Although the trade at the post clinches the deal, there remains at the end of the trading day a staggering amount of paperwork. Brokers must send confirmations of all orders received to their customers, and they must account for each transaction they executed during the trading day.
The selling broker, furthermore, must arrange to receive the stock certificate, properly endorsed, from his customer, so that it can be transferred to the buyer. Or, he must get it out of his firm's vault if it has been held there in a "street name"the brokerage house's rather than the customer'sto facilitate just such transfers. The buyer's broker, if the money is not already in a brokerage account, must obtain funds from his customer to pay for the purchase.
All over town, after the 3:30 p.m. closing on a busy day, brokerage-house clerks are totting up many hundreds of buying or selling transactions involving thousands of shares of stock and money that may run into the millions.
The way in which the settlements are made, step by step, is too complicated to describe in much detail here. But through the agency of the New York Stock Exchange Clearing Corporation, another Exchange subsidiary, the procedure is simplified to the degree that "regular way" delivery of stocks and money owed can be accomplished in four business days.
Briefly, a brokerage house that, in the course of the day, has both bought and sold 200 shares of Inland Steel can handle these transactions within its own shop. It will debit Customer A's account with the purchase price of his stock and credit Customer B with the selling price of his stock. It can also arrange the transfer of Customer B's stock certificate to Customer A.
All transactions, of course, will not cancel out. On balance, House X may have commitments to deliver 1,500 shares of various stocks and to receive 1,200 shares of other stocks. Accordingly, it delivers the shares owed and a list of the shares it should receive to the clearinghouse. By the next day, the clearinghouse will have shuffled and sorted and packaged up the certificates the brokerage house is due to receive.
By this time, too, House Y, which sold the 200 shares of Inland, will have turned in its certificate. And Brokerage House Z, which bought 200 shares of Inland and has a certificate coming, gets it, in effect, from Y through the clearinghouse. This is far simpler than having X take one customer's certificate down the street to Z, and then call on Y to pick up a similar certificate to take back to the office for its other customer.
Meanwhile, a similar clearing procedure is being followed to settle cash accounts. For 1,500 shares of stock delivered, X is due to receive $68,500. For the 1,200 shares it receives, it owes $59,400. Again, clearance checks payments against receipts and pays out the net sums owing. In this case, X receives a clearinghouse check for $9,100 to balance its accounts.
The certificates X receives for its customers will be made out in somebody else's name. To obtain a certificate in the customer's name (or in the street name for easier handling), it sends the certificate for Customer B's 200 shares of Inland Steel to the company's transfer agent. The Exchange insists that each corporation listed appoint a transfer agent and registrar in Manhattan, so that traffic will not be delayed. Usually, large banks or trust companies serve in these capacities. In a few instances, corporations are their own transfer agents.
The transfer agent issues a new certificate in Customer A's name, punches the proper denomination in the border if it is for less than 100 shares, countersigns it, and cancels the old certificate. The registrara different bankdouble-checks that the new certificate is properly made out to an authorized owner, certifies it, and records the new stockholder's name in the company's registry.
The stock certificate now goes to the buyer's broker who sends it, by registered mail, to his customer. Only now, once all the day's stock certificates have been sent out to the happy new stockholders, can the trader loosen his tie and head home from the office. As we've said -- it's no job for the faint of heart.