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Title: The Stock Exchange
Author: Duguid, Charles
Language: English
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                           The Stock Exchange



                           BOOKS ON BUSINESS


_Crown 8vo. 2s. 6d. net._

A series dealing with all the most important aspects of commercial
activity.

    "Short, pithy, simple, and well informed, and written by men of
    acknowledged authority, these books are equally interesting, whether
    the reader knows something or nothing of the subject."

    _Manchester Guardian._

    PORTS AND DOCKS. By DOUGLAS OWEN, Barrister-at-Law, Secretary to the
    Alliance Marine and General Assurance Company.

    RAILWAYS. By E. R. MCDERMOTT, Joint Editor of the _Railway News_,
    City Editor of the _Daily News_.

    THE STOCK EXCHANGE. By CHAS. DUGUID, City Editor of the _Daily
    Mail_, Author of the "Story of the Stock Exchange," etc. etc.

    MONOPOLIES, TRUSTS, AND KARTELLS. By F. W. HIRST.

    TRADE UNIONS. By G. DRAGE.

    THE BUSINESS OF INSURANCE. By A. J. WILSON, Editor of the
    _Investors' Review_, City Editor of the _Daily Chronicle_.

    THE ELECTRICAL INDUSTRY. By A. G. WHYTE, B.SC., Editor of
    _Electrical Investments_.

    LAW IN BUSINESS. By H. A. WILSON.

    THE MONEY MARKET. By F. STRAKER, Fellow of and Lecturer to the
    Institute of Bankers and Lecturer to the Educational Department of
    the London Chamber of Commerce.

    THE SHIPBUILDING INDUSTRY. By DAVID POLLOCK, M.I.N.A., Author of
    "Modern Shipbuilding and the Men Engaged in It," etc. etc.

    THE BUSINESS SIDE OF AGRICULTURE. By A. G. L. ROGERS, M.A., Editor
    of the last Volume of the "History of Agriculture and Prices in
    England."

    THE BUSINESS OF ADVERTISING. By C. G. MORAN.

    THE COTTON INDUSTRY AND TRADE. By S. J. CHAPMAN.

    CIVIL ENGINEERING. By T. C. FIDLER.

    THE IRON TRADE OF GREAT BRITAIN. By J. S. JEANS.

    THE BREWING INDUSTRY. By JULIAN L. BAKER, F.I.C., F.C.S.

    THE AUTOMOBILE INDUSTRY. By GEOFFREY DE HOLDEN-STONE.

    MINING AND MINING INVESTMENTS. By A. MOIL.



                           THE STOCK EXCHANGE

                                   BY
                             CHARLES DUGUID

                    CITY EDITOR OF "THE DAILY MAIL"
              AUTHOR OF "THE STORY OF THE STOCK EXCHANGE"
                    "HOW TO READ THE MONEY ARTICLE"
                               ETC. ETC.

                             THIRD EDITION

                           METHUEN & CO. LTD.
                         36 ESSEX STREET, W.C.
                                 LONDON

_First Published.... February 1904_
_Second Edition..... November 1906_
_Third Edition .... November 1913_



                                PREFACE


In accordance with the scope of the series of Books on Business, of
which this little work forms an item, its main object is to explain to
the unversed in simple terms the somewhat complicated machinery of the
Stock Exchange. Some criticism is ventured upon here and there, and a
practical hint may be gleaned now and again from its pages; but the real
aim of the book is merely to explain, not to comment. If the book
conveys some idea of the important part the Stock Exchange plays in the
economy of the nation, and of how it plays that part; if it furnishes a
solution of the various mysteries which the routine of the Stock
Exchange presents to many minds, the objects of the little work will
have been attained.

Owing to the continued demand for the book, and to the changes which
have occurred during the decade which has elapsed since it was written,
it is now reprinted in revised form.

C. D.

PARK LODGE,
NEW BARNET, HERTS,
_July, 1913_.



                                CONTENTS


              I. WHAT THE STOCK EXCHANGE IS              1

              II. THE MARKET-PLACE                       6

              III. THE MEMBERS AND THEIR CLERKS         18

              IV. THE COMMITTEE                         26

              V. BROKERS AND JOBBERS                    32

              VI. HOW BUSINESS IS TRANSACTED            45

              VII. THE SETTLEMENT                       56

              VIII. THE ZOOLOGY OF THE HOUSE            65

              IX. OPTION DEALING                        72

              X. THE WARES OF THE MARKET                84

              XI. FAILURES                             101

              XII. PRICE LISTS AND RECORDS             109

              XIII. THE ROYAL COMMISSION'S VIEW        125

              XIV. A SKETCH HISTORY                    138

              XV. A BROKER'S DAY                       150

              XVI. FROM A SOCIAL POINT OF VIEW         161

              INDEX                                    169



                               CHAPTER I
                       WHAT THE STOCK EXCHANGE IS


The Stock Exchange has been described as the mart of the world; as the
nerve-centre of the politics and finances of nations; as the barometer
of their prosperity and adversity; and so on. It has also been described
as the bottomless pit of London, and as worse than all the hells.
Perhaps, however, the Stock Exchange can best be defined and described
as a market. Just as Smithfield is the market for meat and Covent Garden
the market for flowers, fruit, and vegetables, so is the Stock Exchange
the market for stocks and shares.

These stocks and shares, as everyone knows, are, roughly speaking,
sleeping partnerships. The holder of railway stock is a part-proprietor
of the railway, and is entitled to his proportion of its profits; the
holder of shares in a mining company is similarly part-proprietor of the
mine. Even although the holders of the stocks of a nation, such as
Consols, or of the debenture stocks of a company, are creditors and not
proprietors, they depend, for the income which those stocks yield them,
upon revenue and profits, just as does a partner in a business.

It will at once be seen that although the Stock Exchange may be defined
as a mere market, the wares that are displayed and dealt in are of such
importance as to entitle it to the more ambitious definitions with which
it has been exalted. It is worthy of being defined as the mart of the
world, because these wares represent property in every part of the
world, and because the orders which are executed in this mere market
emanate from all over the world. The business of the Stock Exchange is
more varied and cosmopolitan than that of any other mart, except,
perhaps, the Money Market. The business of the Stock Exchange may be
described as the business of businesses. The institution may be defined
as the nerve-centre of the politics and finances of nations, because in
this mere market all that makes history is focussed and finds
instantaneous expression. It is worthy of being defined as the barometer
of their prosperity and adversity, for a glance at the tone of this mere
market, whose wares are more mercurial than these of any other mart,
suffices to indicate their condition. It may almost be said that the
price of Consols is the welfare of the world expressed in one figure.

Perhaps the Stock Exchange is unworthy enough to be defined as the
bottomless pit, and to be described as worse than all the hells, if we
look at the mere market from the point of view of those who abuse the
facilities which it offers for free dealing--but only from that point of
view. Without the Stock Exchange our commercial and industrial life
could never have attained its modern refinements. Indirectly this
institution provides the sinews of industry and commerce, or, at all
events, that one great sinew, capital. The inventor with an idea to
develop, the trader with a business to expand, the pioneer with a
country to explore, the Government with a scheme to finance, all betake
themselves eventually to the Stock Exchange.

It is the organisation of capital for speculation and investment, even
as the banks are the organisation of capital for loans. Its members are
in close touch with all the capitalist investors and speculators in the
country, and can lay any scheme for which the financial sinews are
required before them. Moreover, in providing a free market for the
securities upon which the money is subscribed, the Stock Exchange tempts
subscriptions, and indeed renders them possible where otherwise they
might not be. Most people would hesitate to part with their money in
exchange for even the best securities, did they not feel assured that,
if necessity arose, they could readily obtain its return by selling the
security in the free market which the Stock Exchange affords. But for
the Stock Exchange, even the Government would find a difficulty in
borrowing; whilst great schemes, national, commercial, and industrial,
would languish in the lack of a ready flow of capital. Railways could
not traverse the land nor ships the sea; enterprise would be
discouraged, and the original and progressive ideas of clever men would
decay undeveloped. Thus the Stock Exchange is linked closely with the
prosperity of the world in general and of the nation in particular, and
it has grown with the development of that prosperity.

Some very fair idea of how it has grown is obviously conveyed by a
statement of the nominal value of the wares in which it deals. It is
impossible to form an estimate of the whole of the enormous amount, as
there are dealings in so many securities which are not recognised in the
Official List of the market. But the nominal value of the securities
thus quoted at the end of 1912 reached the enormous total of
£10,990,249,126; this comparing with £8,787,316,406 in 1902, an increase
of £2,202,932,720, or no less than 25 per cent. In other words, the
amount of securities officially quoted in the Stock Exchange is
one-quarter larger than it was a decade ago.


                               CHAPTER II
                            THE MARKET-PLACE


The market-place, where the dealing in this mass of securities is
carried on, is by no means of imposing appearance from the exterior
point of view. Of all the Stock Exchanges, Bourses, and Bolsas
throughout the country and the world, the London Stock Exchange makes,
perhaps, the least exterior show. The tourist often seeks it in vain,
and thousands of Londoners pass it every day without knowing that behind
the suites of offices, with their Portland-stone walls relieved by
granite, is hidden the mighty market-place. Yet, for its purposes, the
Stock Exchange, or the House, as the members and even the Rules
affectionately term it, could not be better situated. It is in the very
heart of the City. Its west door, the Capel Court entrance, which is the
most important by tradition though not by usage, faces the eastern end
of the Bank of England, and the building occupies the greater part of
the triangle which has Bartholomew Lane for its base, Throgmorton Street
for its north side, and Threadneedle Street and Old Broad Street for its
south side, the apex of the triangle being formed by the junction of
Throgmorton Street and Old Broad Street.

As to the interior, it is without form, though anything but void in
business hours. There is no trace of the triangle to the insider, the
boundary lines being broken where the surrounding offices abut, or where
they have been swept away as opportunity offered for the extension of
the Stock Exchange proper. Although the site, including the surrounding
offices, occupies some 40,000 square feet, the Stock Exchange itself is
only about half that in floor area. The whole design of the interior
architecture, Italian in style, is marked by a good deal of solidity.
The walls are for the most part covered with marble, the peculiar
veining of which suggested the title, Gorgonzola Hall, by which the
Stock Exchange is sometimes known. Massive pillars, also marble, abound.
The floor is of teak, oak, which was formerly used, having been found of
insufficient durability to stand the wear and tear of the members' feet.
The feature of the interior architecture, however, is the dome, 70 feet
in diameter and 100 feet high, covering the central octagonal area.
Beneath the Stock Exchange proper, and extending to almost the same
area, is the Settling or Checking Room, the walls of which are lined
with oak panelling and glazed tiles.

To the interior of the Stock Exchange the public is not admitted, the
authorities and the members themselves, aided, of course, by the
janitors stationed at the doors, keeping most careful guard. Many are
the stories, generally exaggerated, as to what befalls the stranger who
has the temerity and skill to pass within the sacred portals.
Occasionally, however, distinguished visitors are shown round, and the
list includes the late King Edward VII. Only once have the Managers
given permission for drawings to be made of the interior for
publication, and on one occasion photographs of the interior were taken
and sold for charity.

One of the most common remarks of the clerk who sees it for the first
time is, "How small a place!" The impossibility of taking in the whole
of the building at a glance is responsible for the false impression so
often formed by the disappointed young man newly introduced to a scene
of which he has heard so much. But to take one's stand at the Bar of the
House, which is just inside the door at Capel Court, is to obtain a much
better view than that usually offered by the waiters on effecting the
introduction of a new-comer. One is then in the Consol Market, in some
respects the most important of all, and looks right down the whole
length of the House from west to east. The vista is fine, if not,
indeed, impressive. The massive pillars, so often criticised by the
members for the loss of space they involve at their huge bases, stand
out with a certain solid grandeur, but the dome of what is still called
the New House, the most beautiful feature of the Stock Exchange, is lost
by reason of the lower roof just in front of us. On the left hand or
north side of the Bar is the Parlour, and on the right stands the
Kitchen, names handed down through decades for the two little sets of
desks on each side of the Bar. Moving forward through the Consol Market,
and slightly to the left or north-east, one passes through the Colonial
Stock and Bond Market, and stands upon the threshold of the Grand Trunk
section. It will be understood that there are no lines or barriers to
form boundaries of the various markets. When one talks of a Stock
Exchange market, he has in his mind a mere space in the Stock Exchange
near some pillar or window; or, much more likely, he has in his mind the
group of men who occupy it, dealing, or prepared to deal, in certain
securities. Generally speaking, custom alone forms the barrier between
the various departments, and the consequence is that when one particular
market attracts many members by reason of its animation, the dealers in
the busy part frequently overflow the fancy boundaries and press hard
upon the neighbouring space. Thus it often happened that the American
Railroad Market, touching the Home Railway section on one side and the
Grand Trunk section on another, overlapped the boundaries of each, and
eventually, because of the inconvenience, the home of American Railroads
had to be enlarged.

Pursuing the oblique left-handed direction of our walk through the
House--proceeding, that is, to the north-east--we pass three
markets--Home Railways on the right, Trunks on the left, and next to
Trunks, further on, American Railroads. We struggle by Banks and come
into the cosmopolitan waters of the Foreign Market, where may be heard
half a dozen different languages all being spoken at the same time. The
Foreign Market is in shape like a sleeve, and the cuff end of it leads
out to the main door of the Stock Exchange in Throgmorton Street, so
that we have traversed, roughly speaking, the north-west quarter of the
Stock Exchange. Round that door the South African Market or Kaffir
Circus seethes and squirms. First comes the Rand Mines and East Rand
division, then the gold shares to the left and the De Beers market to
the right, leading into the middle of the Gold Fields and Chartered
group, beyond which again stand the dealers in Rhodesians, each group,
of course, covering a wide variety of kindred shares. But, getting back
to the main entrance and deviating with the structure of the House a
little to the right, we leave the Deep Level section sitting round a
pillar and press on through the British Columbian lot. This market runs
along the north-eastern side of the House, and is bounded on the outside
by the spacious telephone and lavatory accommodation. The British
Columbian Market abuts on the eastern end of the Stock Exchange--the
apex of the rough triangle which is its form.

We have thus traversed the Stock Exchange from end to end through its
northern half, and turning, we proceed to traverse the southern half.
First comes the West Australian Market, which is bounded on the outside
by the Cloak Room. This market has a fine space to itself, and rejoices
in the possession of the board upon which the tape of the Exchange
Telegraph Company is displayed. On the western confine of the West
Australian Market is the Jungle, the West African Market. In busy days
the West African dealers sadly crowd the Foreign Railway Market,
standing next, and the Jungle occasionally gets mixed up with the
Electric Lighting section. We are gradually working round to our
original standpoint, and leaving the little Mexican Railway and Uruguay
Markets on the right, we press through the Miscellaneous or Industrial
Market, on towards that devoted to Indian Railway securities, which in
its turn debouches upon the Kitchen, where we started.

Of course, there are many markets one hardly notices in a hurried tour
round the House, but we have glanced at the principal. We have also
noticed here and there the boards upon which quotations are marked and
record is made of the prices at which business is done. We have also
noticed the Waiters' Stands, about twenty in number, placed in various
parts of the House, pulpit-like, or rather rostrum-like, erections, each
with its small sounding-board above, so that the important announcements
which emanate from these stands may be well heard in the House. But we
shall learn more of the uses of these internal features of the Stock
Exchange, marking-boards, waiters' stands, and so on in subsequent
chapters.

Upon this market-place something approaching three quarters of a million
sterling has been spent. It does not belong to the members as such; it
is the property of the proprietors, who, roughly speaking, must be
members of the Stock Exchange. When at the beginning of the nineteenth
century it was decided by the members of the Stock Exchange of that day
to erect a new building, some of the more enterprising of them
subscribed £20,000, and they laid the foundation-stone of the present
edifice, which has been vastly extended since and is still growing. The
share capital is now £260,000 and the debenture capital £500,000. All
new members are now required to hold one or more shares, and only
members are allowed to hold the shares except in the case of these few
proprietors who acquired them before the end of the year 1875, when a
new deed of settlement came into force. These proprietors, their
executors and legatees, may hold the shares although they are not
members, but in other cases where the shares fall into the hands of
those who are not members, or where they are in the hands of one who
ceases to be a member, they must be transferred to a member within
twelve months. Anyone, whether a member or not, may hold the debentures,
which are secured by a floating charge on the whole property, although
they carry no mortgage rights.

The proprietors of the Stock Exchange draw a great part of their
revenue, of course, from the entrance fees and subscriptions of the
members, who pay a rent, as it were, for their stands in the
market-place; and a considerable portion of the revenue comes from the
rent of the brokers' offices which form part of the building. The
interests of the proprietors are controlled by directors, who are called
Trustees and Managers. Before they can be appointed they must have been
proprietors for the preceding five years, and must hold at least ten
shares at the time of their nomination. Their task, as may easily be
imagined, is no light one. They are nine in number, as they have been
ever since the present constitution came into force at the beginning of
last century. It is theirs to provide a fitting market-place for the
important transactions carried on by the members and their clerks, who
number about 7,500 in all. To provide accommodation for such a
population, with all the requirements of ventilation, heating, and
lighting, as well as facilities for work at high pressure, which modern
business demands, would tax the organising capabilities of any body of
men. The principal officers of the Stock Exchange responsible to the
Managers are their Secretary, the Architect and Surveyor, and the
General Superintendent. It is not surprising that grumbling criticism is
sometimes heard; the matter for surprise is that there is not more of
it, especially considering the rapidity of the growth of the number of
members, and the difficulties in the way of extending the size of the
market-place. These difficulties are constantly being overcome; offices
are absorbed into the main area, corridors are swept away, the utmost
ingenuity is exercised in the creation of space.

