Who owns Stock, Shares, and Debentures?


Even in these days of high taxation and high death duties, there are still some rich people left. Many people consider that the Stock Exchange is a place where millionaires buy and sell investments in order to make quick profits at the expense of the general public. If this ever was true it is certainly not true today, for the Stock Exchange Council makes very strict regulations about manipulating the market, and disciplines dealers who engage in sharp practices.

We are today a property-owning democracy; the decline in the number of rich people has been more than balanced by an increasing number of middle-class and lower-middle-class citizens, or whom about 2Va million actually own some shares indirectly by investing money in savings banks, building societies, pensions funds and insurance companies. These institutions build balanced portfolios’ of shares, debentures, gilt-edged securities, etc.

This is explained later. Practically everyone in the country is either directly or indirectly involved in the work of the Stock Exchange. At some time or other one of our representatives, a banker or insurance agent possibly, will ask his broker to sell shares on our behalf.


If you have money in any of these organizations, if you pay insurance on a motor vehicle, or if you say to get married, or to buy a house, the money you invest will be used to buy shares on the Stock Exchange. When eventually you need money to buy the house, to pay the wedding expenses, or to repair a damaged motor vehicle, the investor show has been saving for you will pay back again, possibly disposing of some shares in order to make funds available.

Buying and Selling Securities-a Highly Organized Market

The investor who wished to purchase stocks or shares must approach a stockbroker who will undertake the purchase for him. The Stock Exchange is another type of highly organized market.

Only experts may deal on such markets, for the ordinary member of the public would not know the procedures to followed, and would almost certainly make a ban bargain. Only the expert with experience of the market can judge what a fair price for a share is. There are two classes or experts: brokers and jobbers who are also known as dealers.


The broker buys and sells shares on behalf of the general public, or he may deal on his own account. When acting for the public he is an agent employed to buy and sell at the best price obtainable. Brokers are paid by the client according to a fixed scale of charges; usually 1 % percent or 0.0125 in the Rs. Brokers also give their clients advice in connection with investment affairs.

They are forbidden to advertise. Brokers execute their clients’ orders by dealing with the jobbers. The jobber is a wholesaler of stocks and shares. A broker wishing to sell shares on behalf of a client will sell them at a fair price to the jobber who will add them to his store of securities. A broker wishing to buy shares on behalf of a client will obtain them from the jobber at fair price.

The difference between the ‘jobber’s turn’ as the market is highly competitive; it is unlikely that the profit will be excessive, especially when the risks of loss are taken into account. Because the Stock Exchange today lists more than 7,400 different securities, jobbers cannot be expert dealers in them all. A jobber of firm of jobbers will concentrate on certain classes of shares and make a special study of them.

There are always a number of jobbers dealing in each group of securities; they compete for the business brought to them by brokers, and so a competitive ‘market’ is created. Often jobbers who deal in the same types of shares will stand close to one another on one part of the floor of the Stock Exchange. Thus all those who deal in Government and similar stocks will be found in the ‘gilt-edged’ market; and the dealers in the shares of manufacturing companies will be found grouped together in an area known as the Industrials’ market.


However, this does not always happen, and the jobbers in the bank, shipping, oil, property, and brewery shares are jobbers in the bank, shipping, oil property, and brewery share are scattered about the floor of the Stock Exchange. It is the existence of this competitive market which ensures that the public gets a fair price for shares sold on the Exchange.

This type of highly organized market does not develop overnight. An unbroken succession of business activity •since the seventeenth century has developed the customs, rules, and controlling council of the Stock Exchange, ensuring that the public’s affairs will be conducted efficiently, cheaply, and quickly.

The contract Note

A that he has sold the shares by sending her a Contract Note this tells Mrs. A the following facts:-


(i) Finally the Contract Note Notified Mrs. A of the net amount she is due to receive from the broker for the sale of her shares, and the date of settlement. This is the date on which he will pay Mrs. A, provided that she surrenders the shares after signing the Transfer Form enclosed.

Mrs. A now checks the Contract Note and if she is satisfied returns the Transfer Form with the Share Certificates she no longer owns. Her broker will deliver them to the new owner, and pay her on settlement day.

The Stock Exchange ‘Zoo’-Bulls, Bears, and Stags

There are only two classes of member on the Stock Exchange-brokers and jobbers. Brokers act for the general public, or for the institutional buyers and sellers. Jobbers buy and sell on their own behalves, adjusting their prices to yield a profit, or to avoid losses, as public interest in stocks and shares waxes and wanes.


