The Stock Exchange from Within

by William C. Van Antwerp

An instance in which Wall Street in general, and the Stock Exchange in particular, occasionally comes under the ban of more or less hysterical public condemnation, results from the work of company promoters and swindlers, wholly outside the Exchange’s jurisdiction. In spite of the vigilance of the postal authorities and the police, every now and then a swindler finds his way into this forbidden ground, and here he plies his trade. Sometimes it is a land scheme, sometimes it is timber, recently it was wireless telegraphy, often it is a gold mine.

The promoter of these enterprises does not permit himself or his affairs to come under the scrutiny of the banks, the Stock Exchange, or the Clearing House. He fights shy of the curb market as it is now organized, and avoids the watchful eye of the metropolitan newspapers that enjoy the pastime of exposing frauds. His ways are ways of darkness. His methods are mailing lists; his victims are that numerous progeny born every minute; the lure is the engraved letter-head with its “Wall Street,” its list of “Directors,” and its subtle assurance that this precious property now literally “given away” bears the endorsement of the elect, and is known and approved by the whole financial community.

Whenever he can do so, the artful gentleman behind this bait contrives to have a market for his wares. He cannot do this anywhere in New York, for the curb market, once the refuge of the swindler, is now closed to him, thanks to the improved morale of the curb brokers themselves, and to the recommendations of the Hughes Investigating Committee. Consequently the dishonest company promoter is forced to manufacture his market in another city, where fluctuations in the price of his wares are made to order, usually on a rising scale, without interference by the authorities.

More often still, this market and its rising prices do not exist at all; in any case it is only a fraudulent attempt to excite the cupidity of speculators into the belief that there is active trading in the particular stock offered for sale. “The mines,” says the Chairman of the Hughes Committee in discussing these swindling operations, “are situated in distant places, as Nevada, Alaska, Canada, Mexico, and even in South America. In proportion as they are remote, inaccessible, and subterranean, they are attractive to the class whom Tacitus had in mind when he said: “Omne ignotum pro magnifico.”[48]

The halcyon days of these enterprises are now drawing to a close. Their field of operations is becoming more and more limited, the postal authorities are redoubling their energies, the newspapers are closing their advertising columns, and the victims who have birthdays every minute are, it is hoped, growing wiser. In any case immense losses have been incurred, and immense harm done. To appreciate the extent of it, one has but to look over the circle of one’s own acquaintances, and count the worthless specimens of the engraver’s art that have found a resting-place—permanently, I fear—in homes ill-prepared to house them. Each one of these chromos has left its sting—each one has excited a bitterness and resentment that, in the misdirected anger of losers who will not see their own folly, is too often flung at Wall Street and at the Stock Exchange.

The bucket-shop method is better known and easier to detect—hence it is rapidly being exterminated. “Bucketing,” as it is called, usually flourishes in small towns at a considerable distance from New York. Formerly it thrived in the larger cities, even those adjacent to the Metropolis, but it has now been driven from these places. It professes to trade in stocks for its customers, and its office windows are usually decorated with signs that indicate, though they do not always say so plainly, that the house is identified with “the Stock Exchange.”

It allows its customers to trade on what is called “a two-point margin,” that is to say, the buyer or seller is “wiped out” when the market has fluctuated two points against the price at which the trade is made. The word of the house must be accepted for the veracity of its prices, which, however, are supplied to it by telegraph from New York. Bear in mind that these prices are not telegraphed to the customer, but to the mysterious persons in the rear office of the shop. They call themselves brokers—this bucket-shop fraternity—but they are not brokers in any sense by which that elastic term is used. They have not even the “redeeming vices” of gamblers; they are swindlers.

The trader in such a place starts with all the odds in favor of the house. To be exact he pays two commissions and the market “turn” is against him ab initio. If the stock is 100 bid, 100¼ asked, he buys at 100¼ always. If he sells at the same quotation, he sells at 100. He could not sell in the former case at 100¼, nor buy in the latter case at 100, so he starts ¼ per cent. “to the bad.” If, then, he bought at 100¼, when the price is 98¼–½, his two-point margin is exhausted, although the price has actually declined only 1¾ per cent. Thus he is required to bet heavy odds on what is really no better than an even money chance, even allowing that the prices are honest.

But they are not honest, because in the large majority of such transactions the prices are “rigged,” that is to say, the bandits who run the shop run it to win and not to lose, and “fix” the prices accordingly. The player is thus required to give odds by laying 3 to 4 not on what the price of a stock will be, which is ruinous enough in all conscience, but on what his opponent will choose to make it! Since we are talking of gambling now and not of any real transaction, we may as well adopt the vernacular of the fraternity and say plainly that the bucket-shop man holds the stakes, cuts, shuffles, and deals the cards, and then telegraphs you what your hand is. And the loser at this joyous pastime thinks he has been robbed by Wall Street.

The game works against the player in yet another sense, as the Wall Street Journal points out, for when you buy stock you are entitled not merely to the stock itself, but to all the privileges which it carries, and not the least of these privileges is the effect which your purchase will have on the market. That is to say, if ten thousand purchasers throughout the country should buy even small amounts of a certain stock on a given day, the combined effect of all these purchases would undoubtedly lift its price on the Stock Exchange, and thus we see that each buyer’s action carries with it a privilege of no inconsiderable proportions. But the keeper of the bucket-shop does not buy any stock for you at all; he merely makes a bet with you as to what the price will be—and so, having robbed you of your money, he now robs you of the privilege which goes with your money, since the alleged purchase of a million shares of your stock in bucket-shops would not have the slightest influence on its price at the Stock Exchange.