The enlargements and alterations and the provision of facilities for
expeditious dealing and of conveniences for the comfort of the members
naturally mean a large amount of expenditure; but, in spite of this, the
Managers have always succeeded in making the market-place pay its
proprietors, and pay them handsomely. On the four hundred shares of £50
each, which formed the original capital of the Stock Exchange when it
was opened in 1802, there were no dividends for the first three years,
but then a series of annual £10 dividends set in, with the result that
within seven or eight years from the outset the whole of the capital had
been returned in dividends. Until the end of 1853 the shares remained
£50 paid, and by that time no less than £571 had been paid on each share
in dividends. As there was a £25 call in 1853, the shares became £75
paid, and in 1854 a dividend of £13 was distributed. In the following
year there was no dividend--the fabric of the Stock Exchange had been
entirely rebuilt--but a call of £25, making the shares £100 paid. On
these £100 the dividends amounted in the years 1856 to 1867 inclusive to
£192. Then in 1869 there was again no dividend, but a call of £25, and
in the next seven years, from 1869 to 1875 inclusive, the dividends
amounted to £490 10_s._, and the calls to £155. Thus, at the end of
1875, when a reorganisation of capital took place, the shares had become
£280 paid, and on each of these had been distributed £1,266 10_s._ All
this is to show that the Stock Exchange was a huge financial success
from its inception--that the market-place has paid its proprietors. By a
further reorganisation of capital the shares had become £12 paid in
1882, and in that year the dividend was £3 18_s._ It went on increasing
steadily for many years after that: £5 being paid for 1888, £6 for 1893,
£7 10_s._ for 1896, £8 for 1899, £9 for 1900, £10 for 1904, and £12 for
1905. This £12 a share has so far been the maximum rate of dividend. In
May, 1911, a call of £1 a share was made, making the shares £13 paid,
and the most recent dividend was £10 10_s._ a share. The liability on
the shares is unlimited, but no more than £2 can be called up in any one
year. The market price of each £13 share has for some time been round
about £160, whilst the 3 per cent. debentures are quoted at about 83.



                              CHAPTER III
                      THE MEMBERS AND THEIR CLERKS


So much for the proprietary of the Stock Exchange. Let us turn to the
members, those who actually deal in the market. Their number is now
about 5,000, and they are assisted by some 2,500 clerks, who also have
the privilege of entering the Stock Exchange. In spite of appearances,
no member of the Stock Exchange is a foreigner. Unless born a Briton, he
must have resided in this country for at least seven years, and must
have been naturalised for at least two years. For some years a rule was
in force that before a candidate could be elected a member, he must
serve at least two years' apprenticeship as a clerk in the House. This
was one means by which it was attempted to limit the number of members
at a time when the Managers were at their wits' end to find
accommodation. The existing members, of course, welcomed the
restriction, as it meant a limitation of competition; and, on the other
hand, this limitation can hardly be said to have been a hardship for the
public, for the number of members was by no means small, and certainly
no one who desired to enter into a Stock Exchange transaction could ever
fear that he would fail to find a broker. Moreover, the restriction was
very desirable, inasmuch as it kept out of the Stock Exchange those
adventurers who, possessing some money, or next to none, sought
membership to provide facilities for gambling, just as they might seek
membership of a baccarat club. Further, the business of a member of the
Stock Exchange is one full of intricacy, of technicality, and of
responsibility; and to enter upon it without some preliminary training,
such as the couple of years' apprenticeship as a clerk affords, is to
court disaster both for the adventurer and for those who may be involved
in his transactions.

The apprenticeship qualification has now, however, been abolished as a
necessary preliminary to membership, although four years' clerkship
(with a minimum of three years in the House itself) enables a certain
limited number of clerks each year to obtain membership on special
terms, the number so admissible being fixed each year by the Committee.
All other candidates have to comply with another formality designed to
restrict the number of members, each of them having to obtain the
nomination of a member retiring in his favour or of the legal
representatives of a deceased member. Moreover, each clerk admitted a
member on the special terms has now to buy one Stock Exchange share, and
every other candidate has to buy three shares.

It goes without saying that in the admission of members account is taken
of any previous business career that they may have had. No one is
eligible for admission who has been more than once bankrupt or
insolvent, and if he has once been proved insolvent, or has entered into
any composition with his creditors, he must before admission have paid
them in full and have obtained a complete discharge.

Then every applicant for membership, before his application can be
considered, must be recommended by three guarantors, reduced to two in
the case of candidates who have served as clerks in the House or
Settling Room for four years, of which at least three must have been in
the House. These guarantors must have themselves been members for not
less than four years, and must engage to stand surety for their nominee
in the amount of five hundred pounds each for a period of four years.
They must have personal knowledge of the applicant whom they recommend,
and of his past and present circumstances; and should he fail within the
four years, they each hand the five hundred pounds over for the benefit
of his creditors. No member is allowed to be surety for more than two
new members, and, of course, any indemnification of the guarantors by
the applicant for membership is out of the question. The guarantors have
to state that they are not indemnified and that they do not expect to
be. Should a guarantor receive indemnification subsequently, and the new
member fail, the guarantor is compelled to hand over to the creditors
the sum so received, as well as the amount of the surety. Every means is
taken in this and other ways to make sure of the guarantors being
independent of the new applicant.

Not only has the candidate for membership to find these sureties for the
protection of his creditors, and as a guarantee of his status, but he
has, of course, to pay an entrance fee and an annual subscription, all
of which money is collected by the Managers for the benefit of the
proprietors. The amount of these entrance fees and subscriptions is
varied from time to time by the Managers; needless to say, the variation
has always been in the nature of an increase. At present the entrance
fee for a member is five hundred guineas, and the annual subscription is
forty guineas.

As a matter of fact, every member is a new applicant for membership
every year, although, of course, he finds sureties and pays an entrance
fee only at the commencement of his Stock Exchange career. A little
before the 25th of March, on which day the Stock Exchange year
commences, he has to send in an application form for membership, on much
the same lines as that which has to be signed by applicants for first
admission. In the form of application with which he is provided, the new
applicant has to declare that he seeks membership in accordance with the
terms of the rules and regulations, and that he will be subject to them
in all respects; he has to give his private and office address, and the
names of his bankers, and he has to declare that he is not engaged in
any business, except that connected with the Stock Exchange, and that he
is in no way connected with any other institution in which dealings in
stocks and shares are carried on. At times there has been protest
against the stipulation that a member of the Stock Exchange shall not be
connected with any other institution of the kind. There have been
several movements for the formation of exchanges for mining share
business, and even for the establishment of rival stock exchanges, and a
year ago one of the great London newspapers established a system of
direct dealing between its readers for nominal fees.

In the form of application for either admission or readmission, there
must be stated the names of those whom the member proposes to employ as
clerks, of which he is allowed a limited number. Of course, the clerks
to whom reference is made are not mere office clerks in the ordinary
acceptance of the term. Of these a member may naturally employ as many
as he likes. But the Stock Exchange recognises a special grade of clerk,
who is granted admission to the House, and provides a rather important
element in its constitution. Each individual member may have five of
these clerks, who are divided into three classes. He is permitted to
have one who is called an authorised clerk, because he is authorised to
transact business for his employer just in the same way as the employer
himself would transact it. The authorised clerk pays an entrance fee of
fifty guineas, and an annual subscription of thirty guineas. The member
is permitted further to have two more, who are called unauthorised
clerks, because they have no authority to deal, although they have the
run of the House to convey messages and perform other similar services.
These pay an entrance fee of ten guineas, and an annual subscription of
the same amount. He is also permitted to have two Settling Room clerks,
who, unlike the authorised and unauthorised clerks, have not the full
run of the House, but only of the Settling Room, which they use in
performing the routine work of checking bargains and carrying through
the arrangements in connection with the settlement of transactions. They
pay an annual subscription of eight guineas. It is permissible,
therefore, for each individual member to have five clerks, and a firm
consisting of more than one member is permitted to have nine--two
authorised, three unauthorised, and four Settling Room clerks.

The limitation of clerks is another modern innovation in Stock Exchange
history. Before March, 1902, the limitation was not nearly so strict,
and the grade of clerk who is confined to the Settling Room, and had not
the run of the whole House, was unknown. The innovation furnishes more
evidence of the space difficulty with which the authorities of the Stock
Exchange have to contend, and ocular evidence of the same difficulty is
to be had by strangers in the vicinity of the Stock Exchange in the
large number of young men wearing the blue badge, which denotes an
unauthorised clerkship of the Stock Exchange, and the red badge, which
denotes the Settling Room clerkship. The badge is imposed as a means of
identification in connection with many complaints that arose as to
clerks loitering about the already congested markets. They are badged
and forbidden to loiter.

It is as one of these clerks that a candidate for membership can qualify
for admission on the special terms we have indicated. If the applicant
has served as a clerk for four years, with a minimum service in the
House of three years, his entrance fee is 250 guineas instead of 500
guineas, his application requires the backing of only two guarantors
instead of three, whilst the amount of each guarantee is only £300
instead of £500. As the total number of clerks employed is some 2,500,
and as there are twice as many members, it is obvious that whilst some
members and firms desire more assistance within the House, many do not
exercise the privilege of employing any clerks at all.



                               CHAPTER IV
                             THE COMMITTEE


Just as the interests of the proprietors of the Stock Exchange are in
the hands of a body of Trustees and Managers, so are the interests of
the members under the control of a Committee, which is called the
Committee for General Purposes. The Managers provide and maintain the
market-place, and thus make profit on the proprietors' capital; the
Committee presides over the dealings in the market, and, of course,
makes no profit in any way. It consists of thirty members, elected by
ballot annually. Sometimes the election is exciting, when, for instance,
the policy of the Committee on any point is questioned, but more usually
it is a very formal affair. But exciting or formal, a few of the
ballot-papers handed in by the members are, strange to say, always
spoilt. The member of the Stock Exchange is prone to give vent to his
feeling of admiration or indignation for the benefit of the scrutineers
even at the expense of losing his votes altogether.

To be eligible for the office of Committeeman, one must have been a
member for at least five years. The office is and always has been
honorary, but now and again it is suggested that the Committee should
consist, at least partly, of paid experts. Its duties are arduous, and
it frequently has to settle points of the most delicate nature, whereas
it is frequently complained that it does not consist of the best or most
experienced members of the Stock Exchange, who do not see in the honour
and dignity of the position sufficient inducement for the sacrifice of
the time its duties involve. However, generally speaking, the members
are held in high esteem, and seldom, indeed, does it occur that there is
even an expression of disloyalty to the dictates of the Committee even
on the part of those who most desire its reform.

It is questionable whether throughout the whole world any body of men so
constituted is endowed with more important functions or with more
arbitrary power. The Committee can make practically any additions to or
alterations in the code of rules, which was originally based on the deed
of settlement of the Stock Exchange. Those rules have become more
drastic than the law of the land. Practices which would be perfectly
legal, although not very reputable, constitute a contravention of the
rules of the Stock Exchange which would bring dire consequences upon any
member who indulged in them. Members have been expelled the House by the
Committee under the rules for an offence of which the law of the land
would not take cognisance. The rules of the Stock Exchange, as
administered by the Committee, are a code of honour rather than a code
of law.

In the course of administering this code of honour the duties of the
Committee become exceedingly varied. It holds an ordinary meeting every
Monday, but special meetings may be called at an hour's notice, only
seven members out of the thirty being required to form a quorum in the
ordinary way. Its fiat may go forth censuring, suspending, or expelling
a member--expulsion, of course, meaning the loss of his profession,
practically the end of his career, and probably ruin. Or its fiat may go
forth in mild protest against smoking in the House a few minutes before
the regulation time, or, as the temptations of the 5th of November
approach, appealing to members to desist from firework displays in the
House. With the Committee, of course, rest the admission and re-election
of members. It decides whether the House shall be closed on any day
except the usual holidays--there is always the excuse of structural
alterations, and, as everyone knows, building operations can be carried
on much more readily on a fine summer Saturday than during the dark
frosts of winter. It decides all disputes between members; arbitration
amongst the members themselves is encouraged, but they frequently refer
to the Committee as a last resort. From its decision there is no appeal.
To have recourse to the law courts without the permission of the
Committee--which is, of course, granted in special cases--probably means
the loss of membership by the member, who at the very outset undertakes
to submit absolutely to the Committee and its rules. The Committee may
summon any member before it and demand information; its power is
inquisitorial. It fixes the days of settlement of the various
transactions which take place in the market, and it decides what stocks
or shares shall or shall not be quoted in the Official Price List, which
emanates daily from the Stock Exchange under the Committee's
superintendence. The principal officers of the Stock Exchange
responsible to the Committee are its Secretary, the Secretary of the
Share and Loan Department, the Official Assignee, the Deputy Official
Assignee, the Manager of the Settlement Department, and the Manager of
the Buying-In and Selling-Out Department. The nature of their duties
will become clear as we proceed.

Thus it will be seen the Stock Exchange is governed under a system of
dual control--that of the Managers representing the proprietors on the
one hand, and that of the Committee representing the members on the
other. It is the system of a proprietary club. In its efforts for the
good order and government of the House, the Committee has no funds that
it can expend. It may make representation to the Managers, but it can do
no more; although there is every sign that the Managers are always
reasonably willing to accede to these representations. At the time of
the imposition upon unauthorised clerks of those badges of which mention
has been made, there was much delay in issuing them, and the story went
round that whilst the Committee had declared their necessity, the
Managers refused to advance the money to provide them. That was probably
merely a playful little suggestion, but it serves as an illustration of
the drawbacks of dual control. This dual control is, however, gradually
becoming abolished under the operation of the rule which compels every
new member to hold one or more shares in the Stock Exchange.



                               CHAPTER V
                          BROKERS AND JOBBERS


In the preceding chapters the Stock Exchange has been considered as an
institution complete in itself, rather than as an important element in
the world's business. We have obtained some idea of its constitution as
it affects its proprietors and members rather than as it affects the
outside public. The market-place and its frequenters are there, but we
have not yet seen them at work, as we shall now proceed to do.

The members of the Stock Exchange are divided into two sections: the
jobbers who are ever ready to buy from or sell to the public the wares
in which they deal, and the brokers ever ready to act as agents for the
public in their transactions with these jobbers. These brokers and
jobbers--there are twice as many jobbers as brokers--are equal in all
respects as members of the Stock Exchange; they pay the same fees and
subscriptions, and they are governed by the same code of rules,
although, of course, some of these rules are specially applicable to the
one class and some to the other. At the outset a member of the Stock
Exchange has to declare whether he proposes to act as a broker or a
jobber. He may not act as both, or what would practically amount to the
same thing, no partnership may exist between a broker and a jobber.

The system, the advantages of which are often called in question, is
peculiar to the London Stock Exchange. It does not exist in New York, or
in Paris, or in the other principal business centres of the world. It is
obvious, however, that it acts as something of a check in the interest
of the public unversed in the methods of the market. Were an outside
buyer or seller to deal direct with a market professional, he would be
entirely at his mercy, whereas by employing another market professional
to deal for him he brings into play the principle of diamond cut
diamond. It is quite easy to bid on one's own behalf in an auction room,
but it is usually found more profitable to pay a commission to someone
who knows the ropes; and the intricacies of auction buying are not to be
compared with those of transactions in stocks and shares. That, of
course, is not the only advantage of employing a broker as agent to deal
with a jobber who is a merchant. The wares of the Stock Exchange are
numerous and varied; more than four thousand separate securities are
quoted in the Official Price List of the market, and the number of
stocks and shares dealt in which are not quoted in this list is legion.
One might wander about the Stock Exchange all day, and frequent hundreds
of brokers' offices which surround it, without being able to find a
seller of the certain stock one wants to buy, or a buyer of the certain
stock one wants to sell. In the existence of the jobbers there is
organisation. They stand in their own markets waiting either to buy or
sell the few special securities in which they are always prepared to
deal. In cases where there is intimate connection between a company and
a jobber whom it employs to retail its securities, that jobber is called
"the shop" in such securities. Jobbers are often called dealers; the
broker, of course, deals in a sense, and so does the outside investor or
speculator, but the term dealer is frequently used, to the confusion of
the uninitiated, in the limited sense of being synonymous with the term
jobber.

By making a speciality of a limited number of securities, the jobber is
able to keep his finger on the pulse of the market, and to gauge
accurately at any moment its supply and demand. He must do this in his
own interest, for he must ever be ready to buy and sell at the demand of
the broker whom the public sends to him. This is compulsory under the
law of competition, for, of course although the jobber confines his
attention to comparatively few stocks, he has no monopoly; there are
other jobbers in the same market anxious to secure the orders which the
brokers bring in. The jobber obtains his supply generally by purchase in
the market, always endeavouring to charge a slightly higher price for it
than that at which he has bought it or thinks he can buy it.

Thus he is to all intents and purposes a merchant, while the broker is
an agent and an agent only, the agent of the outside public. The
outsider buys from or sells to the jobber through the medium of the
broker. The broker, except in special cases, may not do business direct
with his client, although the rule is sometimes honoured in the breach;
it is the custom of many a broker to inform the client of the name of
the jobber from whom he has bought the stock, and it is within the right
of the client even to examine the jobber's book to see that the
transaction has been properly carried through. There are, however,
special circumstances in which it is to the interest of both broker and
client that they should deal with each other direct. For instance, if a
broker, as not infrequently happens in the case of an active security,
simultaneously receives an order to sell certain stock for one client
and to buy it for another, it would obviously mean delay and expense, to
the detriment of both clients, if the broker had to go into the market
to sell the stock and to go into the market again to buy it. It is
better for all concerned that the business should be carried out as a
cross-transaction, even if in the process the broker receives a
commission from both clients, as he would if he went into the market. He
is allowed to arrange the cross-transaction, with the important
provisions that he must distinctly inform the clients of the
circumstances of the case and that he must not take commission from both
parties.

The distinction between jobber and broker was for years a source of
discussion often acrimonious in the Stock Exchange, and the
long-suffering Committee was frequently called upon to decide delicate
points arising out of the matter. The jobbers charged the brokers with
acting as jobbers, and thus competing with them in their business. You
have bought your mining shares, they said, not from us, but from a big
mining house outside the Stock Exchange. The brokers countercharged the
jobbers with acting as brokers, and thus competing with them in their
business. You receive orders direct, they said, from certain provincial
brokers who are not members of the Stock Exchange, whose business ought
to come to us. But the grounds for these recriminations have now been
removed by rules more clearly defining and separating the functions of
jobber and broker respectively. The jobber is strictly forbidden to
receive orders direct from the public or provincial brokers, and the
broker must not receive a commission from more than one party on one
transaction, and he must not execute an order with any non-member unless
he can thereby deal to greater advantage than with a member.

