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against that bank.

52. Clearing: Operations. — Qearings are made each
business day at exactly 12 o'clock, noon. The envelopes con-
taining the exchanges are taken to the clearing house by bank
messengers, and a bank is fined for the failure of its messenger
to appear promptly or for any error in its exchange list.

The messenger of each bank delivers the adding-machine
lists of the items of exchange to the manager of the clearing
house, who enters the amount for each bank m the proper
column on the clearing-house exchange sheet, and the envelopes

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Hartford Qearing House Association








— s^


1 —



- —

















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containing the items are then exchanged with the various
messengers for those sent by the other banks.

The form of the clearing-house exchange sheet is shown in
Fig. 50. , On this sheet, the banks are listed across the sheet
and down the left-hand column according to their clearing-
house number. The amount of the clearings presented by each
of the banks against each of the other banks is entered in the
column under the name of the bank against which it is pre-
sented and opposite the name of the bank presenting it. For
example, the clearing checks of the Hartford National Bank,
which is No. 1, against the Farmers and Mechanics Bank,
which is No. 2, would be entered in the column under the head-
ing Farmers and Mechanics and in the top space opposite the
name of the Hartford National. The amount of the Hartford
National against the National Exchange, which is No. 3, would
also be entered on the first line, but in the column under the
heading National Exchange, and so on across the page tor all
the banks of the clearing-house association against which the
Hartford National presents clearings. The clearings of all
the other banks are listed in the same way.

53, When the amounts of the clearings have been listed
they are totaled across the page for each bank and the amount
is entered in the column headed Total Sent to Clearing House.
Each of the columns is then footed and the amount for each
bank is entered as the total received from the clearing house.
If the total amount of checks sent to the clearing house by any
one of the banks exceeds the total amount received against that
bank, then the clearing house owes that bank and the amount
is efttered in the credit column opposite the name of the bank.
If the total amount of checks sent to the clearing house by the
bank is less than the amount received against that bank, then
the bank owes the clearing house and the amount is entered in
the debit column. As there must be an equal debit for every
credit, the debit and credit columns of the clearing-house
exchange sheet must balance.

54. Balances are settled at the clearing house and paid for
in currency unless otherwise arranged for. The debtor banks

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pay the clearing house each day between 1:15 and 1 :30 p. m.,
except on Saturday, when payment is made between 11 :15 and



RRrFfvpn f^.^ Ma

Dollar*. $

n MtUvmeat of balance due Clearing House th!s dzj


Fig. 51

11:30 A. M., and the clearing house pays the creditor banks
between 1 :30 and 1 :45 except on Saturday, when payment is
made between 11 :30 and 11 :45 a. m.

When a bank pays the clearing house, the clearing house
issues a receipt of the form shown in Fig. 51, and when the
clearing house pays a bank, 'the bank issues a receipt of the
form shown in Fig. 52.

Errors in exchanges, or checks npt good or improperly
drawn or indorsed, are adjusted directly by the banks con-

Hartford Clearing House

Dollars. $ _

in settlement of balance due —
No . this day.


Fig. 52

cerned before 2 o'clock each day, except on Saturday, when
adjustment is made before 11 :30 a. m.

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55, At certain times during the year the United States
Comptroller calls on each national bank for a statement of its

condensed state3me3nt
comptroller's call, may 10, 1©—


Cash on Hand and in Banks $ 1,182,118.62

Loans and Investments 9,922,619.22

United States Government Securities 1,997,693.09

Due From Treasurer of United States 41,750.00

Bank Building and Other Real Estate 286,931.68

Customers' Liability Under Letters of Credit. . 8,650.27

Overdrafts 309.60

Other Assets Not in Above 47,525.76


Capital $ 750,000.00

Surplus 500,000.00

Undivided Profits 390,977.65

Reserve for Interest 60,000.00

Circulation 739,747.50

Dividencls Unpaid 684.50

Letters of Credit 10,537.30

Discounts and Rediscounts With Federal Re-
serve Bank 781,380.00

Deposits 10,254,271.29


Fig. 53

resources and liabilities on a specified date. This is furnished
in detail and a condensed statement, as shown in Fig. 53, is
published in the newspapers.

56. The resources of a bank, which are the cash and the
securities an4 property that can be converted into cash, are
listed in these statements under eight heads, as follows :

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1. Cash on Hand and in Banks, which consists of cash in
the vault and amounts on deposit with other banks.

2. Loans and Investments, which are discounted notes,
short-term investments, commercial paper, and bonds other
than United States government bonds.

3. United States Government Securities, which are United
States treasury notes, certificates of indebtedness, and Liberty
Loan bonds.

