In magnitude and importance, there is no securities market in the world that approaches the New York Stock Exchange. Its 1959 volume of over a billion shares traded represented some 12.6 million individual transactions—about 65 per cent of all business done on all United States exchanges. Its 1,507 common and preferred stock issues include most of the corporate elite of American industry. Among them, these companies employ some 13 million people, responsible for the production of 99 per cent of the country's automobiles and trucks, 93 per cent of its steel ingot tonnage, 75 per cent of its electric power, for 90 per cent of its oil refining, and 95 per cent of its rail and air passenger travel. They earn about half of all net profits after taxes and pay more than half of all dividends distributed.

The stocks themselves total 5,847,269,552 shares. Their market value as of December 31, 1959, was $307 billion. And they are owned by approximately 6,880,000 people, or 80 per cent of all shareholders of public corporations throughout the nation. (The Exchange also lists 1,180 bond issues with a December, 1959, market value of nearly $106 billion.)

At the heart of this great market place are the 1,354 members of the Exchange who have purchased "seats," permitting them to engage in floor trading—the actual buying and selling of stocks. Through them are associated 661 brokerage firms with more than 2,396 offices in more than 721 cities. And supervising Exchange activities, on a budget of $15 million a year, is a 33-man Board of Governors, Presi­dent G. Keith Funston, and a staff of 1,386.

The entire mechanism exists as a vital adjunct to the capitalistic system. By providing a fluid and ready market for securities, the Exchange gives corporations one of their principal means for obtaining the funds they require for development and expansion. For unless the stockholder knows his securities may be converted easily to cash at any time, he will be less inclined to tie up his capital in stock investment. Although not all issues listed on the Exchange are active every day, the remarkable sensitivity of this multi-billion-dollar market makes it possible for buyer and seller to enter negotiations with a price differential between them of no more than $.125 per share.

How It Began

It was not always thus. In the early days of the American Republic, securities were a scarce commodity, and trading was slight. The techniques of stock—or equity—financing were well-known and actively pursued in Europe, and had been for centuries, but what business there was in eighteenth-century America was owned by individual entrepreneurs or partnerships, and the brokerage of public stock distributions was little tried.

The establishment of the nation's first banks in the 1780's introduced capitalization, and in 1790 Congress authorized an issue of nearly $80 million in stock (actually, bonds) to refund national and state debts incurred during the Revolu­tionary War. Merchants and auctioneers undertook to trade these stocks, as well as those of fledgling insurance companies and the new banks.

They called themselves "Brokers for the Purchase and Sale of Public Stock," and they conducted an open-air market on Wall Street, under a buttonwood tree, only a few blocks east of the present Exchange location. Wall Street had already served as a political center of the young nation; the Con­tinental Congress had met there, and George Washington had taken his oath as President on the steps of Federal Hall. But with the gathering of the brokers, in their waistcoats, breeches and silver-buckled shoes, it was on its way to becoming an international financial capital. In May, 1792, two dozen brokers banded together to set regular hours and to assert a standard commission rate and a preference for doing business with each other.

A year later, they moved indoors, into the Tontine Coffee House, at Wall and William Streets, and when this became too small for their growing activities they relocated, the first of a great many moves that eventually led, in 1903, to the present site at Broad and Wall.

The fortunes of the brokerage community rose and fell with the economic development of the country. It virtually went into eclipse during the War of 1812, but stirred again with the coming of peace and the expansion of business. The war added more Government obligations to the list of securities for trading, and soon afterwards the State of New York issued bonds to finance the Erie Canal. The textile mills, fed by southern cotton, were gaining strength. The country was beginning to build. In 1817, the brokerage fraternity formalized its organization by drawing up the first constitution of the New York Stock and Exchange Board.

A decade later, twelve banks and nineteen fire and marine insurance companies, the Delaware & Hudson Canal Co., the Merchants' Exchange, and the nation's first public utility, the New York Gas Light Co., were on the stock list. By 1837, eight railroads had been added, and the surging expansion of the country was under way.

The young Stock and Exchange Board encountered rough going. The concept of long-term investment and orderly growth was not well established. Investors sought out spec­ulative ventures, hoping for quick and spectacular killings. Information was scanty and often unreliable. The market's activities were loosely supervised and poorly regulated, and over its operations hung a haze of rumor, scandal and sharp dealing. By 1835, it had experienced its first corner, by 1837 its first panic. In 1857 it panicked again, and again in 1873.

These were turbulent times. The astounding growth of the nation was accompanied by king-size struggles for power among the emerging giants of industry, and the tide of battle was accentuated by the manipulations of the opportunists and freebooters on the sidelines. The public, time and again, was whipsawed. Harriman, Hill, Morgan, and Vanderbilt fought with each other over the railroads, and fought off the raids of sharpshooters like Jim Fisk, Jay Gould, and Daniel Drew.

