The New York Stock Exchange was founded for a high and honorable purpose, the same being true of the New York Produce Exchange, The Chicago Board of Trade, and other institutions for coöperative trading and the determination of values, in accordance with the recognized codes of business, and in conformity with the laws of supply and demand. Such exchanges serve admirably the producer and the merchant. They have a valid function to the investor in railroad and corporation securities, and are indispensable in facilitating the massing and distribution of capital required by large commercial enterprises.
LEGITIMATE DEALERS
9. Every legitimate brokerage concern has its representative or representatives on the board of trade in the city wherein it is located, and they are members in good standing of the board. When an order is given by a customer, either through the wicket or by wire, it is immediately transferred to the floor man and he proceeds to buy or sell as the instructions are given. In an active market the client must take the chances of slight fluctuations, which are just as likely to be in his favor as against him. The floor man reports the sales or purchases as soon as made, with the price paid and from whom purchased. The entries are immediately made to the customer's account.
CLEARING HOUSE
10. The boards of trade in different cities maintain a clearing house somewhat similar to that used by the banks, to settle the deals of each member of the board each day. The deals consummated during the day's session are reported to the clearing house and the amounts due from and payable to each firm or individual member are computed. If the brokerage firm has purchased ten thousand dollars more than it has sold, a check is given to the board for ten thousand dollars, as there must be some other firm or firms who have sold more than they have purchased to whom this ten thousand dollars is due, and to whom it is paid. Deliveries of stock are made at the time the balance is paid.
RING SETTLEMENT
11. At the close of the day, settlements for grain purchases are made between brokers at an agreed settlement price. If brokers have bought and sold to each other in varying amounts, only the difference in the price is adjusted with each other. What are called ring settlements save considerable time, money, and labor. The ring settlement is a settlement between three or more parties without the necessity of margining and may be illustrated in this manner:
A has bought 50,000 bushels of wheat of B, and has sold 50,000 bushels to C. By inquiry, it is found that C has sold 50,000 bushels to B. It is ascertained that the transactions between A, B, and C offset each other, and instead of each party being obliged to put up margins upon each transaction, a settlement may be effected by paying the difference in price, as the sale from C to B may be at a different price from the sale made by B to A, and the sale made by A to C, may have been at a still different price. By the adjustment between the different parties of the difference in price, the necessity of margining by A, B, or C is rendered unnecessary.
ILLUSTRATION
A bought 50,000 bushels of wheat of B at $1.23; A sold 50,000 bushels of wheat to C at $1.23½. By making up the ring it was found that C has sold to B 50,000 bushels at $1.22½. In making the settlement it is found that C is indebted to B ½ cent per bushel for the amount sold, as B sold at ½ cent advance; C is also indebted to A ½ cent per bushel as he purchased of A at a ½ cent advance on the price A bought from B. The settlement of this deal would be made by C giving his check for the amount due to B and to A, and there would be no necessity for any one of the three brokers putting up a margin on the deals. The amount of grain is offset one by the other, and the difference in price has been adjusted by payment of cash.