Barometer of the Dominion's Fmances

Sun (Auckland), Volume III, Issue 643, 20 April 1929, Page 17

Barometer of the Dominion's Fmances

i— ] Work and Growth of j t Auckland’s Stock Exchange < (Written for THE SUN try RONALD CORSON.) f

He NY further busi- ■ call on ’Change is over. Yet, for a jj the average man in the street knows it might never have been held. To the great majority, the inner workings of ’Change are an enigma; few recognise the important service it renders to the community. * * * The Stock Exchange has developed in response to a pressing call for some organised system with which to oil the wheels of modern finance. It is the world's greatest agency for facilitating credit and the operations of its members have been responsible for much of the industrial expansion over the past two centuries. Under old methods of finance this would have been impossible. Time was when Governments drew on reserves in the Treasury when called upon to meet financial obligations. To-day. the principle is to raise a loan and debit posterity. Similarly, the old private merchant-adventurer has given place to the joint stock company, and the huge commercial and industrial organisations of the present day are the result. It is to handle this class of business, and give mobility to the stocks and bonds thus created that the stock exchange has come into being. • •* • History records the State of Florence as originating the method of creating bonds as a means of carrying a Government over a period of financial stress. In 1344, The Government of that state contracted a debt of £600,000, which it was unable to meet, and the amount was split up into negotiable bonds bearing an interest of 5 per cent. In England, Charles the Second adopted the idea to help him out of his financial difficulties, but his methods of raising a loan were not in accord with accepted practice. He stole £1,328,526 deposited in the Exchequer by the goldsmiths of London. This move was interesting in the fact that half the amount was later acknowledged as a public liability and made up, in origin at least, the oldest part of the public debt of England. About William lll.’s period the many advantages of the joint stock company came to be generally recognised,

and several large trading concerns were operating. Among these were the Hudson Bay Coy., The South Sea Coy., and the African Coy.

Although trafficking in stocks and shares on a small scale must have existed very much earlier, it was not until the joint reign of William and Mary that the business became popular. Even then, however, the stock jobber, because of the skilful use made of him by the Whig Government was not held in very high regard by the Tory Element. Dr. Johnson gave voice to this dislike in his dictionary w'hen he defined the stock jobber as a ’’low wretch who gets money by buying and selling shares in the funds. For many years Stock Exchange business was carried on in coffee

houses in and around Change Alley, and it was not until 1802 that the ’change was properly established as such in its own building, with its own rights and rules. To-day, the London Stock' Exchange is the most powerful factor in the world of finance. Only once has its position been challenged —the world’s financial centre shifted to New York for a short period during the reconstruction which took place after the War.

On the official list of the London Stock Exchange are securities from all parts of the world—tin mines in the Malay Peninsula; railroads in the Argentine; local body securities in all the Dominions. Local bodies in all parts of the world look to it as the best market on which to raise money for internal requirements.

The New York Exchange grew from a meeting of businessmen held under an old tree in Lower Wall Street in the summer of 1792. Even when the ’Change there gained recognition as an essential adjunct to government and commercial finance, there were many brokers who refused to go inside maintaining that trading in the street gave greater mobility to certain classes of shares. Out of this latter element developed the famous New York Kerb.

Right up until 1921 the Kerb Market was one of the sights of New York. All classes of scrip were dealt with in summer or winter, except when the weather was exceptionally rough. Selling brokers (wearing a distinctive hat showing their firm’s colours) assembled at the various “posts” (positions at which recognised classes of securities were dealt in). Although the shouting brokers and the assembled crowds constituted an illegal blockage to traffic, the Kerb had police sufferance as a public utility. The Kerb “ went inside ” in 1921, and to-day is run much on the same lines as the “ New York Stock Exchange ” with the exception that, while the Exchange deals mostly in proven securities and exercises a strict supervision on investments listed, the Kerb provides more or less a free market. * * * Even in her short history New Zealand has had periods of intense excitement on ’Change. At ~ one time during the height of the Thames gold mining boom speculation so gripped the people of Auckland that business was neglected and the police had to be called upon to

control the crowds which assembled outside the ’Change buildings. Businessmen in Karangahape road left their shops in charge of boys to stand outside their broker’s office watching the notices and quotation sheets. Brokers worked overtime, seldom stopping for meals and arrangements were made with a catering firm to have trays carried into the call room. Assistants were called in to help with the books, but, even so, the majority of firms got well behind with their accounts. Fortunes were won and lost within the space of 24 hours. One man came to town with a cheque for £7OO. The gambling fever caught him, and, within a week, if he had taken the advice of his friends, he could have retired with a profit of £15,000. He didn’t, however, and to-day an cld and broken man, he handles a pick and shovel in the Thames district. Many similar instances could be related. The rush of business during the biggest boom was so great that outside brokers, unable to gain admittance to the recognised ’Change, formed one of their own dealing principally in mining scrip. No one thought of buying anything else in those times. A mere 5 to 10 per cent, was not worth offering. When the slump came, brokers suffered. With most of his savings gone to the promoters of wild cat mining schemes, the average man in the street looked askance at stockbrokers. For that reason the average broker to-day is wary about advising

his clieitt to invest In anything except tested propositions. He realises that a satisfied client drawing a steady investment income makes for an increased clientele, while the speculator after big profits is sure to lose in the

end, and when he does, will blame his » broker. * ** » c Mining has rather fallen out of favour in the past decade. Never- I theless, the country has seen mild c

BROKERS WATCH THE CAMERAMAN —A scene in tJie call room at the end of the closing call, showing the majority of the members of the Auckland 9 Change. The chairman is seated in the middle of the raised table in the background.