The existence of the brokers as part of the system prevailing in the
Stock Exchange is justified, not only by the fact that they are
experienced in making the best terms with the jobbers, and by the fact
that they are able to go direct to the market and the man who will at
once buy or sell any one of the thousands of securities ranging from
Consols down to Klondyke mining shares, but also by the fact that they
perform many services of a somewhat intricate and technical nature
connected with the buying and the selling. Transfers of inscribed stock
have to be explained, and the client has to be identified at the bank,
share certificates have to be obtained and delivered, arrangements have
to be made for carrying over shares when a client does not desire to pay
for them at the time of settlement, other detailed duties of the kind
have to be performed, and, above all, the broker is frequently called
upon to give expert advice as to investments and speculations, and to
keep the client informed as to when to buy or sell. It may take days of
watchfulness and inquiry to execute a single order when the client fixes
a limit, that is, when he gives an order to purchase not above a certain
price, or to sell not below a certain price.

For all this the broker receives a commission which must not be less
than a scale laid down by the Committee. In the case of British and
India Government securities, the scale is 2_s._ 6_d._ per cent. on the
nominal value of stock bought or sold; for Bank of England and Bank of
Ireland stock it is 5_s._ per cent. on the actual money paid or
received; for British and other Corporation stocks and Colonial
Government securities and for American and foreign railroad bonds, 5_s._
per cent. on the nominal value; for foreign Government bonds the rate is
2_s._ 6_d._ on the nominal value; for railway ordinary and deferred
ordinary stocks the rate varies from 1/16 per cent. on the nominal value
when the price is under £25 to 1 per cent. on the nominal value when the
price is over £200; for other registered stocks the rate is 1/2 per
cent. on the money. In the case of shares, the commission varies from
1-1/2_d._ to 2_s._ 6_d._ per share, according to the nominal value of
each share, when the value is less than £25; for shares of the nominal
value of £25 each or over, the rate is 10_s._ per cent. on the actual
money. In the case of transactions over £1,000 the broker may charge
half these rates. All these, of course, are minimum rates. There is
nothing to prevent the broker charging more, if he can get it, but in
practice the minimum has become the recognised scale.

Strictly speaking, the broker lives on these commissions, though, of
course, his intimate knowledge of the market affords him special
facilities for speculating and investing on his own account. He must
not, however, it may be repeated, deal with his own clients; directly he
buys or sells for himself he becomes a principal, and is not in that
connection a broker at all. Moreover, he must not arrange with the
jobber to whom he takes the business for part of the profit which the
jobber makes. In the eye of the Stock Exchange, such collusion between
broker and jobber would be regarded as dishonesty of the grossest
nature, and would probably result in the instant expulsion of both the
parties concerned. As a matter of fact, however, the broker frequently
divides the commissions with an outside runner or with a member of his
staff who introduces the business, although he is strictly forbidden to
enter into partnership with one who is not a member of the Stock
Exchange.

An adventitious source of income which the broker enjoys arises from the
formation of new companies and the flotation of loans, especially large
loans issued by the Government and municipal bodies. The broker is
called upon to circulate the prospectuses amongst his clients; he stamps
his name upon each application form, and the issuing house pays him a
commission upon all allotments made to his clients. He may even
underwrite loans or share issues--that is, undertake to subscribe for a
certain amount, should the public refuse to come in. This he does in
return for a commission, or some other consideration, which is paid
whether he is called upon to take up his proportion of the issue or not.
It is to the interest of the loan issuers and the company promoters to
make sure, in this way, that their capital shall be all taken up. Some
promoters boast in their prospectuses that the issue they are making has
not been underwritten, implying, of course, that the issue is so
attractive that they are sure the public will take it up. But in these
cases the truth sometimes is that the issue is not underwritten simply
because nobody can be induced to underwrite it.

Although the broker may, by the circulation of prospectuses, give a
gentle hint to his clients that there is business afoot; although,
indeed, he may, and in many cases does, send them circulars, and price
lists, and newspapers every night; it is only amongst his own clients
that he is allowed to advertise in this or any other way. He usually
keeps this rule most rigidly, in the spirit as well as in the letter,
and he is aided in so doing by the watchfulness of the Committee. For
this reason, some members of the Stock Exchange--for the rule against
advertising applies to the jobber as well as to the broker, although the
jobber has naturally less temptation to advertise--show much repugnance
even to their names appearing in the newspapers in any connection
whatever, though it may be quite apart from business, and some are even
chary of announcing a mere change of partnership, or a removal of
offices, lest it might be construed as an advertisement.

Meantime, brokers who are not members of the Stock Exchange--outside
brokers, they are called--flood the newspapers with advertisements of a
description so flaring as to rival or surpass those of the patent
medicine vendors; and partly to counteract the competition thus arising,
the Committee of the Stock Exchange has a standing advertisement in all
the principal papers announcing that members of the Stock Exchange are
not allowed to advertise, that those who do advertise are not members of
the Stock Exchange, and that lists of those members who are brokers--it
is no use furnishing the public with the names of the jobbers--may be
obtained from the Secretary on application. A list may also be seen at
one of the entrances of the Bank of England--a relic, perhaps, of the
time, when the Rotunda of the Bank of England was practically a Stock
Exchange. There are a few firms of outside brokers of the highest
standing, possessing businesses superior in magnitude and status to
those of the great majority of Stock Exchange firms. Such firms as these
in former years brought a considerable volume of business to the Stock
Exchange itself, obtaining orders from their clients by more
enterprising methods than the members themselves were permitted to
employ under their rules, and passing the business on to brokers who
were members. In its stringent rules regarding brokers' commissions,
however, the Stock Exchange Committee has now practically abolished this
practice by specifically penalising outside brokers.

All outside brokers, of course, are unchecked by the healthful
restraining control of the Stock Exchange Committee; they are
responsible to none but themselves. Their ranks unfortunately contain a
large number of rogues and vagabonds. As they deal direct with their
clients instead of for them, their clients' losses are their own gains;
often they do not deal at all, but only bet with their clients on the
rise or fall of prices. When they lose they refuse to pay, and on being
taken into Court plead the Gambling Acts to relieve them of their
liability. Cases are constantly occurring in which they show less
honesty even than this; they simply make off with any money with which
people may have entrusted them. As a rule, the advertising outside
broker is to be avoided.



                               CHAPTER VI
                       HOW BUSINESS IS TRANSACTED


When the broker, armed with his client's order, goes to the market in
which it can be executed, and confronts the jobber with whom he usually
deals because he finds he does his business best, he asks the jobber to
make him a price in the stock concerned. He does not say he wants to buy
it, for that would tempt the jobber to make the price high; he does not
say he wants to sell it, for that would tempt him to make it low. The
jobber would not, of course, give an out-of-the-way quotation, for the
broker knows the market price almost as well as he does, but he might be
tempted to vary the price by a fraction. As it is, the jobber names two
prices, one at which he will sell and one at which he will buy. Suppose
it were the Deferred Stock of the Midland Railway Company, the jobber
might quote 69-70, meaning that he would buy the stock at 69 or sell it
at 70. The broker would probably think that this price was too wide and
might say so, implying that the jobber ought to be prepared to buy at a
higher price and sell at a lower one. There are jobbers standing near
who would like the business and who would make a narrower price. At
last, without much haggling, for there is little of that in the Stock
Exchange, the quotation 69-3/8-69-5/8 may be obtained. The broker need
not have to ask for the price at all, the jobbers may be shouting that
they are willing to buy or sell at a certain price, or that they are
willing to deal either way. At all events, the broker being content with
the quotation 69-3/8-69-5/8, and being commissioned to buy, informs the
jobber that he buys so much stock from him at 69-5/8.

It is possible that the jobber would rather have bought, but once having
made the price, he must, of course, carry out the transaction. When the
broker confronts him, he may say he is only a buyer or only a seller of
Midland Deferred, but of course, in refusing to deal either way he risks
losing the order. Or he may make a price so wide, especially in a stock
in which there is not a free market, as to protect himself amply. For
instance, while the jobber was quoting 69-3/8-69 for Midland Deferred in
the Home Railway Market, another jobber in the Foreign Market may have
been quoting 74-78 for Servian Bonds. He would not buy them from the
broker's client at a higher price than 74, and he would not sell them at
a lower price than 78. Such a quotation provides an ample margin for
what is called the jobber's turn, that is, the profit he expects to make
by buying and selling the same stock, as a merchant. Wide quotations,
which prevail in stocks that are not often dealt in, and even in stocks
that are in times of panic, merely mean that the price the client has to
pay is high, whilst the price he will receive for the same stock is low.
The more enterprising the jobber, the narrower the prices he will make.
Of course, in making a price the jobber does not undertake to deal in
any abnormal amount of stock. There are limits which are understood
where the broker does not state the amount in which his client desires
to deal. In the case of our Midland Deferred Stock, a thousand pounds'
worth is understood when no amount is mentioned.

However, when the broker signifies that he has bought the stock, nothing
in the way of a voucher passes between him and the jobber. The
transaction may be completed with a nod, the bargain is jotted down by
each party in their respective dealing books, and one of them may,
indeed ought, to mark the price at which the business has been done on a
board provided for the purpose, so that it may appear in the next
edition of the Official List issued to the public. It is very seldom,
however, comparatively speaking, that the price is thus recorded.
Indeed, it is said that many members only record it when they feel they
have made a bad bargain, and want to convince the outside client that
the stock has actually been dealt in at that price. Probably, however,
the omission to mark business done merely arises from a desire to save
time and trouble, and it might occur less frequently if arrangements
were made to obviate the necessity of walking a considerable distance to
one of the boards provided. The bargain is not checked until the next
morning, when, in the room below the Stock Exchange, the clerks of the
jobbers and brokers meet for the purpose.

The first official intimation the client receives that his order has
been executed is the receipt from his broker of a contract note. This
contract note bears the date of the transaction, the name and address of
the broker, and the statement that the amount of stock has been bought
at the price named. To the amount payable by the client for the stock is
added the amount of the broker's commission, called brokerage, and an
item comprising the amounts payable for Government stamp duties and for
registration in the books of the company. The Government stamp duties
are: first, the amount payable on the contract--sixpence on all sums
between £5 and £100, 1_s._ from £100 to £500, 2_s._ from £500 to £1000,
and so on, according to a sliding scale, up to £1 for transactions
exceeding £20,000; and secondly, the tax on the conveyance of ownership,
which is at the rate of sixpence for every £5 up to £25; then 2_s._
6_d._ for each additional £25 or part up to £300; 5_s._ for every
additional £50 or part of £50 afterwards. The registration fee is
charged by the company for the trouble of registering the name of the
buyer in its books, and varies somewhat, but is usually half-a-crown.
The contract note also reminds the client that the transaction is
subject to the rules, regulations, customs, and usages of the Stock
Exchange, and it sets forth the date when the money is payable--the date
of the Stock Exchange settlement.

Until the time of settlement arrives, the client enjoys credit. Although
he is not really the holder of the stock until he has paid for it at
settlement time and received the certificate, he could sell it if the
price rose and pocket the profit--by the way, his broker would charge
him only one commission, for both buying and selling, if he sold the
stock, which he had bought, before the settlement day arrived. The
credit might extend over a fortnight if the stock were bought
immediately after a settlement, or it might extend for only a day or two
if bought immediately before a settlement. At all events, the buyer is
in practical possession of the stock for some time before he pays for
it, and that is why a broker requires an introduction with proper
references, and, perhaps, even security, before he will enter into
transactions for an unknown client. Cases have been known of people
buying stock and carrying out the bargain faithfully, provided they can
sell it at a profit before Settlement day arrives, and thus receive a
cheque through the broker; whereas if Settlement day arrives before the
price has risen, the buyer has vanished.

Another reason why a broker requires an introduction and references is
because of the salutary Stock Exchange rule forbidding him to transact
speculative business for any who are not principals without the
knowledge of their employers. He may deal for such if they pay cash
either with the order or when Settlement day arrives and take up the
securities; but he may not aid them in transactions undertaken merely in
the hope of snatching a profit by the sale of stocks and shares before
they have been paid for. He may not carry over bargains for them from
settlement to settlement in a manner which can be explained now that we
have arrived at the question of Stock Exchange settlements.

If the client does not desire to carry over, the end of the transaction
is promptly brought about. When settlement time arrives, the member who
has bought the stock has to pass to the seller, on Ticket or Name day, a
ticket bearing the name of the transferee and stating the name of the
member who pays for the stock. Reference will be made later to the
settlement and its three days. This passing of the ticket is the first
step in the completion of the bargain, enabling the seller to see to
whom he has to look for the money. If he does not receive the ticket by
a certain fixed time--the hour differs in accordance with the nature of
the security being transferred--he can have the stock sold out through a
special official of the Stock Exchange; that is, he can find another
buyer of the stock to replace the one who has not come forward, and the
delinquent buyer has to make good the expenses and any loss arising from
the process of selling out.

However, the ticket having been passed in the ordinary way, our buyer of
Midland Deferred receives from his broker at settlement time a transfer
form signed by the seller of the stock. This form, in which the deed of
transfer is executed, varies according to the regulations of the
particular company whose securities are concerned. But most companies
now adopt what is called the common form. The terms of the form are
quite simple. The transferor agrees, in consideration of a sum
mentioned, to sell to the transferee so much stock or so many shares in
the undertaking named, and the transferee agrees to accept them, subject
to the conditions on which they were held by the transferor. Both
parties have to sign and seal the document. One main object of having
the signature of the transferee is, of course, to place on record his
acceptance of liability for any uncalled capital which may be attached
to the shares. The duty of preparing the transfer form falls upon the
seller or his broker, and it may be pointed out that the consideration
money named in the deed, as paid by a buyer, is by no means necessarily
the price the seller will receive; the stock may have changed hands over
and over again at different prices, and the amount mentioned is that
paid by the ultimate buyer. It is inserted in the deed because the law
requires that the stamp duty shall be assessed on this amount. For the
benefit of the seller who may be unaware of the reason why he is
required to put his signature to what appears incorrect, a note is
usually appended to the ordinary form of transfer explaining this fact.

Having prepared the deed and obtained his client's signature thereto,
the selling broker proceeds to hand it, with the seller's stock or share
certificate, to the broker of the ultimate buyer, and if these documents
are duly delivered on Settling day, or within the ten days' grace
allowed thereafter, the buyer is bound by the rules of the Stock
Exchange to complete his bargain by handing over the agreed purchase
money. But it sometimes happens that a stockholder has a certificate for
a larger holding than the amount he is selling, and may not therefore
care to part with his certificate. Having sold only part, he prefers not
to give up, even temporarily, the whole. In this case, his broker,
before parting with the transfer, will forward it with the certificate
to the secretary of the company, who will then make a note on the
transfer to the effect that a certificate for stock to the amount
mentioned in the transfer has been deposited at the company's office,
and will forward to the seller a certificate for the balance of his
holding. There are, however, some companies which refuse to certify
transfers in this way, in which case the duty will be undertaken by the
Secretary of the Share and Loan Department of the Stock Exchange, if the
original stock certificate is forwarded to the company through him. This
certification of a transfer, either by the secretary of the company or
by the Secretary of the Share and Loan Department, is by the rules of
the Stock Exchange a valid substitute for the certificate itself.
Although, as far as the seller is concerned, the formalities just
mentioned constitute a valid delivery of the stock, the buyer does not
legally possess the stock until his title has been recognised by the
company. Having properly signed and sealed the transfer form, the buyer
sends it through his broker to the office of the company for
registration, with the stock certificate, unless that has already been
forwarded. In due course he will receive from the company, through his
broker, a stock certificate acknowledging that he has been registered in
the books of the company. He is then the holder of the stock he has
bought.



                              CHAPTER VII
                             THE SETTLEMENT


Although in some cases Stock Exchange transactions are done for money
and settled by immediate transfer or delivery of securities in exchange
for payment, the vast majority of bargains are made for the current
account and arranged at the next settlement. The Stock Exchange
settlement extends over three days, and at one o'clock on the first of
the three--one o'clock in theory, but earlier in practice--the old
account ends, and business subsequently transacted falls into the new
account. The length of an account is generally about a fortnight, a
settlement occurring about the middle of each month and again at the
end. But British Government securities and India stocks are not dealt
with at the general fortnightly settlement; they have a special
settlement of their own, the Consol settlement, occurring once a month,
about the beginning.

In the course of each settlement there are three distinct operations, to
each of which is devoted one of the three days. The first day is
Contango or Making-up day, the second is Ticket or Name day, and the
third is Settling or Pay day. For shares dealt with in the Mining Market
there is an additional Contango day, on the business day preceding the
commencement of the settlement in other securities, making the mining
settlement actually extend over four days. If the business day should be
a Saturday, then the Friday is the additional Contango day, so that the
mining settlement extends over six days.

Contango day is the day on which members, who wish to postpone
settlement of their bargains, carry them over to the following account.
On the next day, Ticket day or Name day any member who intends taking up
registered securities that he has bought during the account, has to hand
to the member from whom he made the purchase a ticket bearing the amount
and name of the security bought; the name, address, and description of
the transferee, that is, the buying member's client, the price, and the
date and the name of the member to whom the ticket is issued. This
ticket is really a demand for the due delivery of the securities
purchased. Now it often happens that the member to whom this ticket is
handed is not in possession of the securities he has agreed to deliver,
having bought them during the same account from some other member. In
this case he endorses his seller's name on the ticket and passes it on.
The ticket thus gets handed on from seller to seller until it ultimately
reaches the member whose client actually has the securities and intends
to deliver them.

