8. Publicity.—One great fundamental difference between American exchanges and the London Stock Exchange is in respect to publicity. In London the telephone is rarely used, partly because of the poor service. The business of the jobber is done with se crecy and none but himself and the other party to the transaction knows the terms of sale. Conse quently no ticker service that is in any way compar able to our own exists, and no summary of the trans actions or volume of sales during the day is published. No record of sales is made, only the prices at which stocks are sold. A customer can not give an order one moment and see it on the tape a few minutes later, as in New York.
Everything takes longer in London, partly because so much business is done with distant parts of the Empire. Stocks do not pass from hand to hand as much as in New York. There is less scalping for small profits, less miscellaneous speculation in fact, altho Britishers go to greater excess than Americans when they really do speculate. Probably there is more outright cash buying in England relatively than in this country.
There are evils and advantages in both systems. The secrecy of the London system is bad, but the larger proportion of cash investment is a desirable feature.
9. Settlements.—Unlike the method of the New York Stock'Exchange settlements are effected in Lon don only twice a month, these being known as the "fortnightly settlements." As explained in a previ ous chapter our exchanges have clearing houses some of which are incorporated separately, where balances are settled up by cash the day after transaction. This procedure is practically impossible in London. Clear ings there are vastly larger than here, owing to the volume of international trade, and consequently a daily settlement would entail unnecessary hardship. One great advantage accruing from the American system of settlement is that failures are rarer than in London. The postponement of settlements to two weeks (to be exact 19 times a year) , involves serious risks to creditors because during this whole period the actual situation of the debtor is unknown. Thus, if a speculator loses one day, he expects to make up his loss the next day. He is thus able to delve into all sorts of speculation for two weeks without any reck oning, which may result disastrously for him and oth ers. This is why so many small jobbers fail. How ever, to lessen the evil and because their system is based primarily on credit, London brokers must and do exercise great caution in trusting their customers.
No definite system of margins has been worked out in London and consequently no generalization is pos sible. Each broker decides for himself and after making very careful inquiries concerning the credit of his prospective customer, he "carries" the customer on such terms as seem proper. The unit used on the floor of the exchange is ten shares instead of 100, as on the American exchanges. " If the customer is a mere speculator who desires to realize the difference between cost and selling price before the day of settle ment, the process that the broker resorts to is called "contango," "carry-over" or "give-on." The broker goes to the jobber and says that the customer wants to defer the payment of his obligation till the next settlement day. The jobber agrees to "take in" the shares, charging the prevailing rate of interest which is in this connection called "contango." The broker adds to his rate a fraction as compensation for his services and the matter is complete. "Contango days" are the two days during the settlement time when the agreement goes into operation.
If the speculator is short and the broker finds it difficult to borrow stocks, he charges what is called "backwardation," or "back." If too many jobbers, with their allied brokers and customers of brokers, are carrying over stocks from one settlement to another, the banks call loans, just as they do here, and force the speculators to pay for their stocks or drop out of the "game." Those who wait until the fortnightly settlement to pay up are said to buy or sell "for the account." But of course payment and delivery may be made diately in which case one buys or sells "for money." This corresponds to "cash" transactions in New York.
10. May, 1912, the English broker was at a great disadvantage compared to his American cousin in regard to commission charges. Here a definite minimum rate is established which must be collected by the broker. The British broker, on the other hand, was not assured any minimum charge. Individual members could cut prices to any extent. Competition reigned supreme and hundreds of brokers earned little if anything. In order to make both ends meet a broker had to transact an im mense amount of business and the great number of brokers made this difficult.