CORNELL UNIVERSITY LIBRARY FROM F. i/;. Outterson Cornell University Library arV12877 The Consolidated stock exchanoe of New ,Y 3 1924 031 243 508 olin,anx The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924031243508 THE CONSOLIDATED STOCK EXCHANGE OF NEW YOKK ITS HISTORY, ORGANIZATION, MACHINERY AND METHODS BY S. A. NELSON attthor of "the a b c of wall street,'' "the a b c of stock speculation," etc. NEW YOEK THE A. B. BENESCH CO. 1907 Copyright, 1907, By S. a. nelson. HotiooaS WceM : Set up and electrotyped by J. S. Gushing & Co., Norwood, Ma PREFACE Although thirty-two years of age, and having experi- enced an interesting and useful career that has steadily grown in importance, a history and description of the Consolidated Stock Exchange in permanent and accessible form has never been published. There have been times when a clearer understanding of its history and its func- tions would have proved beneficial alike to the public and its members. This little volume is written with the object of giving a brief and clear account of the Consoli- dated Stock Exchange and its various departments, to- gether with their relationship to the public. CONTENTS CHAPTER I PAGE HiSTOKY OF THE CONSOLIDATED StOCK ExCBAITOE ... 1 CHAPTER II Homes of the Consolidated Stock Exchange ... 12 CHAPTER III Its Management 15 CHAPTER IV Its Officers 18 CHAPTER V Consolidated Stock Exchange Membership .... 23 CHAPTER VI The GEAiniTT Fdnd 31 CHAPTER VII Volume of Business and Membership Prices ... 33 CHAPTER Vm Consolidated Stock Exchange Commission Trade . . 37 V VI CONTENTS CHAPTER IX PAGIS The Mining Dbpaktment 44 CHAPTER X The Grain Department 45 CHAPTER XI The Exchange Clearing House ..... 46 CHAPTER XII Consolidated Stock Exchange Principles . . .56 CHAPTER XIII Types op Consolidated Stock Exchange Traders . . 65 CHAPTER XIV The Arbitrage Trade .... ... 75 CHAPTER XV Day's Work op a Commission Broker 79 CHAPTER XVI The Work op a Trader .... . .88 CHAPTER XVII The Money Broker 95 CHAPTER XVIII Stocks and Bonds dealt in .96 CONTENTS Vll CHAPTER XIX PAGE The Mechanism of a Complete Bull Trade . . 100 CHAPTER XX The Mechanism of a Complete Bear Trade . . . 105 CHAPTER XXI A Glossary of Stock Market Teems 115 ILLUSTRATIONS The Consolidated Stock Exchange The Broadway and Exchange Place Exchanoe Charles George Wilson Mortimer H. Wagar Lewis V. E. Randolph Ogden D. Budd THE BROADWAY AND EXCHANGE PLACE EXCHANGE THE CONSOLIDATED STOCK EXCHANGE OF NEW YORK CHAPTER I History of the Consolidated Stock Exchange Thibty-t-wo years ago the Consolidated Stock and Petroleum Exchange of New York, now generally known as the "Consolidated Stock Exchange," had its origin under the name and title of the New York Mining Stock Exchange. During the month of September, 1875, a call for a meeting was presented to a number of business men for signatures. Briefly, the call represented that the mining industries of the country had increased so rapidly and to such an extent that the time had arrived when New York should have a mining exchange of its own. The propo- sition to organize was accompanied by the explanation that large sums of Eastern capital were seeking invest- ment through the San Francisco Mining Exchange and that investors would in all probability be prompt to avail themselves of exchange facilities in New York. Late in September a meeting was held in an office on the first floor of the building then standing at 60 Broad- way. The attendance numbered thirteen and the num- ber included John Stanton, Jr., Joseph E. Gay, J. Wyman 1 2 THE CONSOLIDATED STOCK EXCHANGE OF NEW YORK Morris, L. V. De Foreest, R. H. Rickard, Charles O. Morris, Robert Courtney, F. G. Saltonstall, and E. W. Moss. After discussing the subject of organization it was decided to establish a mining exchange to be known as the " New York Mining Stock Exchange." That was the birth of the present exchange. At noon, on the first day of November, 1875, the New York Mining Stock Exchange was opened for active busi- ness at its rooms, 24 Pine Street, with the following officers : President, John Stanton, Jr.; Treasurer, Joseph E. Gay; Secretary, J. Wyman Morris. The total membership was twenty-five. The business of the Exchange gradually expanded and the expansion necessitated removal from the restricted quarters at 24 Pine Street to 32 Pine Street; thence to 18 Broad Street; to the "Bond Room" of the New York Stock Exchange, at 16 New Street. On July 26, 1877, it returned to 60 Broadway, on which occasion it absorbed the membership of the " American Mining and Stock Ex- change,'' a rival organization that had been in existence about fifteen months. Prior to 1886 the " Consolidated " absorbed the following competing organizations : — The National Petroleum Exchange. The Miscellaneous Security Board. The American Mining and Stock Exchange. The New York Petroleum Exchange and Stock Board. The result of the mergers was the adoption of the amended title, — The Consolidated Stock and Petroleum Exchange of New York, which had a total membership HISTORY OF THE CONSOLIDATED STOCK EXCHANGE 3 of 2403. This membership has since been reduced almost one half. The business of the Exchange in mining stocks and petroleum pipe-line certificates was conducted on a prosperous basis. In 1885 the sales of mining stocks amounted to 2,057,319 shares; in 1886 the sales in- creased to 6,509,481, and in 1887 to 10,659,711 shares. The trading in pipe-line certificates was as follows: 1883, 1,055,423,000 barrels; 1884, 3,211,374,000; 1885, 3,612,138,000; 1886, 2,286,765,000; 1887, 1,254,708,000. In addition to the business in mining stocks and pipe-line certificates, miscellaneous securities had been dealt in to the extent of 35,632,000 shares in 1885; 76,438,000 in 1886, and 44,349,000 shares in 1887. In 1885, the membership having increased to 2403 — the largest membership of any exchange in the United States except the New York Produce Exchange — there arose a demand among the members for the organization of a department to deal in railroad stocks. At this interesting period in the history of the institu- tion nearly four himdred members of New York Stock Exchange firms held membership in the Consolidated. The two organizations were on terms of cordial friendship. Between the two exchanges a large speculative business was conducted, and it was not deemed wise to sacrifice this trade by an injudicious step. Negotiations were ac- cordingly opened by the officers of the Consolidated with the proper authorities of the New York Stock Exchange. Suggestions for a division of business were made and the Consolidated offered to confine its trading to 4 THE CONSOLIDATED STOCK EXCHANGE OF NEW YORK fractional lots. Committees were appointed from time to time, only to meet and disagree. Finally all attempts at cooperation were abandoned and it was decided to formally establish a railroad stock department and trans- act business not only in fractional lots, but to accept any trade that could be obtained. It was a radical step and it caused a very lively and heated debate in Wall Street at that time. The four hun- dred members and partners of members of the New York Stock Exchange suddenly withdrew in a formal expres- sion of disapproval. Looking backward at the history of. the institution, and this period especially, one of the charter members says: "It is not to be denied that the secession of four hundred members was felt, but the Consolidated went on and pro- ceeded to build up a secondary market in stocks. For five months in 1885 we dealt in 5,873,961 shares; in 1886, the sales were 41,675,170, and in 1887, 57,877,940 shares. It seems reasonable to believe now that had we not adopted the course we did, a new institution, and per- haps a less worthy bne, would have been organized in this field^. The Consplidated has always been willing to meet the views of the New York Stock Exchange more than half way and to give it every recognition that it demands. Some other institution might have been more aggressive and less conciliatory. "It is worth remembering that in 1901 the volume of Wall Street business was so great that the machinery of the two exchanges was almost inadequate to handle it. A breakdown was narrowly avoided. Had there been HISTORY OF THE CONSOLIDATED STOCK EXCHANGE 5 no Consolidated in existence then to relieve the pressure it is rather odd to consider what might have hap- pened. " Our relationship to the New York Stock Exchange is and always will be an interesting subject to us, and we believe that we are a source of business to the older institution. Our commission houses develop business, and business orig- inates on the floor of our Exchange. We do an arbitrage business with Philadelphia and Boston. When the over- flow business from the Consolidated seeks the New York Stock Exchange it is in its most desirable form, i.e. orders given by financially responsible traders and firms for round amounts. As the business comes to us the older institu- tion could not handle it, and a very considerable per- centage of it might be regarded as an interference in handling the trade in larger amounts. Not many large stock exchange firms of to-day can give the bulk of their time