This process of passing tickets is greatly facilitated by the operation
of the Settlement Department or Clearing House. It is not every member
of the Stock Exchange who belongs to the Clearing House, nor is it every
security that enjoys the benefit of its operations. But in cases where
it can be used, this is the process. On Contango day each member
prepares a "clearing sheet" for each security in which he has dealt.
This sheet may, of course, show many sales and many purchases, each to
or from a different member, but all that the member who has prepared the
sheet has to concern himself about--in so far as the securities are
concerned, and it should be noted that the Clearing House only clears
securities, not money--is the delivery or receipt of the difference
between his sales and his purchases; the Clearing House does the rest.
If, for instance, a member's sheet shows that he has bought a total of
£6,000 of a certain stock, no matter in how many different bargains with
different members, and has sold £5,000; then, instead of a separate
ticket having to pass through his hands for each separate bargain, the
Clearing House discovers from the other sheets some member who has sold
£1,000 more than he has bought of the particular stock in question. The
passing of the stock is then adjusted by bringing these two members
together. The way in which all bargains which come within the Clearing
House are cleared off can be easily grasped when it is recognised that
for every bargain there are both a buyer and a seller. But the Clearing
House has nothing to do with the adjustment of the different prices at
which securities are bought and sold. In fact, all bargains dealt with
by the Clearing House are passed through the accounts at a fixed price,
the "making-up price," and the securities have to be paid for at that
price. The settlement of differences has to be arranged in the accounts
between member and member, and this brings us to the business of the
last day of the settlement, Pay day, the real day of settlement.

On this day all differences have to be paid, and all members who have to
deliver securities must be prepared to hand them over in exchange for
payment, although in the case of registered securities a further period
of ten days is allowed for delivery. Now it is laid down as a rule of
the House that all differences must be paid by a cheque on a bank which
is a member of the Bankers' Clearing House. By this rule it is secured
that every member has both to pay and receive differences at the same
time, and the differences which a member receives are directly pledged,
as it were, for payment of those he has to give. No grace is allowed for
payment of differences, and a member who is unable to meet his
engagements is at once declared a defaulter. In the case of the delivery
of securities, ten days' grace is allowed after the settlement, as has
been mentioned. When a seller has not within the ten days delivered the
securities he has sold, the purchaser can have an equal amount of the
same securities bought in by an official of the Stock Exchange. This is
done by open auction in the House at the lowest price at which the
securities are offered. The seller who has failed to complete his
bargain has, of course, to bear any expense incurred, and has to pay the
difference if the buying-in price exceeds the price of the original
bargain. Conversely, as we have seen, when a member who has sold stock
does not receive for some reason or other a name into which to transfer
it within the appointed time, he may resort to the process of selling
out.

This outline of the procedure at a settlement is a general one, and
applies to the bulk of Stock Exchange bargains. It has exceptions,
however. For instance, securities to bearer are dealt in without any
passing of tickets. But the main principles remain the same in all
bargains done for the account; and it needs no further explanation to
demonstrate how greatly the fixed fortnightly settlement facilitates
Stock Exchange transactions. Briefly it means that all sellers of stock
agree to deliver on the same day, upon which the buyers are prepared to
take it up and pay for it; and that when there have been many dealings
between members in the same stock, it is only the balance that has to be
transferred.

Bargains in the scrip and securities of a new loan or company are
consummated at what is called the "special settlement." Members of the
Stock Exchange can buy and sell between themselves and outsiders to
their hearts' content, but although there may be mutual arrangement for
payment of money and delivery of stock, from the point of view of Stock
Exchange law no payment need be made and no shares delivered until the
special settlement. The Stock Exchange Committee appoints the special
Settling day on the application of members interested in bringing about
a completion of the bargains. Before it will fix the day, the company,
the bargains in whose shares have to be settled, has to comply with
certain formalities to the satisfaction of the Committee. The Committee
requires certain documents showing that the company has been
incorporated, on what terms the shares have been issued, how many have
been issued to the public in proportion to the amount of the company's
capital, and so on. It has also to be shown that the share certificates
have been issued, or that they are, at least, ready for issue, for
obviously it would not do to compel the delivery of and payment for
share certificates which have not yet appeared.

The formalities seem simple enough, and yet there is very frequently
considerable delay, giving rise to much protest, in the granting of a
special settlement. In the majority of cases, this delay seems to arise
from the desire of some of those connected with the company to put off
the day of reckoning. They may have been buying the shares heavily in
order to make the company cut an attractive figure in the public eye at
its outset, and may not be over-anxious for the settlement day to arrive
before they have had an opportunity of unloading the shares they have
bought. At all events, the difference between the long time it takes to
obtain a special settlement in the shares of some out-of-the-way mining
company, and the short time it takes to obtain one in the case of some
great Government loan not subjected to manipulation, is often
remarkable. Generally speaking, bargains in the shares of new companies
and loans are done for the special settlement, and if no special
settlement is granted, these bargains are off; but the instances in
which the Stock Exchange Committee refuses a special settlement are very
rare indeed. When once a special settlement has been granted and taken
place, bargains in the securities are settled at the ordinary Stock
Exchange settlements as they occur; in fact, a special settlement is
merely a first settlement.

The special settlement is a necessary preliminary to official quotation,
the formalities in connection with which are explained in a subsequent
chapter. As will be seen, only a small proportion of the securities in
which transactions occur are officially quoted, but no official
quotation is granted until after the special settlement has taken place.



                              CHAPTER VIII
                        THE ZOOLOGY OF THE HOUSE


In the discussion of the settlement, mention has been made of those who
do not desire to settle as the time comes round. These are mainly Bulls
and Bears. To use the time-honoured definition, the Bull is one who buys
what he does not want, and the Bear is one who sells what he has not
got. The terms were used in their Stock Exchange sense long before the
Stock Exchange came into existence--a hundred years before, in fact. At
all events, they were in full use when the eighteenth century was in its
teens, when dealers in stocks and shares were wandering homelessly about
Change Alley. This is shown by the literature of the time. And soon
after the middle of the eighteenth century we find Horace Walpole
writing to ask a political friend if he knew what a Bull and a Bear and
a Lame Duck were. "Nay, nor I either," wrote Walpole, anticipating the
answer, "I am only certain they are neither animal nor fowl, but are
extremely interested in the new subscription."

Walpole seems to have been a little weak in his Stock Exchange zoology.
It was more probably the Stag rather than the Bull or the Bear who was
interested in the subscription of the Government loan which he had in
hand. It is the Stag who applies for an allotment of a promising new
loan when it is issued, in order that he may sell it immediately for a
profit. The ordinary applicant who is not a Stag applies for it, of
course, to keep as an investment When the loan is likely to be in great
demand, the Stag frequently applies for an allotment infinitely larger
than he could possibly pay for. He assumes, generally correctly, that he
will be allotted only a small proportion of his application and, if he
can sell at a premium, the more he is allotted the better he likes it.
The existence of the Stag explains the apparent anomaly of a steady
decline in the price of a loan soon after it is issued, although at the
time of issue the demand was enormously in excess of the supply. A loan
may be subscribed thirty times over, and yet within a few months of its
issue may be bought in the market at a lower price than that at which it
was obtainable by subscription. The fall is caused, of course, by the
steady selling of the Stags, who created a fictitious demand.

However, it is easy to answer Horace Walpole's question as to what
constitutes a Bull and a Bear. The Bull buys stock that he does not
want, in the hope that he will be able to sell it at a higher price
before it comes into his possession, pocketing the difference. The Bear
sells stock that he has not got, in the hope that he will be able to buy
it at a lower price before he has to deliver it. The Bull is optimistic,
he believes the price will rise; the Bear is pessimistic, he believes it
will fall.

If the advance which the Bull desires has not occurred before the time
of settlement arrives, he would be in a quandary but for the
organisation which exists in the Stock Exchange to meet his case. Having
bought what he does not want, he certainly does not desire to pay for
it, and he is enabled, instead of so doing, to continue his bargain. The
actual process of arranging this consists in selling out the security
and then repurchasing it, both the sale and the repurchase being
effected at the "making-up price" already mentioned--it is fixed at each
settlement by the Clerk of the House, in accordance with certain rules.
In the case of the British Government, Indian, Corporation, and Colonial
Government inscribed stocks, it is the average price ruling during
certain hours of the settlement; in the case of other securities, it is
the actual market price at a defined moment. If the making-up price is
lower than that at which the Bull purchased, he has, of course, to pay
the difference, besides certain charges, mentioned presently. In the
case of the Bear, having sold stock he has not got, he certainly does
not desire to deliver it at the settlement, and just like the Bull, he
is able to continue his bargain. If, in spite of his desire, the price
of the stock has risen, he has to pay the difference between the price
at which he bought and the settlement making-up price, and further, to
enable him to go on to the next settlement, he has, as it were, to
borrow the stock.

It is obvious that a purchaser who carries over his bargain gains
considerable advantage by being allowed to defer payment for the
security purchased until the following settlement, and for this he has
to pay a rate known as "contango." This rate is quite distinct from the
difference which he has to pay if the making-up price at which he sold
out, in the carrying-over arrangement, is less than the price at which
he originally purchased the security. The contango rate is sometimes
referred to as a rate of interest, but it is not wholly in the nature of
interest; for the carrying over does not consist simply in deferring
payment of the purchase money, it also postpones delivery of the stock.
Moreover, it sometimes happens that the security is in such short
supply, that instead of receiving a rate from the purchaser, the seller
is prepared to give some consideration to the purchaser. This
consideration, the allowance made by the seller to the purchaser, is
known as "backwardation" or "back." If the demand of the buyers for
loans to pay for the stock they have bought is balanced by the demand of
the sellers for the same stock which they have undertaken to deliver,
there is neither a contango rate nor a backwardation rate. Neither
buyers nor sellers of that stock have to pay anything for carrying over;
the rate is called "even."

Without the Bulls and Bears, life in the Stock Exchange would be a dull
affair, for the anxiety that stocks and shares should rise and fall
within a short period, before too many rates have been paid, naturally
leads to excitement, and undoubtedly causes the promulgation of many
rumours and the exaggeration of actual news. The very existence of a big
Bull account, or of a big Bear account, naturally has a most important
effect upon the market--the former in weakening it, and the latter in
strengthening it. Every Bull is, of course, a potential seller, and
every Bear a potential buyer. While the Bulls are buying prices may
rise, and while the Bears are selling they may fall; but the time comes
when their operations, however successful, have to be completed, and the
movement in the opposite direction naturally sets in. Good news is
frequently followed by a sharp relapse in prices, because of the selling
by Bulls anxious to take advantage of it. Bad news is frequently without
effect, or followed by a rise, because the Bears see their opportunity
of buying back the stock they have sold, and thus support the market.
Thus it comes that the rates at the settlement are eagerly watched, that
some indication may be obtained as to whether a Bull account or a Bear
account exists.

The Bulls may have it all their own way, and by concerted action, called
a "Bull campaign," by the dissemination of stories favourably affecting
the stock--true, half-true, or untrue--may bring about a "rig." This,
however, is a condition of the market the artificiality of which becomes
very evident when the time for selling sets in. Unless the delicate
position is managed with extreme skill, there will be left after the
unloading a residue of Stale Bulls--Bulls who are compelled to close
their accounts at a loss. On the other hand, the Bears may have it all
their own way. By concerted action they may "bang the market," indulge
in a "Bear raid," and bring prices down to a level much lower than is
warranted by the intrinsic merits of the security which they have
attacked. The talk is all gloom. At the end of the raid, however, the
position of the Bear is an exceedingly dangerous one; he may find it
impossible to obtain the stock which, having sold, he has undertaken to
deliver. Prices begin to rise again, and the "Bear covering," or buying
back, only enhances the upward movement. In time it may become
impossible to buy back at any price; there is no stock obtainable; the
Bears are "cornered." Unless a Bear so situated can make terms with the
one to whom he has sold the stock, or with someone who will let him have
it, he stands in the position of one who cannot meet his engagements,
or, to use another term of Stock Exchange zoology, applied to all
members struggling against imminent difficulties, he is a Lame Duck.



                               CHAPTER IX
                             OPTION DEALING


There is a class of business, in which some freely indulge on the Stock
Exchange, which, if transacted cautiously, results in the limitation of
losses, whilst providing full scope for Bull and Bear proclivities and a
great deal of fascination for the skilful operator. This class of
business is called option dealing, and although it is not practised to
nearly the same extent as is ordinary speculative buying and selling,
perhaps because of its intricacies, the fact that it is full of
fascination attracts to it many staunch votaries. There are some jobbers
in each market who lay themselves out specially to do option business.

Options are of three kinds. In the case of the put option, the operator
buys the right to sell so much stock on a certain day at a certain
price; in the case of a call option, the operator buys the right to buy
so much stock on a certain day at a certain price; and in the case of a
double option, or a put-and-call option, the operator buys the right
either to buy or sell so much stock on a certain day at a certain price.

For instance, let us suppose an operator believes that the price of
Consols, at the moment 91, is not justified. He thinks it will fall. He
decides to indulge in a put option. He buys the right to sell £10,000
worth of the stock at the end of next month at the present price of 73.
Believing that it will have fallen by that time, he sees the chance of
buying it for less and making a profit by selling it at 73. For the
option, the right to sell, he would probably have to pay about 10_s._
per cent. If at the end of next month, when the option has to be
declared, Consols have fallen to 71, he can obtain his £10,000 worth for
£7,100, and exercise his option to sell them for £7,300, thus making a
profit of £200 less the £50 he paid for the option and the broker's
commission of about £12 10_s._ The utmost he could lose by the
transaction would be the £50 plus commission paid for the option, which
he would, of course, not have exercised if the price movement had not
been such as to produce a profit. However much the stock might have
risen against him, he could not lose more than that £50 plus commission.
If in his belief that Consols would fall he had sold them as an ordinary
Bear, not taking advantage of the option system, there would, of course,
have been no limit to the possible loss, which would have been measured
by the extent of the rise of the stock. If it had risen 2 instead of
fallen 2, he would have lost, not £50, but £200 besides expenses.

From this brief outline of the operation of a put option, it is quite
easy to grasp what occurs in the case of a call option. As a matter of
fact, call options are much more frequently entered upon by the public
than are put options, for the same reason that the public are far more
frequently Bulls than Bears. Perhaps it is the optimism of human nature
that accounts for this, or perhaps it is the fact that to buy is more
natural than to sell, especially when the operator has got nothing to
sell. Whatever may be the explanation, some of those who are frequently
Bulls themselves regard with horror anything in the nature of a Bear
transaction. They buy what they do not want without turning a hair,
whilst denouncing as a speculator, dangerous to himself and the
community, one who sells what he has not got. They may exercise their
judgment in selecting stocks and shares that will rise, but consider it
heinous to select those which are likely to fall. In fact, to some minds
such selection is tantamount to knocking down the price, to the severe
loss of those who hold the securities. We are always hearing of the
wicked Bears, but never of the wicked Bulls. In a hazy kind of way,
indeed, the Bull with his optimism is supposed to perform a public
service. These ideas are perhaps not very sound, but they are at all
events natural. All that, however, is a subject for the metaphysician;
it suffices here to remark that just as Bull operators are more popular
than Bear operators, so are call options more popular than put options.
In the case of the call option, the one who buys it thinks the price
will rise, and for that reason purchases the right to buy the stock at
the existing price some time hence. If he is right he can, when the
option period expires, sell the stock at a higher price than that at
which he can call it. If he is wrong, and the stock falls, he has only
to sacrifice the money he has paid for his call option. However far it
may have fallen, he loses no more.

In the case of the option for the put-and-call, the operator buys the
right either to sell or buy the certain amount of stock at a certain
price on a certain future date. Such options are generally arranged in
stocks of a widely fluctuating nature, and the operation partakes more
of a gamble, a mere betting upon chance, than do either put options or
call options. In these cases the operator has at least an opinion or a
belief upon which he lays out his money: in the one case he thinks the
stock will fall, and in the other case that it will rise. But in the
case of the put-and-call, the only opinion he has is that it will move
somehow; he does not know or care which way it moves, provided it moves
far enough to show a profit over the amount he has paid for the option.
The only question involved is as to whether the price will move widely
enough.

If, when Consols are 73, he pays 1 per cent. for a put-and-call option
on £10,000 for the end of next month and they rise 2, he can sell them
for £7,500; exercise his call, which, with the price he has paid for the
option, cost £7,400; and pocket the profit of £100 less the commission
of £12 10_s._ which he pays his broker. If during the option period
Consols fall 2, then he exercises that part of his option which enables
him to put them upon the jobber, and pockets a similar profit less the
similar commission which he pays his broker. If Consols during the
period of the option do not move sufficiently either way to make it
profitable for him to exercise his double option, then he loses the £100
he has paid for it and the broker's commission.

The price at which the operator has the option to buy or sell at the end
of the option period is the price at which the stock stands at the time
the option is bought. Of course, special arrangements may sometimes be
made, but that is the rule. Such being the case, the price payable for
an option to call is always exactly the same as the price for an option
to put, and the price for a put-and-call option is always double the
amount. At first sight it might appear strange that this is so. The
jobber, when confronted with the name of any one stock, might be
imagined as demanding a much higher price for the call than for the put,
if he is of opinion that the price will rise. As a matter of fact,
however, if the jobber were really of that opinion, the price of the
stock would immediately be put up. In other words, current prices are an
exact expression of market opinion. There is no more reason why a jobber
should make the price of a call option in any one stock higher than the
price of a put option than there is for his going into the market and
buying heavily. If he did, the price would rise; he does not because he
thinks that the price is at a fair level, and being at a fair level, is
just as likely to fall as to rise. As the price is the basis of the
option operation, he charges exactly the same for taking the chance of
its rising as of its falling. It is no more reasonable to ask why the
jobber does not make the price of the call option higher than the price
of the put option than it is to ask why he does not go buying; and it is
no more reasonable to ask why he does not make the price of a put option
higher than the price of a call option than to ask why he does not go
selling. The market invariably puts the price of a stock at the exact
level which it thinks it is worth, which means that, in the market's
opinion, it is just as likely to rise as to fall, and for that reason
the price for a put option is the same as that for a call option.

What determines the price of an option is not, therefore, the likelihood
in the mind of any one person of its rising or of its falling, but the
probability of its moving widely in either direction. The price payable
for an option on stocks which fluctuate widely is much higher than upon
those which are steady, moving within very narrow limits. For instance,
whereas 10_s._ per cent. has been mentioned as an ordinary price for an
option on Consols, the price for an option on some American railroad
shares would be £4 or £5. As the price of the option depends upon the
extent, not the nature, of the fluctuation, it is naturally affected
also by the duration of the period over which the option extends. The
longer the period, of course, the higher the price. The Stock Exchange
Committee does not recognise any bargain, option or otherwise, which
extends for more than two accounts beyond the one in which it is begun,
which would mean about six weeks at the most; the law of the Stock
Exchange evidently aiming at prompt settlement of transactions. The
fact, however, that options for longer periods are not officially
recognised by no means implies that they are not carried out. Options
for three months are quite common, and it may be said that the periods
for which options are entered into extend from a day to six months.

