CHAPTER XIV

THE BROKER AND THE BROKERS' BOARD

A BROKER is a special agent employed to make purchases or sales for another-his principal. Mr. Wanamaker wishes to borrow $500,000 for sixty days, with which to make payment on a cargo of goods received from Paris. No one person or bank would at the time have that amount of funds free for investment in sixty-day paper; moreover, from considerations of safety, it is the policy of banks and other note-buyers not to have a large proportion of their funds invested in the paper of one person or business firm.

The notebroker.

To find purchasers for this amount of paper on favorable terms would require that Mr. Wanamaker leave his business house and spend time which he might profitably use in his office. Instead of doing this, he goes to a note-broker-a man who makes it his business to find customers of this kind, one who keeps in touch with the note-buying constituency. The broker knows the kind of paper that the banks and other notebuyers usually take, and about how much; at this time, in fact, he may have a long list of buyers' wants scheduled on his books. For a small commission he undertakes to sell the notes for Mr. Wanamaker. Turning to the orders of buyers scheduled on his books, he first satisfies these by setting apart enough to fill them. Let us suppose that he already has customers for $200,000 of this kind of paper. He then takes down his "phone," and, by calling up one prospective buyer after another, has the whole remaining

amount disposed of in half an hour. His delivery clerk is then sent out with the notes, who, in exchange, brings back customers' checks, which are deposited; thereupon remittance of the amount of funds desired is made to Mr.

$5000#

Philadelphia May 29: 1902

An October 445 gornfter/ date I promise to pay to the order of Ouro stu

Twe thous and

Dollars

at the to and of tooth Anince without defalcation Value received!

No. 168. Due Ath. 4ter

Wanamaker for settlement with his Paris house. The notes usually handled by commercial paper brokers for large houses are made in uniform amount of $5,000 each. They are drawn to the order of the "maker," and with

for and in consideration of the sum of one dollar, to us in hand paid, the receipt

out indorsement are what is known as one-name paper. When not executed to the order of the maker and a dealer

wishes to protect himself, he secures a release from responsibility on indorsement. The manner of conducting a transaction through a 66 commercial paper house" is illustrated by the following statements of account: The first

Bodine, Altemus& Co.
Bankers & Note Brokers,

Philadelphial Mony 29: 1907

Dought of John Smith th
John Jour He

40. JAN 30175 114174

7813

2664

represents that Bodine, Altemus & Co. on May 29, 1902, bought of John Smith & Co. a note executed by John

Bodine, Altemus&Co.
Bankers & Note Brokers.
Philadelphial May 29th 1902

Jones & Co., bearing interest at 4 per cent, due September 30th following. That the note runs 125 days, which

at 4 per cent amounts in interest to $104.17. Allowing for discount and commission, the total deduction to be made from the fall of the note equals $90.63. This leaves a net cash payment of $4,909.37 on purchase of the note. The second statement is one of sale by Bodine, Altemus & Co., by which it appears that the terms were exactly the same as those of purchase, except that $12.50 is added for commission.

Upon receipt of the $500,000 in funds the proceeds of the note sale-Mr. Wanamaker has another problem to solve, viz., "How is this amount of money to be transmitted to Paris"? This may be done by drawing that amount of gold out of the bank in New York where his account is kept, and sending it by express to the parties from whom purchases of goods were made. This would cost him $1 per thousand or $500 for transportation charges. If $500,

Exchangebroker.

000 of the bills of New York merchants against merchants of Paris can be found, he may buy these and then send them to his Paris bankinghouse for collection. By so doing the cost of transporting gold to Paris would be avoided; at the same time the Paris merchants would avoid the cost of sending a like amount of gold back to New York. The matter of finding such bills against Paris merchants is given over to an exchangebroker. The exchange-broker, who has a constituency that have foreign bills for sale, telephones around from place to place, and within a short time has the desired amount. For a commission amounting to a small fraction of the cost of shipping gold, $500,000 of good trade bills are obtained.

After the goods have been sold, Mr. Wanamaker may have $100,000 that he has no immediate use for in his business, and he decides to invest the amount in stocks and bonds. Looking over the securities of companies on the market, he makes up his mind that Chicago, Burlington & Quincy Consolidated 7% of 1903, @ 102, Chicago & Northwestern Sinking Fund 6's of 1929, @ 115, and

Central of New Jersey, common, @ 150, will make good investments if they may be had at the prices named. But he does not know any one who has any of these for sale at these prices. To obtain these investments he leaves an order with a stock- and bond-broker. The order

broker.

The stock- is to buy any of the stocks or bonds on the market at the prices named. At the time that the order is given none of them may be offered at the price; but within two weeks the money market becomes close, and some of the holders of securities are willing to sell at such figures that the order may be executed. The broker charges of 1 per cent for his services on delivery.

Again, Mr. Wanamaker, being interested in a textile factory at Worcester, may wish to purchase a stock of cotton for the year. He has contracts for cloth to fill, and desiring to take advantage of a present market for materials for manufacture, he places an order with a cottonbroker for 500 bales at 5 cents per pound. In like manner, a person desiring wheat or corn will go to a grain-broker; another, desiring petroleum, will go to an oil-broker; one wishing to lay in a supply of coal may deal with a coal-broker, etc. Any property or commodity that has a central market may be the subject of a broking business.

The producebroker.

The business of broking has given rise to a peculiar form of institution known as a Brokers' Board. In early days the stock- and bond-brokers did business in much the same way that coal-brokers or real-estate-brokers do to-day. On receiving a consignment for sale they would go out on the street to find purchasers; or, receiving buying orders, they would go about from place to place to find owners who had stocks and bonds of the kind wanted, and which might be obtained at the prices offered. The result of a morning's canvass, however, might give but small return. Coming to the coffee-house for luncheon, they would meet other brokers who also had buying and selling orders. It was found by ex