THE DISTRIBUTION OF SECURITIES 107
all or almost all of the outstanding amount of a given issue.
When such a situation develops, anyone short of the security
(and therefore under the necessity of purchasing it) is at the
mercy of those holding the corner, who can either extort a
premium from him on the stock he has borrowed to deliver to
the original purchaser, or compel him to buy in his short stock
at an exorbitant figure.'* In the ordinary course of trading
the possibility of a premium being charged on stock when bor-
rowed, as well as that of its price rising, are in themselves
strong safeguards against the creation of an excessive short
interest. But when the remedy becomes more dangerous than
the disease, it is the Stock Exchange’s view of the matter that
what was a slight and necessary economic readjustment be-
comes a deliberate and premeditated attempt at extortion by a
few individuals, which is contrary to the just and equitable
principles of trade. The Exchange accordingly acts to halt the
offense by suspending dealings in the cornered security. The
sensational interest attending corners is in itself a proof of
their rarity on the Stock Exchange.
Function of the Floating Supply.2>—Both prior and sub-
sequent to the listing of a new issue upon the Exchange, a large
part of it is often held by speculators who stand ready to sell
out their holdings quickly, while the remaining portion of it
is held by investors who desire to hold it for a longer period.
The latter part of the issue is said to have been absorbed by
investors, while the former part, held by speculators, is known
as the “floating supply.”
The floating supply of a security is the current surplus over
investment demand. By making it easier for it to be carried
by speculators, the Stock Exchange, as we have previously
noted,” performs a most necessary economic service to the
8 See Chapter VII, p. 194.
2 The author made a full statistical study of this sort, based upon U. S. Steel sta.
tistics, in 1928; this was issued as a series of articles in the New York Evening Post,
and subsequently republished by the Exchange in pamphlet form under the title of “The
Distribution of Securities Through the Stock Market.”
4 See Chapter II, p. 55