In the case of day-to-day options, it is taken for granted that the
period ends exactly a quarter of an hour before the official closing
time of the Stock Exchange, which is half past three o'clock. In the
case of options for other periods, it is taken for granted that the
period ends with the account in which they fall due, or rather a quarter
of an hour before, with the idea of allowing time for making final
arrangements. An option may be arranged in January for, say, the end of
March account, in which case the period would expire at a quarter to one
on the Contango day at the end of that account, the account actually
ending at one o'clock. When the time expires, the giver of money for the
option has to declare whether he will exercise it or not. If he
exercises a call option, he has then to pay the money and receive the
shares. If he exercises a put option, he has then to deliver the shares
and receive the money. Except in very peculiar circumstances, the option
dealer, the taker of the money for the option, will know, when the term
arrives, whether it will be exercised or not by merely comparing the
existing market price with the option price. A call is not likely to be
exercised if the shares can be bought much more cheaply in the market,
nor is a put likely to be exercised if the shares can be sold at a much
higher price in the market.

The giver of the money for an option may, of course, operate against it,
securing his profit, as it were, at any time during the currency of the
option period. If, early in January, he has bought a call of De Beers at
19 for the end of February, he need not wait until the end of February
to sell the shares which he has the right of calling, although, of
course, he cannot obtain delivery of the shares until that time. When he
has bought the option early in January, he watches the market in case De
Beers should rise to a point which would make it profitable for him to
sell in view of the option which he has bought. Or he makes up his mind
as to what price he will sell at, and instructs his broker, who will
then watch the market for him. If, early in February, De Beers rise to
20, and he thinks they will go no higher, he sells them, knowing that
under his option he will get them at 19 at the end of the month. There
is, however, the mid-February settlement to be negotiated, and our
operator is obviously in the position of having sold shares which he is
not yet in a position to deliver. He must carry them over at the
making-up price. This means that if they have risen to, say 21, he must
pay the difference between that and the price at which he has sold. This
puts him into the position of having sold at 21, so that his profit when
he exercises his option will include, not only the £1 per share profit
at which he aimed when he sold, but also the £1 difference which he has
to pay at the intervening settlement. It is obvious, however, that one
who operates on his option in this way must be prepared to meet the
differences and expenses that arise in connection with any settlements
that intervene between the time at which he has bought or sold against
his option and the time when that option is exercised or, as it is
called, declared. If he merely operates within the account at the end of
which the option expires, he requires no capital at all except the money
he pays for the option, but if settlements have to be negotiated, he may
require considerable capital to go on with. Even where settlements
intervene, the operator requires capital only to meet the differences
and expenses connected with those settlements; he does not have to pay
for stock he buys against his option; the matter being arranged by the
broker handing over the net amount due to the operator when the option
is declared. The broker takes his remuneration in the form of commission
on the shares over which his client obtains the option, whether he
exercises it or not.

These operations in options may become exceedingly complicated, an
adroit operator backed by his option taking advantage in various ways of
the fluctuations of the market. Sometimes in buying his option he
arranges for what is called the call-of-more or the put-of-more, which
really means the call or put of as much again; or he may arrange for the
call or put of twice more or three times more.

It may easily be imagined that the existence of option dealing has
sometimes a palpable effect upon market quotations, and, especially on
Contango day or on its near approach, considerable fluctuations are
often brought about by the buying and selling of those operators who
have not been able during the currency of the period to buy or sell
stocks to advantage. Stocks must be bought to satisfy call options, or
stocks that have been put upon an unwilling purchaser must be cleared
out, and these transactions naturally affect prices.



                               CHAPTER X
                        THE WARES OF THE MARKET


It has been seen that the Stock Exchange is a market, of which the wares
are stocks and shares. There is some considerable difference, however,
between stocks and shares, and there are various kinds of stocks and
various kinds of shares. It may be interesting and profitable to inquire
into the distinctions, to examine, in fact, with some detail the wares
of the market. A stockholder is frequently called a shareholder even by
the most precise, but, strictly speaking, the terms are not synonymous;
stocks are not shares. Stock is calculated by quantity and shares by
number; stock is capital in a lump, while shares are capital divided
into equal parts; although the unit of stock is usually £100, any
quantity, such as £218 13_s._ 1_d._ worth, can, in the case of leading
stocks, be bought, whilst shares, which are usually of the denomination
of £1, £5, or £10, are indivisible, and can be dealt in only in
multiples of their nominal value.

All the various kinds of securities--including both stocks and
shares--can conveniently be divided into three main classes according to
the manner in which they are passed from owner to owner. There are
inscribed stocks, registered securities, and securities to bearer; and
this classification has been adopted by the Stock Exchange itself in
drawing up those of its rules which relate to the settlement of
bargains, each of the three classes having its own set of rules.

Let us take first the class known as inscribed stocks, and we may
reasonably do this, for to this particular class belong the premier
securities--Consols, the other British Funds, Corporation stocks, and
Colonial Government securities. The holder of inscribed stocks may have
a bank receipt, but he has no certificate of his holding; his name is
inscribed as the legal owner in a register kept for the purpose at the
Bank of England, or some other bank or office. Such stock cannot,
therefore, be transferred from seller to buyer by the mere delivery of
documents, for there are no documents to deliver. To illustrate the
method of transferring inscribed stock, let us see how Consols, for
instance, are passed from a holder to the person to whom he has sold
them. A ticket, on a form supplied by the Bank of England, is issued by
the broker acting for the purchaser, and passed in the way explained in
describing the settlement. But in the case of inscribed stock the ticket
contains an additional item--the name and address of the ultimate seller
who is going to transfer the stock. This, of course, is filled in when
the ticket reaches the seller's broker. The ticket is taken by the
selling broker to the Transfer Office at the Bank, where the particulars
are copied into the Register. The transferor--identified by his broker,
who attends for the purpose--or his representative appointed by a power
of attorney, then has to sign the register in the presence of a clerk of
the Bank, who witnesses the signature, and also has to sign a receipt
for the purchase money. This receipt sets out simply that the transferor
has received a certain sum, being the consideration for so much interest
or share in such and such a stock which he has transferred to the
transferee. The receipt is subsequently handed over to the buying broker
for his client. The handing of this Bank receipt to the buyer of the
stock is, then, the recognised method of delivering inscribed
stocks--the seller who delivers the receipt before the appointed time on
Settling day is entitled to demand payment of the purchase price. It
will be seen that in transferring stock in this way the purchaser
himself takes little part; but on the receipt there is a special note
recommending transferees, as a protection against fraud, to accept the
stock by signing their names in the Register at the Bank. The use of
this is that the signature can be verified when any future transfer is
made and when dividend warrants are signed.

With the next class of securities, registered stocks and shares, by far
the greatest number of Stock Exchange dealings are concerned. In this
class are included nearly the whole of the securities issued by the
joint stock companies. The distinctive features of a registered security
are that it is transferable only by a separate conveyance or transfer,
and that no holder has a legal title to the security until his name has
been registered as the holder in the books of the company. On the
registration of the holder, the company issues a certificate as evidence
of his title in the manner described in a previous chapter.

Stocks which are neither inscribed nor registered frequently take the
form of bonds to bearer. A large number of foreign loans are issued in
this form, as also are a large number of the stocks of the American
railroads. These bonds to bearer pass from hand to hand in exchange for
money after the manner of bank-notes. They are a very convenient form of
security, but, at the same time, somewhat dangerous, as in case of loss
or destruction the holder has, of course, no means of proving that he is
the rightful owner. In this they resemble bank-notes, but they differ
from them in the fact that their currency is recognised in only a narrow
circle, and in that they, of course, bear interest. The Government or
the company which issues them has no means of knowing in whose hands
these bonds may be at the moment, and therefore it cannot remit the
interest payments as they become due. It is left for the holder to apply
for these payments, and this he does by presenting one of the large
number of coupons attached to each bond, each bearing the date of one
payment. Besides the coupons there is often attached to the bond a
"talon," enabling the holder to demand a fresh set of coupons when his
supply is in due course exhausted.

Although, for the purposes of Stock Exchange dealing and settlement,
securities may be thus divided into three great divisions, from the
point of view of the dealer in the market and of the outside investor
and speculator, there are many more interesting divisions, dependent,
generally speaking, upon the nature and rank of the security. At the top
of the list come the trustee stocks, which are the securities in which
the law of the land permits a trustee to invest the moneys he holds in
trust without incurring liability for any loss that may occur. Roughly
speaking, these include the Government securities of the United Kingdom
and of India; certain Colonial Government securities; the stocks of the
Banks of England and of Ireland; London Corporation and County stocks;
the inscribed stock of any borough or county having a population
exceeding 50,000; the stocks of the British railway companies ranking
before their ordinary stocks, provided a dividend of 3 per cent. has
been paid on the ordinary stock for at least ten years; various Indian
railway stocks, the interest on which is guaranteed by the Secretary of
State; the stocks of the water companies ranking in front of the
ordinary stock, provided that stock has received a dividend of not less
than 5 per cent. for at least ten years; and so on. These, of course,
may all be regarded as securities of the highest class--as what are
termed gilt-edged investments.

Ranking next to them, perhaps, are the first debenture stocks of the
railway and other companies which do not come within the Trustee Act.
Such a statement as this is naturally only general. Some debenture
stocks of industrial and mining companies are far less sound and secure
than the shares of the lowest rank of some well-established
undertakings. There are mortgage debentures and debentures which carry
no right of mortgage, and there are, in the case of many companies,
mortgage debentures of various classes, one class carrying a first
mortgage, another a second, and so on. Mortgage debentures are secured
by a specific charge on certain properties definitely scheduled, and in
case of default in the interest payment the Court will appoint a
Receiver in respect of such properties for the protection of the
mortgage debenture holders. Debentures which are not mortgage debentures
are secured by a floating charge over the properties and assets of the
company, and in the case of its default they rank as ordinary creditors,
being entitled to proceed against the company and levy execution. The
mortgage debenture and debenture stocks of a company are frequently
described as its fixed charge stocks, because not only does the interest
never vary in rate, but has to be paid whatever the profits of the
company. In fact, debenture holders, being creditors and not
shareholders, receive interest and not dividend.

These debenture stocks, like the loans issued by Governments and
Municipal Corporations, may be redeemable at a specified date or after
it. The approach of the redemption date naturally affects the market
price. If a stock at present quoted at 95 is redeemable ten years hence
at 100, the tendency of the price is, of course, to rise to the 100, and
one who buys the stock at 95, in calculating what it will yield him,
takes into account, of course, not only the annual interest, but the
fact that he must receive, as it were, a bonus of £5 when the company
buys the stock on the date of redemption. Similarly, if the stock is
bought at a higher price than that at which it is redeemable at some
future date, the buyer must regard the yield which it gives him as so
much less, for when the date arrives he must take for the stock less
than he gave for it. Some stocks are irredeemable, which means, of
course, that they go on bearing the rate of interest for ever. The
holder of the stock may sell it and thus get rid of the arrangement, but
the company or corporation is saddled with the debt and the obligation
of paying the fixed rate of interest upon it for all time. This may
prove inconvenient and unprofitable if the borrower can obtain loans at
a lower rate, but the only way to get rid of the burden is to make some
arrangement acceptable to the stockholders. Certain of the Government
stocks are redeemable at a comparatively early date, Consols themselves
being redeemable in 1923, but only at the option of the Government.

Although debentures are called fixed charge stocks, partly because their
rate of interest is fixed, and partly because it is a charge on the
income of the company before any consideration can be entered into as to
what profits there are to be divided among the shareholders, the rate of
dividend on certain classes of mere shares which rank after the
debentures is also fixed. A company may issue 4 per cent. or 5 per cent.
preference shares, and their claim upon the profits, as their name
implies, is preferential to that of the ordinary shares, which rank
after them. They must receive their 4 per cent. or 5 per cent., as the
case may be, out of the profits, and the ordinary shareholders have to
look for their dividend to any profits that remain. At the same time,
whereas debenture holders are entitled to their interest as a right, and
may proceed for it legally as for a debt, the shareholders, even
preference shareholders, go without their dividend if there are no
profits--and there is an end of it.

Many preference shares, however, are cumulative preference shares, which
means that if the profits in any year are insufficient to provide their
dividend, the stipulated rate must be made up out of succeeding profits
before the ordinary shareholders can receive anything. In the case of
preference shares which are not cumulative, each year is complete in
itself. They may be entitled to 4 per cent., but if the profits of the
year suffice to pay only 3 per cent., that is all they get. Even if the
profits of the next year are so good as to enable the payment of the
full 4 per cent. dividend on the preference shares, and 2 per cent. or
even 5 per cent. on the ordinary shares, the preference shares receive
only their 4 per cent., because they are not cumulative. If they were
cumulative, they would receive 5 per cent. to make up for the 1 per
cent. lacking in the preceding year, and the ordinary dividend would be
reduced accordingly. Of course, there may be first, second, and third
preference shares, cumulative or non-cumulative, just as there can be
different series of debentures, one ranking after another.

It will be seen that while the dividend on preference shares is more
certain than that on the ordinary shares of a company, it is at the same
time limited, whereas the dividend on the ordinary shares is only
limited by the profit-earning capacity of the company. In the case of a
well-established and prosperous concern, therefore, the price of the
ordinary shares may be very much higher than the price of the preference
shares ranking before them. In such a company the preference shares may
receive a certain 4 per cent., while the ordinary shares may receive 10
per cent., which, although by no means so certain, may be certain enough
for all practical purposes. In the case of many companies, of course,
the dividend on the ordinary shares varies considerably year by year,
and the price of the shares accordingly fluctuates widely.

Some companies, in order to meet this, have divided their ordinary
shares into two new classes, one called preferred ordinary, bearing a
fixed rate of dividend, and the other called deferred ordinary, taking
what remains for division. In fact, the preferred ordinary bears the
same relation to the deferred ordinary as preference shares bear to
ordinary shares. Suppose a company has paid a dividend on its ordinary
shares or stock averaging over a number of years 6 per cent. In one year
it may have paid 4-1/4 per cent., in another year 8 per cent. This
ordinary stock with its fluctuating dividend is divided into two parts.
Each holder of £100 worth of stock receives £50 worth of preferred
ordinary, entitled to a fixed dividend of 6 per cent., and £50 of
deferred ordinary, entitled to the remainder. Thus in the year when the
company paid 4-1/4 per cent., a dividend of 6 per cent. would be paid on
the preferred ordinary and a dividend of 2-1/2 per cent. on the deferred
ordinary--this making an average of 4-1/4 per cent. on the whole. In a
year when a company pays 8 per cent., the preferred ordinary still
receives 6 per cent. and the deferred ordinary 10 per cent. Instead of
the stock being thus divided, the same object is attained by its
duplication or watering. For each £100 of ordinary stock is issued a
nominal £100 of preferred ordinary and a nominal £100 of deferred
ordinary. In the case of the 4-1/4 per cent. dividend, the preferred
ordinary would receive its fixed 3 per cent., and the deferred ordinary
the remaining 1-1/4 per cent. Of course, this stock-splitting or
stock-watering enables the holder of the original stock to dispose, if
he chooses, of either the more speculative or the more stable security.

Even this list of Government loans, home and foreign, of trustee stocks,
of mortgage debentures, of debentures, of cumulative preference shares,
of preference shares, of ordinary shares, of preferred ordinary and
deferred ordinary, by no means exhausts the various kinds of wares dealt
with in the market. For instance, there are founders' shares, which are
usually issued at the time of the flotation of a company to those
specially interested in its promotion. Their peculiarity is that they
usually participate with the ordinary shares in any profits remaining
after a certain rate of dividend has been paid upon those ordinary
shares. There may be 100,000 ordinary shares of one pound each and 100
founders' shares also of one pound each. It may be stipulated that the
founders' shares participate equally with the ordinary shares after the
latter have received a 7 per cent. dividend. Suppose the divisible
profits amount to £20,000, the ordinary shares take their 7 per cent.,
which amounts to £7,000, and the remaining £13,000 has to be divided
equally between the ordinary shares and the founders' shares. The
100,000 ordinary shares receive a further £6,500, raising their dividend
to 13-1/2 per cent., and the 100 founders' shares receive the other
£6,500, making their dividend 6,500 per cent. Had the company earned
only £7,000, that would have sufficed to pay only the dividend on the
ordinary shares, and the founders' shares would have received nothing.

An objection to the system is at once evident. If the directors were
under the influence of the holders of the founders' shares, as they
usually are, they would not be content to earn a steady profit of £7,000
for the advantage of the large number of ordinary shareholders, but
would strain to divide a large profit in one year, even at the expense
of making an actual loss in the next. For this and other reasons
founders' shares are objectionable, especially in the case of those
finance companies which earn their profits by speculation. These
founders' shares are not to be confused with legitimate management
shares entitled to a fair rate of dividend, and issued to the officials
of a company to provide them with an incentive to work well in its
interests.

There are also vendors' shares--shares allotted to a vendor in payment,
or part payment, for the property which he sells to the company. If he
is willing to take shares instead of cash for the property, it is a good
sign, for he shows that he believes in it and desires to continue
interested in it; that he does not wish merely to pocket the cash and
walk off. When these shares come upon the market for sale, however, it
is an obvious sign that the man who probably knows most about the
property is clearing out. The rules of the Stock Exchange recognise this
aspect of affairs by laying it down that no special settlement may be
granted in vendors' shares until six months after the settlement of the
shares issued to the public.