These were the days of fabulous conspiracies in which the influence of courts and legislatures was freely bought, in which corporations were seized and looted of their assets, and "watered" (overvalued) stock unloaded on an eager, greedy, and ignorant public.

A typical story: In 1863, the New York City Council passed an ordinance permitting Commodore Vanderbilt, already a financial power to be reckoned with, the right to extend his Harlem Railway down Broadway into the heart of Manhattan. The importance of this franchise to the young railroad was immediately reflected in the advance of its stock from 50 to 75. Meanwhile, the Council, with the breath­taking rapacity that was the order of the day, embarked on a scheme to sell Harlem stock short and then repeal the ordinance. When the stock fell, as surely it would from such a blow to the railroad's hopes, enormous profits would be made. Privileged friends of the conspirators were let in on the plan, and in their eagerness the raiders soon sold short a good bit more than the 110,000 shares of Harlem then outstanding.

The ordinance was repealed. The stock dropped. But only a few points. The crafty Commodore, a hard man to shave, had got wind of the maneuver and bought up every share offered, thus supporting the price. The Councilmen and their friends, alarmed at the stock's failure to sink the 25 or 30 points they had anticipated, scrambled to cover, only to find that Vanderbilt had them over a barrel. In the frenzy that followed, the stock's price was bid up to 179 by raiders seeking stock for cover their short position. For as a rueful rhyme, coined during a similar disaster some years later, so neatly says:

"He that sells what isn't his'n Either pays or goes to prison."

At 179, the Commodore relented and released shares for the shorts to buy. His profit was more than $5 million.

The speculative impulse, as the nineteenth century ex­perienced  it,  died hard.  This  must have  been  an  era  of unparalleled optimism. It was true, of course, that the opportunities were many and that giant fortunes in oil and railroads, mining and manufacturing could be seen ac­cumulating in the hands of the industrial elite. But for the bystanders and onlookers, desire frequently stampeded reason, and acquisitiveness far exceeded reality. They were gluttons for punishment. Time and again they were taken to the cleaners. And, incredibly, they seemed to learn nothing from the experience. Combines tried repeatedly to out­flank Commodore Vanderbilt, and repeatedly were turned back with heavy losses. It was not that the Commodore and his kind were unbeatable, but that the market was not firmly regulated, and that manipulative techniques—buying and selling pools, wash sales, corners, and such—made it a dangerous place for the unwary.

As the years passed, significant changes occurred in the life of the Exchange. By 1873, despite its reputation for painful uncertainty, it was firmly established as an institution, as a weathervane enthusiastically responsive to the business climate of the nation—as well as to the pressure of the speculators.

It adopted its present name—the New York Stock Ex­change—in 1863. In 1866, after the Atlantic cable was laid, the technique of "arbitrage"—buying in one market and selling in another to take advantage of price differen­tials—came into play between New York and London. A year later the first tickers were installed; in 1879 the first telephones came into use. All of these mechanical improve­ments increased the volume of up-to-the-minute information, broadened the market for stocks, and accelerated transac­tions. In 1886, the Exchange experienced its first million-share day.

Regulation was slower in coming, although Exchange members could see that certain practices imperiled the stability and reliability of the market, and steps were taken periodically to improve performance. In 1869, for instance, the Exchange instituted stock registration. This meant that all active issues had to be publicly listed, so that investors would know how many shares were outstanding, and made it impossible to introduce stock secretly into the market - as had frequently been done to help manipulations. (New York's Councilmen might not have trapped themselves into selling short more shares of the Commodore's Harlem Rail-way than existed,, if the issue had been registered.)

The Exchange also conducted an uphill, but eventually successful, fight to get corporations to disclose pertinent financial information to the public. Even after the turn of the century, when the appearance of the nation's first billion-dollar corporation—U.S. Steel—indicated the stature in­dustry had attained, and facts and figures became of vital importance to investors, many a company was outraged at the suggestion that it was in any way accountable for its financial operations. In some cases this was the arrogance of excellence; who, indeed, would presume to question the Delaware, Lackawanna Railroad's conduct of its affairs? In others, however, the absence of rigorous standards of public accountability gave free rein to behind-the-scenes financial maneuvering, or screened the weak position of slumping or poorly managed concerns. Regular publication of balance sheets and earnings statements has long since become routine corporate procedure.

