What The Stock Exchange Is?

The Stock Exchange is a collection of different markets, or bodies of men who buy and sell the various kinds of securities which are current: in one market Consols form the staple of transactions; another market deals exclusively with railway stocks and shares; and so on. These are all congregated in one building, but the several markets are situated in allotted parts of the place, though each adjoins the other. The advantage of this arrangement is evident: when a broker enters the House (as it is called) to execute a purchase or sale for a client no time is wasted in discovering after search the persons with whom he can deal in the particular security, but he at once proceeds to the separate market in which transactions in that security are made.

Brokers And Jobbers Or Dealers

The members of the house consist of brokers1 and jobbers,1 and to the latter is usually applied the term dealers,2 which has thus acquired a specialised sense. The jobbers are members who are prepared to buy from or sell to the public the stocks which form the commodities of their particular markets: the brokers are members who, acting for the public, sell to or buy from the jobbers. The jobber is thus akin to the merchant who transacts business on his own account, while the broker's function is exclusively that of agency for another.

1 Broker: the Old French equivalent of this word was brocheor, meaning literally a tapster who retailed wine "from the tap"; and by an extension of application described any retail dealer - one who bought and sold again; a second-hand dealer, or one who bought for another: hence it is employed to denote one who acts as a middleman; on the Stock Exchange the broker is the intermediary between the jobber and the public.

How The Jobber Makes His Profit

Dealing with the subject generally, the jobber will not possess a supply of the stock which he agrees to sell, nor wish to retain the supply of the stock which he is prepared to purchase. Like the merchant in material commodities, he does not keep a store of securities on hand: when he sells to the broker he will obtain by purchase from some other jobber or broker the quantity of stock of which he has thus disposed; and his skilled and intimate knowledge, and the seizure of the fitting opportunity, enable him so to fix the price quoted to the inquiring broker that the price he must himself afterwards pay to the other jobber or broker for the requisite supply shall be lower than the price he has quoted, and thus show a difference of profit. When again he purchases from a broker he afterwards arranges to sell the same amount of stock to another jobber or broker, and the price at which ho buys is so determined that he may, on his subsequent selling, receive a higher price and thus realise a profit; for prices constantly vary, and at times, almost from moment to moment. Where, then, does the stock finally proceed as the sequence of this passage from hand to hand? Either into the possession of speculators or the public - the general hope and intention being that the outside public shall ultimately become the holders.

1 Jobber: literally one who does jobs or odd pieces of work; and then applied to a member of the house who deals in stocks and shares on his own account. The word "job" is of obscure origin.

2 Dealer: one who deals; a trader; derived from deal (the verb) with the suffix er for conversion into a noun substantive. The verb itself is derived from a Teutonic word, to part, to divide.

The Check On Stock Exchange Prices

It is evident, as concerns the advantageous sales or purchases of the public, that the prices quoted by the jobber can never be exorbitant or detrimental to the ordinary investor, since competition for business by the jobbers, and the concurrent knowledge of the state of the particular market which the broker (protecting the interests of his client) possesses, retain the prices at their legitimate levels - legitimate in the sense of conforming to the prevailing rates and estimates. The varying prices at which sales and purchases of stocks are thus effected constitute at the time or times the "market prices."

The Process Of Business On The Stock Exchange

The process of business may be briefly described. The broker receives instructions from his client to buy or sell a certain stock; he applies to a jobber in the market where that stock is dealt in, and desires him to "make" a price. The broker affords no indication whether it is a sale or a purchase which he intends, since, if that knowledge were first communicated, the jobber might name a price higher or lower than the really prevailing rate. This possible action of the jobber would, of course, be restrained within fractional limits, for the broker is also acquainted with the state of the market, and if the price quoted does not appear to be reasonable he can apply to competing jobbers. The jobber, accordingly, ignorant of the intention of the broker, must quote two prices - one at which he is willing to buy, the other at which he is prepared to sell. (The articles in a shop are marked with one price only, since the shop is simply a place for sales: the business of the jobber is twofold, and hence the necessity of two quotations.) Assume that he "makes" the price of 69-70, as it is expressed: at the former the investor can sell, and at the latter buy. The broker may, however, consider that these prices are too " wide," and as the result of "the higgling and the bargaining of the market," as Adam Smith phrased it (though little of this is necessary on the Exchange), a revised quotation of 69-69| (sometimes expressed as 69⅜-⅝) may be obtained, so that the broker sells for his clients (and the jobber buys) at 69⅜, or the broker purchases for his client (and the jobber sells) at 69⅝. The investor, it will be observed, whether he sell or buy, is benefited by the " closer " quotation.