Cordingley's Guide to the Stock Exchange: Being an Explanation of Every Mode ...

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Preface To The Second Edition

The First Edition of this work having been exhausted, a Second Edition has been called for, but as the changes have been so slight (see the two following paragraphs) as not to warrant a Revised Edition, the author has not found it necessary to re-write the book.

STOCK EXCHANGE SETTLEMENTS.

Since the First Edition was issued, the Stock Exchange, to facilitate the necessary work attached to carrying over, have arranged that the Settlement of Mining and other Shares shall occupy four days instead of three, as formerly ; but this refers solely to the ** House," and scarcely concerns the outside public, for whom this work was specially written.

INVESTMENTS BY TRUSTEES.

The Trustee Act of 1893 re enacted the provisions of the Trust Investment Act of 1889, and added the two Annuities (C and D) of the East Indian Railway; and since then the Colonial Stock Act of 1900 allows investments in certain

102185

Colonial Stocks, those first on the list being Canada and New Zealand Inscribed Stocks. The Stock? of the other Colonies will be allowed as soon as they have conformed to certain provisions which were published in iht London Gazette in December, 1900.

The slang Terms and Phrases, and the Contractions used in the Stock Exchange, are now so voluminous that the author has preferred to write a separate book upon them, rather than increase the size of the present work, and the reader is referred to

" CORDINGLEY'S DICTIONARY OF

STOCK EXCHANGE TERMS "

for a complete List of the Terms, Phrases, and Contractions now so extensively used in the " House."

The Copyright of the book having been taken over by Mr. Effingham Wilson, the author trusts that the work will continue to merit the public confidence and approval so extensively enjoyed by the former large Edition.

W. G. CORDINGLEY.

London^ \ January^ 1901.

Chapter I

The London Stock Exchange -When Founded — Its Share holders — Its Members — How tleciei — How Governed— Subscription and Entrance Fee — Brokers — Sworn Brokers — Jobbers— Authorised Clerks — Unauthorised Clerks — The Markets — Hours of Business — Members not Allowed to Advertise — Only Dealings between Members are Recognised — Defaulting Members are *' Hammered " — Lame Duck — Stock Exchange Holidays pp. 7-15

Chapter II. '

Reference Required before Dealing — How Orders should be given — Abbreviations used — Ameiican Railway Shares — How Prices are Tiansposed — Brokers* Contract Notes — Commission — How Charged — How Business is Transacted —Quotations — The Turn of the Market — Marking Bargains —Closing Pi ices — The Tape — How to Check a Bargain — The Official List pp. 16-26

Chapter HI.

The Different Modes o' Dealing— -For Money— For the Account — ^Time Bargains — BuUs — Bears — Options — Advantages of— How Dealt in— Call— Put— Put and Call— Call of More — Put of More— How to Regain Option Money — Cover — When Returned — When the Margin is Reached — How to Save a Portion of Cover — ^When to Tender a Wide Margin — Cover and Cirrying-over Rates PP- 27-43

Chapter IV

The Settlement — How Conducted — Contango Day- Ticket Day — Pay Day — When the Account Commences—

Soecial Settlement — Carrying Over — Making-up Prices — How Fixed — Coatargo ard Backwardation Rates Explained — Why these Rates are Charged pp. 43-50

Chapier V.

How Stocks and Shares are Transferred — Brnds and Shares to Bearer — American Railway Shares ~ Registered Stocks and Shares — Transfers by Deed of Assignment — Consideration Money — How it may Differ from that Received by the Seller— Special Transfers— A Ticket— When it Expires — Buying in — Selling out — Certified Transfers — Transfer Fees — Liability of a Transferor — Shut for Dividend — Blank Transfers — Why. they are used — Inscribed Stock — Stock Receipt — How Dividends arc paid— Power of Attorney — Whete and in what amounts Inscribed Stocks are Transferred — The Clearing House pp. 51-76

