Stock Exchanges

An essential part of the machinery of investment banking is the stock

exchange. This is a place where the buyers and sellers of securities

or their agents regularly meet for the transaction of business. It may

be a portion of a street or a market place or a room in a building. A

fully equipped modern exchange contains a large room equipped with

telegraphic and telephonic communication with the most important parts

of t
e country in which it is located and of the world, with apparatus

for registering prices and easily communicating information to its

members, and with the offices needed for the accommodation of the

clerks and other employees required. Either by posts or in some other

manner the precise places in it in which each security or group of

securities is to be dealt in is also usually indicated.

The purpose of the stock exchange is to facilitate and to regulate

dealings in securities. It facilitates such dealings by providing as

nearly perfect means as is possible for putting buyers and sellers

into communication with each other, and for collecting and making

available to them the information they need. To this end they provide

for daily meetings at fixed hours; they make and publish lists of the

securities dealt in; they speedily record and, through the telegraph

and the telephone, communicate to all quarters of the globe the prices

at which securities change hands; and through the meeting room

equipped as before described they make it possible for buyers and

sellers, no matter where located, to communicate with each other in a

very short period to time. They regulate such dealings by establishing

and rigidly enforcing rules and regulations for listing, transferring,

clearing, and paying for securities and for other matters pertaining

to the conduct of their members.

These institutions serve investment banks as well as private

investors, constituting the machinery which connects them all. They

thus enlarge the area and scope of the markets for securities, and

greatly increase the mobility of capital. Without them the surplus

savings of one locality would only very slowly and with difficulty

find their way to other localities where they are needed, with the

result that capital would lie idle or be very inefficiently employed

in some places while in others natural and human resources would be

undeveloped or very inefficiently developed.

Existing stock exchanges differ considerably in the manner in which

they are organized and managed, in methods of doing business, and in

the scope of their operations. Some of them are incorporated and

others unincorporated; some restrict their membership to a prescribed

number, others admit as many as are able and willing to comply with

the conditions imposed; some are local in their scope, some national,

and others international. In this country all the exchanges deal in

local securities chiefly, except the one in New York City, which is

national in its scope. The London exchange does a larger business in

international securities than any other, but the Paris and Berlin

exchanges, as well as those located at the other important European

capitals, and the one at New York share in it to a greater or less


Stock exchanges have suffered in reputation, and their real functions

and merits have been obscured by the abuses to which they have been

subjected. Connected with their legitimate business of facilitating

the investment of capital, various forms of speculation have

developed which in some cases have degenerated into gambling pure and

simple. The better managed ones have striven to rid themselves of

these abuses, and in some countries, notably in Germany, legislative

bodies have taken a hand. The results, however, have proved only

partially successful.

Some forms of speculation are not only legitimate but necessary in

modern business life, and these shade into the illegitimate,

unnecessary, and positively harmful forms by such short and easy steps

as to render it difficult, and perhaps impossible, to draw a line

between the two which can serve as a guide for regulations of an

administrative or legislative kind.