and attention to fractional and one hundred share lot accounts. "The trade as conducted to-day is very different from the trade as it was conducted say fifteen years ago. We think that we are a help and not a handicap to our big neighbor. We have won out in an anti-bucket shop struggle, and that was the hardest fight we ever had. "In raising the standard of what may be described as the retail odd lot trade, as distinguished from the jobbing trade in odd lots in the primary market, we have per- formed a, public service. We have made it legitimate trade and brought it to two markets, where it naturally and logically influences prices. There always must be 6 THE CONSOLIDATED STOCK EXCHANGE OF NEW YORK an outlet for this trade, and for its decent development we are responsible. "Then again a good many of our members and firms have graduated from the ranks of the Consolidated to go to the Stock Exchange. We have regretted to have them go, but we have been glad that they prospered and could go. It is a matter of pride to us to know that all of them were successful in their new and larger field. Not one made a failure, and that speaks well for the training they had on the Consolidated. "After thirty-two years of business the Consolidated finds itself with a general balance of $100,000, a $400,000 Gratuity Fund Surplus, and $300,000 from the sale of its Broadway and Exchange Place lease. If you will pause to consider its disbursements in that period for general expenses and Gratuity Fund account, it must be obvious to any reasonable person that the institution is strongly established." Two of the most interesting events in the history of the Exchange were the corner-stone laying ceremonies in 1887 and 1907. On September 8, 1887, the corner stone of the Broad- way and Exchange Place structure was laid. On that occasion, Charles G. Wilson, the president, said in part: " The first meeting of this Exchange as a regular organiza- tion was held on the 14th dfty of October, 1875, and it opened its doors for business at noon on the 1st day of November of the same year at 24 Pine Street with a membership roll of twenty-five. " In March, 1876, it removed to 25 Nassau Street and HISTORY OP THE CONSOLIDATED STOCK EXCHANGE 7 from there to Broad Street and although it occupied a small room on the second floor, there seemed to be no immediate danger from overcrowding, as the average attendance including the chairman was only five. In the face of this, a rival organization, known as the American Mining and Stock Exchange, commenced business in the earlier part of 1876 with the avowed intention of dealing not only in mining stocks but in railroad stocks and bonds. A declaration of war was proclaimed, and, after a short but sharp fight, on the 21st day of July, 1877, a truce was declared and the New York Mining Stock Exchange returned to the present (1887) site, 60 Broadway, on the occasion of admitting into its fold the members of its late competitor. "The mining business soon began to display unusual activity. Orders from the public began to come in, and there followed a period of active business. " In 1883 the business in mining stocks became dull and depressed, and pipe-line certificates having entered the arena as a new speculative commodity, a department was established for dealing in the same. "At this time there were two Petroleum Exchanges in this city dealing in pipe-line certificates, viz. : the New York Petroleum Exchange and the National Petroleum Exchange, and also an exchange called the Miscellaneous Security Board that dealt in all classes of miscellaneous securities. "As consolidation seemed to be in the air, numerous meetings between the committees of the various ex- changes were held, resulting, finally, in the admission to 8 THE CONSOLIDATED STOCK EXCHANGE OF NEW YORK membership in this exchange of the members of the National Petroleum Exchange on the 16th day of March, 1883; of the Miscellaneous Security Board on the 16th day of November, 1883, and of the New York Petroleum Exchange and Stock Board on the 19th day of March, 1885." Twenty years after, lacking a few months, January 31, 1907, Ogden D. Budd, the president of the Consolidated, addressed at Broad and Beaver streets a gathering upon the occasion of the second corner-stone laying in the history of the institution. He said in part: "An occasion like this comes but seldom in the life of an institution such as ours, and the right to stand here representing the Exchange is indeed a privilege. "We are assembled to-day formally to inaugurate the building of our new business home. I suppose there is not one among us, whether he is an active member or one who seldom frequents the floor of the Exchange, who does not experience a feeling of sorrow that we are in a few short months to leave our present home. " Nearly twenty years ago the corner stone of that build- ing was laid with impressive ceremonies, and for practically a score of years we have met together within its walls day by day. However, the proposed change of location has been so long contemplated, and is attended with so many distinct advantages, that we are all looking forward eagerly to the occupancy of this structure now under way. "After many months of careful thought and mature consideration we became the owner of this desirable and spacious plot. This occurred in August last, and we at HISTORY OF THE CONSOLIDATED STOCK EXCHANGE 9 once took steps to secure suitable designs for the building to be placed thereon. The result is already known to those of us who have seen the drawings and plans pre- pared by our architects, and general and universal satis- faction is expressed. So much as to our buildings, old and new, — the external part. "Now, just a word as to the internal — the Exchange itself as an institution. A short introductory address is not the occasion for any academic definition of an ex- change, nor for any elaboration of the principles and pur- poses that actuate all the exchanges of our country. These principles are well known and are summed up in one word — honor. Business on all exchanges is conducted solely on that basis — a word, a nod of the head, and the bargain is made and carried out. "So it should be, and so it shall be, as our own and similar organizations meet daily in the busy cities of our land to conduct their transactions in the different com- modities and the many classes of securities that represent the product, the wealth, and the industry of our country. " My thoughts prompt me to refer to those of our num- ber who have by their energy and labor contributed so largely to the successful consummation of our new build- ing enterprise, and the successful arrangements for to- day's ceremonies. There is not time, however, and I must conclude with the single wish that, in all things, the ' Consolidated Exchange ' may be strong, firm, and true — like the massive block that will so soon be well and truly placed in its position, and fittingly commemorate the birth of our new building." 10 THE CONSOLIDATED STOCK EXCHANGE OF NEW YORK An interesting coincidence at the two corner-stone ceremonies was that, in 1887, an address was delivered by the Hon. Algernon S. Sullivan of the firm of Sullivan & Cromwell ; while, in 1907, Mr. William J. Curtis of the same firm, and also a member of the Exchange, delivered an ad- dress in which he sketched the history of the Exchange, saying among other things that: "This institution well illustrates in its history the theory of the survival of the fittest. . . . " The Exchange also illustrates in its growth and develop- ment that of our city and country. Starting with only twenty-five members, it now has thirteen hundred on its rolls, the number having been largely reduced by the pur- chase of memberships by the Exchange itself. Its busi- ness has increased in larger proportion. Commencing with dealings in a few shares of mining stocks, the record for the year 1906 shows that 91,346,000 shares of stock were dealt in. "... You have laid the corner stone of a structure that will for many years furnish you a home in which you will all feel just pride. It is not, however, the material side of this business home that should invite your highest concern. Architects can design, builders can construct, and money can pay for the most elaborate and beautiful structures, but this alone will not fulfill your utmost desire or satisfy your highest ambition. The sub- structure, the very foundation of such an exchange, is a spirit of fair-dealing and business integrity. "You have been successful in the past, and greater success awaits you — greater than even you now antici- HISTORY OF THE CONSOLIDATED STOCK EXCHANGE 11 pate ; but your future usefulness and influence will depend more upon the ideals that govern you than upon the out- ward evidences of your material prosperity. "Upon this corner stone erect your structure of en- during materials and beautiful in design, but consecrate it here and now to the loftiest ideals of commercial and business honor." PRESIDENTIAL ROLL FROM 1875 TO 1907 Year President 1875 John Stanton 1876 John Stanton 1877 George B. Satterlee 1878 George B. Satterlee 1879 George B. Satterlee 1880 