Chapter VI

Fluctuations in Prices — How Caused — Supplyand Demand — Speculation — General Recommendations — Securities dealt in — Scrip — Stocks— (Bai.k — Coiporation — Debenture — Deferred—Guaranteed — Inscribed — Ordinary — Preference — Preferred — Regis* ered) — Priority of Stocks — Shares — (Camu« lative Prefertnce — Founders* — Preference — Vendors') — Bonds — (Currency— Exchequer — Gold — Lottety — Preference — Regi^teied — Sterling) — Calculations of Value — Investments by Trustees— Stamp Duties pp. 76-101

Chapter VII

A Complete Gl'^ssary of the Terms, Phrases, and Abbreviations peculiar to the ** House" pp. 102-125

CORDINGLEY'S GUIDE

TO THE

STOCK EXCHANGE.

Chapter I

The London Stock Exchange — When Founded — Its Shareholders — lis Members — How Elected — How Governed — Suhscripiion and Entrance Fee — Brokers — Sworn Brokers— Jobbers — Authorised Clerks — Unauthorised Clerks — The Markets — Hours of Business — Members not Allowed to Advertise — Only Dealings between Members are Recognised — Defaulting Members are ^^ Hammered ^^ — Lame Duck — Stock Exchange Holidays,

(i) The London Stock Exchange is a private institution devoted exclusively to dealings in Stocks and Shares. It was founded towards the close of the seventeenth century, and is situated in Capel-court, Barthclomew-lane, in the immediate vicinity of the Bank of England and the

Royal Exchange. There are also entrances in Throgmorton-street and Old Broad-street.

(2) The building belongs to a proprietary of shareholders, and is managed by an executive body of nine persons, who, in addition to having the entire control over the income and expenditure of the concern, have the power of fixing at will the entrance fee and the annual subscription to be paid by members of the Exchange ; but they have no power over the business transacted in the ** House." The shareholders have no right beyond a claim for dividend ; that is, they are not privileged to enter the Exchange, nor are they eligible for admission as members thereof, except through the ordinary course prescribed for a stranger.

(3) The members or subscribers are in reality the tenants of the shareholders, bound, as amongst themselves, by their own rules, and managed by a Committee, from whose decision there is no appeal.

(4) The members at the present time number about 3,000 ; they are elected by ballot, and pay a large entrance fee (it is now 500 guineas), as well as a yearly subscription of 30 guineas (members elected before 1878 pay only 20 guineas), in addition to which they must be re-elected every Lady-Day.

(5) The Exchange is governed, for the regulation of its affairs, by a Committee of thirty members, officially called the " Committee for General Purposes," who are elected annually, by ballot, from the general body of subscribers, and in them are vested strong and salutary powers for the guidance of the market. They hold office from the 2Sth March in each year, and are eligible for re-election so long as they continue to be members of the Exchange. Candidates for election to the Committee must be members of five years* standing.

(6) Before any person is permitted to become a member of the Stock Exchange, he must be of age, and, previous to being balloted for, be recommended by three existing members of not less than four years* standing, each of whom must engage to pay ;^Soo to the creditors of the applicant, in case the latter shall be declared a defaulter within four years from the date of his admission. The Committee also make searching enquiries respecting the applicant's general character and credit, noting, at the same time, his standing in society ; and so stringent are the lO

rules by which the institution is governed that no person is admitted who has been a bankrupt, or insolvent, unless he has paid twenty shillings in the £ and obtained a full discharge.

(7) A clerk to a member is eligible for membership after he has been in the '* House " four years, and two recommenders only are required, who must each enter into a bond for ;^300, unless, previous to his employment in the Exchange, the applicant has been a Principal in any business, when three sureties for ;£soo each are required, the entrance fee being 150 guineas, and the yearly subscription 30 guineas.

(8) The members consist, ostensibly, of brokers and jobbers ; but there are a few who are mere speculators — capitalists who have previously been either brokers or jobbers, but who, not desiring to continue in actual business, simply confine themselves to finding employment for their own capital. There are also admitted into the ** House '^ the Authorised Clerks and Unauthorised Clerks of members.