Sometimes amongst the wares of the market there are actually found
stocks and shares which do not exist. A big Government loan is known to
be impending, and although no prospectus has been issued and the market
knows nothing about the terms, dealers, confident that these terms will
be reasonable, and sure that there will be a big public demand for the
stock, offer to sell it or to buy it at a fraction over the issue price,
although they do not know what that issue price will be. Transactions of
this kind sometimes occur not only in the case of a big Government loan
but in the case of the flotation of an important company. After the
prospectus appears, and the applications for allotment of the stock have
been sent in, the dealings become quite general, although no one is yet
in possession of the stock which he sells, nor do even the applicants
know whether they will get the whole of the amount for which they
applied, a part of it, or none at all. Some are tempted by the premium
to sell the full amount for which they have applied, in the hope that
they may get all of it, or, at all events, that they will get some and
be able to buy the balance in the market. Others more cautious can often
arrange to sell at a lower premium whatever amount of stock they may be
allotted. These, of course, are on surer ground, and so are those who
deal in the allotment letters themselves when they actually come out.

The practice of dealing in shares before allotment has from time to time
for very many years past been the subject of much criticism, and the
Stock Exchange Committee has frequently been called upon to put a stop
to it. It has even now and again made attempts so to do, but these
attempts have proved futile, and the penalisation has often fallen upon
the less guilty of the two parties to the bargain, to the advantage of
the one who has turned round and said, "If I complete the transaction,
it will mean loss to me, and I shall not do so, and you cannot compel me
to do so, because you have broken the rules of your Committee in dealing
before allotment at all." Thus after several attempts the Committee
seems to have given up all effort to restrain dealings before allotment,
except by adopting a negative attitude, to the discouragement but not
the penalisation of such dealings. Dealings take place not only in
stocks and shares before allotment and in the letters of allotment, but
also in what is called scrip, which is a provisional certificate issued
some time after the letter of allotment and endorsed with a receipt for
the payment of each instalment on the stock. It is a kind of temporary
stock certificate issued in advance of the real one, which is
forthcoming when the stock is fully paid up.



                               CHAPTER XI
                                FAILURES


When a member of the Stock Exchange cannot fulfil his engagements, even
if his position is brought about through no fault of his own, but by the
default, say, of an important client, he may command much sympathy from
his fellow-members, but this sympathy must not take practical form.
Sometimes he does receive aid, but if so it is attended with
considerable risk both to himself and to those who aid him, for the
rules of the institution are most strict on the subject. The idea is, of
course, that no member who is insolvent shall be encouraged to struggle
against fate, for such a struggle usually means a plunge into wild
speculation, making the last state of the Lame Duck worse than the
first. When a member of the Stock Exchange finds that a fellow-member,
who is his debtor, cannot meet his engagements, it is his duty, far from
giving him time or any other consideration, to report the fact to a
member of the Committee, and with the utmost celerity inquiry is made
into the truth of the statement, and the insolvent member is immediately
declared a defaulter. The news of insolvency is, as a matter of fact,
very frequently communicated to the Committee by the unfortunate member
himself, so that it does not fall upon his creditors to perform the
unpleasant task.

The process of declaring a defaulter is called "hammering," because the
Stock Exchange waiter, to whom a written announcement is handed, strikes
the desk of his rostrum three times with his hammer to call the
attention of those present to the dread announcement which he then reads
out. As a matter of fact, two waiters perform the ceremony
simultaneously in different parts of the House.

The member who is thus declared a defaulter loses his membership, and
for all practical purposes he becomes in the eye of the Stock Exchange a
bankrupt, his Stock Exchange estate being taken over by the two
functionaries called the Official Assignees. He is by no means a
bankrupt, however, in the ordinary sense of the term. His creditors in
the Stock Exchange never make him a bankrupt legally, preferring, of
course, their own arrangements for dividing the estate. Any outside
creditor might obviously make him a bankrupt in accordance with the law
of the land, but as a member of the Stock Exchange is not allowed to
carry on any other business, his liabilities outside the House are
usually insignificant compared with those within it. On the other hand,
it is possible, although very unusual, for a member to be made bankrupt
by outsiders, quite apart from his Stock Exchange engagements, in which
case he ceases to be a member.

When a member is declared a defaulter, all bargains which he has open
with other members are immediately reversed at the price ruling at the
time of the declaration of the default, which is called the
"hammer-price."

Suppose the defaulter has sold £100 stock to A at 95, and the
hammer-price is 93, A must sell the stock back for £93, and rank as a
creditor to the estate for the difference of £2. Suppose the defaulter
has also bought £100 stock from B at £95, and the hammer-price is 93, B
must buy the stock back for £93, and hand over the difference of £2 to
the estate. In this way all outstanding bargains are cleared out of the
way, and the Official Assignees, in their administration of the estate,
have merely to pay as big a dividend as they can on the differences out
of the debtor's assets.

Supposing the defaulter to be a jobber, and an outsider has sold £100
stock to him, through a broker of course, at 95. As it has fallen to 93
the jobber owes the outsider a difference of £2, and that outsider
should in theory rank as a creditor for the amount. He would not, of
course, lose any part of his stock, which he does not deliver, but his
attempt to sell the stock has been rendered ineffective; and even if he
was operating as a Bear, he has to rank as a mere creditor for the
profit he would have pocketed had the jobber with whom he was dealing
not failed. The outsider trusted his broker rather than the jobber of
whom he knew nothing, and may feel it a hardship that his order has not
been executed, or that he does not receive straight away the profit
which he has made. To his mind the credit of the Stock Exchange and all
connected with it have sunk to a low level. For such reasons as these,
especially if the client is a good one, the broker, in practice, usually
deems it expedient to bear the loss himself, and to hand over the
profit. Outsiders are not often allowed to suffer by reason of failures
of members of the Stock Exchange.

In the case where it is a broker and not a jobber who fails, the clients
stand to be affected still less by the failure. The bargains open are
between the clients on the one hand and the jobbers on the other, the
broker being a mere agent or intermediary. The bargains are completed in
the ordinary way without the further intervention of the broker, or
another broker is selected to complete them. Cases have arisen in which
the client has actually tried to turn the failure of his broker to his
own advantage by declaring, when prices have moved against him, that the
bargain is off altogether, or by claiming that the transaction should be
closed at the hammer-price, when that price happens to be in his favour.
Litigation has arisen over these points and does now arise; in fact, the
state of the law as regards the relationship existing between outside
clients and the Stock Exchange when its members fail cannot be said to
be very clearly defined. One decision has abrogated another, and it can
scarcely be said that any of the many intricate questions that arise
have been settled definitely enough to carry conviction to the minds of
dissatisfied and litigious clients.

The questions which arise between members of the Stock Exchange
themselves are far more easily settled, thanks to the autocratic power
of the Committee, to which members are amenable. A member does not care
to offend the Committee, even if he feels that the treatment he receives
at the hands of its officials constitutes an unjust hardship. The
defaulter, who has to place himself unreservedly in the hands of the
Official Assignees, giving up his books and so on, may feel less
amenable, especially as he has ceased to be a member of the Stock
Exchange, and has little to gain by obedient acquiescence, but
considerations of the possibility of readmission generally assert
themselves. These considerations are naturally important, because they
mean the resumption of his profession. Any refusal to deliver up books,
or any placing of difficulties in the way of the Official Assignees,
means the postponement of readmission, if it does not render it
impossible.

A defaulter may be readmitted upon application, if the small
sub-committee appointed from the Committee to consider the case finds
that he is entitled to readmission. As a result of an examination of his
books showing the kind of accounts he had open, and as a result of an
inquiry into his conduct preceding and subsequent to his failure, they
report as to whether the failure has arisen through his own speculations
or through the failure of his principals, whether he has been guilty of
any bad faith or breach of the rules, whether the amount involved in his
engagements was in reasonable proportion to his means and resources.
Even where the conduct of a defaulter has been marked by indiscretion
and by the absence of reasonable caution, the defaulter may be
readmitted, but the decision of the Committee as to the readmission must
remain posted in the Stock Exchange for thirty days, and the notice may
indicate whether he is of the class of defaulters who have been brought
down by misfortunes beyond their control, or of the class whose failure
is brought about by rash speculation. In any case, no defaulter can be
readmitted unless he has paid his creditors at least 6_s._ 8_d._ in the
pound from his own resources apart from any moneys that may be
receivable from his sureties. Moreover, the Committee expects that he
shall make up any deficiency at the earliest possible moment until he
has paid 20_s._ in the pound. For this reason the Committee periodically
inquires into his position, and if a readmitted member were to become
very prosperous and yet refuse to pay up his creditors in full, when the
time for his annual re-election came round he might find himself left
outside the fold.



                              CHAPTER XII
                        PRICE LISTS AND RECORDS


Foremost amongst the publications which emanate from the Stock Exchange,
and there are a good many, is, of course, "The Stock Exchange Daily
Official List." Its main purpose is to supply the outside world with an
official record of the prices of securities. It is compiled under the
authority of the Committee and the superintendence of the Secretary of
the Share and Loan Department, and published by the Trustees and
Managers. The Committee is thus the editor of the List, and is
responsible for the accuracy of the prices and other particulars which
it collects and sets forth. The List is an imposing publication of
sixteen closely printed pages, and contains the names of over four
thousand securities. It is issued at about 5 o'clock each evening (about
2 o'clock on Saturdays) and gives the prices at 3.30 (1 o'clock on
Saturdays). The annual subscription for the List is £4, exclusive of
postage, and single copies cost sixpence each. Long before the time of
publication, every day there may be seen outside the offices a motley
queue of commissionaires, clerks, and office-boys waiting for the copies
as they are delivered from the press.

The securities quoted in the List may be described as favoured
securities, for it is the ambition of every company to obtain an
official quotation for its stocks and shares. Every week there is
published by the Committee a list of those securities for which
quotation is sought, and another list of those in the case of which the
application has been granted. The Committee is never tired of
asseverating that when it grants quotation in the Official List to any
security it does not thereby imply that that security is of superior
status to other stocks and shares which are not so quoted; but the fact
remains that official quotation does, undoubtedly, endow a security with
a certain prestige. There is always some kind of market in securities
quoted, and it is more easy to borrow upon them at the banks; whereas it
is impossible to buy or sell many securities not quoted without long
negotiation, and some of them may not be recognised by anybody except
the promoters who have issued them.

Before a security can obtain quotation in the Official List, it has to
possess certain characteristics, and its sponsors have to conform to
certain formalities. The idea of quotation is not to enable those
interested in the loan or company to sell the securities; quotation is
for the benefit of the public; indeed, before quotation is granted, at
least two-thirds of the securities issued must have been allotted to the
public as distinct from vendors and others. The formalities to be
observed resemble in many respects those imposed in the case of the
granting of a special settlement. The loan or company has to be of
sufficient magnitude and importance. Such documents as the prospectus,
which must have been publicly advertised, the articles of association,
which are the rules of the company, the allotment book, showing the
extent to which the securities have been publicly issued, the banker's
pass-book, certified copies of contracts and concessions, have all to be
deposited. It has to be stated that the certificates or bonds are ready
for delivery, and that the purchase of the properties has been
completed. These are roughly the requirements, and a broker has to be
appointed in connection with the loan or company authorised and ready to
give full information in answer to the inquiries of the Committee.

It will be noted that in considering applications for quotation in its
Official List the Committee attaches importance to the production of a
publicly issued prospectus. This is natural, for the prospectus is, as
it were, the written guarantee of those offering the securities for sale
to those who subscribe money for them. In spite of the requirement,
however, the number of new companies floated without the issue of a
prospectus is far greater now than it was before the Companies Act of
1900 was passed. Under the old law, the regulations as to the
information which a prospectus should impart were far less stringent
than they are at present, and company promoters, who then had no
objection to issuing prospectuses, seem anxious to avoid their issue
now. The directors of a certain class of company find it inconvenient to
bind themselves down in writing to statements sufficiently attractive to
induce subscriptions, and yet sufficiently true to stand investigation
should questions subsequently arise. Thus even at the risk of
sacrificing the possibility of quotation in the Official List, they
prefer to issue no prospectus at all. Some of them in its place publish
a statement which is described as being not a prospectus, and as being
issued for public information only, not to invite subscriptions. Such a
statement, of course, may contain all that is in favour of the company
of whose shares it is sought to dispose, and yet need not contain
particulars as to contracts and the like, which the law requires in a
prospectus, and with which it is essential the subscriber should be
acquainted.

When such a statement is issued, care is taken by the promoters that the
shares are easily obtainable in the market, although the statement dare
not invite subscriptions for them, for by so doing it would convert
itself into a prospectus. Simultaneously with the publication of the
statement, a process known as "making a market" goes on in the Stock
Exchange. The promoter, who holds all the shares, arranges with a jobber
to sell them. He probably gives the jobber a call on the shares at a
certain price, and anything which the jobber can obtain for them over
that is his profit. Then the promoter instructs some brokers to buy the
shares and others to sell them, and in this way he produces a semblance
of activity. It can easily be arranged that the price shall rise rapidly
enough to attract attention. The buying may cost the promoter a good
deal, but if a public demand is thus created, it is merely a case of the
sprat to catch the whale. The public demand is not created, of course,
through the honest brokers, who have no difficulty in seeing through the
game, but with the aid of financial and other newspapers of a certain
class. The character of these papers is notorious, but there seem to be
always some among the public ready to be misled, and in this way the
process of making a market sometimes succeeds even in these days of
awakened intelligence in Stock Exchange affairs. It would succeed less
if it were not the fact that some straightforward and successful
companies exist to-day which have never issued a prospectus, and which
in some form or other have made a market in their shares. It is
conceivable, of course, that a market may be made naturally without the
underhand expenditure of the promoter. But the manner in which the
public has been fleeced over and over again by the process of
market-making has led to much of the unpopularity with which the Stock
Exchange has to contend. It is a glaring blot on an institution
otherwise excellently managed, and it is not too much to hope that the
Committee will at some time or other give the subject its attention.

That the Committee is aware of the importance of the issue of a
prospectus, which places the shares of a company without the process of
market-making, is shown by its requiring the production of the document
before the securities can be quoted in the Official List. When they are
so quoted, the list gives not only the latest price of the stocks or
shares, but provides an adequate description of the security, states the
total amount of the authorised issue, the amount which has actually been
issued, the rate of the last interest or dividend payment, and the date
when those payments are due. It also gives the nominal amount or the
amount paid up on the stock or share, and by comparing this with the
market price it can at once be seen whether the security stands at a
premium, or at a discount, or at par. Ten-pound shares quoted at
13-1/2-14-1/2 are at 4 premium, 14 being the middle price between the
selling price and the buying price, both given. One-pound shares quoted
at 13/16-15/16 are at 1/8 discount; when the market quotation is exactly
equal to the denomination of the share, the price is at par.

Immediately against the quotation there often appear the letters _x d_,
an abbreviation for ex dividend, which means that the price of the
security does not include the dividend which the company has just paid
or is about to pay upon it. The name of one who sells the security after
the dividend is declared may be on the books of the company, and he will
receive the dividend warrant; but if at the time of sale the stock was
not quoted ex dividend, he has to hand over the amount of the dividend
to the buyer of the stock. The buyer's broker will demand it. Thus when
a stock is quoted ex dividend the price immediately falls, other things
being the same, by the amount of dividend payable. The dividend in the
case just mentioned is sent to the seller of the stock, because from the
point of view of the company he is its holder--the transaction occurred
after the books of the company had been closed in order to prepare the
dividend. The stock is not, of course, quoted ex dividend before the
books of the company have been closed, nor before the dividend is
actually declared, but the guiding principle is to quote it ex dividend
as soon after these events as possible. In the case of the Funds,
however, where the closing of the books is on a fixed date, the
settlement is made to synchronise with the closing of the books, and the
quotation becomes ex dividend practically simultaneously.

Other marks somewhat similar to ex dividend may appear against the
quotation in the Official List, such as ex rights, ex new, or ex all.
"Rights" may probably refer to the privilege which a holder of the
shares has of subscribing to shares in another company, a privilege
which enhances the value of the shares he holds. "New" may probably
refer to the privilege which a holder has of subscribing for new shares
in his own company. Sometimes the holder is entitled to both these
privileges, and perhaps others, besides the dividend; all these
privileges being referred to for abbreviation's sake as "all." A seller
of the shares after they are marked "ex" these privileges retains the
privileges, and consequently gets a lower price for the shares.

There is provided in the Official List against the name and quotation of
every security ample space for the record of the prices at which
business has actually been done during the day. This space is usually
blank. If the business done were accurately represented by the markings
in the List, the Stock Exchange would be an idle place indeed. Reference
has been made in a previous chapter to the reason for the blank
appearance of the "business done" column, and it is often urged that in
this matter there should be some reform. Many, indeed, go farther and
suggest that not only should the prices be recorded in the case of all
business transacted, but that means should be devised for placing on
record the total volume of that business, as is done in the New York
Stock Exchange. There day by day the public is informed as to the number
of shares that have been bought and sold; here no such record is kept.

Criticism has often been levelled against the Official List, too, on the
ground that its prices are so wide as to be valueless. When a stock is
quoted at, say, 106-109, no one who knows his Official List will suppose
for a moment that the stock can be bought by the jobber as low as 106
and sold as high as 109. The broker going to the jobber in the market
would obtain a much narrower quotation. Even if the student of the
Official List might conclude that as the stock is theoretically quoted
106-109, the practical price is round about 107-1/2, that is, midway
between the two, it would be something. But as a matter of fact, whilst
the stock is quoted 106-109, business may actually be done at 106-1/4 at
one time and below 107 all day.

Other critics would have the List greatly expanded, so that official
prices might be obtainable for a number of securities more in accordance
with the number of those in which dealing actually takes place. These
critics say that if the inclusion of all kinds of securities would be
inexpedient, as altering the character of the List, then a supplementary
list should be issued. Yet other critics say that the prices should be
made up to a later hour. The latest profess to be 3.30 o'clock prices,
whilst as a matter of fact, they are in the great majority of cases
collected half an hour previously; and whilst the official closing time
of the Stock Exchange is half-past three o'clock, the House remains open
until four o'clock, and dealings go on inside the House until that hour.

