Broker

“ Strictly speaking, the broker lives on these commissions, though, of course, his intimate knowledge of the market affords him special facilities for speculating and investing on his own account. He must not, however, it may be repeated, deal with his own clients; directly he buys or sells for himself he becomes a principal, and is not in that connection a broker at all. Moreover, he must not arrange with the jobber to whom he takes the business for part of the profit which the jobber makes. ”

“ By the same section, subd. 9, a broker is defined to be one whose business it is to negotiate purchases or sales of stocks, exchange, bullion, coined money, bank-notes, promissory notes, or other securities, for himself or for others. Ordinarily, the term 'broker' is applied to one acting for others; but the part of the definition which speaks of purchases and sales for himself is equally important as that which speaks of sales and purchases for others. ”

“ Therefore, there is an advantage to the broker in lending stock, and for that reason it is nearly always possible for a broker to arrange delivery of stock for you if you wish to sell short. When you instruct him later on to buy the stock for you, he will do so and deliver it to the broker from whom he borrowed it, who will return the money he received for it. ”

“ The broker, therefore, is quite as anxious for his clients to make money as they are themselves. More profit, more margin; more margin, more commissions and less risk. There you have it in a nutshell.
The stockbroker says to the public: “My dear sir, here is an open market. Nowhere else can you get such large and quick returns on so small an investment. For these opportunities I charge you the ridiculously small percentage of one-eighth of one per cent., and loan you, besides, ninety per cent. of your investment. Could any man with a proper regard for his wife and children do better by you? ”

“ In the case where it is a broker and not a jobber who fails, the clients stand to be affected still less by the failure. The bargains open are between the clients on the one hand and the jobbers on the other, the broker being a mere agent or intermediary. The bargains are completed in the ordinary way without the further intervention of the broker, or another broker is selected to complete them. ”

“ Selling through a Play broker is a method that is precisely the same as though you consigned a bill of goods to a commission agent, and paid him for disposing of it. The play broker reads your manuscript and engages to try to dispose of it for you, or returns it as not likely to fit in with the particular line of business of which he makes a specialty. If your act is really good and yet the broker is able to make some suggestions that will improve it, he is likely to offer such suggestions, purely in the hope of earning a commission, and in this way he may prove of distinct value as a critic. ”

“ This market is constantly attended by brokers, who relieve the merchant of the trouble of searching for those he wants. To the broker every one communicates his wants, so far as he finds it prudent; and by going about among all the merchants, the broker discovers the side upon which the greater demand lies, for money, or for bills. ”

“ He acts “as a middleman, bringing people together to trade, or trading for them in the private purchase or sale of any kind of property, which property, ordinarily, is not in his possession.” The charge for his service is usually in the form of a commission, sometimes called brokerage. There are several classes of brokers, named according to the kind of commodity they deal in; for instance, there is the exchange broker, the note broker, the insurance broker, the stock broker, the real estate broker, the merchandise broker, etc. ”

“ HOW BUSINESS IS TRANSACTED When the broker, armed with his client's order, goes to the market in which it can be executed, and confronts the jobber with whom he usually deals because he finds he does his business best, he asks the jobber to make him a price in the stock concerned. ”

“ He buys and sells from himself, but publicly, giving other brokers the chance to buy or sell if they wish. The broker, according to the rules of the New York Stock Exchange, cannot execute this transaction secretly in his office, but must offer the securities in question on the exchange, and the purchase and sale must be recorded on the ticker. ”

“ But the outside broker is a useful person—especially the outside broker who has a hundred thousand clients. There are stocks of mine which he can recommend with every evidence of disinterestedness, and just now I am particularly desirous that these stocks should be recommended. ”

“ A Broker shall not engage in a purchase of securities on behalf of a customer
unless the Broker has determined, in accordance with such rules as may be
prescribed by the Exchange or the Depository that the customer has sufficient funds
to pay for the securities. ”

“ The broker who does the business for the speculator can measure his means pretty well at the outset, and takes care to keep his client informed so that he may persuade him to diminish his commitments if the times are not promising. The business is remunerative enough to [58] make it worth while to run some risk, and as the client will have always something, at least, to meet his losses with, the broker is generally prepared for accidents. ”

“ Is that it?”
“Yes, that is the way they do it.”
“Well, I guess you are right, then, Herbert—you and Tom.”
[Pg 176] “I feel sure I am. Mr. Goldwin talked with me about it today, and told me never to speculate.”
“But he speculates,” said Bob, “and he is worth a lot of money.”
“Oh, no, never.”
“What’s he call himself a broker for, then?”
“Why, a broker is not necessarily a speculator. A broker is one who buys and sells stocks or bonds for some one else—for a speculator, and he gets his commission or pay for doing the business.” ”

“ But to make such transactions legal, they must contemplate an actual purchase or an actual sale of stocks by the broker, or through him. If the intention is that the so-called broker shall pay his customer the difference between the market price at which the stocks were ordered purchased and that at which they were ordered sold, in case fluctuation is in favor of the customer, or that in case it is against the customer, the customer shall pay the broker that difference, no purchases or sales being made, the transaction is a wager and therefore illegal. ”

“ So far as any broker applies to his own use any securities belonging to a customer, or hypothecates them for a greater amount than the unpaid balance of the purchase price, without the customer’s consent, he is undoubtedly guilty of a conversion under the law as it exists to-day, and we call this fact to the attention of brokers and the public. ”