(9) Stockbrokers are the middlemen between the jobbers and the public ; they conduct the negotiations between buyer and seller, and every transaction in Stocks and Shares must be made

II

through them^ the general public being personally excluded from the "House." Brokers are not supposed to deal on their own account, being dependent for their profit upon the commission they obtain from their clients, to whom, as a guarantee of good faith that they are really acting as agents in a transaction, they should give up the names of the jobbers they are dealing with. A broker^s duty is to see that all bargains are made at fair prices for his clients, to ascertain that transfers are properly registered for them^ and to take care that only valid documents are passed from seller to buyer.

(id) Sworn Brokers. — Formerly stockbrokers were licensed by the City authorities as fit and proper persons to act as agents for the transfer of Stocks and Shares, after having taken oath and entered into a bond for the due fulfilment of their duties. They were known as Sworn Brokers ; but the process of swearing in is now abandoned.

(ii) Stock jobbers are the Stock dealers^ who carry on business with the public and with other jobbers through the medium of stockbrokers. They are the Stock merchants^ so to speak, and they constitute the market, the price at which they offer to transact business in any security being called its market price. Most jobbers restrict their operations to some particular market or Stock, confining their time and attention solely to it, and within reasonable limits they are at all times ready to buy or sell in any quantity.

(i 2) A jobber is, throughout the day, constantly upon the Exchange, but although standing in the market for the ostensible purpose of transacting business, he is, of course, in no way bound to do so ; still, when he wishes to retain the connection of a broker, he seldom or never refuses to give a quotation. Having once made a prtce^ however, he is bound by the rules of the Exchange to deal at it.. When a quotation is asked for a named amount, the prices are binding upon the jobber as to the whole or any part that may be a marketable quantity ; but when no amount is named, the quotation is or|^y binding to the extent of ;^i,ooo Stock, ten Shares if in value under ;^5oo, or a number not exceeding that sum in value.

(13) Authorised Clerks. — After a person has been admitted into the " House " as a clerk to a member for two years, he may, if over twenty years of age, be made an authorised clerk — ^that is to say, with the Committee^s approval, he is authorised to transact business for a member, the entrance fee being 50 guineas, and the yearly subscription 30 guineas.

(14) Unauthorised Clerks are clerks who are not allowed to deal for a principal, but simply attend on a member by way pf checking bar« gains, passing names, &c. They must be over seventeen years of age, and obtain permission from the Committee before admission. The entrance fee is 10 guineas, and the yearly sub« scription 12 guineas.

(15) The Markets, — The Stock Exchange is divided into several parts, or " markets " as they are called, certain places being set apart for some particular business or stock. Thus, there is the American market, the Consol market, the RaiU way market, the Foreign market, the Mining market, and so on. By this means, business is greatly facilitated, for brokers know exactly what part of the ** House " to go to when wishing to deal in any security ; and, further, most jobbers have a particular place in the markets they deal in and may usually be found standing there during business hours.

(16) The official hours of business are from 1 1 till 3 — on Saturdays 1 1 till i ; but the ^* House " is not actually closed until 4 and 2 respectively.

(17) Members of the Stock Exchange are not allowed to advertise for business purposes, or to issue circulars to persons other than their own principals. Brokers and dealers who advertise are not under the control of the Stock Exchange Committee.

(18) It should be understood that the Committee do not recognise any dealings made with the public, but only those transactions which are made between members of the " House." Nevertheless, should any question arise between a broker and his client, the Committee will, upon a proper application being made to them, enter into and decide upon a case, and an impartial hearing and decision may be relied upon. Before consenting to arbitrate, however, the Committee usually require the non-member to sign an Agreement that he will be bound by their Award, and that he undertakes not to institute any proceedings, either civil or criminal, in respect of the case submitted to them.