S.V.White 1881 S. V. White 1882 S. V. White 1883 Charles O. Morris 1884 1 to }■ Charles G. Wilson 1899 J 1900 Mortimer H. Wagar 1901 Mortimer H. Wagar 1902 Mortimer H. Wagar 1903 Lewis V. F. Randolph 1904 Lewis V. F. Randolph 1905 Lewis V. F. Randolph 1906 Ogden D. Budd CHAPTER II Homes of the Consolidated Stock Exchange The early homes of the Consolidated Stock Exchange were in leased quarters, starting in Pine Street in 1875 and subsequently moving to other quarters in the same street; thence to Broad Street; to New Street, and finally returning to Broadway, where it made its home for a period of thirty years. The Broadway home won a warm place in the affections of its members, and one that will always awaken interesting memories. In September, 1887, the foundation of the Broadway, Exchange Place, and New Street building was laid. The site was a favorable one for such an institution. The building was constructed on leased ground and archi- tecturally it represented one of the last of the brick and stone business buildings which preceded the present era of steel-frame construction. The building measured 90.11 feet on Broadway, 132.4 feet on Exchange Place, and 87.7 feet on New Street. The plans provided for a basement 15 feet high, opening upon a level with the sidewalk at the corner of Exchange Place and New Street, above which was the main story, or board room, and executive offices. This room had a height of 36 feet and surrounding the board room was an intermediate floor containing the executive and other offices. 12 HOMES OF THK CONSOLIDATED STOCK EXCHANGE .13 Above the main floor were four stories of 11 feet height each, and arranged as brokerage offices. The main floor extended from Broadway to New Street, and it was always a well-ventilated and acceptable board room. The main floor was about 2.6 feet above Broadway, and the entire building extended 96 feet above Broad- way, with a height to the extreme top of a tower at the corner of Broadway and Exchange Place of 142 feet. The exterior was mainly in brick, with stone freely used in the first story, while architecturally the style was Romanesque. THE NEW BUILDING In the summer of 1906 the Exchange was offered $300,000 for its leasehold rights to the ground at Broad- way and Exchange Place. President Budd and the Board of Governors took up the building proposition, considering the advisability of selling the rights on the old site and erecting a new home. An investigation showed that a saving of more than $35,000 a year could be effected for six years, and a much greater saving if the renewal rights to the leasehold were exercised; for the valuation of the property would, at the expiration of six years, be adjusted to new conditions. Several plots in the Wall Street district were then con- sidered, and it was finally decided to buy the plot at the southeast comer of Broad and Beaver streets; 12,000 square feet, at $870,000 or $72.50 per square foot. The Exchange was indeed fortunate in obtaining about the only available remaining site, so advantageously located 14 THE CONSOLIDATED STOCK EXCHANGE OF NEW YORK in the heart of the Wall Street district. The approaches from Broad and Beaver streets are excellent and within one block are the Stock, Cotton, and Produce Exchanges. Plans for a $300,000 building were then accepted from Clinton & Russell, architects. The classic style of archi- tecture was followed. The Broad Street front shows a series of Ionic columns. The materials used in the exterior were limestone on a base of granite. The board room is about 5 feet above the Broad Street level, steps leading up from the sidewalk all along that side of the building and affording access to three large entrances. The trading floor is about 95 x 82 feet — an area of approximately 7800 feet. Care was taken to provide an abundance of natural light which is an im- portant consideration in the construction of all exchange rooms. Practically the whole of the Broad Street front, back of the columns, is a continuous window, and the build- ing is surmounted by a dome with a central skylight 30 feet in diameter. Along the southerly wall of the board room are the telephones; on the easterly side a smoking room and rooms with telephone and telegraph facilities. At the extreme easterly end of the Beaver Street front the building has been divided into four floors, providing quarters for the Clearing House, the executive and com- mittee ofiices. The basement is utilized in providing restaurant, coat room, and other facilities for the members. CHAPTER III Management of the Consolidated Stock Exchange The Consolidated Stock and Petroleum Exchange of New York is a voluntary association of brokers and others. Its business is limited to supplying facilities to its members for the purchase and sale of stocks, bonds, and other securities and commodities. It controls by stock ownership two subsidiary corporations, — the Clearing House Association and a Building Company, two institu- tions organized by the Exchange for the purpose of facili- tating the business of its members. Both are incorporated under the laws of the State of New York. The government and management of the Exchange is vested in a board of governors. This governing board is composed of the president, two vice presidents, treasurer, and twenty other members. Elections are held in May each year. The governing board has power to try all offenses under or against the laws of the association and its decision is final. It fixes the amounts of salaries of officers. This board also appoints the Exchange secretary and determines his salary. The governing board is subdivided into twelve stand- ing committees which carry on the administration of the Exchange's affairs, and they are as follows : — (1) Finance Committee. (2) Committee on Membership. 16 16 THE CONSOLIDATED STOCK EXCHANGE OP NEW YORK (3) Committee on Arrangements. (4) Committee on Mining Securities. (5) Clearing Committee. (6) Law Committee. (7) Committee on Commissions. (8) Committee on Securities. (9) Complaint Committee. (10) Committee on News, Statistics, and Trade Facilities. (11) Committee on Grain. (12) Committee on Ways and Means. The president is, ex-officio, a member of all committees. The membership initiation fee is now $500. The an- nual dues are $100 a year. Article VI, Section II defines the duties of the Committee on Membership as follows : " The Committee on Member- ship shall have jurisdiction over all admissions to member- ship in the Association, excepting in the special cases provided for in Article VIII. All applications for mem- bership must be addressed to the Chairman of the Com- mittee and must be seconded by at least two members of the Association. The name of the applicant and the names of his indorsers shall be conspicuously posted in the business room of the Association, with a notice requesting the members to inform this Committee, in writing, of any objections they may have to the person named. Such communication shall be duly considered in committee and shall be held confidential. The Committee shall make diligent inquiry as to the qualifications of the ap- plicant, and shall cite the applicant and his indorsers to appear before said committee at any time after the first CHARLES GEORGE WILSON Management of the consolidated stock exchange 17 posting of the applicant's name, as aforesaid. At the expiration of not less than ten business days from the first posting of the applicant's name, and not less than one week from the date of the examination of the ap- plicant and his indorsers, the Committee shall proceed to ballot for the applicant. If, after due consideration of the application, six members of the Committee shall indicate 'by secret ballot their approval, the Chairman shall de- clare the said applicant duly elected a member of the Association, provided that, within ten business days after being elected, he shall sign the Constitution and pay the transfer or initiation fee and the contribution ($10) to the Gratuity Fund, provided in Article XXII, Section II ; otherwise his election shall be null and void." A set of by-laws comprise the general rules of the Ex- change and govern the conduct of business on and off the floor. Separate by-laws govern the business of the mining and grain departments. The by-laws also provide for the clearing regulations for railroad and other securities and grain. In the constitution, provision is made for the manage- ' ment of the Gratuity Fund which is described in a sepa- rate chapter. Each fiscal year the Exchange prints an annual report which contains complete and comprehensive reports of the various committees, the reports of the president, treasurer, and that of the Clearing House and Building Associations, together with the names of the officers, com- mittees, and executive staff. CHAPTER IV Officers of the Consolidated Stock Exchange The first president of the Consolidated Stock Exchange was John Stanton, who up to the time of his decease, several years ago, was a conspicuous figure in the mining world and an authority on copper. He served for two terms — 1875 and 1876. In 1877 he was succeeded by George B. Satterlee who served until 1880, when his successor was elected in the person of S. V. White. In 1883 Charles O. Morris succeeded Mr. White and, after serving one year, he gave place to the late Charles George Wilson who filled the office for a period of fifteen years. Charles George Wilson was born at Baltimore, Mary- land, June 9, 1843. In the year 1863 he began the study of law, was admitted to the bar, and practiced in the city of Baltimore until 1876, when he came to New York. In 1878 he became a member of the American Mining Exchange, and his fellow-members recognized his executive ability in 1879 when they selected him to serve as Chairman of the Governing Committee, an ap- pointment he held until 1882, in which year he was elected to fill the office of vice president of the Na- tional Petroleum Exchange. 