4. Due From Treasurer of the United States, which con-
sists of money sent to the United States treasurer for redemp-
tion and funds to the amount of 5 per cent, of the capital stock
of the bank held by the United States treasurer as a redemp-
tion fund.

5. Bank Building and Other Real Estate, which is the
amount carried on the books of the bank as the value of its
bank building and other real estate.

6. Customers' Liability Under Letters of Credit, which
consists of cash, certified checks, notes, stocks, and bonds held
as security for letters of credit and traveler's checks issued to

7. Overdrafts, which are obligations of customers of the
bank for overdrafts.

8. Other Assets, which include all assets not listed under
the preceding heads.

57. The liabilities of a bank, which are the amounts the
bank owes to stockholders, customers, banks, and the govern-
ment, are listed in the bank statement under nine heads, as
follows :

1. Capital, which is the amount paid into the bank by the
stockholders and used as the working capital.

2. Surplus, which is earnings of the bank held on deposit or

3. Undivided Profits, which consists of earnings set aside
for the payment of any debts of a bank.

4. Reserve for Interest, which consists of a fund set aside
from undivided profits to pay interest on money on deposit.

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5. Circulation, which consists of the national bank notes
of the bank in circulation and which may be equal to the bank's

6. Dividends Unpaid, which consists of amounts due stock-
holders whose dividend checks have not been presented for

7. Letters of Credit, which consists of funds deposited by
customers to cover letters of credit or travelers' checks issued
by the bank.

8. Discounts and Rediscounts With the Federal Reserve
Bank, which is the amount of the discounts and rediscounts
held by the Federal Reserve Bank against the bank.

9. Deposits, which is the amount of money on deposit with
the bank.


58. All national banks are examined and checked up by
bank examiners under the direct control of the United States
govenmient. The government has blocked off the states into
districts, and each district has a number of expert accountants
and bookkeepers who conduct examinations of every national
bank in a district at least twice each year.

State banks are under the control of the state in which they
are located and are examined at least twice a year by experts
who are employed by the state. The capital of each state is
the headquarters of the examiners and the reports of the con-
dition of each state bank are filed with the state authorities at
the capitol, while the reports on national banks are filed in
Washington, District of Columbia.

Some banks also conduct their own private examinations,
while others have examinations conducted by private auditing
companies, which is done usually twice a year. These exami-
nations, whether by national, state, or private examiners, are
conducted along the same lines, and the same system is always
employed. No notice is given to any bank when the exami-
nations are to be conducted.

The examination of a bank usually starts a few mmutes
after the bank's closing time, when the paying and receiving

I LT 234-5

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tellers are about to count up cash and strike a daily balance.
Three or four examiners take immediate charge of all the cash
in the tellers' cages, count the cash, and strike the daily balance
for the tellers, which must agree with the tellers' balance shown
by the proof book. The tellers must stay in their respective
cages until the examiners count their cash and strike a balance.

In larger banks, so as to avoid the possibility of changing
cash by one teller to another, the examiners usually start at
both ends of the row of tellers' cages and work toward the
middle cage. The total amount of each teller's cash is noted
on the examination sheet, and after the cash in the vault is
counted, the total of all cash must agree with the amount
carried on the general ledger under the heading of cash on
hand. The next step is to take charge of the credit, or note,
department. An adding-machine list is immediately taken off
of the promissory notes and another of the collateral notes.
These amounts are then checked back and must agree with
the amount charged up against the note department on the
general ledger. All notes are then carefully scrutinized by
the examiners in regard to form, signature, and indorsements
of each note and memorandum is made of all collateral held
as security on the collateral loan notes. The value of all the
collateral carried is later checked up to see that the market
value of the securities is sufficient to warrant the loan. •

The proof book is checked up next, and the amount of the
exchanges, and foreign and correspondent items or checks, are
totaled up and compared with the amount carried on the proof
book. The general proof of the proof book is then checked up.
The examination of the individual, or Boston, ledgers and gen-
eral ledgers are next taken in order. The bookkeepers must
balance their books as of the balance of the date that the
examiners start the examination, as these books are gone over
a day or two after the date that the examination begins. The
extensions of each account in the individual ledger are gone
over, the footings of the pages are verified, and each ledger is
checked up and rebalanced.

If the savings ledger accounts are kept separate, the items
of each account are run off on sheets on the adding machine

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and the totals are compared with those carried on the general
ledger. The totals of all the different departments of the bank
are compiled and this total must agree with the amount carried
on the general ledger.

The general ledger is the last book of the bank to be exam-
ined ; each heading carried is gone over and checked up. The
time required to examine a bank varies according to the size
of the bank. The averaged-sized bank takes about 3 days,
while the larger banks take from 1 to 2 weeks.

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1. Introduction.— In order to obtain a clear idea of the
why and the wherefore of the organization known as the New
York Stock Exchange, it is necessary to go back in history and
trace the evolution of the exchange.