(19) Sometimes a member is expelled from the -Exchange through being unable to nilfil his en-

IS

gagements. To make this publicly known among the other members, the head " waiter " strikes three blows with a mallet upon a rostrum of the "House," and announces the member^s default. A defaulter is thus said to be " Hammered," and his name is immediately posted on a board devoted to the purpose of showing those members who have been expelled from the Exchange through failing to meet their engagements. A defaulter who has been " Hammered " is called by his fellow members a " Lame Duck."

(20) The Stock Exchange Holidays are : —

1st January, Whit Monday,

Easter Monday, First Monday in August,

1st May, 1st November,

26th December, unless specially ordered otherwise by the Committee. When either the ist January, ist May, 1st November, or the 2Sth December falls on a Sunday, the " House " is closed on the day tollowaig.

CHAPTER 11.

Reference Requtretf before Dealing — How Orders should be given — Abbreviations used — American Railway Shares — How Prices are Transposed — Brokers' Contract Notes — Commission — How Charged — How business is transacted — Quotations — The Turn of the Market — Marking Bargains — Closing Prices — Tlie Tape — How to Check a Bargain — The Official List.

(21) Before opening an account with any new client, stockbrokers, like most other business men, usually require a personal introduction, or a banker^s or other reference, so that they may know the standing or credit of the party they are about to deal with ; and, to avoid disappointment, persons desirous of opening an account with a member of the " House " should always be prepared to give him a satisfactory reference.

(22) A broker having agreed to undertake a transaction, the next care should be that he fully understands what instructions his client wishes him to carry out. For this reason, and for the safety of all concerned, every order for the purchase or sale of any security should be given in writing^ and be worded in such a manner as to clearly indicate exactly what is required. A request to buy ;^i,ooo worth of Brighton "A" Stock, for instance, would not be the correct way of wording an order, as it would mean the quantity obtainable for £ipoo^ which, at the price of 140, would mean 7Jth shares — quite an unmarketable amount ; whereas, " Please buy for me ;^i,ooo Brighton A's^^ would always be interpreted as the nominal value, and at 140 would amount to ;^i,400, it being understood amongst all brokers that where orders are given to buy or sell a named quantity of stock, the nominal or face value, and not the actual market price, is meant.

(23) In practice, orders for Stocks are usually abbreviated, each ;^i,ooo nominal value being counted as one. Thus, " \ Brighton A " signifies /500 Brighton "A" Stock; "i Great Eastern,*' £ipoo Great Eastern Stock ; " 5 Great Western, *» ;^5,ooo Great Western Stock ; "10 North Western," ;^ 10,000 North Western Stock, and so on.

(24) Most of the American Railways* securities are in shares of $100 each, and, to facilitate

B

Eries

=

/Soo

=

1,000 lOO

=r

2,000

=

4,000

=

5,000

=

10,000

1,000

=

20,000

:8

dealings on this side of the water, $5 are usually reckoned as ;^ I. Thus: —

►0 Erie Shares,

J}

11 11

(25) Having given the broker an order, the next important point is to see that it has been properly executed. Now, it will be seen from the previous chapter that the jobber is the Principal^ and the broker merely an Agent in Stock Exchange transactions ; and, therefore, after an order has been given out, care should be taken to have Contract Notes from the broker showing the jobber's name with whom the bargain has been effected. A broker is bound by the rules of the Exchange to give this information, and when he neglects to do so he is personally responsible for the fulfilment of a contract ; whereas, if he declare his principal's name, he is not liable to his clients in the event of the jobber^s failure.

(26) A Contract Note for the purchase or sale of any security should be stamped with the ad valorem duty — under ;^ioo, one penny ; ;^ioo or over, is. ; if carrying-over contracts, double these amounts — and should show the name of the security, bought (or sold), the amount, price, the charges incurred upon the transaction — such as commission, cost of stamp duty and transfer fees — and the name of the jobber with whom the bargain has been transacted.

(27) As to a broker's commission for executing an order, there is no fixed scale of charges recognised by the Stock Exchange Committee ; but competition has compelled almost all brokers to adopt a uniform scale. It should be noted, however, that when Stocks or Shares are sold, and the proceeds immediately re-invested in some other security, it is usual to charge brokerage on one transaction only.