18 MORTIMER H. WAGAR OFFICERS OF THE CONSOLIDATED STOCK EXCHANGE 19 In 1883 the Mining Stock Exchange and the National Petroleum Exchange consolidated, and in 1884 Mr. Wilson was elected president of the consolidated institution, an office he held up to 1900. MORTIMER H. WAGAR Having served fifteen years as president of the Exchange, Mr. Wilson was succeeded after a very interesting election by Mr. Mortimer H. Wagar. Mr. Wilson accepted his defeat gracefully, and Mr. Wagar entered upon his first year of work in 1900 with the support of a large majority of the members, having polled a vote of 504 to 287. Mr. Wagar was born in Toledo in 1857. His first venture in business was at the age of fourteen, when he began as office boy and gradually worked his way up through the various departments of a grain and transportation busi- ness until at the age of eighteen he was admitted to part- nership by his employer. Mr. Wagar became a member of the Toledo Board of Trade. In 1878 he left Toledo for an extended vacation in Europe. Returning to New York, he identified himself with the Produce Exchange. In 1885 he resigned to engage in business on his own account, forming the grain brokerage firm of Wagar, Martin & Co. In 1890 this firm joined the Consolidated Exchange. Mr. Wagar at the time of his election was a member of the Consolidated Stock Exchange, the Chicago Board of Trade, and the New York Produce Exchange. Mr. Wagar instituted a successful administration, having for one of its objects the extermination of the bucket shops. 20 THE CONSOLIDATED STOCK EXCHANGE OF NEW YORK In 1901 Mr. Wagar was reelected president of the Con- solidated as the nominee of both the regular and inde- pendent tickets, and in 1902 he was again elected to succeed himself. His three years of work as head of the institution were marked by great activity and progressive results of a character that advanced the Exchange's interests in al- most every department. On retiring from the presidency to become an officer of the Consolidated National Bank, organized in Mr. Wagar's last year as president, Mr. Wagar was requested to fill the office of vice president of the Exchange, which he did for two years. LEWIS V. F. RANDOLPH Lewis V. F. Randolph was elected president of the Ex- change in 1903. For many years he had been a prominent New York financier. Mr. Randolph for eleven years had served as treasurer and director of the Illinois Central Railroad Company. He also acted as secretary to the trustees of the Samuel J. Tilden estate and for eight years he was president of the Atlantic Trust Company, an office from which he re- tired when the corporation was merged with the Metro- politan Trust Company. Mr. Randolph was born in Somerville, New Jersey, on May 16, 1838. For many years he has been prominent in the social and political life of Plainfield. His acceptance of the presidency was followed by his election in 1904 and 1905, when he determined to take a long rest and travel in Europe. Mr. Randolph finished LEWIS V, F. RANDOLPH OFFICERS OF THE CONSOLIDATED STOCK EXCHANGE 21 his three years' work in the interests of the ConsoUdated Stock Exchange, having accomplished a number of definite and valuable improvements. In his last report Mr. Randolph said : " I leave the asso- ciations and duties with which I have become familiar during these three years with mingled feelings of regret and gratitude. A year ago, I informed the nominating committee that I would only see the way to accept the presidency for another term; and I was then for the third time elected without opposition. At the first meet- ing of the Board, last June, I repeated what I said to the nominating committee. The time thus fixed for my re- tirement has arrived; and while I entertain the pleasing confidence that my successor will carry forward all good efforts and plans for the betterment of the institution, and will be abundantly supported by his colleagues in the governing board and by the floor at large, I cannot for- bear an expression of regret on my own part at the sever- ance of the delightful relations I have enjoyed in and with the Exchange and with its members." OGDEN D. BUDD To succeed Mr. Randolph the members of the Exchange selected one of their associates in business, Ogden D. Budd, who had been engaged in business as a commission stock broker for a number of years and who for a period of years had been a governor of the institution and one of its most active and valued committee workers along con- structive lines. Mr. Budd was bom in New York City in 1861. He 22 THE CONSOLIDATED STOCK EXCHANGE OF NEW YORK was graduated with honorable mention in 1881 at the College of the City of New York and adopted a business career. He became a member of the Consolidated Stock Exchange in 1885 and in 1900 became a member of the Board of Governors. Enjoying the confidence of the members and with a thorough knowledge of the needs and machinery of the Exchange, Mr. Budd entered upon his administration with enthusiasm and definite purposes. His administration became a notable one in a few months after he was elected to office, for together with the Board of Governors, he took up the question of the acquisition of a new Exchange home and the site at Broad and Beaver streets. A plan was adopted and successfully prosecuted. This was one of the most important under- takings in the history of the Exchange, and by reason of the economies effected through wise and sound financing, it promises to prove of far-reaching benefit to the mem- bers and the institution. OGDEN D. BUDD CHAPTER V Consolidated Stock Exchange Membekship The total membership of the ConsoUdated Exchange is approximately thirteen hundred. Of this number from one third to one half are actively engaged on the floor or in one of the other departments of the stock brokerage business. Other members have retired from active busi- ness, or they pursue other vocations and are inactive Exchange members. The inactive membership includes many professional men, men of affairs, and capitalists. Among the men of distinction who count themselves members of the Consolidated Exchange are Judges Gilder- sleeve and Leventritt of the Supreme Court; Henry H. Rogers, John D. Archbold, and other men prominent in the councils of the Standard Oil organization; Anthony N. Brady, the traction leader; Stuart G. Nelson, vice president of the Seaboard National Bank; Dumont Clarke, president of the American Exchange National Bank; John E. Borne, president of the Colonial Trust Company; Julian D. Fairchild, president of the Kings County Trust Company; William Nelson Cromwell and William J. Curtis of Sullivan & Cromwell; Alfred H. Curtis, president of the National Bank of North America ; William A. Nash, president of the Corn Exchange Bank; O. L. Richard, president of the State -Bank; Casimir Tag, president of the German American Bank ; W. A. Sherman, 23 24 THE CONSOLIDATED STOCK EXCHANGE OF NEW YORK cashier of the Produce Exchange Bank; A. H. Calef, of the Missouri Pacific Railroad; Senator W. A. Clark, R. L. Edwards, J. W. Copman, Charles W. Morse, Vernon H. Brown, and R. A. Cheseborough. All ages are represented in the membership and many states, including California. The membership franchise appeals especially to young men. Many members of the Consolidated have had successful careers and bought mem- berships on the New York Stock Exchange. These mem- bers are recognized as among the ablest brokers on the floor of the latter institution. It is a matter of record that not one broker who has left the Consolidated Exchange for the New York Stock Exchange has been a failure; all have succeeded in the larger field. Undoubtedly no small part of their success has been due to the exceptional character of the training they have had on the floor of the Consolidated. Recognizing the situation that the Consolidated has offered and does offer unusual advantages as a brokerage school and market place, not a few members of the New York Stock Exchange have bought memberships on the Consolidated for their sons. Nowhere in the United States can similar advantages be obtained for the amount of capital involved. In recent years as New York Stock Exchange member- ships approached the $100,000 mark, and owing to the numerical limitations of its membership and the large amount of capital required to enter the trade in keeping with modem Stock Exchange competition and conditions. Consolidated