2. Beg:inning:s of the Eng:lish Stock Exchangres.

One of the earliest records- of a stock exchange as such, dates
back to about the year 1600, when the East India Company was
incorporated, and later, the Hudson's Bay Company. These
companies were stock companies and their shares were traded
in about the latter part of the 17th century. At this time, the
stock market may be said to have been unorganized, and in the
year 1697 the English Parliament promulgated a law checking
the evils arising from speculation in the securities of the large
number of stock companies then existing. This same law also
provided for the licensing of the stock brokers.

3. Beginnings of the French Stock Market. — At

about the same time that stock trading developed in England,
a stock market began to function in Quincompoix Street in
Paris. Here, as in England, active trading took place.

4. Earliest Panic. — Growing out of these early opera-
tions, a period of feverish speculation resulted, and in 1720 the


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collapse of the South Sea Company, in England, and the Mis-
sissippi Company, in France, caused the first great panic
known to the stock market.

5. Formation of tlie Liondon Stock Excliangre. — On

July 5, 1773, the London Stock Exchange was founded. This
organization may be said to have grown out of the operations of
the curb brokers — that is, brokers who met on the curbstone —
in Change Alley in London.

6. Begrinningrs of tlie Stock Market in New York.

Along about the year 1800 a period of stock buying and selling
began in New York. In this market the first issue of United
States Government bonds, along with the shares of the United
States Bank and the Bank of North America, were actively
dealt in.

The usual meeting place of the brokers operating in this
market was near an old buttonwood tree in Wall Street, and
the stock market has continued in Wall Street or near by even
to this day, so that the New York stock market and "Wall
Street," or "the street," have come to be almost synonymous

In May of 1792 an agreement was entered into by a number
of brokers whereby it was agreed that a commission of ^ per
cent, of the specie value of the securities bought or sold should
be charged. This date may be regarded as the beginning of the
Stock Exchange in this country.

7. Foundation of the New York Stock Excliang:e.

In the year 1817, the same organization of stock brokers
founded in 1792 was organized into a body then known as the
New York Stock Exchange Board, and in 1827 this organ-
ization moved into the Merchants Exchange building.

In 1869 this Board and the Open Board of Brokers con-
solidated, forming the New York Stock Exchange as it aopears
today with its 1,100 members.

8. Government of the New York Stock Excliangre.

The New York Stock Exchange is governed by the Governing
Committee, made up of the President and the Treasurer, who

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are elected annually, and forty other members of the Exchange,
who are elected for terms of 4 years, and classified so that ten
are elected each year. Any decision by this committee is final.
The forty members of this committee are so assigned that cer-
tain of them serve also on the subcommittees of the Exchange,
such as the committees on arrangement, arbitration, admissions,
finance, commissions, law, constitution, stock list, clearing
house, and securities.

9. Membersliip. — A membership on the Exchange is
called a seat. This term relates to the time when each broker
had an individual seat in the Board Room, but now, owing to
the high-pressure business carried on, the seats have been

The number of seats on the Exchange is limited to 1,100,
and each member must be elected to membership by the body
before he may have a seat transferred to him through pur-
chasing another's privilege. As a member of the Exchange, a
broker is answerable to certain laws, and under certain condi-
tions may be expelled.

10. Value of Seats. — ^A seat on the Exchange is an
asset of value; its price varies, often going as high as $96,000,
as in 1909. To own a seat, a man must not only have money,
but he must be of good business reputation and have no asso-
ciations that would bring discredit upon the Exchange.

11. Expulsion. — If found guilty of fraud, any member
may be expelled by a two-thirds vote.

Any member may also be expelled if he should be in any
way connected with any organization in New York dealing in
securities similar to those listed on the New York Stock

12. Representation. — A member may represent only
one firm on the floor of the Exchange. Any member in New
York must have a place of business there where notices may
be sent and received.

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13, Since the transactions on the Exchange consist of the
buying and selling of securities, which may be either stocks or
bonds, explanation will here be given as to how each security
is admitted for trading on the Exchange, since only securities
that have been listed on the stock list are dealt in on the

14. Requirements for Listing:. — Before securities can
be listed on the stock list of the Stock Exchange, they must be
examined by the Committee on Stock List.

In order to have the Committee on Stock List consider a
stock for listing, the promoter must furnish this committee
with certain data. Were it a railroad, the following data would
be required :

1. Location of the property.

2. Description of the property.

3. A m^p of the property.

4. Name of the company.

5. Date of organization and by what authority.

6. Route.

7. Portion of the road completed and in operation.

8. Proposed extension.
' 9. Equipments

10. Liabilities and assets statement. »

IL Earnings.