In 1892, the Exchange established its right to control the distribution of its ticker quotations. The 25 years since tickers had been installed had seen the rise of the "bucket shop," an illegal operation that is now nearly extinct. Briefly, the bucket-shop operator accepted his customer's order— and his money—but never actually bought or sold any stock. Instead, like the bookie, he gambled that his customers were more likely to be wrong than right when all their various short-term "bets" were balanced out. Some bucket shops— although illegal—survived to a ripe old age. But most were fly-by-nights that quickly closed their doors when too many customers were right all at once. Since quick access to the minute-by-minute performance of the market was essential to the bucket-shop operator's maneuvering, the Exchange's power to deny ticker service was a death blow to fraudulent concerns.

In this century, the Exchange has progressed steadily in the direction of a more honestly and responsibly conducted market. Unfortunately, it did not move rapidly enough to control or minimize the great crash of 1929. Much of the blame for this disaster still attaches to the loose credit procedures that were in full swing when the avalanche struck, and that accentuated the terrible descent to the lows of 1931.

The Crash—and the Hard Lessons It Taught

It is only fair to emphasize that on the worst day the Exchange ever saw, it was still just a market place, an arena where buyer and seller could transact their business. The brokerage community, composed as it was of professionals, might have been expected to cast a sterner, more skeptical eye on the weakening economic conditions so falsely reflected in the market's soaring prices, but there were few enough, in truth, who smelled danger in the spring air of 1929. Euphoria was endemic. The Exchange was no giddier than its customers.

It is worth recalling briefly some of the events of those turbulent days, for in violent and exaggerated form the Crash spelled out the consequences of ignoring the basic principles of sensible investment. This is not to say that only foolish people lost money in 1929. Or even that wise ones could have read all the signs correctly at a time when the mirage of endless prosperity had pixilated much of the nation. Nor should that long-ago nightmare stand as a warning against investment today.

But in its stark outlines can be read many of the hard lessons every investor should know by heart.

The Crash, as every economist and social historian who sifted the ashes was quick to tell us, was a classic case of the wish transcending reality. First, of course, came the Boom. After a few unsettled years following World War I, the nation had straightened out economically and entered a period of joyful prosperity. The automobile industry, producer of the new era's most glittering symbol, was thriving. This was good news for the vast network of sub-contractors and suppliers of rubber, glass, and steel, of batteries, spark plugs, brake linings, and gasoline. Construction of office buildings, homes, and highways was increasing, and this fattened the producers of lumber, cement, electrical fixtures, and home appliances. Everywhere more power was needed. The icebox was giving way to the electric refrigerator, the washtub to the washing machine. And more and more homes had backyard aerials enabling them to tune in on the wonderful world of radio. The utilities grew, merged, pyramided into enormous holding companies. The movies were springing into full bloom. Everywhere there was money and progress.

The   stock   market   responded   vigorously.   Beginning   in 1924, prices moved steadily upward. Each year was better than the last. An impressive array of important people was being quoted to the effect that it now seemed clear the American people had found the secret of capitalistic per­petual motion. The words varied but the message was the same: a wise Providence had seen fit to endow us bounti­fully with this world's goods. All that was required to achieve an endless prosperity was to have faith in America and keep moving. We were on the glory road.

Looking back, considering the bankers, tycoons, govern­ment executives, and assorted wizards who spoke—and the rest of us who listened, eager to believe—it all seems pre­posterous, vainglorious and naive. But in the Twenties it was hard to be pessimistic, hard even to be realistic. For America was indeed growing rich, and the end appeared to be never.

Actually, as we now know, the signs and portents of trouble ahead showed themselves early and were there for all to see. In 1927 it was well-known that speculation in securities was increasing. Loans to brokers and dealers inched upward, eventually reaching a total of $3.7 billion, a sure indication that much—perhaps too much—trading was being conducted on margin.

Margin buying was then—and still is—common practice. The customer pays only part of the purchase price of his securities and borrows the balance from his broker, using the stock he buys as collateral for the loan. In a rising market, a buyer might put up $2,500 to buy 100 shares at 50, wait for a ten-point profit, sell, pay off his loan, and be $1,000 ahead—twice the profit he would have made buying out­right only the 50 shares his original $2,500 would command. Trouble looms, however, if the stock should drop to the point where its value threatens to be insufficient to cover the loan. Then the broker calls for more "margin"—funds to reduce the loan to a level equivalent to the new, lower value of the stock—or, if the customer is unable to meet the call, sells him out.

When does the total of brokers' loans—money loaned to them to loan to their customers—get too high? The Twenties did not know, but they were not frightened. President Cool-idge did not think them too high. Treasury Secretary Mellon didn't, either. And as long as the market soared upward, as though inflated with helium, they were right.

Apparently few paused to ponder the consequences of a general market drop and what it might do to the shoestring speculators.