“ Transfers of inscribed stock have to be explained, and the client has to be identified at the bank, share certificates have to be obtained and delivered, arrangements have to be made for carrying over shares when a client does not desire to pay for them at the time of settlement, other detailed duties of the kind have to be performed, and, above all, the broker is frequently called upon to give expert advice as to investments and speculations, and to keep the client informed as to when to buy or sell. ”

“ Every transaction in the stock market, whether it be in Government stock, or in railway shares, or in any other securities, must be effected through the medium of a broker, who is thus not only an adviser but an indispensable agent in the transaction. Be sure to employ a broker of good standing, and, having found a trustworthy man, be rather guided by his advice than by your own notions as to what purchases are safe and what imprudent.
All documents connected with investments should be carefully preserved, and dividends, when they fall due, should be looked after. ”

“ Your broker buys a stock for you, but as he has to pay for it in full, it is customary for him to take it to his bank and borrow money on it. A bank usually lends about 80% of the market value, but if some other broker wants to borrow this stock, he will lend the full value of it. If that particular stock is very scarce and hard to get, the lender of the stock may [66] get the use of the money without any interest. ”

“ Nine times out of ten he is a buyer and probably names an issue or two that have suggested themselves to him. Nine times out of ten, the broker has special affiliations, so he hedges the customer about with one objection after another, until he has him on the path he wishes. ”

“ But his business ability was of a broader type than was needed for such services only, and in the process of evolution, through which the old-fashioned broker was practically eliminated, his place being taken by a new type of dealer, who although not always or even usually trading for his own account, yet makes most of his transactions in his own name, and is chiefly differentiated from the jobber only from the fact that he buys and sells in round parcels and does not break them up to shop out into smaller lots. ”

“ You stand there, I say, and recognize that you are in the presence of the creative energy of millions of men and machines building, hauling, planting, laboring, all over the world; and then you go into your broker’s office and hear slim young gentlemen talk of “playing the market,” and you don’t wonder the broker is cynical and careful. ”

“ SIR THOMAS GRESHAM
The usual commission charged by a broker is one-eighth (2s. 6d.) per cent. upon the stock sold or purchased; although of late years the charge has often been reduced fifty per cent., especially in speculators' charges, a reduction ascribed to the influx into the market of a body of brokers who will "do business" almost for nothing, provided they can procure customers. The broker deals with the "jobbers," a class of members, or "middle-men," who remain stationary in the stock market, ready to act upon the orders received from brokers. ”

“ As to the advice, however, a broker may have to offer in the way of investments, it must be remembered that he is no more than mortal, and would at times be prone to submit such securities as he him- self, on behalf of a client, would most desire to dispose of. In this way, too, the country broker is liable to be pressed by his London agent to get rid of particular stocks or shares which hang heavy on hand. However, bearing this well in mind, an investor may gain much useful infor- mation from his broker, although for sound advice his banker is to be preferred. ”

“ In this process, if all else fails, the broker intimates that the course the customer would pursue would be gambling, shrugs his shoulders and leaves the old reliable spirit of respectability to do the rest.”
“And—the rest?” asked Uncle.
“Is that the customer buys what the broker wishes him to buy—and loses.”
“Always?” asked Mumsie. “You are much too positive, Jack.”
“Well, Auntie, I think I’m justified. People who follow the advice of those so-called brokers lose nineteen times out of twenty; statistics show it.” ”

“ Why should one pay brokerage when he buys? In every other business, it is the seller alone who pays. The answer is that the buyer must pay, or the broker, who deals with a jobber, would get no benefit from the transaction ”

“ He can act only as the agent of the other party when the terms of the contract are settled and he is instructed to finish it. Brokers are of many kinds. They relate to bills and notes, stocks, shipping, insurance, real estate, pawned goods, merchandise, etc. A bill and note broker who does not disclose the principal's name is liable like other agents as a principal. ”

“ By this means a broker and his client are in constant touch with one another—much more so than would be the case if the general telephone alone had to be relied upon—and a fair proportion of the day is spent by the broker and his staff in reporting fluctuations to clients and receiving their instructions. ”

“ Suppose a buyer has purchased, for the next account day, more stock than he can take up, he has to arrange for the bargain being continued or carried over to the next account day. If he be an outsider and not a member of the Stock Exchange, he must of course get it arranged through his broker. Application is then made to a dealer who has money to lend, and perhaps, wants the stock. ”

“ The broker of the Exchange who bulls and bears, and buys and sells, and dabbles with lying loans, and trades on State secrets, what is he but a gamester? The merchant who deals in teas and tallow, is he any better? ”

“ The rule thus established by the courts of the state where such transactions are the most numerous, and which has long been adopted and generally followed as a settled rule of law, should not be lightly disturbed, and an examination of the cases and the principles upon which they rest leads us to the conclusion that in no just sense can the broker be held to be the owner of the shares of stock which he purchases and carries for his customer. ”

“ All parts of the definition are qualified by the words 'whose business it is.' Thus, if A. B. has $10,000 which he desires to invest, and purchases United States stock, or State stock, or any other securities, he does not thereby become a broker. ”

“ But if a client choose to instruct his broker to buy bank shares in accordance with that practice, the broker is entitled to be indemnified by his client for money which he pays on his behalf, even though the contract of sale so made is unenforceable. For further information the reader is referred to the article Stock Exchange and to the treatises on stock exchange law.
An insurance broker is an agent whose business is to effect policies of marine insurance. ”