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.

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Document type:: Monograph

Structure type:: Chapter

Title:: Chapter XII. Comparison and security clearance

Collection:: Economics Books

COMPARISON AND SECURITY CLEARANCE 325 be satisfied if A and B pay C $5 apiece. In the first case, B, the intermediary, is relieved of any need to pay anything except as he releases his claim on A, while in the second case B is relieved of as much of his indebtedness to C as he can claim from A, and needs only to pay the remaining balance to C. The essential economies effected by either bank or security clearing systems consist in this obviation of the really super- fluous payments which an intermediary like B would otherwisz have to make. With security clearances, there is involved a double process involving securities as well as money. If Broker A sells 100 Steel to Broker B at 100 ($10,000), and B proceeds at once to resell the same stock to Broker C at the same price, obviously both stock commitments and money obligations can all be ex- tinguished at once if A will deliver the 100 Steel to C in return for C's payment to him of $10,000. Here B is saved from needlessly receiving and delivering securities as well as money, and his intermediate contracts for 100 Steel and for $10,000 also can be cleared for him by any system which can make sure that A and C fulfil their respective engagements. Unfortunately for students of security clearing systems, however, stockbrokers rarely do business with each other in this way at exactly the same price. Broker A, let us suppose, sells 100 Reading to Broker B at 79, and B at once resells it at 81 to Broker C. The security clearing house can still effect a clearance of B’s stock by instructing A to deliver the 100 Reading to C. But this is only half the story, for the money aspect of the clearance has still to be arranged. When A de- livers the stock to C, the latter will expect to pay $8,100 for it, or $200 more than A sold it for. Meanwhile B, who bought it for $7,900 and sold it for $8,100 is looking for his profit of $200, and will not be satisfied until he obtains it. If the clear- ing system attempted to let all the A’s and B’s search each other out and settle their differences with each other in this way, chaos would in practice result.

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