Commissions To Brokers

By the rules of the exchange a member is not permit-ted to charge his client more than per cent of the par value of the stock as his commission, nor can a member charge less except when executing an order for another member; then he is allowed to make a charge of $2 for each 100 shares. This commission to the customer comes to $12.50 on each 100 shares of stock and $1.25 on each $1,000 denomination in bonds.

I am going into these small details to emphasize and drive home a realization of the vast and gigantic business machine which the stock exchange is. If its members handled orders for 3,000,000 shares for their clients, in one session their commissions would reach $365,000. If these orders were between members, the commissions would be $60,000; on 2,000,000 shares for clients, they would receive as commission $250,000; between members, $40,000; and on 1,000,000 shares for clients, commissions of $125,000; between members, $20,000.

With such possibilities for making money, it can be readily understood why men will eagerly pay as high as $100,000 for the privilege of belonging to the stock exchange. It is safe to say that in an active year of speculation the public pays as much as $100,000,000 in commissions to the members of the stock exchange on stocks alone and almost as much for bonds bought on its floor and not over the counter. In this estimate there is not included the brokerage the public pays to members of the grain and cotton exchanges and the minor exchanges of the country, of which there are quite a number scattered through our large cities.

Listing Of Securities

The stock exchange may be likened to a great auction trading-room to which stocks and bonds may be brought by those desiring to sell them, and there can be found those who are willing to buy them at the auction sale. The exchange does not, however, permit its members to sell or buy any and all securities upon its floor. Only those which have been formally approved and admitted for trading upon the exchange are eligible for these transactions.

The stock exchange has a Committee on Stock-Listing, consisting of five members, to which all applications for listing securities on the exchange are referred. This committee makes its report to the Governing Committee of the exchange and this finally passes upon the eligibility of the securities to the floor of the exchange.

This stock-listing committee has formulated sets of regulations by which each class of securities is to be tested before it is admitted to the privileges of the exchange. The requirements for listing industrial or manufacturing securities are as follows:

1. The opinion of an attorney that the concern has been legally organized and its securities legally issued.

2. If a holding company, a statement of the financial and physical condition of the constituent companies.

3. A full description of the real, personal, and leased property.

4. A statement and proof of the title to real estate and of all liens against it.

5. A report by responsible expert accountants showing the results of business each year for two or more consecutive years, if possible.

6. A balance sheet.

7. A statement of the powers of the Board of Directors.

8. An agreement that the company will not dispose of its stated interest in the constituent companies except on direct authorization of stockholders.

9. An agreement that the company will present at least once in each year a detailed statement of its income and expenditures of the preceding year and also a balance sheet at the end of its fiscal year.

These requirements are typical of those made for all other securities listed upon the exchange. The information required must show a reasonably satisfactory condition of the affairs of the concern. There is, however, no further supervision over the affairs of the company whose stock has once been listed, though the publicity required in the annual statement tends to accomplish somewhat the effect of supervision.

Function Of Exchanges

We little realize how absolutely essential to our material progress are our exchanges. While it may be true that we could possibly get along without them, it is nevertheless a truism that without them our commercial advancement would proceed at a snail 's pace. Simmered down to its last analysis, the principal function of exchanges is to provide a central market. They serve as a place for quick transactions. They make it possible to barter in securities or commodities in seconds, whereas without their existence it could not be done in a day's time - sometimes more, for the sellers would be forced to go hunting for buyers and even when they finally got together it would still be a question between them whether the prices agreed upon were fair.

While primarily the object of an exchange is to provide convenience in trading, it exercises other functions of no less importance. Besides bringing traders together, exchanges also exert a strong tendency towards an equilibrium in prices. That is to say, by gathering about them a large community interested in certain securities for which they are the central market, they bring about free and unrestrained bidding and offering, through which is established in accordance with prevailing conditions a greater stability to values. Their price-making, as determined by the dealings between their members, furnishes the banking interests of the country a fair index of the extent to which loans may safely be made upon securities. This alone is a function of inestimable value.

Another function of exchanges is that of acting as barometers of trade. They anticipate the ebb and flow of prosperity long before the changes make themselves felt upon the surface of business. In times of panic they act as a bulwark of strength even in face of the ruthless slaughter in prices, for we could imagine what might possibly occur in the form of demoralization if there were no place where securities could be readily sold when demands for ready capital press a community.