memberships have appealed more and more CONSOLIDATED STOCK EXCHANGE MEMBERSHIP 25 strongly to young men trained in Stock Exchange houses, who had reached the hmit of office advancement; and to young men engaged in the brokerage trade in other cities than New York, who have been ambitious to embark, for their own account, in the New York brokerage trade. The result is that the floor census of the Consolidated Exchange approximates five hundred, and it is steadily growing. There are scores of members of the Consolidated Ex- change who would not sell their membership for from $10,000 to $25,000, for the very simple and satisfactory reason that in no other institution could they get the same market and the same facilities for the prices within the specified extremes. "The Consolidated Stock Exchange has its limitations, of course," remarked a successful floor trader who repre- sents a family that has been trading on the New York Stock Exchange and the Consolidated Stock Exchange for two generations, " but the market here is good, enough for me. When I started here years ago, I traded in ten shares; to-day I trade in thousands. In some respects our market is limited; but that is true of every market on every exchange, no matter whether it be a primary market or where it may be located. " Considering our relative size we enjoy a most excellent market that compares more than favorably with that of any Exchange in the country, with the exception of the New York Stock Exchange, and we are in no sense a rival of that institution. There will always be two exchanges in New York. 26 THE CONSOLIDATED STOCK EXCHANGE OF NEW YORK "The fact that we have lived so long and so well, through prosperous times and times of panic and de- pression, through evil report and good, means that we have a legitimate place to fill and that we fill it creditably, else we would not have survived the test of time and ad- verse periods of business. Our praises have never been sounded very loud and our shortcomings have been magnified and exaggerated, but we have lived despite our enemies, and we deserve recognition. "I have watched young men come here, and in a few years accumulate moderate fortunes and then seek a wider sphere for their activities. That is as it should be. If a man can make more money elsewhere and it is his inclina- tion, it is his privilege to go; but I, for one, have never felt that I would care to leave this institutiop. I am a believer in it and in its future. "The Consolidated Stock Exchange has produced as many competent stock brokers as any Exchange in the United States." Another broker member said: "'Would I sell my membership for $10,000?' " No ; certainly not, if I could not duplicate it. I like and enjoy the business of stock trading. I make here an income of from $5000 to $7500. My hours of work are from 10 A.M. to 3 p.m. My expenses are small. I like long vacations and I take them. "Before coming here I was engaged in a mercantile business, where the day was never ended and the losses from bad accounts were very heavy. This is a welcome relief." CONSOLIDATED STOCK EXCHANGE MEMBERSHIP 27 A university man who is now the head of one of the leading Consolidated Stock Exchange commission houses was asked for his experience and he said : " When I left college, I determined to try a business career and I always had a liking for Wall Street and finance. I had no diffi- culty in securing a clerkship in a New York Stock Ex- change commission house. I stayed there a couple of years and learned the business, but it did not take me that long to realize that that clerkship was to be mine for life. "Ahead of me, lined up and waiting for the junior partnership vacancies, were members' sons, and million- aires' sons, and bank and railroad presidents' sons, to say nothing of the rest of us. "Fortunately I had some capital. I bought a member- ship in this institution. It took me a year to learn how to trade and then after several years of trading, we em- barked in the commission trade, and are doing quite well, thank you. " ' What do I think of our future — of the future of the Exchange?' It is most promising. The day is approach- ing when there will be livelier competition for our mem- berships. "It is my view that there are scores of young men engaged in the brokerage business in New York, Boston, Philadelphia, Chicago, and other cities who have only to be acquainted with the relative advantages of this and other exchanges to want to avail themselves of the oppor- tunities that are open on our floor." Another member discussing the Consolidated and its 28 THE CONSOLIDATED STOCK EXCHANGE OP NEW YORK opportunities said: "Nowadays it is a rather difficult thing for a young man to successfully engage in business for himself on his own responsibility, or to acquire a partnership. If he is with a corporation, he is often tied down hard and fast, a small part of a very big machine. Competition was never swifter, never more perfectly organized, and the capital requirements are far and away beyond the resources of most young men. Nowadays new firms starting in business in commercial lines expect to lose money the first year, and I heard the other day of a concern that does not expect to make a dollar for three years, when the expectation is, that it will be a big money maker. "These are some of the reasons why I am here. Per- haps I would like a more constructive business than that of a stock broker if I could do as well financially as I do as a broker. But I have the satisfaction of knowing that I am in business for myself; my hours are short enough for me to enjoy my home and my family in the country. To be one's own employer means more than money to me. " Undoubtedly for the man with health, initiative, and pluck, this institution offers opportunities that cannot be duplicated elsewhere. The opportunities are for traders and commission men. I have seen many men come and go in Wall Street; but I have noticed that the conserva- tive men who start slowly and economically, who do not dissipate nor overtrade, win out almost always, and there is more than a living in it. I can name one hundred men who have started with little and won out against what seemed like big odds. But they were brave and had CONSOLIDATED STOCK EXCHANGE MEMBERSHIP 29 brains and knew that they had to succeed. Necessity won the struggle. " Our seats sell at absurdly low prices when the privileges of membership are considered. In a few years at the most I expect to see a radical change. We have facilities for a larger commission trade and with its development and growth along the -lines laid down by the present and preceding administrations of the Exchange, we can, as an institution regard the future as likely to deal with us in a way that will be favorable. "By reason of the peculiar relationship we occupy to the general securities' market, we have had to make many experiments and have had a career which has been rich in experience. Unless we had been inherently strong we could not have lived. " We have, I believe, profited by our experience. If we make any errors nowadays, they are on the side of con- servatism, and as the institution is better understood it is quite certain that we will enjoy even greater public favor than we do to-day, and after all we get our share of busi- ness." An old member, about to retire, having accumulated a competency, was asked for his opinion of Consolidated memberships. His reply was: "For a man who likes and understands the business a membership in this in- stitution is one of the best investments in the whole range of exchange memberships. There is nothing like it in the country. The men who come here and fail, do so not for lack of opportunity, but in spite of it. The opportunities here cannot be duplicated elsewhere with the same capital 30 THE CONSOLIDATED STOCK EXCHANGE OF NEW YOKK — of that I am sure. The man with common sense, moderate or abundant capital, good principles and brains, can succeed; but the man who does not work hard, who is not shrewd, who has been a failure in some other line, and who, perhaps, tries to make $1 do the work of $10 won't do any better here than he will anywhere else. My own experience has been highly satisfactory." CHAPTER VI The Gratuity Fund In December, 1879, the members of the Consolidated Exchange established a Gratuity Fund, to provide a system of fraternal insurance, the beneficiaries to be the families of deceased members. The management and distribution of this fund is in charge of a Board of Trustees who are known as the " Trustees of the Gratuity Fund." They include the president and treasurer of the associa- tion and ten other trustees who are members of the asso- ciation and participants in the fund. The trustees hold ofiice for five years and two are elected annually. In the 1906 report of the trustees of the Gratuity Fund, there was a comprehensive statement of its present status and operation. The number of Exchange members contributing to the fund was approximately thirteen hundred. Under the provisions of Section V, Article XXII of the constitution the surplus is maintained at $400,000. The excess as it accumulates is used in paying