Outsiders may also act in this way, and anyone who does so is said to be a speculator. To speculate is to let one’s mind wander around a situation trying to predict what will happen. A speculator is a person who backs the judgments he makes about likely development by buying or selling shares, or other valuable commodities. The chief varieties of speculators who operate on the Stock Exchange are known as “bulls,’ “bears,’ and ‘stags’.

Bulls are speculators who take an optimistic view of business trends. When the market is “bullish’ the dealers are expecting prices to rise. In these circumstances it is a good thing to hold securities, because if the prices rise one will be able to get more for them. Bulls therefore step in and buy, even if they have no money.

Since dealings are usually not for cash, but for. the ‘account,’ i.e. payable at the end of the accounting period in about a fortnight’s time, a bull who buys now and sells before settlement day will not need to provide any money but will collect a profit on the shares he bought low and sold higher. If the expected price rise does not come, the bull may find himself having to sell at a loss, or pay up for the shares and hold them over to the next period.

Bears are pessimistic speculators who expect a fall in share prices. They therefore sell any shares they have now, and even shares they do not have, because, if prices fall as expected, the shares will be available in a few hours or a few days at lower prices than at present.

Stags are speculators who operate in the “New Issues,’ market rather than on the stock Exchange, although they must use the Stock Exchange before they can realize any profit. What a stag does is to apply for shares that are just being issued and are likely to be over-subscribed. He does not want to keep the shares, or invest in the company that is issuing them, but simply to make a profit out of the issue.

The activities of ‘stags’ have been greatly reduced in recent years but in order to explain them we must look at a rather old-fashioned situation, when shares were issued for a small deposit called ‘application money.’ Suppose the magnificent Oil Co. is issuing four million extra shares at Rs. 80 each, payable at ten pence on application and another ten pence on allotment, 40 percent on First Call and 40 pence on Final Call.

Since oil shares are very popular there is an excellent .chance the issue will be over-subscribed, and many disappointed applicants will probably apply to their brokers to buy them some shares, on the Stock Exchange. Mr. C, a small investor, applies for 50 shares. Mr. Stag applies for 10,000 shares.

The directors decide that they will only accept the applications of people asking for 500 shares or more. This reduces the work of issuing the shares. Mr. C gets no share, but Mr. Stag is allotted 10,000 shares which he does not really want, or intend to keep. Since demand is strong the price of these shares rises on the Stock Exchange and Mr. C buys 50 of them from Mr. Stag.

There are a number of reasons why stags are less active in recent years than formerly. One is that there is something morally repugnant about a person who does not really want a share in a company being allowed to get one when his application robs poorer, but genuinely interested, small investors from securing a share in the company that attracts them. Another reason is that, in any case, the number of public issues where stags can operate is reduced with the growing influence of the institutional investor.

Many new issues of capital are not offered to the public in the traditional way which is expensive, but are ‘placed.’ This means that the issuing houses approach large institutional investors who are always on the look-out for sound investments at fair prices, and ask them to buy the shares. If ten of these big investors take up one-tenths of the shares each, the capital can be raised without expensive advertising and cumbersome clerical work.

The issue of share by ‘tender’ is a method which eliminates the ‘stag,’ and makes his former profits available as a premium on shares to the company that is expanding. Suppose the shares are Rs. 80 shares. The application form invites the prospective shareholder to tender for the shares by filling in, on the form, the price he is prepared to pay.

The applicant who is extremely keen to become a shareholder will offer to buy at a premium, say Rs. 84 per share. By offering a higher price he makes sure of an allotment, and the company receives extra capital, instead of this profit being enjoyed by the ‘stag.’

One final explanation of reduced stag activity is that the risk the stags run is less than it once was, and this is what makes their profits unfair. In years gone by the speculation stag was welcome because he reduced the chances that the issue would be unsuccessful. If he ordered 10,000 shares he stood the chance of not being able to sell them at once; he might have to pay up for them. This is no longer likely.

Once again this due to the presence of many larger institutional investors who are always ready to buy, and keep the Stock Exchange busy to prevent stag activity, ‘tendering’ and ‘payments in full on application’ have been introduced. By the latter system the ‘stag’ must find the full sum of money, not just a small part of it. This tie up his capital

How to see the Stock Exchange at Work

For anyone who can possibly do so, it is a good idea to visit the Stock Exchange in London. The visitors’ gallery is at No. 8 Throgmorton Street, and is open from Monday to

Friday from 10. a.m. to 3.15 p.m. Admission is free. Guides are in attendance and colour films are show at regular intervals. Parties of up to 30 can reserves seats by writing to the Public Relations Officer, the Stock Exchange, London, and E.C. 2. A full visit takes about three-quarters of an hour.

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