The work of the Stock Exchange

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Monograph

Identifikator:: 1831284952

URN:: urn:nbn:de:zbw-retromon-225876

Document type:: Monograph

Author:: Meeker, James Edward http://d-nb.info/gnd/126597340

Title:: The work of the Stock Exchange

Edition:: Revised edition

Place of publication:: New York

Publisher:: The Ronald Press Company

Year of publication:: [1930]

Scope:: XVI, 720 Seiten; Illustrationen, Diagramme

Digitisation:: 2022

Collection:: Economics Books

Usage license:: Get license information via the feedback formular.

Chapter

Document type:: Monograph

Structure type:: Chapter

Title:: Chapter VII. Credit transactions in securities

Collection:: Economics Books

182 THE WORK OF THE STOCK EXCHANGE identical with those involved in the purchasing on credit of any commodity, is at once apparent when we examine in detail a typical purchase of securities on margin as it is carried out through the machinery provided by the Stock Exchange. Let us suppose that just as Mr. Jones was about to purchase his house on credit, a relative had died and left him a house and that he had therefore resolved to invest the same amount of money, present and prospective, in securities instead. After some deliberation, Jones selects U. S. Steel common stock— let us say—as a security yielding satisfactory dividends and likely to advance in price. Having thus become a “bull” on Steel, he goes to his broker, a member of the New York Stock Exchange, and requests his assistance in purchasing 100 shares of Steel on credit. Steel is selling at 150, and consequently the cost of 100 shares will be $15,000. Jones puts up $5,000 in cash as a part payment (or, as the financial phrase runs, a “so-point margin’), while his broker agrees to obtain credit for Jones for the remaining $10,000 needed to purchase the stock. The broker may loan Jones this $10,000 out of the funds of his own firm, or he may obtain that sum from a bank as a loan negotiated for and contracted in the name of his brokerage firm. In order to secure the loan, the broker will demand the right to hold Jones’s certificate for 100 shares of Steel when it is purchased.® In case the loan has been obtained from a bank, he is in turn obliged to allow the bank to hold the certificate until the loan has been paid off. Jones must, of course, pay interest on this $10,000 which he has borrowed. Meanwhile Jones is the owner of the 100 shares of Steel and is entitled to all dividends declared on it, which in normal times should roughly cover the interest charges on the borrowed funds involved by the transaction. Furthermore, if the price of Steel should climb upward to 170 and he should sell his 100 shares for $17,000, after paying off his loan of $10,000 and recover- 3 See Avpendix IVI. and Chapter XI. p. 282.

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