People's eyes were indeed lifted to the stars, for little attention was paid to events underfoot. By early 1928, business was exhibiting symptoms of distress. Overproduction and overexpansion were accompanied by serious unemploy­ment. And the market reacted. Time and again, there were short but severe jolts indicating that all was not well, that the great bull market was not impervious, that what went up had a very good chance of coming down.

Still, it was also true that the market rebounded with astonishing vigor after these shocks. Following the election of President Hoover, the upward march resumed. The keener analysts were now stating firmly and unequivocally that the market level was dangerously high, but their warnings were lost in the anvil chorus of optimism that still pervaded Wall Street and its swelling army of customers. Playing the market was now everyone's game.

The end of 1928 and the early months of 1929 brought further tremors, but once more the market rallied, and by midsummer stocks had climbed to undreamed-of peaks, and fears receded.

Brokers' loans were over the $6 billion mark and, ac­cording to one post-mortem analysis, some 300 million shares of stock probably were being held on margin. But why worry? Values were so astronomical, as September came, that there seemed no reason they should not go higher. Faulty logic? Of course. Yet who can blame the man who bought Montgomery Ward at 150 and saw it go to 450 in a year and a half for feeling that another 50 points was in prospect?

At the high-water mark in early September, some of the lovely prices (adjusted for splits, rights, etc.) the speculator could contemplate were these:
Radio (RCA) 505
Union Carbide 4135/8
General Electric 396¼
Amer Tel & Tel 3355/8
U. S. Steel 279⅛
New York Central 2563/8
General Motors 1817/8

Read’em and weep. September felt the first shock waves of the earthquake that was to topple and destroy the great bull market of the Twenties. Unheeding, still cheering each other on with the clichés of the new prosperity, the specu­lators plunged in again on the premise, true so often in the past, that every dip heralded a rise to an even higher plateau.

This time they were wrong. The market danced erratically for a while, but over-all it was losing ground, losing momen­tum, failing to show the resilience on which the nation so desperately depended. By the third week of October, the Crash was in being.

Even today the events of the week culminating in the terrible Tuesday that was October 29 make sad and distress­ful reading. The only way to suggest them is in terms of the great natural disasters: the avalanche, the tidal wave, the volcanic eruption. And the human response was equally fundamental: terror, panic, despair, and here and there courage.

When it came, the Crash utterly reversed the pattern of the times. Up became down, high became low, rich became poor, success became failure, prosperity became depression. It happened, too, with bewildering speed, and nothing checked the descent.

It will be remembered that basic to all market action is the trade, the negotiated transaction between buyer and seller. With the Crash, the inconceivable occurred: suddenly, the buyers vanished. Suddenly, everyone was a seller. From all over the nation, almost as if on signal, the orders poured in: sell, sell, sell. Thousands upon thousands of shares were of­fered at the market—and there was no market.

Down tumbled issue after issue from the proud heights which supposedly were only foothills of the heights to come. The pace of the market accelerated beyond human compre­hension. The ticker lagged by hours. Prices dove vertically down, 10, 20, 30, 40 points. Inexorably, the great downward pressure grew. Margin calls went out, and went unanswered by thousands of speculators, big and small, whose entire fortunes were tied up in the stocks now diving through the floor. Facing the loss of the billions they had loaned, the brokers threw the collateral stock onto the market for what­ever it would bring, thus swelling the floodtide of unwanted securities.

There was no safety anywhere. No stock was strong enough to withstand the hammering. The best and bravest names in American industry were in full retreat, like any overblown utilities holding company, like any cat and dog.

The huge investment trusts, commonly regarded as finan­cial Gibraltars impregnable against the waves of adversity, were crumbling like the rest. Then" reserves, supposedly a cushion under a falling market, were insufficient and in­effective. They, too, were dumping.

At the end of the day, 16,410,030 shares had changed hands at fantastically lower prices. And the end was not yet. On through November the slide continued. Amer Tel & Tel fell to 197, a loss of 138 points. Steel dropped to 150, a loss of 129 points. New York Central sank to 160, a loss of 96 points. General Motors fell to 36, a loss of 145 points. The values represented in the leading stock averages were cut in half. The Crash wiped out all the gains so spiritedly made since 1924—and more. In 1930 the market twitched feebly, trying to get off its back, but eventually sank even lower. In 1931, it hit bottom, plumbing new depths that made even the 1929 lows look good.

A doleful story, a dark chapter in financial history. Even today, veterans of the Street speak of it wryly and with re­spect, like the survivors of a memorable battle or a fire at sea. The market, of course, did not cause the Crash. The market never knew what hit it. No one can ever say what subtle shift in the thinking of thousands of stockholders across the nation changed the eager scramble for the sunlit summits of September into a stampede back down the slopes. Perhaps it was no one thing, and perhaps if it was, it is not important; jitters were evident on many occasions before the panic.