Even after the Stock Exchange is closed, of course, business is
transacted in what is called the Street Markets. Generally speaking,
business in only the most speculative securities is transacted in the
street after hours. Dealers in South African mining shares block
Throgmorton Street itself for a couple of hours, more or less, according
to the activity of business; and dealers in American railroad shares
occupy Shorter's Court, a diminutive square just off Throgmorton Street,
with which it is connected by a covered way, an entrance to the Stock
Exchange being situated in the square. The Street Market in Americans is
legitimate in a special sense, because business in New York has been
going on for less than an hour when our market is closing, and, of
course, the trend of prices in New York has a considerable effect upon
quotations here. But the Stock Exchange recognises no street dealings of
any kind, and has never done anything to encourage business after hours,
in spite of various suggestions that have been made, especially at the
time when several members found themselves in the police court, charged
with causing an obstruction in Throgmorton Street.

Partly because prices are made up officially only to 3.30 o'clock, but
more because brokers desire to furnish their clients with the prices of
stocks and shares in which they are specially interested, many brokers
compile price lists of their own for despatch to their clients. For
practical purposes these smaller lists are more serviceable than the
great Official List, as the quotations are not only later, but, being
less wide, give more idea of the prices actually prevailing. Another way
in which prices are conveyed from the Stock Exchange to the outside
world, and a way much more expeditious than by either the Official List
or the brokers' lists, is through the medium of the tape machines of the
Exchange Telegraph Company. These tape machines are to be found in
brokers' offices, clubs, and wherever a subscriber may care to have
them, and from the ingenious instrument the tape issues forth all day,
showing not only the prices, but the time at which they are quoted.

There is only one class of persons who may not subscribe for the Stock
Exchange price service of the Exchange Telegraph Company, and those are
outside brokers. Until about twenty years ago a roaring business in the
way of betting on the tape used to be transacted in the offices of these
outside brokers. Some say they derived their title of "bucket-shops"
from the fact that the tape was made to fall from the machine into a
bucket for tidiness' sake, but that derivation of the opprobrious title
is doubtful. Then, however, the Stock Exchange Committee put a stop to
the practice by informing the Exchange Telegraph Company that it must
cease to supply outside brokers with the tape, or its privilege of
collecting prices in the Stock Exchange would be withdrawn. It was with
some difficulty that the privilege was obtained. The company collects
the prices in the markets by means of its own staff, and the prices it
telegraphs are by no means official.

A kind of weekly edition of the Stock Exchange Daily Official List is
issued under exactly the same auspices as that list, and is called "The
Stock Exchange Weekly Official Intelligence." It quotes all the same
securities, repeating the salient particulars, but instead of giving the
current price it shows the highest and lowest prices touched during the
week which it covers and since the beginning of the year. It also gives
a list of the securities which have been removed from the Daily List
owing to absence of business in them, keeping on record the last price
marked. It further publishes other important official information,
giving notice of forthcoming settling days and buying-in days, recording
the special settlements and quotations which have been applied for and
have been granted; it gives notice as to when securities are to be
quoted ex dividend; it announces dividends, forthcoming company
meetings, and closing of transfer books; publishes important notices
issued by companies, sets forth traffic returns, and imparts other
information. The subscription is £2 10_s._ a year, exclusive of postage,
and single copies may be obtained for 1_s._ 3_d._ each. It consists of
about thirty large pages.

The information contained in the Daily Official List and in the Weekly
Official Intelligence is covered in a ponderous tome called "The Stock
Exchange Official Intelligence," which is issued annually. In spite of
drastic steps taken in recent years to reduce the bulk of this important
Stock Exchange publication, the current volume contains 1,784 pages, and
weighs eleven or twelve pounds. Its published price is 50_s._ The great
work deals exhaustively and concisely with practically every security of
any importance known in the Stock Exchange, stating clearly the amount,
the rate of interest borne or the dividends paid in the past few years,
with the highest and lowest prices where they are quoted in the Official
List. What amounts to an outline history of every security is furnished,
and in the case of companies the names of the directors and officials
are set forth. Besides being thus an encyclopædia of Stock Exchange
securities, each annual volume contains a number of masterly
authoritative treatises on topical subjects, and other appropriate
information of a general character. In the compilation of such a work,
which is now in its thirty-first year, a vast amount of documentary
record has been collected and preserved. The Stock Exchange naturally
possesses the most voluminous store of financial and company documents
in the world.

Other publications are issued by the Stock Exchange, such as an annual
Directory of Members, giving their names and private and business
addresses, showing the partnerships which exist between them, stating
the names of their bankers, and showing the year in which they became
members. The Committee also issues, of course, volumes containing the
Rules. These number 178, and however salutary they may be in practical
effect, they are exceedingly complicated and loosely drafted. The Rules
of the Stock Exchange are like its architecture; their compilation has
been governed by opportunism. A clause has been added here, and taken
away there, to meet exigencies, just as in the case of the structure
offices have been absorbed and walls removed, as opportunity arose of
providing more space. This has resulted in a lack of homogeneity and
other defects; but even as the members manage to put their House, of
which they are exceedingly proud, to good use, so do they manage to
conform to their Rules, with which they are, of course, supposed to make
themselves thoroughly acquainted.



                              CHAPTER XIII
                      THE ROYAL COMMISSION'S VIEW


Perhaps the most important event which ever affected the Stock Exchange
as an institution was the inquiry into its constitution and customs by
the Royal Commission, which was appointed in 1877. Not only was that
event of much historical interest from the Stock Exchange point of view,
but the report issued by the Royal Commission is a document which, even
to-day, possesses interest and importance as throwing light upon the
methods of the institution as seen by an independent body most competent
to examine into its affairs and comment upon them. The report still
possesses importance because the constitution and customs of the Stock
Exchange are, to all intents and purposes, much the same now as they
were then--it brought about no important alteration, for on the whole it
proved to be a vindication of the Stock Exchange as the Royal
Commissioners found it. Some minor recommendations for reform were
adopted by the Stock Exchange itself, or have been adopted since the
report was made; and one or two sweeping recommendations have been
ignored, with the result that the Stock Exchange is now as it was then,
and in that sense the report is quite up to date. In fact, the report
still forms an admirable essay on the constitution of the Stock Exchange
and the conduct of its business.

The Royal Commissioners found that in the main the existence of such an
association and the coercive action of its rules on its members had been
salutary and to the interests of the public. The Commissioners seemed to
incline to the view that the dual control of the institution by the
Managers on the one hand, and the Committee on the other, should be
superseded by the amalgamation of the two bodies. The Commissioners
expressed the idea that matters were tending in that direction--and they
are still so tending, especially since the enactment of the rule making
it obligatory for new members to purchase one or more shares in the
Stock Exchange.

The Committee, it was found, acted uprightly, honestly, and with the
desire to do justice in the administration of the rules. These rules
were capable of affording relief and exercising restraint far more
prompt and often more satisfactory than was the law of the land. A
suggestion had been made that the Committee should be assisted in its
deliberations by an outside assessor or assessors, especially in cases
of important questions involving the personal interests of
fellow-members and others; but the Commissioners preferred the Committee
as it is, on the ground that the members understood the complicated
questions to be decided much better than any outsider would understand
them, and that it was necessary in most cases that the decisions should
be very prompt and complete. Similarly the Commission preferred the
present practice of the Committee in arriving at its decisions to the
proposed subdivision into special panels for special subjects.

The Commissioners reported that they were persuaded that the
apprenticeship served by a clerk who eventually became a member on his
own account carried with it a promise of future success. At that time
such apprenticeship was not compulsory, and the recent alteration in the
rules compelling every would-be member to serve the apprenticeship would
doubtless have given much satisfaction to the Commissioners. As a matter
of fact, the Commission recommended that in the case of the election of
new members there should be a substantial inquiry into their character,
position, and general fitness, and that the inquiry should be real, not
covered by the answers to the formal questions required by the rules. It
thought that such inquiry could better be carried out by a small
sub-committee, in spite of its objection to the general idea of dividing
the Committee into panels. It further recommended that the guarantee of
the sureties should be extended from two years to four years. There is
now a subcommittee for the election of new members, and the guarantee
does now extend over four years.

As to the Stock Exchange principle that members should be entitled to
look to the members with whom they dealt as if they were principals,
quite apart from their engagements with outsiders, the Commission held
that this had the merit of enabling the Committee with its absolute
power to enforce bargains and adjust disputes with speed and facility.
The public were not injured by such a system so long as the legal rights
and liabilities of the member in relation to the principal outside were
not extinguished or affected. No rule of the Stock Exchange ought to be
allowed to qualify or destroy that legal relation.

On the question of the abolition of the jobber, which has frequently
been mooted, the Commission found that his existence was of extreme
value to the public, attributing to the facilities for business which
the system provided the fact that orders given on provincial exchanges
or foreign bourses were constantly sent to London. But in cases of
inactive securities, in which the jobber was unwilling to make a price
in the ordinary way, the Commission recommended that a book should be
kept in which brokers could enter their requirements, with a view to
bringing the brokers of buyers and sellers into immediate contact. As a
matter of fact, a board for such a purpose does now hang in the Home
Railway Market, but it is very little used. In the matter of the
facility with which brokers and jobbers transacted their business, the
Commission paid a special tribute to the machinery of the Clearing
Department, which, it said, appeared to answer its purpose of settling a
whole series of bargains, by bringing the ultimate seller into contact
with the ultimate buyer, exceedingly well. Nowadays the Clearing
Department is sometimes subjected to criticism, and its machinery has
broken down more than once, notably under the exceptional strain of the
South African boom in 1895.

The Commission also paid a compliment to the members in general in the
mention of the fact that the absence of a written contract in the
dealings between them had in practice no evil results, and that out of
the millions of bargains transacted in the Stock Exchange, such a thing
was hardly known as a dispute as to a contract or its terms.

Moreover the Commission exonerated the Stock Exchange from the charge
that it encouraged gambling. It found that the members with whom the
purchases and sales of stocks and shares were effected were, in the
majority of cases, entirely unable at the time of executing the orders
to distinguish between those which were made speculatively and those
which were connected with investment. The Commissioners did not think it
practicable to render gambling business any more illegal than it already
was. Those who indulged in it in the Stock Exchange, the Commission
found, were mainly the younger and more necessitous members, and it
suggested that the Committee should hold a restraining hand over them,
meting out severe punishment where extravagant speculation had been
indulged in or encouraged by a member. Closely connected with this
subject was a recommendation as to the readmission of defaulters. It
appeared that during the decade preceding the Commission's inquiry, 265
members had been in default, 116 had applied for readmission, and 105
had obtained it. The Commission expressed the opinion that such a
proportion of readmissions was excessive, and that the rule of the Stock
Exchange should be against the readmission of a defaulter except in very
special circumstances, unless his default had been brought about by the
conduct of others, and not through his own fault. It was also
recommended that when a member was declared a defaulter, the fact should
be communicated to the outside world, and this is now the invariable
custom, a notice being sent to the Press for publication.

In a half-hearted kind of way the Commission also recommended that the
outside world should be admitted to the Stock Exchange, but this
recommendation has never been carried out. The Commissioners declared
that the public was able to rely upon reasonable speed and certainty in
the transaction of business, and that there was as small a difference
between the buying and the selling price of a security as could be
obtained in any other market; yet they thought that if it were possible
it would be desirable that the House should be open to the public, not
because it would give a client any real control over the deal which his
broker was carrying out for him, but because it might remove certain
jealousy and suspicion which was created in some minds by the privacy of
the House. Even in putting forth the suggestion thus mildly, the
Commission admitted that the building was hardly adequate to the
accommodation of its members, and that business might be impeded if
strangers were admitted.

The question of the commission charged to the public by the brokers was
brought before the Commissioners, but they refused to report in favour
of an official fixed tariff, or against sharing commissions with
runners, or against the practice of taking a double commission on
certain transactions; but they expressed the opinion that where the
commission was so divided, or a double commission was so earned, the
client should be informed of the fact. As has been shown, this question
of double commissions is closely connected with the question of the
distinction between the broker and the jobber, and this distinction met
with entire approval in the Commissioners' report.

On the vexed question of dealings in shares before allotment, the
Commission gave the Stock Exchange Committee the credit of having done
all that could be expected to cope with it. The Commission attributed
the scandals which had arisen, however, to the system under which the
Committee first permitted such dealing to take place, and then, when
unfair advantage was taken of the permission, refused to enforce the
completion of the deals by fixing the special settlement. The Commission
had been informed by the representatives of the Stock Exchange that
although the Committee would persist in enforcing the fulfilment of
bargains in shares before allotment, as debts of honour, even although
such bargains were declared by the law of the land illegal, yet, if they
were so declared, the rules of the Stock Exchange would be made to
conform to the new law. Accordingly the Commission recommended
legislation prohibiting dealings before allotment under sufficient
penalties--a recommendation which it has hitherto been found
impracticable to adopt.

The question of quotation in the Stock Exchange Official List came in
for a good deal of attention at the hands of the Commission. It was not
satisfied with the investigation which the Committee made before giving
securities a place in the list. It was not that the investigation lacked
thoroughness; on the contrary, the Commission seemed to find that the
investigation went too far, with the result that inclusion in the
Official List gave the security in the mind of the public a stamp of
soundness, stability, and genuineness to which it was not entitled. The
Commission was of opinion that the investigation should be only into
mere formalities, and that it should be made abundantly clear to the
public that admission to the list meant nothing more than that the loan
or company had complied with these formalities--that its appearance in
the list had nothing to do with its desirability from the point of view
of the investor. The Commission admitted that the somewhat fuller
investigation which the Committee made was of use, and had in many
instances been the means of detecting fraud; but it held the view that
whilst it was the duty of the Committee to find whether the security was
fit to be quoted in the list and placed in the market, it was not its
duty to give it the stamp of being a desirable investment. The
Commission went so far as to suggest that if any inquiry into the
stability and soundness of a stock were deemed necessary for the public
protection, such inquiry ought to be undertaken by some public
functionary and enforced by law. The Commission also made some
recommendations of minor importance as to the manner in which the prices
were quoted in the Official List, but its suggestion that a public
functionary might be appointed to determine what securities were fit for
public transactions was one of the boldest in its report.

Finally the Commission recommended that the Stock Exchange should be
incorporated! This was quite revolutionary in its boldness, and it was a
distinct recommendation, not a mere suggestion. The Stock Exchange, the
Commission thought, should be incorporated by Royal Charter, in order to
give permanence to the admittedly excellent rules by which the body was
governed. At any election, the Commissioners held, the Committee might
be reorganised by the whim of a majority of members, and its existing
rules, as well as any further reforms that might be wrought, might be
repealed. The Incorporated Stock Exchange, it proposed, should remain
governed as it then was, but subject to the provision that no alteration
in the rules and regulations should become operative until approved by
the President of the Board of Trade or some other competent public
authority. At the same time, this outside interference, it was
recommended, should be exercised with a sparing hand. Any attempt to
reduce the rules to the limits of the ordinary law of the land would, in
the opinion of the Commission, be detrimental. The Commission seemed of
opinion that the Stock Exchange would welcome incorporation, but it
proposed, apparently as a kind of sop, that if it accepted the
recommendation it might well be granted a monopoly of stockbroking--in
other words, it proposed that if the Stock Exchange were incorporated it
should have the exclusive right of licensing people to act as
stockbrokers, which, of course, would do away with the outside broker
altogether. In any case the Commission seemed to deem it very important
that all stockbrokers should be licensed. They used to be so licensed in
the City of London by the Corporation, but by degrees the control of the
Corporation was broken down. In the event of the Stock Exchange refusing
incorporation, the Commission recommended that some public
functionary--it seemed fond of public functionaries--should be appointed
to exercise authority and discretion in granting and withdrawing
stockbrokers' licences, both to members of the Stock Exchange and to
others.

This report of the Commission was by no means unanimously approved by
the dozen Commissioners, of whom four signed it with stated
reservations. One principal point of objection was the proposal to
legislate against dealings before allotment, which it was contended
would stop a vast amount of legitimate business because a few
exceptional cases of abuse had arisen. Another principal objection was
to the proposal to appoint a public functionary to supervise quotations
in the Official List, it being contended that no functionary would be
equal to the task of saying what were sound securities, and that the
Stock Exchange Committee made no attempt so to do in granting a
quotation. Another objection was to the proposal that the Stock Exchange
should be incorporated, it being contended that the Stock Exchange had
flourished, and had performed its functions as a voluntary association
in a manner which had commanded the entire confidence of the public. It
will be observed that the reservations rather than the report itself
have prevailed.



                              CHAPTER XIV
                            A SKETCH HISTORY


Having seen what the Stock Exchange is, the work it does, and how it
does it, and having considered the criticism and commentary of the Royal
Commission on these points, we may with interest take a glance over the
history of the Stock Exchange. For one thing, a brief sketch will
indicate how the great institution has been evolved.

The first Stock Exchange was in the Royal Exchange. When the National
Debt was organised by William III. at the end of the seventeenth
century, in such a way as to render dealing in Government securities
possible--there were few other securities in which to deal--business
immediately began to be transacted, and as the Royal Exchange was the
place of public business resort, it was there that men met to exchange
stocks, and there that the profession of stockbrokers was established.
There was no organisation except such as arose from the fact that every
broker, whether in merchandise or stocks, had to be licensed by the
authorities of the City of London. The stockbroker was so licensed, and
formed one of the groups of brokers in the Royal Exchange. There were
some who regarded the new profession and its methods with little favour,
and as early as 1697 an Act of Parliament was passed to regulate
stockjobbing--there was no distinction between stockjobbing and
stockbroking in those days. Even the mercantile brokers of the Royal
Exchange objected to the new group in their midst, very noisy and
rapidly growing; they even questioned its respectability, and, as a
result of all this, in the year 1698 there was a great exodus of
stockbrokers from the Royal Exchange.

Some remained and others transferred their place of business to South
Sea House, to the offices of the East India Company and of the Hudson's
Bay Company. The great bulk of them, however, made Change Alley their
market-place because of its suitable open space, undisturbed by traffic,
and its convenient coffee-houses. Garraway's coffee-house became a very
popular resort of the stockbrokers and their clients, and, to a greater
extent still, so did Jonathan's. For the first three quarters of the
eighteenth century, that is, from its beginning until the year 1773,
Change Alley was the Stock Exchange. It was there that, in the year
1720, the scenes of the great Stock Exchange boom, panic, and collapse
known as the South Sea Bubble were enacted.

