STOCK EXCHANGE 



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STOCK EXCHANGE 



STOCK EXCHANGE, an association of men 

 who buy and sell stocks of railroads and other 

 great industrial enterprises. The name is also 

 applied to the building in which the association 

 conducts its business. The same reasons which 

 justify the existence of a board of trade (which 

 see) may be applied to a stock exchange. 

 When a man wishes to buy or sell shares of a 

 certain stock there should be some convenient 

 place where the transaction may be made. 

 Many years ago, in London, before regular 

 stock exchanges existed, a man desiring to pur- 

 chase or dispose of stocks went to a well- 

 known coffeehouse (somewhat like a modern 

 restaurant) ; he knew that brokers, well in- 

 formed in such business, were in the habit of 

 congregating there, and for a small commis- 

 sion one of them would act as his agent in the 

 transaction. In 1801 these brokers organized a 

 buying and selling association and called them- 

 selves, appropriately, a stock exchange. 



How Exchanges Became Stable. In the de- 

 velopment of such a business many alterations 

 in policy were inevitable. The early exchanges 

 executed commissions in connection with any 

 kind of stock that existed; there was no dis- 

 crimination between the shares of strong, con- 

 servative enterprises and those which were of 

 doubtful value. Finding it to be against pub- 

 lic policy to recognize questionable stock and 

 give it official approval equally with that 

 which had proved value, stock exchanges 

 eventually began to limit the number of enter- 

 prises whose shares should be recognized. To- 

 day a "listed" stock is one which 'is dealt in on 

 the stock exchanges; so far as the exchanges 

 are concerned any stock they do not list as 

 entitled to their recognition does not exist. 

 Before a company's stock can be listed its offi- 

 cials must satisfy the exchange that it has 

 paid-up capital, that it is a legitimate enter- 

 prise and that it is in good financial condition. 

 A balance sheet of the company is carefully 

 scrutinized by the board of control of the 

 exchange; then the stock is listed or the appli- 

 cation is rejected. 



It will be noted at once that many stocks 

 are quoted on the exchanges every day at 

 prices which mark them as extremely unde- 

 sirable, if not almost worthless. Such a condi- 

 tion did not exist when they were first ad- 

 mitted to the exchange lists; circumstances 

 which possibly could not have been avoided 

 may have lessened the earning power and thus 

 lowered the price people are willing to pay 

 for shares. Prosperous times or more intelli- 



gent management may advance values, or sus- 

 picion may force them still lower, but in jus- 

 tice to hundreds of innocent holders of stock 

 the shares remain listed, so their market value 

 may at all times be known. 



If a company is able to pay four or five per 

 cent on its capitalization per year its stock 

 sells on the exchanges at about its face value, 

 or at par. If its earning power increases until 

 it can pay eight or ten per cent a year people 

 are willing to pay more than face value; pur- 

 chased even at a premium the investor will get 

 a good income. So great is the earning power 

 of some corporations that their stock is worth 

 from $500 to $900 for every $100 share, but 

 should disaster overtake them and little hope 

 exist that prosperity would return again those 

 same shares might sell for $10 each. In 1916 

 the Bethlehem Steel Company made excessive 

 profits from the manufacture of war munitions ; 

 people were so anxious to purchase its stock 

 that the price advanced for a time to $575 per 

 share. The Standard Oil Company's stock for 

 many years has been quoted at from $600 to 

 $900 per share. 



In illustrating the functions of exchanges 

 stocks only have been mentioned. In addition, 

 stock exchanges now deal in the bonds of cor- 

 porations whose stock they list, although they 

 have not always done so. For many years the 

 New York .Stock Exchange limited its activities 

 solely to railroad stocks and bonds. 



All great daily papers, in their market re- 

 ports, print quotations and sales of stocks and 

 bonds. Young people will learn much of value 

 if they consult these lists frequently. They 

 serve somewhat as a business barometer. Soon, 

 with the help of the news columns of the pa- 

 pers, one will be able to know why certain 

 stocks are high and others are low. 



Memberships. Because an exchange limits 

 its membership practically to the number of 

 men who can easily care for the business 

 within its sphere of influence, memberships 

 have become worth large sums of money. 

 Their value depends in a large measure upon 

 the prevailing state of business and the market 

 level of securities. The lowest price of a seat 

 on the New York Exchange in a decade was 

 $20,000, in 1896, during a period of national 

 depression; the highest price was $95,000, in 

 1905 and 1906. A seat on the Boston Exchange 

 does not vary greatly from $16,000; Montreal, 

 $20,000; those of Saint Louis, Chicago, Balti- 

 more, Philadelphia and other market centers, 

 from $1,500 to $5,000. 