But whatever may have pulled the trigger, the fact remains that the market was powerless to withstand the blow. Surveys of the wreckage pointed up the unhealthy use of credit that had so disastrously accelerated the collapse when it came, pointed up the manipulative operations that had gone un­checked, pointed up the inadequate information available about listed securities.

Had none of these abuses existed, it is still likely that the Crash, as the signal of a general economic collapse, would have occurred. But it can be argued that the market would not have slid so far or so fast if, for instance, more stock­holders had owned their shares outright and been able to ride out the storm.

The road back was long and hard. Principal steps toward recovery were the Securities Acts of 1933 and 1934, and the establishment of the Securities and Exchange Commission, a government agency, to administer them. Financial experts can see loopholes and deficiencies in the acts and some Wall Streeters squirm under the onus of Federal regulation, but it is generally acknowledged that tighter control of the securities market was essential, if only to restore public confidence after the debacle. Actually, the provisions of the acts can also be viewed as not stringent enough.

They require, first, that all new securities offered to the public, with some exceptions (Federal and municipal bonds, national and state bank stocks, and, in some cases, issues under $300,000, to name a few), be registered with the SEC. Registration, it should be noted, does not make the SEC an arbiter of a security's worth, and does not in any way con­stitute an endorsement. It is merely a procedure to place on the public record a full and fair account of the financial, tech­nical, commercial, and legal condition of the issuing company. Capitalization, earnings, compensation of officers, stockhold­ings of officers or options and other benefits available to them —all this and more must be disclosed. As anyone who has ever plowed through a stock prospectus knows, the material is often difficult to digest, but it is complete, and no one need feel he is buying a pig in a poke. The SEC's only respon­sibility is to see that the information submitted is adequate and not misleading.

The acts also prohibit all manipulations, such as pools, fake sales, or any artificial trading which, by creating the ap­pearance of activity, stimulates buying or selling by others.

And finally, they control, through the Federal Reserve Board, the flow of credit into the securities market. The Board must approve the source from which a broker borrows, and it is responsible for setting margin rates.

There are other powers which the SEC may exercise "in the public interest," but by and large the registration pro­cedure, the ban on manipulation, and the control of credit have been the principal areas of government intervention to assure an orderly market.

At the same time, the exchanges—the New York Stock Ex­change in particular—have undertaken to police themselves more rigorously. Requirements for listing a stock on the Ex­change have tightened up. Listed corporations must make frequent earnings reports and provide other information enabling the public to make its investment decisions intelligently. Failure to do so may result in suspension from the list.

The Exchange also checks its member firms closely. Bro­kerage houses must maintain minimum capital requirements, and must answer questionnaires on their financial condition three times a year, one of which follows a surprise audit by independent public accountants. They are subject to spot checks of their books by Exchange examiners, and must dis­close weekly the positions they hold as underwriters of secur­ities. Borrowings or loans by the firms, or their partners, must be reported.

The Exchange is extremely proud of the fact that the sol­vency record of its members has exceeded even that of the nation's banks. In the past 50 years, an average of 99.80 per cent of its member firms have stayed solvent—have not failed. Since 1939, the record has been 100 per cent.

Floor trading is firmly regulated by a complex set of rules designed to maintain an open market, with transactions only at prices openly and fairly arrived at. All bids and offers must be called out loud. The ticker system reports across the nation each trade as it is consummated. And all floor trans­actions must be conducted during trading hours: ten to three-thirty, Monday through Friday.

The net effect of public exposure and public dealing has been virtually to eliminate conniving and secret maneuvers. As long as human beings are involved, of course, rules may be circumvented. Pressure might be built up on a stock, for instance, if a number of floor traders should follow the lead of a broker known to represent big interests or to trade heavily for his own account. The subsequent action, generated entirely on the floor, might seem on the ticker to indicate a general interest in buying or selling. Even here, however, the Ex­change has a rule. "Members," it says, "shall not congregate." In other words, no loitering. Unless you have business at the post, break it up and keep moving.

Does all this mean we will never have another Crash? Not at all. Until we know better why capitalism undergoes cycles of boom and bust, the possibility of a Crash is always with us. The market is somewhat safer than it was in the Twenties. The New York Stock Exchange runs a taut ship and is defi­nitely committed to improving the stability and reliability of the conditions under which stocks are bought and sold. Pub­lic confidence has been regained—witness the large and in­creasing number of small shareholders—and the Exchange is determined to hold it. To the limit of its ability, it protects you against misleading information about securities, fraudu­lent stock issues, counterfeit stock certificates, and against smart insiders making a killing at your expense.

