Work of the Stock Exchange (1941)

[Music] the high standard of living which America has been able to attain is based on our ability to produce Goods in quantity mass production is the basis for our entire economic life land Labor Management and money are some of the essentials of production however if the land is Idle it cannot produce anything of value if labor is Idle it cannot produce but this man could be a producer if he had a job this man may have many of the qualifications of leadership and management so necessary for successful business but without money he has nothing to manage idle dollars lying in a bank vault are not helping to put either the land the labor or the manager to work if a man who has ability imagination initiative courage and Leadership is able to bring together these Essentials of production the wheels of Industry may start these men have agreed to go into partnership and put their money and abilities to work in building a factory to produce something that can be sold at a profit soon the land is in use labor is brought in to build the factory money is in circulation to buy materials and to pay management and labor and later more labor is required to operate the Machinery of production land Labor Management and money have been brought together to work effectively of the many new businesses started only a few grow to the extent that they may need additional Capital to build a larger building to buy more Machinery to employ more labor this money may be obtained through profits from the sale of the product or possibly from officers employees and friends who invest their Capital as part owners of the corporation that is formed in a few years more money may be needed to expand plant facilities further the manager and his associates decide they must obtain funds outside their own organization so they decide to summon an investment banker to help them gather the necessary funds the banker analyzes the business Trends investigates the character and ability of the men in charge and checks the financial record of the business over a period of years he may also send an engineer to the plant to study its Machinery building and production capacities the banker after Consulting the engineer and the auditor concludes that the factory can produce more Goods at a profit if money can be gathered to expand it and that is what the banker agrees to do to get additional money by the sale of Securities he explains the idea to a number of his customers who have surplus funds for investment in productive Enterprises so far the proposition seems financially sound one other thing will the stock be listed on the stock exchange I want to be assured eventually of market for it yes the company has agreed to make application to list as soon as the rigid requirements of the stock exchange can be met all right I'll take a 100 shares at $10 a share I'll have a check for you tomorrow and thus the investment banker gathers the necessary funds from many customers each person who invests his money is given a receipt for the money invested this receipt may be a bond if the corporation merely borrows the money for a stated period or it may be a stock certificate if the investor becomes a part owner in either case the investor receives interest on his fund or a dividend on the stock as the corporation prospers expanding business means money is circulating from wages paid to labor and management and from dividends or interest paid to investors it means that stores shops and other businesses and professions are active and prospering after a period of successful operation the board of directors decides to make application to list its Security on the stock exchange but before this application can be made detailed financial statements must be compiled and must be checked and certified by independent certified public accountants the company agrees to do many things to safeguard buyers and sellers steel engraved certificates that cannot be altered and independent registration of ownership are just a few of the many precautions over an extended period many conferences with government officials attorneys Auditors and businessmen are held before the numerous regulations of the Securities and Exchange Commission can be met after the corporation has met all the requirements for listing the manager presents the material to an official of the stock exchange let's listen to the end of their interview I believe I have all the data you will need you have our application with a three-year audit prepared by approved accountants it appears to be a very fine report by the way how many stockholders do you have we have 1,600 stockholders at present we want to provide them with the advantages of an organized Market where our stockholders can sell if they choose and others may buy with the greatest speed and safety well I will present your application to the Board of Governors on Wednesday for approval of listing and I will advise you of its decision thank you I shall expect to hear from you soon and I hope favorably well goodbye sir goodbye and thank you Mr chairman I have examined this application and talked to the officials of the company about its record and I recommend favorable action from a careful study of this application I would think it a desirable lifting there's no further discussion the motion is now in order I move the application be accepted I'll second the motion a motion has been made and seconded all those in favor say I I oppos motion is carried Mr Smith will you certify this to the Securities and Exchange Commission for registration yes sir I have the letter ready in addition to checking the financial standing of the corporations whose stocks it handles the exchange regulat the business conduct and financial conditions of its own members by a set of rules and regulations all designed to protect the investor all members must sign an agreement to abide by all the rules and regulations of the exchange without question these members must submit at least two certified financial statements annually also the exchange staff of Auditors at least once a year makes a careful audit and checkup on the business conduct and financial condition of all members the Board of Governors of the exchange is empowered to act in any way necessary to protect the public welfare in stock exchange transactions The Exchange sets very high standards for persons who wish to be become members an applicant for membership must prove himself to be a man of unimpeachable character and have a business record that is beyond question he must have adequate Financial Resources readily convertible Into Cash to do the type of business he intends to do [Applause] when thec registers the stock it is admitted to trading on the exchange floor thus serving buyers and sellers of Securities suppose the original investor now finds himself in need of funds for example to build a new house he knows that the stock exchange is a Marketplace for his stock so he goes to the office of a member of The Exchange and tells one of the Brokers that he has decided to sell his stock in American Manufacturing Corporation he asks the broker at what price the stock is listed the broker tells him that the last sale was at 19 3/4 a share which means $19.75 a share he instructs the broker to sell his 100 shares at the market many investors do not come to the broker's office office but make their sales and purchases by telephone telegram or letter after the broker has written out the order he hands it to the order clerk the order clerk first timestamps the order and then telephones it to the floor of the stock exchange on the floor of the exchange this telephone order is written out at a booth attended by an employee of the exchange member this phone is the exchange end of a private line to the member's office the floor clerk now passes the order along to another employee of the firm who goes to the Trading Post meanwhile at another member's Booth an order to buy 100 AMC at 20 may be received this order is also relayed to the Trading Post when a security is at commed to trading one of these trading posts becomes the marketplace for it here selling Brokers and buying Brokers meet and trade transactions involving thousands of dollars are contracted for by a wave of the hand or a knot of the head The Exchange recorder on the left WR the trade on a slip of paper and hands it to a messenger the messenger timestamps it and hands it to the stock ticker operator the operator sends a record of the transaction out over the ticker from which it becomes known all over the country the transaction is also recorded on this huge Blackboard so that all members and employees of the exchange will know that someone has sold and someone has bought and at what price and in what volume the floor clerk also reports the sale by telephone to his brokerage office meanwhile the seller who is waiting in the broker's office watches the ticker tape to learn the trend of the market as soon as the broker hears about the transaction by telephone he reports the sale and the price to his customer if the seller brings the stock certificates with him the broker gives him a receipt for his Securities and advises him that a check will be sent out in a few days the seller may not bring the certificates however and in this case the transaction is completed by mail so far the transaction has been very simple at least for the seller and buyer but there is much more to be done by the broker and his staff before the transaction is completed a written confirmation of the transaction is mailed to the seller by the selling broker and also to the buyer by the buying broker on the floor of the exchange the selling broker's clerk makes out an exchange ticket of the transaction which looks like this he deposits the ticket in the Distributing Department of the stock Clearing Corporation each member has one of these boxes and after the tickets are sorted the buying broker's clerk stamps the ticket in confirmation and redeposits it in the Clearing House information on these tickets is transferred by this card punching machine to what is called a punch card the cards are then sorted in an automatic sorting machine from many of these cards containing similar information for various transactions the Clearing House prepares a record of each member's transactions for the day in this automatic tabulating machine if the selling broker has bought 100 AMC for another customer the clear Clearing House will eliminate delivery outside the broker's office by merely balancing his receipts and deliveries only the Clearing House balances are delivered the final step in the transaction is the delivery of the check from the broker to the seller this is usually done by mail generally this occurs only 2 or 3 days after the sale is made the investor receives a check from which has been deducted the broker's commission and the federal tax and he is ready to put this money into circulation again in the building of his new home