This practice is so common and the rule so generally understood by mining-stock traders that objection was rarely made by customers.
To test the general custom, a friend at my suggestion not long ago sent certificates of stock to 17 stockbrokers now doing business on Wall Street. Three of these were members of the New York Stock Exchange and 14 were members of the New York Curb, Boston Curb, or of a mining exchange. A letter substantially as follows was sent to each of the 17:
Enclosed please find ...... shares of ...... stock to be used as collateral margin for the purchase of an additional block of ...... shares. Please buy at the market and report promptly.
The 17 orders were executed by the 17 individual houses. A month later when the stock ordered purchased had advanced in the market, the following letter was sent to each of the 17:
Please sell the ...... shares of ...... stock which you purchased for me a month ago at the market and return to me the certificate of stock which I sent you as collateral with check for my profits.
It took nearly two months for all of the 17 to make delivery. When they did, not one of them returned the same certificate that had been put up as collateral.
Don't be shocked, dear reader, at this disclosure. It is the custom.
And don't, please, think mining-stock brokers are alone given to the general practice. If you order the purchase of a block of stock on cash margin from any New York Stock Exchange house or send a certificate of stock as collateral in lieu of cash to one of them for the purchase of more stock, you will receive a confirmation slip of the trade which will generally read something like this:
We reserve the right to mix this stock in our general loans, etc.
That is, the right is reserved, and actually exercised, of immediately transferring ownership of the certificates to the broker.