The Exchange is not—and cannot be—committed to stable prices. The market is ceaselessly in motion. If it advances, it will do so because you—and thousands of other investors— believe stocks are valuable enough to bid high for them. If it falls out of bed, it will do so because you—and thousands of others—feel like selling, or not buying, for any one of a hundred reasons.

From this brief sketch of market history, the major point that emerges is that you can never afford to be casual about your investments. Only you can determine whether they are performing satisfactorily and whether general business con­ditions warrant buying, selling, or holding. Do not be lulled by the big-league optimists or scared-off by professional pes­simists. Both are reading the future, which it is not given to any man to do. Take no comfort from the fact that investment trusts, mutual funds and pension groups are standing by as a cushion under the market. That is not their obligation or function. Understand that even Blue Chips carry no guaran­tees; the bottom can fall out for them as for everything else. No one, in short, is protecting your investment except you. Stay alert and pay attention.

How the Exchange Operates

Physically, the trading arena of the New York Stock Ex­change is a huge, cavernous, high-ceilinged room, in which activity centers around 18 horseshoe-shaped trading posts. Twelve of these are regularly spaced about the main trading floor, and six are located in an annex. Actually, each is a counter across which the traders on the outside pass no­tations of their completed transactions to the clerks stationed inside.

About 75 stocks are bought and sold around each post. International Business Machines, Firestone Tire and Rubber, and American Smelting are at Post 11, U. S. Steel, Detroit Edison and Libbey-Owens-Ford at Post 2, Standard Oil (N.J.) Kaiser Aluminum, and Dow Chemical at Post 9.

Around the perimeter of each post are stations at which six or eight of its 75 stocks are traded. Each of these stocks is listed on a panel above the counter, together with an in­dicator showing the last price of the stock, and a plus or minus sign to show whether it was higher or lower than the last different price.

How To Read A Ticker Tape

Every stock listed on the Exchange is assigned a symbol of one, two, or three letters, often approximating its com­pany initials, which are part of the shorthand of the ticker tape. AT is American Tobacco, OLM is Olin Mathieson Chemical, RCA, CBS, TWA, DOW are self-explanatory. J is Standard Oil (N.J.). X is the famous symbol of U. S. Steel.

All transactions are carried on the tape, and assumed to be 100-share trades unless otherwise noted. KN 94 means 100 shares of Kennecott Copper were sold at 94. EK 2S107½ means 200 shares of Eastman Kodak were sold at 107½. The "S" means shares and is inserted to keep price and amount separate. GM 54 ... 2S½means that 100 shares of General Motors were sold at 54, and immediately afterward 200 shares were sold at 54½. JM 49¼.¼ means two consecutive sales of 100 shares each of Johns Manville were concluded at 49¼. Should a large block of 1,000 shares or more be sold, the amount is printed in full JM 1000S49¼

When the sales volume is heavy and the ticker is racing to keep up with events, the first digit of the price may be dropped, unless the final digit is zero. KN 94 would then appear as KN 4, and brokers and others following the tape closely would be expected to know what the missing figure was.

At the edge of the floor are banks of telephones, private lines constantly attended by clerks representing the various brokerage firms. Buy and sell orders come in to the clerks for execution by the firm's member (or members) on the floor.

High above the floor in each corner of the room, the ticker tape is projected. Across two walls is a bond tape. On the two opposite walls are the annunciator boards, panels of numbers, one of which is assigned to each floor broker. When his number appears on the boards, the broker knows he is wanted at his firm's telephone.

Under the annunciator board on one wall projects a little balcony from which, by the ringing of a ship's bell, the start and finish of each day's trading is signaled, and from which announcements of grave importance, such as the suspension of trading or the suspension or expulsion of a member, are made.

Overlooking all, above one of the bond tapes, is a visitors' gallery from which one may freely observe the mesmerizing commotion on the trading floor below.

Trading is conducted speedily and efficiently in an air of unutterable confusion. The floor may be occupied at any moment by some 1,500 individuals moving from post to post, clustering, breaking up, and moving on. Pages, clerks, and other attendants scurry about; running is prohibited, so the pace varies from a languid, aimless walk to a high-tailed, stiff-legged one-step, like a trotter about to break stride. The floor is littered with ticker tape, note paper, etc. But not cigarettes. No smoking is permitted on the floor. The gray heights of the room dim the atmosphere, and over all is the ceaseless hum of the crowd, the nervous click of the annunciator board, an occasional roar at exciting news from the ticker tape.

