The Century Dictionary defines a " stock exchange " as " An association of brokers and dealers or jobbers in stocks, bonds, and other securities, created under State or municipal authority, or by corporations concerned in the business connected with the carrying on of railways, mines, manufactures, banks, or other commercial or industrial pursuits."

The " stock exchange ," as generally understood, need not necessarily transact its business in a building; its business may be carried on in the open air like the New York Curb Exchange on Broad Street, New York City.

The first definite organization in America which may be recognized as an exchange of this kind was brought about by a board of stock brokers in Philadelphia, who met, organized, and adopted a constitution early in the eighteenth century. Medbury states that on May 17, 1792, some twenty New York dealers in public stock met together and signed a paper of the nature of a protective league. The New York Stock Exchange was organized in 1817. Thus the idea of a " stock exchange " is an old one. Stock brokers, so-called, have existed for many years. Nelson has said that as early as 1285 the term "broker" is referred to in an act of English Parliament.

It is said that a "stock exchange" offers the most highly organized and delicatelv adjusted market in the world.1 (See "Stock Exchange Seat.")

1 The New York Supreme Court has handed down a decision as follows:

Stock Exchange Clearing-house. This system for simplifying the deliveries of securities sold between members of a stock exchange resulted from the large over-certification of checks which the former system of actual deliveries to each different broker required.1

The New York Stock Exchange adopted this system in 1892. There had been, however, a stock clearing system in successful operation in several European cities for some years. Philadelphia and Boston had already adopted it before the idea went into effect in New York.

The European system is based on the "fortnightly settlement " plan, whereas the New York system is based on daily deliveries.

To follow an actual transaction through the clearing-house would consume more space than can be here allotted. In effect, however, following the day's business, each stock exchange member prepares a "clearance sheet" on which is recorded his sales and purchases of certain securities; i. e. the active ones. The following day, this sheet must be in at the Clearing-house by 10 A.m. and a penalty is attached for every minute's delay or for errors. It is the duty of the clearinghouse to reconcile all deliveries between different parties and to adjust the cash differences by either paying or receiving the balances due, so that as little money may be required in the settlement as possible. The loans made to even up the balances, at this time, go ,into the Clearing-house the same morning at 10:30 on what is called " Sheet No. 2."

One very important function of this clearing-house system is to facilitate the borrowing of money on the stock exchange. To understand this thoroughly, a reading of the subject "Borrowing Stock" is advisable. By way of illustration, Poole & Co. buy 500 shares of Labrador & Florida at 100. In the ordinary course of business they would be obliged to pay the next day, say, $50,000, to take up this stock, and then make a loan with their bank, furnishing 20% margin, necessitating a cash outlay on their part of about $10,000. Instead of making this loan, however, they, in turn, loan these 500 shares of stock to Baldwin & Co. at an agreed rate of interest, and the next day the clearing-house just offsets. In other words, no money changes hands in this transaction, and Poole & Co. are saved the necessity of first paying for the 500 shares of stock previous to loaning to Baldwin & Co.

Justice O'gorman said, " Stock exchanges have the power to enact such rules and regulations concerning the government of their affairs as may be deemed necessary for the carrying on of their business, but such rules and regulations must not be contrary to the law of the land."

1 "The first official stock exchange clearing-house was founded at Frankfort in May, 1867." - "The Principles of Money and Banking," Charles A. Conant.

In the words of the committee which reported upon the advisability of establishing a clearing-house in the New York Exchange:

"The party who is 'even' in a stock has then nothing to receive or deliver, and all the contracts are closed. The committee in charge of the clearing ascertain who has a balance of a stock to deliver, and also who has a balance to receive, and then order the former to deliver direct to the latter, thereby relieving from deliveries all intermediate parties who are 'even' in the stock."

There is a "delivery price" fixed each day for each stock, and in assigning the receipts or deliveries the clearing-house bases its reckoning upon the delivery price, usually being the even price which most closely approximates the last sale of the day for the stock in question.

A charge of 2 1/2c. is made for clearing each 100 shares of stock of $100 par value.

Only 100 share lots, or multiples of the same, are cleared; and bonds only on special occasions.

As the foregoing gives but the merest idea of the workings of this very valuable time-saving institution, the writer suggests, for the benefit of those who wish more detail and complete information upon the subject, a reference to the " Work of Wall Street," by S. S. Pratt, who very ably devotes a chapter to the subject.