In this connection we may point out the method of borrowing from the banks the funds required to carry speculative commitments in London. It was formerly the practice for the banks to lend large sums to brokers, who employed the money inside the house in carrying over the accounts of their clients. This class of business is still large, but nowadays clients are not always satisfied to borrow through brokers, and not infrequently they go direct to the banks and borrow from them. This has the effect of disguising the real character of the business. To all appearances the securities have been bought and paid for, and the trade seems to be an investment, but the client has, as a matter of fact, “pawned” the security with a bank.
This practice is inconvenient in a way, because where the jobbers in important markets formerly compared notes at each settlement and were thus enabled to form a pretty good idea of the condition of the speculative account, it is less easy to do so nowadays, when so many clients carry on their own borrowing. A similar tendency on the part of the public is noticeable in New York, although, of course, the daily settlement on this side obviates the necessity for arriving at conclusions in advance as to the requirements of funds.
A word should be said about the methods of London stockbrokers in carrying stocks for their customers, because this also is quite different from the practice in New York. Here the strongest houses rarely loan stocks, unless attracted by unusual rates of interest; in London it is the common practice of even the best houses to carry-over, or as we term it, loan, a great part of the commitments entered into during the account. One reason for this is that in London customers buy their stocks outright more frequently than is done here. Scalping small profits is not practised on anything like the New York scale. Most of the stocks dealt in do not pass from hand to hand like American stocks, but must have a transfer form with the name and address of the buyer and seller attached to the certificate. There is also a government stamp-tax of ½ per cent. on the money involved, which tax must be paid by the buyer when the stock is transferred to him. When the buyer sells this stock he may not have immediate use for the proceeds, and so, instead of delivering the stock standing in his name, he instructs his broker to borrow it from account to account, thus receiving interest on his money. The tax is a heavy one--figured in American money it amounts to $50 per hundred shares at par--and the Englishman very naturally resorts to methods such as these to recoup at least a part of it.