Only brokers may trade. These are the owners of "seats"— a term dating from the days when brokers in fact had chairs. Actually, a seat is an Exchange membership which must be purchased, and which is today, one of a total of 1,354. The highest price ever paid for a seat, at the 1929 crest, was $625,000. The lowest, in this century, was $17,000 in 1942. As these prices suggest, an active market increases the value of a seat, an inactive one decreases it. Activity, of course, means more commissions, or more advantageous trading for one's own account through the privilege of being present to observe hour by hour, minute by minute changes in the market tide.

Members pay an initation fee, annual dues, and 1 per cent of net commissions from trades made on the floor. It is this income which pays for the supervision and administration of the Exchange.
On the floor at any one time are several kinds of brokers, traders, or dealers capable of transacting business. Most nu­merous is the commission broker. He is your man, the representative—usually a partner or officer—of the firm through which you place your order. He may also buy or sell for his firm, but his primary function is to act on behalf of public customers whose orders are channeled in to him.

What happens when your man gets orders simultaneously to buy IBM and sell U. S. Steel? He cannot be at Post 11 and Post 2 at the same time, so he enlists the aid of a two-dollar broker, who will execute one of the orders for him for a com­mission. This commission is deducted from the commission your broker charges you. Although the commission now ex­ceeds the implied $2 per hundred shares, the name has stuck. The two-dollar broker may also be called on to execute a limit order—a purchase or sale at a specified price—when the time required for the market to rise or fall to that price is more than the commission broker can spare. In both instances, the two-dollar broker performs a most important function in helping members to keep abreast of the flow of business.

There are also floor traders, who buy and sell exclusively for themselves. These are the free lances of the brokerage busi­ness. Because they pay no commissions, the floor traders can turn themselves a profit on a very narrow margin. By paying close attention to the trend of the market, they are able to move in and out of opportunities as they appear. Theoretically the floor trader, too, performs a necessary function. His pres­ence on the floor, and his readiness to buy or sell, helps create a liquid market, narrow the range between bid and asked prices, and steady prices throughout the day. If, for instance, sell orders predominate, thus pushing the price down a bit, the floor trader may move in and buy. When buy orders be­gin to appear and a flurry sends the price up, he may sell. His quick response to either situation keeps the price from moving too far up or down, and his ability to turn a profit on a point or less helps reduce the distance between buyers and sellers.

For orders of less than 100 shares, the standard "round lot," there is a community of odd-lot dealers which undertakes to supply quantities of from one to 99 shares. Should you order 15 shares of National Lead to be bought at the market, your commission broker would acquire them from an odd-lot dealer, who is prepared to go long (buy) or short (sell) any number of round lots required to meet broken orders. For this service, the odd-lot dealer receives from the customer—not the broker—a fee of ⅛ of a point if the stock involved is priced at under $40 a share, or ¼ of a point if it is at $40 or over.

The odd-lot dealers are stationed at posts on the trading floor. They maintain an inventory to satisfy the odd-lot buying orders that come their way. They buy for inventory either by acquiring round lots for their own accounts, or by accumulating odd-lots offered for sale.

Round-lot purchases for inventory, of course, can be made at any time, but preferably in a rising market, so that sales to satisfy odd-lot buying orders will include a profit through appreciation, as well as the ⅛-or¼-point fee. In a declining market, however, an odd-lot house that had to sell out of inventory would be in difficulty. The procedure in this situa­tion is to sell short in the round-lot market, and accumulate stock either by purchases from odd-lot customers who are selling or by covering short sales with round-lot purchases at lower levels.

Even in normal circumstances, an odd-lot dealer will not always have stock in hand with which to meet a demand. If, for instance, orders accumulating overnight to buy National Lead totaled 135 shares, the dealer would buy 200 shares— two round lots—and distribute them as requested by the commission brokers. He would then be long 65 shares. He could hold these in his own account until further buy orders came along, or he could combine them with an order to sell 35 shares, thereby making up a round lot which could be sold to discharge his responsibility to the commission broker and even up his own account. Of course, if his sell orders totaled 90 shares, he would then have 155 shares to sell. He would sell 100 shares long and 100 short, thus in effect going short 45 shares, which could eventually be matched with incoming buy orders or converted to a long position of 55 shares by a covering round-lot purchase at a lower level.

Finally, there are the specialists, an iron-nerved lot who are at the heart of the trading process. There are 350 specialists in the membership of the New York Stock Ex­change, each of them stationed at one position or another around one of the 18 posts, and each dealing only in the several stocks in which he specializes.

His functions are two: he executes limit orders left with him by other floor members, and he is charged with "main­taining a fair and orderly market" by buying or selling for his own account when there is a gap between supply and demand.

