88 THE WORK OF THE STOCK EXCHANGE
these “out-of-town” centers give invaluable local assistance to
the larger New York underwriters in selling and distributing
large security issues, while New York houses frequently
cooperate in distributing local issues.
The vast volume and wide variety of securities underwritten
in New York have naturally led to the establishment there of
many different sorts of security dealers. Some underwriting
houses are members of the Stock Exchange and some are not.
The inevitable process of specialization has induced some in-
vestment houses to limit their business mainly or even exclu-
sively to securities of a single class, such as railroad or public
utility or foreign securities.
Function of the Security Underwriter.—The underwrit-
ing security house is an invaluable part of the financial mechan-
ism, since it enables the manufacturer to sell his entire block
of securities and obtain his money at once. As a rule, as soon
as the manufacturer turns over his securities to the underwriter
and gets his money for them, he can go about his business with
only a sentimental interest in the underwriter’s further proceed-
ings. The underwriting house thus assumes the risk, expense,
and trouble of reselling to investors and speculators the securi-
ties it purchases, for the consideration of a profit between the
purchase and selling price.® The purpose of the underwriting
firm is not, of course, to invest its funds permanently in the
new securities for the sake of their dividends or interest cou-
pons, but rather to resell them at a profit. Its business is in
consequence essentially speculative. Indeed, if the underwrit-
ing house cannot sell out its issues readily, and thus turn over
its capital rapidly, it cannot profitably engage in the under-
writing business at all.
Usually it has been true that real and ready investors in a
new security are frequently rather difficult to find in a hurry,
even by a firm of long experience and conspicuous energy
and ability in that very business. For this reason, the task
3 Appendix IVD,