death benefits in lieu of assessing the surviving members or is used in buying in memberships and retiring them, thus reducing the sum total of the Gratuity Fimd risk. The surplus fund is de- posited in various Trust Companies at interest. During the fiscal year ending May 31, 1906, the Fimd paid to the heirs of 30 members the sum of $240,000 or $8000 each. Since the Fund was established, up to this 31 32 THE CONSOLIDATED STOCK EXCHANGE OF NEW YORK date, the total sum of $5,496,978.50 had been paid to the beneficiaries of 722 deceased members. In 1892 when the constitution was amended, authoriz- ing the purchasing and retiring of memberships, the ulti- mate risk of the Gratuity Fund was on 2313 members or a liability of $17,948,000; the risk in 1906 had been reduced to $8,864,625, or a reduction in risk to that date of $9,083,375. During the fiscal year 1906 the Board of Governors of the Exchange, under constitutional authorization, purchased and retired 75 memberships at a cost of $42,304.50. Of that number 22 were paid from the general fund at $11,050 and 53 from the Gra- tuity Fund surplus at $31,254.50. Of the seats pur- chased: 21 were under 40 years of age; 12 were between 40 and 45; 6 were between 45 and 50; 3 were between 50 and 55 ; 4 were between 55 and 60, and 10 were above 60 years of age, and 3 were those in the ill-health class. The reduction of Gratuity risk of those 59 seats amounted to $365,125. In addition to the above, 16 other seats were purchased. In three years $713,625 of Gratuity obligation was cancelled without impairing the reserve or surplus of the Gratuity Fund, nor seriously depleting the general fund of the Exchange, which is in a sound and healthy condition. The affairs of the Fund have been -administered in a way that is highly creditable to the trustees and the Ex- change, and the gradual but steady reduction in insurance liability should doubtless exert a future influence that will be beneficial to the quotations for Consolidated member- ships. CHAPTER VII "Volume op Business and Membership Prices The progress of the Consolidated Stock Exchange in re- cent years has been remarkably steady. For the year end- ing June 1, 1903 — expiration of the Exchange's fiscal year — the total transactions were 106,000,000 shares, which compared with 91,000,000 shares in 1902. During 1905 the records of the Consolidated clearing house exhibited a total of 137,019,910 shares cleared as compared with 136,1 18,720 shares for the fiscal year ending in June, 1906. The interesting fact about these figures is that they show that on the Consolidated Stock Exchange there is trans- acted a larger business in stocks than on any stock exchange in the country with one exception, and that is the New York Stock Exchange, which is the primary market. In view, therefore, of the fact that the Consolidated Stock Exchange affords greater facilities in the form of a broader market than any of the minor exchanges, it is not out of place to consider the statement of its members that its memberships are selling at abnormally low prices. " When," says a member, " you remember the character and size of the market here and compare it with those of the' Stock Exchanges of Boston, Philadelphia, Cleveland, Pittsburg, and Chicago, either their memberships are selling at prices that are too high or ours are selling too low. Consolidated Exchange memberships at $1000 are probably the greatest bargain ever obtainable in exchange 33 34 THE CONSOLIDATED STOCK EXCHANGE OF NEW YORK memberships, provided a man wishes to engage in the business of stock trading or, commission brokerage. When the situation is better understood, the member- ships will be in better demand and I believe that when they sell at $5000 or $10,000 they will then be more attractive to many men than they are at the lower figures. I do not know where they can be duplicated at anything like the same prices. The expenses of membership are compara- tively low and the business is always here. In cities like Boston and Chicago when the markets are very dull there is riot enough business to go around. Here there is pretty nearly always something doing, and those who look for it get their share." In 1906 Consolidated Exchange seats sold at prices varying from $800 to $1200. In the same year other ex- change membership quotations in the United States and Canada included the following: Baltimore Stock Ex- change, $6400 ; Boston Stock Exchange, $35,000; Chicago Stock Exchange, $1100; Cincinnati Stock Exchange, $2750 ; Cleveland Stock Exchange, $5500 ; Colorado Sprmgs Exchange, $500; Denver Stock Exchange, $150; Los Angeles Stock Exchange, $2000; Montreal Stock Ex- change, $24,000; New Orleans Stock Exchange, $10,650; Philadelphia Stock Exchange, $12,000; Pittsburg Stock Exchange, $8100; St. Louis Stock Exchange, $7200 ; and Toronto Stock Exchange, $17,500. And yet not one exchange with which comparison is made can equal the volume of transactions recorded on the Consolidated. Those seeking an exchange connection and the best secondary stock market in the country can BUSINESS AND MEMBERSHIP PRICES 35 profitably investigate the Consolidated situation and its methods of business. This applies not only to New Yorkers, but to those engaged in the stock business in any city in the country, and to others who wish to engage in the trade. Several years ago the management of the Consolidated decided that it would be wise to purchase and retire a number of Exchange memberships, as there was a con- siderable inactive membership list and it was believed that the policy of reduction would strengthen the smaller number. During 1906, in pursuance of this plan, seventy- nine memberships were bought and cancelled by the Ex- change. The membership is now approximately thirteen hundred and of that number there is a larger active floor membership to-day than there has ever been in the history of the Exchange. During the year 1906 sixty new and active members were admitted, each man receiving the vote of a Member- ship Committee of nine that has become exacting (but not imreasonable) in its requirements. There was also a substantial and gratifying increase in the organization of commission firms. With the removal of the Consolidated to its new build- ing it is to be expected that there will be a keener apprecia- tion on the part of the public of the institution's facilities and merits. In recent years while waging a bitterly contested and finally successful war against the bucket-shop evil the Consolidated was open to misrepresentation and misun- derstanding, owing to the fact that those outside the busi- 36 THE CONSOLIDATED STOCK EXCHANGE OP NEW YORK ness are not familiar with its machinery. It was a hard fight, and one that only could have been carried on by a sincere and courageous desire to correct abuses then exist- ing. A less sturdy and firmly established Institution in all I probability would not have succeeded, but the fight was capably and honestly made and for those reasons it was won. CHAPTER VIII Consolidated Stock Exchange Commission Trade As of all exchanges, the commission trade of the Con- soUdated Exchange is its most important department; for through it are maintained its relations with the public. Without the good will of the public (which the Consoli- dated enjoys) there is no especial call for an exchange. There are from fifty to one hundred commission firms on the Consolidated Exchange. Some of them have been in business for twenty-five years and enjoy a trade that is national in its scope. A commission business can be conducted by (1) One person, or (2) Two or more persons. Generally the stock com- mission trade is regarded as a two-man business, al- though individuals have been and are very successful in the field, as are three, four, or even five men firms. The reason that the stock commission trade is usually referred to as a two-man business is that experience teaches that one man is necessary for the office (the office man) and the other for the Exchange, the latter usually being designated as the " floor man." The office man is often an accountant, expert in stock brokerage book- keeping, and the floor man is the broker who executes the orders intrusted by clients with the firm. 37 38 THE CONSOLIDATED STOCK EXCHANGE OF NEW YORK It frequently occurs that two partners are necessary to conduct the office end of a commission firm's business, in which case, one partner devotes his time to the counting department and the second partner to the customers' department. And it may be necessary to employ addi- tional floor brokers, also a curb broker, and possibly a broker for the bond or investment department. There are three types of commission firms, viz. : — (1) The local house ^catering for city or office trade. One office only is maintained. (2) The local and mail-order house. Here the business is made up of local trade and out-of-town trade conducted by mail, the public telephone, and public telegraph service. (3) The wire house which conducts branch offices in New York and other cities and has its home office in the Wall Street district. It is obvious that there is a considerable range between the small commission house and the