(28) Commission on Stocks is generally a percentage on the nominal or face value, but it is sometimes charged on the market price ; while commission on Shares is always a charge of so much per share.

(29) Of course special contracts may be made, or a fee in a lump sum agreed upon ; but in the absence of any agreement to the contrary, the following are the usual commission charges made by brokers for completing the purchase or sale of any security : —

British and Foreign Funds ... 2/6 per cent. Exchequer Bills ... ... i/- „

Colonial Government Stock

and Railway Bonds ... 5/- „

Shares under £\ ... ... 3d. per share

;^i and under ;^2 los. ... 6d. „

£2 IDS. and under £^ ... i/- ,,

/2 5 and under /so 5/- „

/50 and upwards 10/- per cent.

Stock under £^0 ... \ per cent.

(30) The peculiar custom which distinguishes dealings on the Stock Exchange is, that a jobber, when asked to give a quotation, must always name two prices — one his buying and one his selling price. At the smaller he will buy, at the greater he will sell. When challenged to deal, he does not know, nor has he any right to ask, whether the broker is a buyer or a seller, and consequently from this somewhat " blind " mode of dealing he is forced to make a proper quotation ; for, as previously explained, when once a jobber has made a price, he is bound to accept any bargain up to ;^i,ooo Stock, if no quantity is previously named, provided his price is immediately accepted, (See par. 12.)

(31) We will illustrate the manner in which business is transacted by supposing that a broker had an order to sell for a client ;^ 1,000 Brighton " A " Stock. The broker would go on 'Change to the Home Railway " market," and having found a jobber who deals in the Stock, would say to him, " What is the price of Brighton A's ? " The jobber would answer " 160 to 160^." Thereupon the broker would say, " I sell you a 1,000 at 160." Had the broker's order been to buy, he would have replied, "I buy of you 1,000 at 160$," and, according to the rules of the Exchange, either of these bargains the jobber would be bound to accept. Of course, jobbers may refuse to make a price, but for the sake of keeping their connection together they seldom or never refuse to give a quotation when asked by a broker to do so.

(32) It should here be noticed that quotations are usually made in £ and fractions of a £^ rising by yV^h or more, and therefore the following table may be usefully employed when calculating the actual prices of Stocks quoted in fractions : —

s d.

iV of/

=

— tV

= k n

=

S o

To

M

—

)T

= tV

=

= lO o

Tir

M

=

II

* n

=r

H

J)

=

= o n

—r i6

* n

=

+1

= i8

Q

(33) The difference between a jobber's buying and selling prices is called the jobber's " turn/* or the " turn of the market," and to it the jobber is supposed to look for his profit, buying of one broker and selling to another. The "turn " varies from \ per cent, to i pe-^ cent., or even higher,

^^^matm according to the market. In a free market, where securities are constantly dealt in, the margin will be small ; while in a limited market, where dealings are small and less frequent, the " turn " will be proportionately larger. Thus, upon every transaction a client has not only to pay a broker^s commission, but he has also to contribute towards the jobber's " turn.'*

(34) Marking.— A^ttr a bargain has been effected, if between the hours of eleven and three, it is usual for members to record the transaction by inserting on a ticket the business they have done. These tickets are placed in a box kept for the purpose, and from them the official " marking ** of " business done " is made up.

(35) Closing Prices are those transactions which have taken place between the hours of three and four (after the official " marking " is closed), and are collected haphazard from all sources.

(36) Some business, too, is usually effected outside the Exchange, after the doors are closed ; this is quoted in the newspapers as **In the Street,'* or ** Street Prices."