Each specialist has a book—usually a looseleaf notebook —in which the orders he receives to buy or sell are entered. The entries are a closely guarded secret, for an outsider could capitalize heavily on knowledge of how much stock could be bought or sold and at what price. The specialist does trade through knowledge of his book, but he is not per­mitted to compete with public orders. He cannot buy or sell for his own account at any given price until all public orders on his book at that price have been fined.

The specialist's book on Cincinnati Gas & Electric, for instance, might show orders to buy 100 shares at 32, 200 at 32¼, and 200 at 32⅜. The facing page of sell orders might show 100 shares at 32%, 100 shares at 33, and 200 shares at 33⅛. The last floor sale, we'll say, was transacted at 32¾. Your broker arrives at the post with your order to buy Cincinnati Gas & Electric at the market.

"What's  the market?" he inquires.

"Three-eighths to seven-eighths," says the specialist, quot­ing the highest bid and lowest offer—and assuming that the broker knows the dollar figure at which the stock is operating.

The spread of half a point is not hard to bridge. Your broker will bargain a bit with the brokers around the post who have CIN to sell, or with the specialist, and obtain your lot somewhere between—perhaps 327/8 if the pressure is on the buy side, perhaps 325/8 if the sellers are eager to sell. The trade may be completed with another broker, or with the specialist.

If it is with the specialist, he will scratch out his entry to sell at 327/8 and put your broker's initials after it. He will receive his commission for making the trade from the broker who left the order with him and for whom he was acting as agent.

But what happens when the last trade was at 323/4 and the spread between bid and asked has widened to a point or more? No one is now willing to pay more than 321/4 and or willing to sell at less than 331/4 either from the floor or in the specialist's book. A deadlock looms. The commission brokers are not obligated to act. If the price does not seem right, they will protect your interest by refusing to buy (or sell).  But meanwhile the market stagnates.

At this point, the specialist is expected to act to keep the market fluid. As long as he does not compete with any of the orders in his book, which, unless they are market orders, must be executed at the prices stipulated, he can act on his own account. He bids 325/8, up 3/8. This narrows the spread to % of a point. Perhaps at this juncture one of the sellers will decide he can do no better, and will consummate the trade. If the pressure is exerted the other way, the specialist might stimulate action by offering to sell at 33 or 327/8. Or he might do both, making both the best bid and the best offer.

In the course of a day, a specialist may accumulate many hundreds of shares for his own account if it is a selling market. When the market reacted to the news of President Eisenhower's heart attack in September, 1955, with a violent drop of nearly 32 points, and a loss of some $14 billion in values, it was the specialist who kept prices from going through the cellar. In the face of enormous selling orders, they bought and bought, increasing their inventories by nearly 600,000 shares, and their personal commitments by nearly $74 million.

By the same token, when a newspaper columnist tipped his listeners to Pantepec Oil (American Stock Exchange), and a frenzy of buying resulted, the specialist kept the lid from blowing by going short to the extent required to calm the buyers down.

The specialist, of course, is not expected to hold prices down or keep them from going up. He is expected to keep rises and declines "fair and orderly" so that stocks fluctuate, as far as possible, within reasonable ranges. Fluidity, as noted earlier, is extremely important to the stockholder; he cannot afford to have his capital frozen in the market because no buyer or seller is within ten points of his price. Hence, the specialist.

The risk, obviously, is considerable. If the market had con­tinued downward after the President's heart attack, the specialists would have been left high and dry with the millions of dollars' worth of securities they had purchased to stem the tide at higher levels. As it happened, the market turned around and marched back uphill, and the specialists made a handsome profit. Few days are as breathtaking as that one, and in the course of many a day the specialist's long and short positions pretty much cancel each other out.

On the other hand, the opportunity to turn a profit for himself while risking a higher bid or a lower offer to keep the market humming is a prime incentive, and, aside from commissions, the specialist's only source of income.

To be able to bargain freely, the specialist must be reason­ably well-heeled. The Exchange requires each specialist to be able to maintain an overnight position of 400 shares of each 100-share-unit stock in which he is registered. Four hundred shares of American Motors at 85 is $34,000. If the specialist is registered in four stocks at the same level, he must be able to carry $136,000 worth of securities. For most specialists, however, this would be a bare minimum; usually they are backed by considerably more capital than the Ex­change requires.

The specialist is closely checked. His books are examined periodically to see how well he has maintained the market, and his skill is considered when the Board of Governors must assign a newly listed stock to one of the posts. About 16 per cent of the stocks listed on the New York Stock Exchange are handled by competing specialists, which means that there are two books at those posts.

This then is the structure through which your orders move. It is designed to operate quickly, in a fair and orderly fashion, so that at any moment the price of any stock represents the closest approximation of what thousands of investors throughout the nation believe its worth to be.