These operations in options may become exceedingly complicated, an adroit operator backed by his option taking advantage in various ways of the fluctuations of the market. Sometimes in buying his option he arranges for what is called the call-of-more or the put-of-more, which really means the call or put of as much again; or he may arrange for the call or put of twice more or three times more.
It may easily be imagined that the existence of option dealing has sometimes a palpable effect upon market quotations, and, especially on Contango day or on its near approach, considerable fluctuations are often brought about by the buying and selling of those operators who have not been able during the currency of the period to buy or sell stocks to advantage. Stocks must be bought to satisfy call options, or stocks that have been put upon an unwilling purchaser must be cleared out, and these transactions naturally affect prices.
CHAPTER X
THE WARES OF THE MARKET
It has been seen that the Stock Exchange is a market, of which the wares are stocks and shares. There is some considerable difference, however, between stocks and shares, and there are various kinds of stocks and various kinds of shares. It may be interesting and profitable to inquire into the distinctions, to examine, in fact, with some detail the wares of the market. A stockholder is frequently called a shareholder even by the most precise, but, strictly speaking, the terms are not synonymous; stocks are not shares. Stock is calculated by quantity and shares by number; stock is capital in a lump, while shares are capital divided into equal parts; although the unit of stock is usually £100, any quantity, such as £218 13s. 1d. worth, can, in the case of leading stocks, be bought, whilst shares, which are usually of the denomination of £1, £5, or £10, are indivisible, and can be dealt in only in multiples of their nominal value.
All the various kinds of securities—including both stocks and shares—can conveniently be divided into three main classes according to the manner in which they are passed from owner to owner. There are inscribed stocks, registered securities, and securities to bearer; and this classification has been adopted by the Stock Exchange itself in drawing up those of its rules which relate to the settlement of bargains, each of the three classes having its own set of rules.
Let us take first the class known as inscribed stocks, and we may reasonably do this, for to this particular class belong the premier securities—Consols, the other British Funds, Corporation stocks, and Colonial Government securities. The holder of inscribed stocks may have a bank receipt, but he has no certificate of his holding; his name is inscribed as the legal owner in a register kept for the purpose at the Bank of England, or some other bank or office. Such stock cannot, therefore, be transferred from seller to buyer by the mere delivery of documents, for there are no documents to deliver. To illustrate the method of transferring inscribed stock, let us see how Consols, for instance, are passed from a holder to the person to whom he has sold them. A ticket, on a form supplied by the Bank of England, is issued by the broker acting for the purchaser, and passed in the way explained in describing the settlement. But in the case of inscribed stock the ticket contains an additional item—the name and address of the ultimate seller who is going to transfer the stock. This, of course, is filled in when the ticket reaches the seller's broker. The ticket is taken by the selling broker to the Transfer Office at the Bank, where the particulars are copied into the Register. The transferor—identified by his broker, who attends for the purpose—or his representative appointed by a power of attorney, then has to sign the register in the presence of a clerk of the Bank, who witnesses the signature, and also has to sign a receipt for the purchase money. This receipt sets out simply that the transferor has received a certain sum, being the consideration for so much interest or share in such and such a stock which he has transferred to the transferee. The receipt is subsequently handed over to the buying broker for his client. The handing of this Bank receipt to the buyer of the stock is, then, the recognised method of delivering inscribed stocks—the seller who delivers the receipt before the appointed time on Settling day is entitled to demand payment of the purchase price. It will be seen that in transferring stock in this way the purchaser himself takes little part; but on the receipt there is a special note recommending transferees, as a protection against fraud, to accept the stock by signing their names in the Register at the Bank. The use of this is that the signature can be verified when any future transfer is made and when dividend warrants are signed.
With the next class of securities, registered stocks and shares, by far the greatest number of Stock Exchange dealings are concerned. In this class are included nearly the whole of the securities issued by the joint stock companies. The distinctive features of a registered security are that it is transferable only by a separate conveyance or transfer, and that no holder has a legal title to the security until his name has been registered as the holder in the books of the company. On the registration of the holder, the company issues a certificate as evidence of his title in the manner described in a previous chapter.
Stocks which are neither inscribed nor registered frequently take the form of bonds to bearer. A large number of foreign loans are issued in this form, as also are a large number of the stocks of the American railroads. These bonds to bearer pass from hand to hand in exchange for money after the manner of bank-notes. They are a very convenient form of security, but, at the same time, somewhat dangerous, as in case of loss or destruction the holder has, of course, no means of proving that he is the rightful owner. In this they resemble bank-notes, but they differ from them in the fact that their currency is recognised in only a narrow circle, and in that they, of course, bear interest. The Government or the company which issues them has no means of knowing in whose hands these bonds may be at the moment, and therefore it cannot remit the interest payments as they become due. It is left for the holder to apply for these payments, and this he does by presenting one of the large number of coupons attached to each bond, each bearing the date of one payment. Besides the coupons there is often attached to the bond a "talon," enabling the holder to demand a fresh set of coupons when his supply is in due course exhausted.
Although, for the purposes of Stock Exchange dealing and settlement, securities may be thus divided into three great divisions, from the point of view of the dealer in the market and of the outside investor and speculator, there are many more interesting divisions, dependent, generally speaking, upon the nature and rank of the security. At the top of the list come the trustee stocks, which are the securities in which the law of the land permits a trustee to invest the moneys he holds in trust without incurring liability for any loss that may occur. Roughly speaking, these include the Government securities of the United Kingdom and of India; certain Colonial Government securities; the stocks of the Banks of England and of Ireland; London Corporation and County stocks; the inscribed stock of any borough or county having a population exceeding 50,000; the stocks of the British railway companies ranking before their ordinary stocks, provided a dividend of 3 per cent. has been paid on the ordinary stock for at least ten years; various Indian railway stocks, the interest on which is guaranteed by the Secretary of State; the stocks of the water companies ranking in front of the ordinary stock, provided that stock has received a dividend of not less than 5 per cent. for at least ten years; and so on. These, of course, may all be regarded as securities of the highest class—as what are termed gilt-edged investments.