one equipped with wires and numerous branch offices. In the one instance it is conceivable that a very small business might be con- ducted with $10,000 capital; in the other a half million capital may be required to handle the trade. To conduct a moderate commission business calls for a capital of $25,000 to $100,000; the more capital, the easier it is to handle the business, and it follows too that the greater the capital, the greater the credit. The commission broker works for a fee that would be considered small in any other field. The real estate broker exacts a fee of from 1 to 5 per cent on sales; the invest- CONSOLIDATED STOCK EXCHANGE COMMISSION TRADE 39 ment broker gets at least J of 1 per cent and the Con- solidated Exchange broker charges J of 1 per cent each way on 10 to 50 shares and -^ on 50 shares or more. It is interesting to examine the nature of the service rendered. Suppose an investor calls at the office of a Consolidated Exchange firm and buys 10 shares of St, Paul at 175. He deposits his check for the amount re- quired. The broker buys the stock, and incidentally learns that his office is receiving 50 shares of St. Paul, on balance, the next day. If the stock comes in in a 50 share certificate, in order to deliver to the investor who bought 10 shares his certificate of stock, it is necessary for the broker to send the 50 share stock certificate to the Chicago, Milwaukee and St. Paul transfer office and split it up into fractional lots. While the stock is in transfer, the amount of capital involved in the certificate is tied up. The work calls for what to the layman is complicated bookkeeping, and much messenger service in the receipt and delivery of the stock. After the stock is delivered to the buyer the broker finds that for the $1750 transaction, which has, owing to the exigencies of the business, involved a much larger amoimt, he is entitled to charge for his services the sum of $1.25, truly a trifling sum for the service ren- dered. Assume, again, that a buyer calls on his Consolidated broker and buys 100 shares of St. Paul on a 10 per cent margin. The stock is bought at 175, and is to be carried indefinitely. It then becomes necessary for the broker to receive the stock. The customer has deposited $1000 40 THE CONSOLIDATED STOCK EXCHANGE OF NEW YORK or ten point margin. The stock is received and the broker pays for it with a check for $17,500, which represents $16,500 of his own capital and $1000 belonging to the customer. The broker takes the stock to the bank and borrows 75 or 80 per cent, thus releasing 85 or 90 per cent of his own capital, it is true ; but the broker has now as- sumed a large responsibility for a small fee. The commission broker may carry the stock for a day, a week, or a year. The bank may recall its loan, and the loan may in fact be called and re-made a dozen times. Finally the stock is sold when the broker collects $12.50 or $25.00, as the case may be, for his fee. Quite naturally he feels that more than a fair measure of service has been rendered for the amount of his compensation. It is also true, and not to be overlooked, that some commissions are easily earned, as, for instance, when a man trades often and has an active account ; but such accounts are difficult to handle at times when excitement runs high. Careful figuring, nice judgment, and a perfect office and floor organization are necessary to keep the ship sailing on an even keel. There is an especially good market on the Consolidated Exchange for the active stocks, and any amount can be traded in from 10 to 1000 shares. The odd lot market in such stocks as Union Pacific, Reading, United States Steel common. Amalgamated Copper, and others is very broad, and trading is conducted in 10 share lots very close to the 100 share lot price. In the primary market the odd lot trading is controlled by dealers as distinguished from commission brokers. CONSOLIDATED STOCK EXCHANGE COMMISSION TRADE 41 'In an active stock the commission broker, having an order in the primary market, proceeds to the dealer who will sell him 10 shares J or J of 1 per cent away from the last 100 share price. If the order is to sell, the dealer will only buy on the basis of J or J under the last 100 share price. Add to the J or J exacted by the dealer for his service in trading the J commission of the broker and the 10 share trader in the primary market has bought or sold under conditions that are rarely understood until the experiment is made. In inactive and investment stocks the dealers operate on a larger theory of profit than J or i of 1 per cent. As illustrating the nature of the Consolidated's market, Dow, Jones & Co., news bulletin No. 52 of Thursday, Oc- tober 11, 1906, says under the following heading: — "Stock Market. " During the first hour the market was dull and active by turns. There were intermittent outbursts of violent bidding up of a few issues. It looked as if a procession from one post to another was being held on the floor of the Stock Exchange, stops being made long enough to bid up the price of each stock in turn. " United States Steel common reached 49|-, the highest price so far touched on this advance. Only 100 shares, however, came out at that figure. As a matter of fact there was more stock sold at that price on the Consolidated Exchange than on the Stock Exchange, and on the so-called ' Little Board' the price touched 50 for 100 shares." It has often been observed by Consolidated Exchange brokers, at times when stocks reach a turning point, high 42 THE CONSOLIDATED STOCK EXCHANGE OF NEW YOBK or low, on the New York Stock Exchange, that the volume of trading will be larger on the Little than on the Big Board. While this does not change the never disputed fact that the New York Stock Exchange is the primary market for stocks and bonds in the United States, with all that that statement implies, the Consolidated Exchange member- ship holds that it is entitled to wider and more generous recognition of the fact that they have under the roof of their institution a better and broader market than they are generally credited with having. Consolidated commission brokers, trading in odd lots for J commission, can usually trade on the 100 share price ; and in addition to the usual trade in 100 share and larger lots they can also execute orders in investment stocks and bonds (including government and municipal securi- ties) in the outside market, in mining stocks, and in curb stocks and bonds, for cash. The Consolidated Stock Exchange also offers important and valuable trading advantages to: (1) large traders, (2) out-of-town banks and correspondents, and (3) the operators of pools in particular stocks. Large traders having accounts with established broker- age houses can make substantial savings in commissions by purchasing a Consolidated membership and then trad- ing through a fellow-member in the commission business for a ^ commission. This applies particularly to active traders who trade in the active stocks. A number of traders having adopted this method have discovered that the saving in commissions amounts to a handsome in- come in itself. CONSOLIDATED STOCK EXCHANGE COMMISSION TRADE 43 Out-of-town banks and brokerage correspondents, by securing representation on the Consolidated, can, in the first place, effect a saving in commission expenses ; and in the second, brokerage correspondents can obtain trading facilities on a "split-commission" basis. The oppor- tunities in this direction are worthy of the investigation of out-of-town business men interested in the securities' trade. More than one manipulator of stocks in the primary market has discovered that the Consolidated market affords facilities for the acquisition and marketing of lines of stocks. This has been true of Reading, Brooklyn Rapid Transit, Union Pacific, Copper, and Sugar in their periods of speculative activity. As the Consolidated opportunities become better known it is probable that there will be a disposition on the part of the leading opera- tors to avail themselves on a larger basis of this market. CHAPTER IX The Mining Depaktment The Consolidated Stock Exchange has very complete facilities for dealing in mining securities. Mining com- panies complying with its regulations can be regularly listed. Years ago, when the speculation in the mines of the Comstock Lode was at its height, the bulk of the East- ern business was transacted on the floor of the Consoli- dated Exchange. Recently there has been a revival of interest in Nevada and Canadian stocks, and while much of the business in mining stocks is transacted outside the walls of any exchange, there is reason to believe that it will gradually seek the more conventional market to be had on the various exchanges, where the public re- ceives greater protection and is safeguarded in important particulars. There has been a substantial improvement in the volume of mining transactions in recent years and the mining brokers of the Consolidated look for its con- tinuance. In 1904-1905 the total sales aggregated 1,667,775 shares; in 1905-1906 the total was 2,373,889 shares, a very substantial increase. The owners and promoters of reputable mining corporations have been invited to investigate and avail themselves of the Con- solidated market and facilities. 