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Stock Brokers

30.03.2021

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Stockbroker – a person working at the exchange. Serves as an intermediary between the buyer and the seller.

History

On the stock exchange in Kyiv during the First World War, shares of local enterprises and large metallurgical plants in other cities were of great importance. The operations were carried out by stockbrokers, headed by a go maker, as well as a stock notary. On the ground floor of the stock exchange building, the brokers had their own offices with signs that read “Stockbroker”. Some of the brokers also had other offices, of a private nature, which were located outside the exchange. In these offices, brokers made transactions at their own expense. Stockbrokers’ offices often had samples of the papers they were selling in the windows. It is known that the go maker V. I. Pataleev advertised his activities in the newspaper “Kievskoe Slovo”. According to the regulatory legal acts of the Russian Empire, each stockbroker received from the place in which he was introduced, a special book in which he had to enter all transactions in which he was directly involved. All this had to be recorded on the day of the conclusion of the transaction, in extreme cases – no later than the morning of the next day after the conclusion of the transaction. The Treasury Department audited the books of the stockbrokers.

Wall Street Exchange Workers

When a stockbroker made a deal, both parties paid him a commission. For commodity transactions, the broker received from both sides 1/4 kopeck per ruble. For bills, for the sale of gold and silver – 1/8 kopeck. For operations with securities – 1/10 kopeck.

The commission that the stockbroker received was called a charge. After some time, the commission rate became higher and amounted to 1/4 percent on sugar, 1/2 percent on other goods, on various securities, and weights – 1/8 percent.

There were special stockbrokers who performed the duties of junior notaries. They usually met in port and large commercial cities.

In the first years of the existence of the USSR, there was a profession of a stockbroker. Stockbrokers were officials of the exchange who had to execute the orders of exchange visitors and members of the exchange, to make transactions on the exchange, through the search for counterparties, through the preparation of brokerage notes. Stockbrokers were commodities and stocks. They could not fulfill each other’s duties. The stockbroker was prohibited from doing on the exchange or outside of its trading on his own or through his own representatives. A senior stockbroker was required to be present at every stock exchange, commodity exchange, or stock department. When a stockbroker was employed on the stock exchange, he was not allowed to work anywhere else. Among the duties of the stockbroker was to ensure that the transactions that were concluded with his participation,

the right to support transactions, and control their implementation. Also, the stockbroker has the decisive vote in resolving disputes.

A stockbroker is a full-time employee of a stock, commodity, or currency exchange, whose duties include support and control of transactions between exchange participants. The broker has the decisive vote indisputable situations and in his competence to cancel the transaction if it contradicts the established rules and legislation.

There is a fundamental difference between the functions of a stockbroker and a stockbroker, although in many publications these terms are used interchangeably, which is not correct. The correct interpretation is as follows: a stockbroker, with rare exceptions, can only be a full-time employee of the exchange. In turn, the broker can work both on the exchange and outside it, for example, the trading divisions of banks or a prime broker. The broker’s profit is a commission on the volume of the concluded transaction (curtailment), the broker may have additional sources of income

Main functions

The need for specially trained people who would quickly fulfill the orders of buyers and sellers while simultaneously monitoring compliance with the established trading rules arose simultaneously with the appearance in 1602 in Amsterdam of the first commodity exchange. Before the advent of electronic trading systems, it was the exchange rate brokers that calculated the optimal price quotes of trading assets, ensuring the maximum satisfaction of the current supply and demand.

All modern electronic exchange systems continue to use the same principles for calculating the optimal price, as they did two centuries ago, and as a result, we observe the “price glass” known to all traders.

The second main function of brokers was to control the activities of trading floors or in the exchange slang – “pits”, where representatives of brokers concluded deals using a special system of signs and voices. In this case, the broker had to visually see both participants, and only then confirm the deal. After the end of the trading session, all transactions were recorded in a special journal, in the beginning – in handwritten, then in print, and now – in electronic. After the transaction is entered into the journal, mutual responsibility arises for the fulfillment of the conditions between the parties who concluded it and the exchange employee.

Role in the modern trade

At the moment, the calculation of current prices is completely under the control of computer systems, but the controlling role of the broker has not diminished. As before, it is they, together with the exchange committee and regulatory authorities, who investigate cases of possible fraud or violation of the rules for the execution of transactions.

The absence of the need for manual control of orders and transactions allowed exchange employees to devote more time to market analysis and pricing. New specializations have appeared, for example, a specialist unit, which works only in a certain segment of the market or with a limited list of shares. At the same time, he does not fulfill the orders of end customers but is only an intermediary between brokers. It is the specialists who in most cases determine the initial value of the securities when they are included in the listing for the initial public offering (IPO) procedure.

An important role in maintaining a normal trading process is played by brokers who have the right to work with their own funds (market makers). Thus, they can quickly eliminate strong bias towards buying or selling and provide the minimum necessary level of liquidity: this practice is most common on the US stock exchanges.

It was the small, intra-exchange market makers who were able to keep the stock market from falling completely during the 1998 crisis when there were practically no buyers left on the current market. Brokers helped to overcome the peak of rush sales by buying out market volumes, including through external bank borrowings, and as a result, prevented massive bankruptcies of medium and small companies not directly related to the mortgage market.

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