How Stocks Are Bought And Sold Continued

Here's how Charles's and Green's brokers might figure as each tries to obtain the best price for his customer:

CHARLES'S BROKER: I can't buy my 100 at 65. Someone has already bid 65 and no one will sell at that price. Guess I'd better bid 65?.

GREEN'S BROKER: Looks like I can't sell my 100 at 6514; someone has already tried to get that price. I'd better try to get 658.

Green's broker hears Charles's broker bid 658 and instantly shouts, "Sold 100 at 658." They have agreed on a price and the transaction takes place.
This is the auction market in operation. Over and over again every day this procedure is repeated on the floor of the Exchange.

The two brokers complete their verbal agreement by noting each other's firm name and reporting the transaction back to their phone clerks so that their customers can be notified.

In the meantime, an Exchange employee has sent a record of the transaction to the ticker department for transmission over the ticker network. The report of the transaction is printed simultaneously on 2490 stock tickers in 438 cities in this country, Canada, and Cuba.

It appears like this: X658-X being the ticker symbol of U. S. Steel. The number of shares in a round lot transaction is specified only when more than 100 shares are involved; otherwise only the stock's symbol and price appear.

Thus within a few minutes Dr. Charles has arranged to exchange the proceeds from the sale of his summer cottage for 100 shares in the world's largest steel company; Green has sold his shares in the company for money to expand his own business.

You may ask, what if Dr. Charles had only about $1000 to invest in U. S. Steel stock, rather than $6500. In other words, could he buy 15 instead of 100 shares? Yes, he could buy only one share if he wanted to do so. In most stocks an order to buy or sell less than 100 shares is an odd lot order. These orders are serviced by odd-lot members who act as dealers in odd lots on the floor of the Stock Exchange.

If Dr. Charles had ordered only 15 shares of U. S. Steel "at the market," his broker's floor clerk would have sent the order to an odd-lot dealer at the Steel trading post. There are at least four odd-lot dealers at each post. The dealer would fill the order at a price based on the next round lot transaction in Steel common.

Assuming this next round lot trade is made at 658 a share, the odd-lot dealer would sell 15 shares of Steel from his own inventory at 65a. The additional one-quarter point, or 25 cents per share, is designed to cover expenses incident to the odd-lot dealer's operations. If the round-lot price had been below 40, the difference would have been one-eighth point, or l22 cents a share.

Much the same procedure would have been followed if Jim Green had had only 15 shares of Steel common to sell. His broker's clerk would have sent the sell order to an odd-lot dealer. If the next 100-share transaction in Steel had been at 658 a share, the dealer would have bought Jim's stock for 64d a share. In neither instance could the odd-lot dealer have refused to sell 15 shares to Dr. Charles or refused to have bought the odd lot offered on behalf of Green.