12. Statement of indebtedness.

13. Number of shares of capital stock issued and the par

14. A list of officers and directors.

15. Location of the office of the company.

16. Location of a transfer office and registrar in New York

In every case the data required by the committee contain
all the necessary details regarding the security that it is desired
to have listed.

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To sum the matter up, the corporation whose securities are
about to be listed is rigidly examined by the Committee on
Stock List before its securities and their listing will be con-
sidered by the Governing Committee. This latter committee
makes its investigation from the data provided as to capital,
resources, liabilities, number of shares outstanding, etc. This
committee and the previous committee having both passed
favorably upon the security, the security is then listed for
trading on the Exchange.

15. Value of Listingr. — Since a security is subject to
such careful scrutiny by the Stock Exchange through ,its
designated committees, listing should add a feeling of faith and
security regarding its value.

16. Special Rigrhts of Committee on Stock List.

Under the ruling of the Exchange, the Committee on Stock
List may place on the list any national, state, or city govern-
ment's bonds, without the consenting action of the Governing

17. Listed and Unlisted Securities. — Previous to
1910 there were two kinds of securities dealt in on the
Exchange, namely, listed and unlisted. The listed securities
have just been explained, so it is only necessary to state that
the unlisted securities were those not having been passed on
and scrutinized by the Committee on Stock List and the Gov-
erning Committee. At the present time the unlisted-securities
department on the Exchange has been abolished.

18. Clearing: House and Ex-Clearing- House
Stocks. — ^According to the custom in the "street," sooner or
later a stock listed on the Exchange may be what is called an
active stock and the buying or selling of it becomes voluminous.
When this condition becomes true, it will be referred to the
Committee on Stock List, and if they so decide it will become
a Clearing House stock, and all trades in that security would
be cleared through the operation of the Clearing House for the
New York Stock Exchange. Stocks not so listed are known as.
Ex-Clearing House stocks.

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19. Classes of Members. — The 1,100 members in the
Exchange are divided into the following groups :

Principals: A principal is a member of the Exchange who
does no buying or selling for himself, but one who employs
another broker to buy and sell for him.

Two-Dollar Brokers: These are brokers who operate as
brokers for brokers and charge a commission of $2 per 100
shares of stock for every 100 shares bought or sold by them.
For example, suppose that Broker A buys 100 shares of stock
for Broker B; then. Broker A would charge Broker B $2
commission for having executed his order for him.

Room Traders: These are men who are present on the
floor of the Exchange, and buy or sell securities for their own
account. They are professional speculators, who, being always
present on the floor, are able to take every advantage of an
opening to buy and sell securities and take a profit.

Specialists: Specialists are men who make a specialty of
buying and selling two or three securities, which are usually
securities of an investment class, and their business is to a
large extent with other brokers.

20. Commissioiis Charged. — ^When a broker buys or
sells stock for a customer he is allowed a commission of

(a) $7.50 per 100 shares on stock with a par value up to $10 ;

(b) $15.00 per 100 shares on stock with a par value from
$10 to $125;

(c) $20.00 per 100 shares on stock with a par value of $125
or over ;

(d) A minimum commission of $1.00 on all transactions.
However, should the customer be a member of the Exchange,

and a principal, then the broker would collect -gV per cent, if the
name of the principal were given; were it not given, then the
broker would charge ^V P^^ cent, of the market price.

Any violations of the commission law are punishable by sus-
. pension for from 1 to 5 years ; for the second offense the
penalty is expulsion.

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21. Opening:. — On every business day the Exchange is
opened at 9:30 a. m., and at 10:00 a. m. sharp the chairman
announces the opening of the market ; buying and selHng then
begin. The Exchange remains open until 3 :00 p- m. on every
business day except Saturday, when it closes at 12:00 o'clock
noon. Thus it is seen that 5 hours are provided for the active
buying and selling of securities. Should a broker do business
with another, either in the Exchange or publicly outside, before
10 :00 A. M. or after 3 :00 p. m., a fine of $50 is levied.

Naturally, when the market is just opened by the chairman
there is great noise and hubbub and the babbling of voices to
be heard; brokers are running here and there attempting to
execute the orders which have accumulated overnight. As
one stands in the gallery and watches this activity every little
while he will see a man emerge from the crowd around a post
and make a note on a small pad, and if the spectator should
be curious and ask the meaning of the procedure he would be
informed that the man was noting the data of a transaction
just closed.

22. Manner of Trading:* — In rows, all about the large
room where the buying and selling is carried on, there are posts
erected, and on these posts are recorded the names of securi-
ties that can be bought or sold at that place. So it is seen that
each stock has its own place on the floor, where buying or sell-
ing takes place.

Therefore, should a broker have an order to buy 100 shares
of United States steel at the market price, he would go to the

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