Brokerage firm

“ On the other hand, provisions purporting to entitle the broker in disregard of his duties as broker himself to act as principal, would be rejected by the courts as radically inconsistent with the primary object of the contract of brokerage and, therefore, meaningless. But it is undoubtedly too often the practice of brokers who are members of exchanges to consider themselves entitled to act as principals and sell on their own account to their own clients, particularly in futures. ”

“ 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. ”

“ MARKET SUPPORT
The removal to New York of B. H. Scheftels & Company, Chicago stock brokers, representatives there of Nat C. Goodwin & Company of Reno, and a merging of brokerage and promotion interests of the two firms took place.
There was precedent for the move. There are a thousand other corporation interests in this country that are closely affiliated with Stock Exchange and other brokerage houses, through one or more of their directors or owners being partners in the business. ”

“ 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. ”

“ The many thousands of brokerage offices throughout the country were jammed to the doors by eager onlookers and participants who devoted themselves exclusively to the market from the opening to the close. Office boys, elevator men, manicures, hotel waiters, hairdressers, cab drivers, and even rural farmers initiated themselves into the game and discussed mergers, split-ups, stock dividends, and all such subjects in high finance with more profuseness and profundity than was ever displayed at a bankers’ convention. ”

“ The brokers execute the orders of bankers, merchants, and private individuals; and the jobbers are the persons with whom they deal. When the broker appears in the market, he is at once surrounded by eager jobbers. One of the cries of the Stock Exchange is, 'Borrow money? borrow money?'—a singular cry to general apprehension, but it of course implies that the credit of the borrower must be first-rate, or his security of the most satisfactory nature, and that it is not the principal who goes into the market, but only the principal's broker. ”

“ The outsider buys from or sells to the jobber through the medium of the broker. The broker, except in special cases, may not do business direct with his client, although the rule is sometimes honoured in the breach; it is the custom of many a broker to inform the client of the name of the jobber from whom he has bought the stock, and it is within the right of the client even to examine the jobber's book to see that the transaction has been properly carried through. ”

“ 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? ”

“ 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. ”

“ French rentes are settled only at the end of the month.
In forming partnerships, only one person in the firm is entitled to act as stockbroker; the other partners must be simply financial partners, responsible for losses, as “special” partners are in New York, to the extent of the capital contributed. The holder of the membership must be the owner, in his own name, of at least one quarter of the sum representing the purchase price of his membership, plus the amount of the bond or security given. ”

“ 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. ”

“ A single brokerage house becomes thoroughly acquainted with the client's business and personnel, with the result that the two organizations work in harmony virtually as partners, confusion and misunderstandings are avoided, quicker and more advantageous transactions are made possible. ”

“ The business of the stock-broker is just as legitimate and necessary as that of a dealer in clothes, groceries, or hardware; and a man may be as pure-minded and holy a Christian at the Board of Brokers as in a prayer-meeting. The broker is, in the sight of God, as much entitled to his commissions as any hard-working mechanic is entitled to his day's wages. Any man has as much right to make money by the going up of stocks as by the going up of sugar, rice, or tea. The inevitable board-book that the operator carries in his hand may be as pure as the clothing merchant's ledger. ”

“ 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. ”

“ It must be looked at as a whole, and its vice consists, I apprehend, in this: that the broker is to make the contract of purchase for another whose interest as buyer is to have the advantage of every turn of the market; but if the broker may eventually have to provide the goods as principal, then it becomes his interest as seller that the price which he is to receive should have been as much in favor of the seller as the state of the market would admit. ”

“ 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. ”

“ It is possible that the jobber would rather have bought, but once having made the price, he must, of course, carry out the transaction. When the broker confronts him, he may say he is only a buyer or only a seller of Midland Deferred, but of course, in refusing to deal either way he risks losing the order. Or he may make a price so wide, especially in a stock in which there is not a free market, as to protect himself amply. ”

“ 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. ”

“ Just in the same manner, if you wanted to buy some stock, you would go to a stockbroker for it, and not to a stockjobber—the stockbroker occupying the same position as Marshall and Snelgrove, while the stockjobber stands in the place of the wholesale house in the City.
The stockjobber, or wholesale merchant, is always ready both to buy and sell with the broker. If you give an order to the latter, he darts into the Stock Exchange, and without disclosing the nature of his order to the jobber, inquires of him the price of the particular stock which you wish to deal in. ”

“ The amount of trouble a broker takes for a client is not always realized. An investment order gives much more trouble to a broker than a speculative order. In the former case the broker after arranging the purchase or sale has to perform various operations before ths whole transaction is complete. He has to procure transfer forms, get them properly signed and witnessed, obtain the certificates, if the security dealt in is registered stock or shares, or the bonds if the security is " to bearer." ”

“ Less scrupulous publications, however, are freely made use of to influence the public, to cry up or prejudice the markets and particular concerns. The provincial broker, as a rule, limits his ad- vertisement to the name and address of his firm, with a quotation of the prices of a few of the stocks mostly dealt in, and monthly, or quar- terly, sends an extended list to his customers. The outside broker who advertises himself freely in the newspapers, as well as by pamphlets and circulars, is to be avoided. ”

“ 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. ”

“ 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. ”

“ In making the loan the bank knows that the borrower is a member of the New York Stock Exchange, and that presupposes capital, with at least one Stock Exchange membership, worth to-day about $60,000. It knows, too, that a fundamental rule of all Stock Exchange brokers is to protect the bank at all hazards, not merely because the personal honor of the broker is involved, but because the business could not be conducted otherwise. ”

“ 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. ”

“ At all events, the buyer is in practical possession of the stock for some time before he pays for it, and that is why a broker requires an introduction with proper references, and, perhaps, even security, before he will enter into transactions for an unknown client. Cases have been known of people buying stock and carrying out the bargain faithfully, provided they can sell it at a profit before Settlement day arrives, and thus receive a cheque through the broker; whereas if Settlement day arrives before the price has risen, the buyer has vanished. ”

“ 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 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. ”

“ A Broker shall not engage in a sale 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 securities are in the custody of the Depository
and that the customer has an appropriate ownership interest in the securities. ”

“ 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. ”