At Left—THE BALLOT BASKET-+-In the event of a dispute the chairman's decision is always final. Should two brokers speak together on the sale of a parcel of shares , however , two ■marbles bearing their respective names are placed in the basket.

booms in certain classes of speculative stock. The Kawarau Dam mining proposition was going to lay bare the whole of the gold allegedly lying in the bed of the Kawarau stream. Shares, issued at a par value of Is rose to nearly 30s. They sold at 4d before they were flnally withdrawn from the 'Change. Only recently New Zealand had an example of the comparatively small factors necessary to start a boom in oils. An old bore cleaned out in the New Plymouth district flowed for the space of a minute or so and shares that, on

the previous day couldn’t find a buyer, jumped to over £7. From Sydney and Melbourne even, there was an eager clamour for the scrip. Shares in the Taranaki Oil Coy., a concern having aboslutely no connection with the one which had struck the flow rose from a dead market somewhere around 2s to sell, in conservative Dunedin, at 13s.

To-day the shares of either company are selling on comparatively low levels.

llllllllMilllllllllllllllM Fortunately for the stock brokers, however, there is a large section of the community which has realised the value of sound stocks in building j up investment income. There is the class of investor who, following the advice of his broker, paid £332 for 10 shares in the Colonial Sugar Company in 1922, and to-day, not counting dividends but allowing for capital repayments and the alloca- 1 tion of additional shares, can assess ' his holding in the company at a capital value of £1,120. There is the investor in the South British Insurance shares who has

seen the market value of his scrip increased several times over within the last twenty years.

Coming nearer, there is the buyer of Mount Lyell Mining scrip at somewhere around 27s eighteen months ago and now views a market firm at 445.

There is the buyer of Dalgety and Company’s scrip last year at £l3 10s who can take a profit of over £2 today. The Stock Exchange list abounds with such instances, although

all are not so spectacular. There are, again, the trust company, the banker, and the widow and the orphan looking for gilt-edged securities. For these the Government and local body bond is the best proposition. It is by providing an open and ever available market for sound company shares, and Government and local body securities, that the ’Change renders its greatest service to the community.

Only one “outsider,” the present Prime Minister, Sir Joseph Ward, has been admitted to the room during a call over on the Auckland ’Change. The rules of the association are strict on this point and even members of associated exchanges would not be allowed to take an active part in the proceedings, although they generally pay a visit to the room when in the city.

Apart from asking that they have a high moral standing in the community, and that they be nominated by members, there are few restrictions placed on applicants for a seat on ’Change. Three times a day during the week, and once on Saturdays, members of the Exchange assemble while the

secretary calls over the list, drawing from buyers and sellers the closest quotations which are noted by each member on the Stock Exchange sheet of listed securities. In the call room the chairman, seated on a raised platform at one end, is all-powerful. Proceedings are governed by a rigid set of rules, and

any infringement immediately draws an admonition, from the chairman, who backs up his rulings by fines for persistent breaches. Let us follow a call through. The assembly, before business starts, might be anything. Just on time, men can be seen hurrying down the corridor leading to the call room, each carrying a long sheet of paper. They stand about in groups talking—some on the results of the cricket test; others listening to the latest joke; others, again, stand in isolated groups endeavouring to complete an order for a client. All is more or less confusion. Suddenly, the chairman strikes a gong. Members take their seats and silence reigns. Notices and telegrams are read, and the secretary starts the call. “Australian Bank of Commerce? Seller? Buyer?” According to the orders from clients brokers respond, and the secretary with ears keyed to take the slightest murmur from all corners of the room, notes the closest prices, and repeats them for the benefit of members. Each broker sits at a desk with a

blank sheet containing a list of the companies and government and debenture issues, recognised by the ‘Change; spread out before him. As the secretary calls over the list members bid according to orders received from clients. Several members may put in a selling price, but only the lowest bid is written in on the sheets. Similarly, the highest offer from a purchaser is listed. With a final call on each company’s issue: “Any lower seller or better buyer?” the secretary repeats the closest bids and moves on to the next. There is no dwelling. The call must not be allowed to drag. “Seller? Buyer?” Should a broker hear a price at which he can deal, he immediately calls, “I’ll take a hundred,” or “I’ll sell,” whichever the case may be. Should two speak together the names are placed in the ballot basket by the chairman. On any disputes the chairman’s decision is final. At the finish the sales are read over and, with a call: “Quite finished?” or “Any further business?” the chairman strikes the gong, and members disperse. Deals amounting to thousands of pounds sterling are put through regu-

ONE OF THE OLDEST MEMBERS OF THE AUCKLAND ’CHANGE—Mr. H. L. Noakes, who was “official caller '* on the subsidiary Exchange formed during the mining boom. He holds the record for service as secretary of the Auckland ’Change , having served in that capacity for a period of 13 years. He is often asked to assist with the call to-day. larly by word of mouth, frequently between members who meet in the street. Once a member gives his word it cannot be withdrawn. Little more than two years ago scrip in a certain southern coal-mine was meeting with an active market. During one afternoon a broker bought several hundred shares at peak prices during the call. As the members left the room they heard the newsboys calling: “Disaster in southern coalmine.” The mine was flooded, and the shares worthless. Yet, the buying broker, with the sale incomplete, had ; to honour his contract. To-day the established broker is a ■ specialist in investments, offering the ; result of his experience free to the ; man in the street. A broker can i charge only for actual sales or puri chases. A member must of necessity cut his mistakes down to a minimum. The Stock Exchange version of the old i “chestnut” is much to the point: “A doctor and a broker were discussing the merits anti demerits of their professions. j “‘Yes,’ said the broker? ‘You bury j your mistakes. Mine are filed away in a safe, returning to hit me when I ; least expect them.’ ” 1 “Service!” That is tbe key-note in the life of every successful member I on ‘Change.