from one to several million dollars may have a fairly close and active market. It would be possible there either to buy or sell a bond or share of such issues within, say, a day or two, at not more than a point apart for the buying and selling price.