44 CHAPTER X The Grain Department The Consolidated Stock Exchange has a department for dealing in grain and clearing-house facilities for handling contracts. At times a large business has been transacted in wheat. The wheat clearances for 1904-1905 were 479,675,000 bushels; for 1905-1906, 385,877,000 bushels. The tendency of the speculative grain business to con- tract in recent years has been due to widely recognized causes not having their origin in New York. Chicago, the leading grain market of the country, has experienced, relatively, even a greater shrinkage in the total trans- actions. One of the chief causes of the decline in grain speculation has been the increased public interest in stock speculation and investment. Many large Western firms which a few years ago were leaders of the grain trade are now established in Wall Street, where they have become con- spicuous members of the stock brokerage trade and are an important factor in the making of the primary market. It is pretty well established that public interest in speculation shifts from stocks to cotton; from cotton to grain; and from grain to other commodities or minerals or particular stocks in no regular sequence. Renewed activity in grain may be experienced this year or next, or it may be deferred for several years; but when it comes, the Consolidated will get its share of .trade. 46 CHAPTER XI The Consolidated Stock Exchange Clearing House Mr. James G. Cannon, author of the only book in this country that deals with the subject of Clearing Houses, discusses the clearing houses of banks exclusively; the clearing houses of exchanges and boards of trade in the securities' field and those of commodities are not de- scribed or explained. The bankers' clearing house is the parent of the exchange and board of trade clearing house. The fundamental principles of organization and method are similar. To understand the exchange clearing house and its supple- mentary relation to the bank clearing house we may appropriately therefore turn to Mr. Cannon's definition of the clearing house. He says: "What is a clearing house?" The Supreme Court of Pennsylvania has defined it thus: It is an in- genious device to simplify and facilitate the work of the banks in reaching an adjustment and payment of the daily balances due to and from each other at one time and in one place on each day. In practical operation it is a place where all the representatives of the banks in a given city meet, and, under the supervision of a competent committee or ofiicer selected by the associated banks, 48 THE EXCHANGE CLEARING HOUSE 47 settle their accounts with each other and make or receive payment of balances and so ' clear' the transactions of the day for which the settlement is made. "But," adds Mr. Cannon, "we must go farther than this, for though originally designed as a labor-saving de- vice, the clearing house has expanded far beyond those limits, until it has become a medium for united action among the banks in ways that did not exist even in the imagination of those who were instrumental in its incep- tion. A clearing house, therefore, may be defined as a device to simplify and facilitate the daily exchanges of items and settlement of balances among the banks, and a medium for united action upon all questions affecting their mutual welfare. "The clearing houses in the United States may be divided into two classes, the sole function of the first of which consists in clearing notes, drafts, checks, bills of exchange, and whatever else may be agreed upon; and the second of which, in addition to exercising the functions of the class just mentioned, prescribes rules and regulations for the control of its members in various matters, such as the fixing of uniform rates of exchange, interest charges, collections, etc. "Clearing houses may also be divided into two classes with reference to the funds used in the settlement of balances: First, those clearing houses which make their settlements entirely on a cash basis, or as stated in the decision of the Supreme Court above referred to, ' by such form of acknowledgment or certificate as the associated banks may agree to use in their dealings with each other 48 THE CONSOLIDATED STOCK EXCHANGE OF NEW YORK as the equivalent or representative of cash ; ' and, second, those clearing houses which make their settlement by checks or drafts on large financial centers." It is now easy to understand that the Consolidated Stock Exchange clearing house is an adaptation of the bank clearing house, and it is utilized for the adjustment and settlement of contracts for stock securities and grain. The idea of a stock exchange clearing house was first adopted by the London Stock Exchange. In that in- stitution it is the custom to trade for what is designated as " the account, " with a fortnightly adjustment of bal- ances. In this country the distinction of first having adopted the clearing-house idea lies between the Philadelphia Stock Exchange and the Consolidated Stock Exchange of New York. The London idea was adopted with modi- fications in 1886, the Consolidated Stock Exchange deter- mining upon a weekly settlement and subsequently chang- ing it to a semi-weekly settlement. In 1892 the. New York Stock Exchange investigated the clearing-house question and organized a clearing house which is con- ducted upon the basis of a daily settlement. The Consolidated Stock Exchange Clearing House Association (incorporated) is managed by a Board of Directors, all of whom are members of the Exchange. Monetary balances are settled daily; stock balances are delivered semi-weekly. Members of the Exchange are admitted to clear in their own names. A trader- can buy and sell 1000 shares of .stock for the remarkably small clearing-house charge of THE EXCHANGE CLEARING HOUSE 49 50 cents — a fact worthy of consideration by professional traders. The clearing house supplies without charge clearing-house sheets, comparison tickets and drafts which comprise the official stationery. The clearing-house sheet of a broker is a record of stocks bought and sold; to be received or delivered on a single day. Each transaction is compared with " receive " and "deliver" tickets or comparison slips. These com- parisons must be made before 9 : 45 o'clock on the day following the ti'ansaction. As each sheet contains in all probability a considerable number of separate transactions, the transactions in each stock are grouped together. All the purchases having been entered in the " To receive " column and all the sales in the "To deliver" column, and the totals carried out, the columns are footed up and the balance struck. If the clearing-house sheet as made up shows a credit balance to the owner of the sheet, a draft for the correct amount is drawn on the clearing house. Before 3 o'clock the draft is certified and is paid to him by the clearing house. If on the other hand there is a debit balance, the difference is entered as " balance check" and the owner sends his check for the correct amount with his sheet to the clearing house in settlement, before 10.30 A.M. Upon one occasion an investigation was made of the clearing-house plan as compared with the obsolete method of receiving and delivering every separate transaction of all stocks bought and sold. The day's work of a single brokerage firm was summarized. Under the old system the total amount of shares received and delivered was 50 THE CONSOLIDATED STOCK EXCHANGE OP NEW YORK 18,700; the amount of checks issued was $649,741, and the amount of checks received $607,456.66. Under the clearing system the total number of shares received and delivered on balance for the same business was 1700; the amount of checks issued was $67,700, and the amount of checks received was $25,415.66. A sheet which was even in stocks made a still more striking contrast in favor of the clearing house. Under the old system 7900 shares were received and delivered; 21 checks for a total of $672,912.50 were issued and 18 checks for $671,075 were received. Under the clear- ing plan one check only for $1837.50 was issued and the day's work was balanced. It is plain, therefore, that the system of clearing, by largely reducing the volume of checks and deliveries, relieves both banking institutions and brokers of much of the monetary demand, to say nothing of risk, confusion, and labor. Without {he clearing house the Stock Ex- changes of the country from 1899 to date would have been unable to carry on their business successfully. With a system of daily deliveries the machinery of busi- ness would have broken down under the strain of increased work to which it has been subjected. In another series of transactions, in which the obsolete and the clearing- house systems were compared, it was demonstrated that there was a saving of more than 75 per cent in the amount of money which a broker requires to use in his day's settlements. A specimen clearing sheet in which a broker is even follows : — THE EXCHANGE CLEARING HOUSE 51 A SPECIMEN CLEARING SHEET IN WHICH A BROKER IS EVEN Beceived from Price Am't Delivered to Price Am't A. J. A. &F. J.