(37) The Tape, — Fluctuations in the prices of securities, and the exact hour and minute at which each alteration takes place, are recorded on the " tape " of the Exchange Telegraph Company's instruments. These are the quotations which are familiarly known as **Tape Prices." They are collected in this way : the Exchange Company has several assistants in the *^ House,'* who, during business hours, are continually asking quotations from jobber to jobber and notifying any variation in their prices. As soon as an alteration takes place, the assistants at once report it to the central station, from whence, by an ingenious mechanical contrivance, it is simultaneously transmitted to and recorded on the tape of the instruments of all subscribers. Almost every broker has one or more of these instruments fitted up in his offices, so that clients may see the fluctuations in prices, and the exact time that each alteration takes place. The carrying-over rates are also quoted in this way.

(38) Checking a Bargain, — It is, therefore, by means of the " tape " that operators are able to check the prices and carrying-over rates charged them by their brokers, and so long as they are *' on the spot " no difficulty will be found in checking a bargain in this way. But speculators living at a distance, or those unable to see the

** tape " for themselves, must, of necessity, trust to their daily newspapers to give them the information required, and it is important that they should know which source to draw from. Now all the daily papers give a report of Stocks and Shares, and make up a list of current prices ; but it often happens that not two of them will agree as to the actual ruling prices at the close of the day's market. The reason of this is that some newspapers obtain their quotations from the tape, and some from the Official List, while others employ jobbers to report each day's fluctuations. Of those which report from the tape, one will give the opening price, another the i p.m. price, a third the 3 p.m. price, while a fourth will name the closing price. Those operators, therefore, who are compelled to check their bargains from the newspapers may be interested to know that among evening "papers, the Special Edition of The Evening Standard^ or Globe ^ and among morning papers, The Financial News^ and Financial Times are considered reliable sources of information, as these papers reprint an exact copy of the quotations from the tape each day, and therefore show the exact hour and minute at which each fluctuation takes place.

(39) The Official List — There is also the " London Daily Stock and Share List/* published by subscription under the authority of the Stock Exchange Committee ; but as this only gives one price, with a list of " business done," without stating whether the Stock was bought or sold, or showing when each fluctuation took place, it can scarcely be recommended to persons who desire to check the prices charged them on their transactions. Further, only the securities of those companies which the Committee consider are of sufficient magnitude and importance are, except under special circumstances, ordered to be quoted in the Official List, whereas the " tape " and the newspapers referred to give the current prices of almost all the securities dealt in, whether quoted in the Official List or not.

Chapter III

The Different Modes of Dealing — For Money — For the Account — Time Bargains — Bulls — Bears ^Options — Advantages of- — How dealt in — Call — Put — Put and Call^ Call of More — Put of More — How to Regain Option Money — Cover — When Returned — When the Margin is Reached — How to Save a Portion of Cover —

When to Tender a Wide Margin — Cover and

Carrying-over Rates.

(40) There are several ways of dealing on the Stock Exchange ; the ordinary methods are either ** for Money " or " for the Account."

(41) Dealings for Money means that the transactions are actually paid for at the time they are made ; i,e,^ the purchase is for ready money, and, consequently, such bargains are usually cheaper in price than those made "for the Account." Occasionally, however, it happens that the quotation for Money is higher than for the Account, when there is said to be a " Backwardation " in the forward price. Thus, if Consols were quoted " Money q8^ " and " Account 98," there would be a " backwardation " (or " back," as it is usually called) of jth in the account price.

(42) Dealings for the Account means that the transactions will be taken up and paid for, or ** differenced," on the next half-monthly Settling Day following the date of purchase ; and such transactions are frequently called " Time Bargains," from the fact that a longer or shorter time must elapse from the time they are made to the day they are closed, and between that time the price of the security operated in may materially alter, either against the speculator, or in his favour. An operator for the Account may close his bargains at any time before the Settlement ; he is thus enabled to take advantage of the slightest variation in his favour, and, owing to the sudden and violent fluctuations caused by some momentary influence upon certain classes of stocks, it is often possible to close a transaction at a profit a few minutes after the bargain has been opened.

(43) The price of securities bought " for the Account " is nearly always higher than that paid " for Money," and when this is the case there is said to be a " Contango " in the forward price. For instance, if Consols were quoted "Money