It was pointed out in the preceding chapter that issues below $200,000 to $500,000 are too small to bear the expense of thorough investigation on the part of security dealers and must, therefore, ordinarily be sold direct by the corporation or its promoters. This establishes in a general way a lower limit of the security merchant's activities. On the other hand, very large issues of bonds or shares which soon after their issue will enjoy an active market on an important stock exchange, are frequently best handled with the assistance of stock exchange operations. This does not mean, as will be explained a little further on in this chapter, that the large banking houses do not underwrite and dispose of these securities. It means only that they use a slightly different method. Speaking in general terms, it is usually true that issues of say $10,000,000 to $20,000,000 and over, are at once listed on the New York Stock Exchange, and the efforts of the houses which handle the issue are directed toward encouraging purchases through the exchange as well as toward making sales direct to their own customers. This is a method that differs slightly from the one that has been described. The figures just stated give in a general way the upper limit of security issues that are handled exclusively through the method of direct sale by security dealers to customers.

Besides paying the bankers' commission, the issuing corporation must frequently pay heavy legal expenses as well as fees to accountants, intermediary brokers, and others, which run to a high figure. Inasmuch as arrangements of, this kind are of a confidential nature, they are not officially recorded and for this reason it is difficult to give exact figures.

Following is a statement showing the expenses incurred by A. L. Barbour in 1896, in carrying through the sale in London of 400,000 6% debenture bonds of the New Trinidad Lake Asphalt Company:

Underwriting commission , 10%...................

40,000

Fee to City of London Contract Corporation, Limited, and to Henry Bell, Esq...........

15,000

Expenses of the City of London Contract Corporation, limited ............

1,022

Fees to Seward, Guthrie and Steele, Attorneys in new york ...............

2,183

Fees to Ashurst, Morris and Crisp, Attorneys in London...............

1,500

Fees to accountants and brokers and miscellaneous expense...........

10,293

69,998

This is a selling expense of 17 1/2%. It is, to be sure, exceptionally high, but it must be admitted that it has often subsequently been equalled.*

A further limitation is to be found in the fact that the decisions of security merchants as to taking on new issues are frequently determined as much by their own position as by the intrinsic strength and salability of the propositions. If a banking house has already entered into arrangements to sell certain issues of a given type, it will not be in position to take on new issues of the same type. For its own safety, it would prefer to offer to its customers a diversified list. It has sometimes happened, for this reason, that a really excellent proposition has been refused by all the houses which would otherwise have been glad to take it up.

* Figures taken from Dewing's "Corporate Promotions and Reorganization," p. 419.