In the year 1733 an attempt was made to abolish speculative stock
transactions altogether by the passing of Sir John Barnard's Act. It
rendered it illegal to buy stock for which one did not pay, or to sell
stock which one did not deliver. It outlawed mere speculative
transactions for differences. That Act was not repealed until 127 years
afterwards, in 1860, but at no time was it seriously operative. It
spread dismay throughout the ranks of the stockbrokers at first, because
a great deal of their business naturally consisted in time bargains,
enabling the payment of differences instead of cash or stock down; but
the proverbial coach and four was soon at hand and the Act proved a dead
letter.

In the course of the evolution of the profession of stockdealing, the
more respectable of the brokers found themselves using Jonathan's, and
by the year 1762 that coffee-house was almost regarded as the Stock
Exchange, the other frequenters of Change Alley being looked upon more
or less as outsiders. The aristocracy of the profession, who assembled
at Jonathan's, was really the nucleus of the present Stock Exchange
organisation. Amid the jealous sneers of some of their less reputable
brethren, who charged them with an attempt to form an exclusive ring,
they eventually, in 1773, raised a subscription, and obtained the
control of a coffee-house at the north end of what are now called Royal
Exchange Buildings--opposite the north-east corner of the Royal
Exchange, where the Peabody statue stands. Over the door of this
building was placed the inscription "The Stock Exchange." It was the
first building to bear the title. But even to this building, the first
Stock Exchange, admission could be obtained by the outsider at the cost
of sixpence for a day ticket.

It was but a stepping-stone, however. At the beginning of the nineteenth
century another subscription was raised amongst the evolutionists, this
time to a capital of as much as £20,000; and the Stock Exchange was
established with an exclusive membership, and with much the same
constitution as exists to-day. The foundation-stone was laid in Capel
Court on May 18th, 1801, and under a deed of settlement which had been
drawn up, the Stock Exchange, almost as we now know it--although the
deed of settlement was subject to modification in 1876 and again in
1882--was soon in full swing. At the commencement there was no
definitely formulated code of rules, although the unwritten laws were
generally well understood and recognised by the members; it was not
until 1812 that a code of rules was actually printed.

Some straggling branches of the Stock Exchange profession remained
outside for a time, but, in the course of years, they were practically
all gathered in. For instance, a great part of the business in foreign
stocks was transacted in the Royal Exchange until, in 1823, a Foreign
Loan Exchange was established in a building adjoining the Stock
Exchange. It had a constitution much the same as that of the Stock
Exchange proper, with a Committee and so on, and it was eventually
absorbed. Again, much of the business in the Funds was carried on in the
Rotunda of the Bank of England from the year 1764, when the Rotunda was
built--whilst the Stock Exchange was still in Change Alley--until the
year 1838, when the brokers were expelled the Rotunda by the operation
of a clause in the Bank Act of 1834. From that time the pre-eminence of
the Stock Exchange as the market for the Funds became unrivalled, and
there were some who complained that the Government in passing the Act
did not, perhaps, realise that it was closing the only semblance of an
open market for the transfer of the National Funds. There had been an
attempt in 1810 to establish a National Fund Exchange, independent of
both the Rotunda and the Stock Exchange, or failing that, to make the
Stock Exchange an open market. A Bill was introduced to Parliament, but
it never became law. Another attack on the status of the Stock Exchange
was made in 1821, this time from inside. The Committee made an attempt
to abolish option dealing; it actually forbade it by rule; whereupon
many members, finding their occupation gone, subscribed money for the
establishment of a rival institution, and the movement obtained such
importance that the Committee, to save the situation, climbed down,
rescinding its anti-option rule.

Two or three years later, the Stock Exchange, becoming overwhelmed with
business, had little time to consider its own domestic affairs. The new
company boom of 1824-5 added immensely to the scope of Stock Exchange
business, and though, as is usually the case, a crash followed the boom,
it left the Stock Exchange a much more important institution in the eyes
of the public than it ever was before. For one thing, the newspapers
began to publish a daily account of its transactions. The mania and
panic of 1825 were repeated in 1835 and again in 1845, the cycles
lasting just a decade. The boom and collapse of 1835 were connected with
foreign loan issues, and in 1845 was the great railway mania.

In the middle of the century, in 1850, the number of members of the
Stock Exchange was only 864, and the annual subscription was only £10.
The Official List at that time contained the names of fewer than 300
securities; until 1843 it had been published not daily, but only twice a
week. Soon after the middle of the century, the Stock Exchange was
entirely pulled down and rebuilt. During the operation the members found
a temporary home in the Hall of Commerce, which is now Parr's Bank, in
Threadneedle Street. They assembled in their new building in March,
1854. Much agitation arose in 1860, both inside and outside the Stock
Exchange, in favour of the fixing of a uniform scale of brokers'
commissions. There were many meetings of members, but no more came of
the agitation than has come of less serious attempts since.

The Companies Acts of 1860 and 1862, establishing the principle of
limited liability, had naturally an important effect on business, and
the speculation to which it gave rise aggravated the crisis of 1866, the
Overend-Gurney crash. This cataclysm led to the passage of Leeman's Act
designed to prevent sales of bank shares of which the seller is not
possessed. The legislature recognised the distinction which exists
between bank shares and all others, because of the delicate nature of
banking business--depositors, seeing the shares falling, rush to
withdraw their money, and thus spread ruin.

It was not until 1873 that the Stock Exchange Clearing House was
established, although nowadays it seems strange that the business of the
settlement could ever have been arranged without it. An attempt had been
made to establish a Clearing House in 1851, but it came to nothing. Even
in 1873 the Clearing House was launched under private auspices, and it
was not until seven years later that it came under the official control
of the Committee. The chief characteristic of the seventies, however,
was the number of commissions and inquiries dealing with Stock Exchange
affairs. There was the Select Committee on Foreign Loans in 1875, which
made some remarkable disclosures as to the methods of borrowing by South
American States; there was the Select Committee on the working of the
Companies Acts in 1877, and in 1878 there was the Royal Commission to
inquire into the affairs of the Stock Exchange itself.

An important enlargement of the Stock Exchange was opened in January,
1885, the addition being made of what is still called the New House.
Three years before, in 1882, "Burdett's Official Intelligence," the
Stock Exchange encyclopædia, had appeared for the first time. It had a
precursor in "The Railway Intelligence," and in 1899 its title was
altered to "The Stock Exchange Official Intelligence," the alteration
not being without significance. Soon after the New House was opened, in
January, 1885, the Stock Exchange was honoured by a visit, in the month
of March, from the late King Edward, then Prince of Wales.

In the following year, 1886, brokers were finally freed from the control
of the authorities of the City of London. From time immemorial they had
had to be licensed, and although the control was for a long time real
and even salutary, it had been gradually whittled away until nothing
remained but the payment by the broker of an annual licence fee. Even
this was abolished in 1886.

The latest great shock to credit which the country has suffered, the
Baring crisis of 1890, had comparatively little effect upon the Stock
Exchange. Remedies had been arranged by the Bank of England even before
the difficulties were known, and Stock Exchange prices had begun to
recover from the effects of the crisis within a week of the announcement
of its existence. A deputation from the Stock Exchange presented an
address to the Governor of the Bank of England, expressing its high
appreciation of the admirable and effective manner in which the crisis
had been overcome.

On the Stock Exchange practice of making a market, a couple of important
judgments were delivered in 1892. In the course of one of them Mr.
Justice Wright remarked that "if persons for their own purposes of
speculation create an artificial price in the market by transactions
which are not real, but are made at a nominal premium merely for the
purpose of inducing the public to take shares, they are guilty of as
gross a fraud as has ever been committed and of a fraud that can be
criminally brought home to them."

In 1895, during a notable boom in South African mining shares, there
occurred what was known as the Battle of Throgmorton Street--between
members of the Stock Exchange and the police. Members had to appear day
after day on a charge of obstruction before the magistrate, who
suggested that when the Stock Exchange was closed they might, instead of
obstructing the thoroughfare, arrange to use the Royal Exchange. Far
more serious strife, again closely connected with South African affairs,
arose in the closing days of the year, when the Jameson Raid into Boer
territory was followed by a severe slump in prices. The political
tension of which this raid was an outcome ultimately developed into the
Transvaal War, which resulted in a long period of Stock Exchange
stagnation and depression. In 1896, and again in 1897, the 2-3/4 per
cent. Consols touched practically 114, the highest price ever recorded.
The heavy Government borrowing in connection with the war, and the
reduction of the rate of interest to 2-1/2 per cent., have since reduced
the price to below 73. But in spite of the stagnation and depression,
the prosperity of the Stock Exchange continued to increase. Owing to the
pressure upon its space, the offices of its Share and Loan Department,
an important department of administration, had to be removed from the
Stock Exchange building altogether, about the time when, in 1901, the
Stock Exchange was celebrating its centenary.

During the past decade there have been far-reaching changes in the
constitution and practice of the institution. With the object of
gradually abolishing the dual control of members and proprietors, a rule
requiring new members to purchase one or more shares was enacted; a
long-standing bone of contention between jobbers and brokers was removed
by rules more clearly defining and separating their functions; and the
vexed question of brokers' commissions has led at last to the
establishment of a minimum scale, with the object of preventing
under-cutting by competitive firms. The long period of stagnation and
depression was broken by the great rubber share boom of the spring of
1910, when business reached proportions never before witnessed in the
history of the Stock Exchange.



                               CHAPTER XV
                             A BROKER'S DAY


Having mastered roughly some of the mysteries and technicalities of the
Stock Exchange, we are now able to follow a broker through an average
day of his life with some interest. The broker's office-boy sighs
wearily to himself when he hears clerks in other walks of life dilating
upon the easy hours enjoyed by the Stock Exchange and its employees. It
is true that the office-boy does not have to reach his sphere of labour
early enough to sweep out the place and dust the desks; that is all done
for him; but he is supposed to be on the spot by about half-past nine.
Until ten he is pretty well lord of the office, for the Stock Exchange
clerks, as a rule, have a very easy time as regards hours. They need
rarely get to town much before ten o'clock, except the youngest of the
juniors, and the first personage of importance to arrive is he upon whom
falls the duty of glancing through the correspondence. Of course, it all
depends upon the size of the office, just as it does in other
businesses, how this branch of work is organised. In the case of a big
firm the letters are carefully sorted, and each department has its
proportion handed over, one dealing with transfers, another with
dividends, and so forth. But a smaller office may be more representative
of the general run of Stock Exchange work, and in such a one the
correspondence comes into the scope of the chief clerk if the partners
are not energetic enough to deal with it themselves.

By half-past ten the work of the day is mapped out, the bargains of the
previous day are in the checking book all ready for the unauthorised
clerk to check, the transfers are being prepared for delivery or
registration, the transfer receipts are run through to see what
certificates are ready for collection, and a multitude of details get
put into train for attention. At twenty minutes to eleven the
unauthorised clerk, who has probably been reading the newspaper,
declares that he will be shut out of the Settling Room and flies away to
check his bargains, while the partners begin to arrive on the scene.

Before the official hour of commencing business in the Stock Exchange
has been duly announced by the old policemen's rattles sprung by the
House waiters at a quarter to eleven o'clock, opening prices are already
coming in from the markets, through the House clerks and the tape. The
American quotations are, as a rule, more or less a matter of guesswork,
and are based on the New York closing prices cabled from the other side;
Home Railway lists are practically the same as those of the previous
evening, and mining shares usually open as they were in the Street
dealings of the night before. Thus it is on normal, ordinary days, but
taking the House as a whole, there is generally some early change in the
prices of some particular market caused by news contained in the morning
papers. Perhaps the indefatigable locusts have been taking one of their
excursion trips on one of the Argentine Rails, which causes the stocks
in that section to droop; or perhaps a bumper traffic makes Grand Trunk
securities advance in value; or it may be that a Mining Company has
declared an unexpected dividend after hours on the preceding day, and
the quotation for the shares is thereby affected. Each little detail of
this description becomes magnified as the opening feature of each
particular market, and the various items of news are telephoned or
telegraphed to such clients as are interested in the stock itself, or in
others of a similar group that may become affected by the information.

The first half-hour of the day, according to tradition, should be the
busiest, because of the execution of orders that have come through the
post; but if markets are moving sharply, the volume of business advances
with the sun, as the changes become known all over London, the
Provinces, Greater Britain, and the Continent. The swing of work is
fairly under way soon after eleven o'clock. The office-boys and
commissionaires are pursuing the tranquil round of transfer and
certificate work; the unauthorised clerks are busily wiring long strings
of prices by code to brokers and clients who are not on the spot; and
the authorised clerks are engaged in the execution of orders, what time
the partners interview clients in the office or attend to the more
important business in the House themselves.

When the times are very slack and there is nothing to do, the broker's
chief occupation consists in "having a look round," which means that he
explores the markets with a view to working up business in unexpected
quarters, and having a series of chats with as many of his old friends
as he may happen to meet. The only important duty of a dull day is
luncheon, which may possibly include fifty up at billiards. When the
Central London Railway was first opened, a fashion set in of lunching in
the West End, but the novelty quickly palled, and now the City clubs and
restaurants are as full as ever of Stock Exchange members, who find that
they meet more of their clients there than they did in the West, and are
able to gather information, views, and hints which frequently turn out
to be of value. Moreover, the broker is near his office in the event of
an important client calling to see him, and altogether it is more
convenient to be close at hand than in the faraway West End.

The afternoon passes quickly, or seems to do so, from the fact that the
Stock Exchange closes promptly at four o'clock. One of the most
remarkable developments of recent years in the Stock Exchange system is
the extension of private telephones, and these wires play a most
important part in the broker's life of the present day, especially
during the afternoon. Not that the wires are entirely confined to
brokers, but they, of course, have far more use for them than jobbers,
who, dealing in one class of stocks and shares, can appeal to a much
more limited circle. The broker's necessities in this direction are
bounded only by his clients and their importance. Numbers of flourishing
firms owe no small part of their success in business life to their
enterprise in the direction of private telephone wires to individual
clients, and the great landlords in the neighbourhood of the House have
been quick to seize the opportunity which presents itself for getting
big rents for small premises. The Stock Exchange Managers themselves are
well to the front in the arena of competition, and between £100 and £200
a year is demanded for the rent of one small room and telephone close to
Capel Court. By this means a broker and his client are in constant touch
with one another--much more so than would be the case if the general
telephone alone had to be relied upon--and a fair proportion of the day
is spent by the broker and his staff in reporting fluctuations to
clients and receiving their instructions. After luncheon, a client, so
it is said, feels more tolerant, more disposed to increase his price if
the shares he wants to buy are not obtainable at his original limit,
more disposed to accept a fraction less if his first selling order
should have proved at an impracticably high price.

But the great event of the afternoon is the reception of opening prices
from the New York Stock Exchange. In comparison with these, the Paris
quotations that arrive about noon are uninteresting, and the American
Market grows into a surging crowd between three o'clock and a
quarter-past. It is often remarked upon as singular that no official
prices are sent over from Wall Street; the arbitrage firms who deal
between London and New York alone know the prices cabled across, but by
their offering or bidding for shares it is obvious whether Wall Street
opens in good humour or bad. By rapid degrees the American fluctuations
become generally circulated; the market seems to be full of the little
pink slips that come flying in at the hands of boys and clerks stationed
in a line that stretches from the offices of the cable companies outside
the House to the very heart of the Yankee Market in the Stock Exchange.
Again the telephone and telegraph come into requisition, and the House
usually finishes up, unless there is really nothing doing, in a state of
more or less mild excitement. For one thing the markets are decidedly
crowded, everyone making a solemn point of being in at the close, and
for another, the brokers are engaged in a tour of the various
departments to make finally certain that they have overlooked no order
on their books which could be done, and to hear reports from the jobbers
in regard to limits that have been left during the earlier part of the
day. At four o'clock, at a signal from the main door of the Kaffir
Circus, a number of the waiters stand up with a loud shout of "Close!"
and the Stock Exchange doors are then open for exit only. Under no
consideration can a member or clerk re-enter when once the stentorian
"Close" has rung through the markets, and the cry is caught up by the
small fry in the street, who are waiting with their masters' hats and
umbrellas; so that the whole neighbourhood of Throgmorton Street knows
when four o'clock has come.

A cup of refreshment, and the broker hurries again to his office. A
clerk is left in the Street to report any vagrant movements which may
occur in the after-hours markets of mining shares or American Rails, but
the head goes back to attend to the correspondence. Herein lies one
great advantage possessed by the jobber over the broker; the former has
perhaps one letter to write, or possibly two; not often more, unless he
does a large shunting business with the country--taking advantage of
fractional differences of quotation which prevail in the provinces as
compared with London. But the broker finds himself confronted with a
shoal of letters, letters on every subject conceivably connected with
finance, besides a good many that are not. Some of the answers have, of
course, been dictated and written earlier in the day, but a good
proportion cannot be dealt with until the markets are over, and the
movements of the past six hours probably call for written comment to
clients who are interested in the various sections. Moreover, the
movements outside in the Street markets are possibly tending towards the
execution of fresh orders, so that altogether the post can with
difficulty be despatched on the sunny side of five o'clock even in quiet
times, and when business is active the hour may be considerably later.
The chief clerks are quite competent to deal with the finalities of the
correspondence, so that the heads of the firm need rarely stay to the
bitter end. Last of all come the batches of printed price lists, which a
good many brokers are in the habit of circulating amongst their clients.
Some firms not only issue, but print their own lists; at least one
complete set of printing machinery can be seen at work in the basement
of a broker's office.

Two or three late nights each fortnight are regarded as being all in the
settlement's work. The eve of each Pay day finds most offices employed
upon the details of transfer preparation, while many brokers have a
preliminary balance sheet struck of the account's work, and this also
falls to the share of what is called the Name or Ticket day. The actual
Pay day spells a sharp and shorter burst of activity. The office is
carpeted with bonds, embroidered with transfers, and effervescing with
cheques, not to mention such details as piles of sandwiches, trays of
ginger and other beer bottles, and similar refreshment for the
sustenance of those who have no time to spare for regular meals. Room,
too, must be reserved for the venerable lady client who wants to sell a
small amount of Consols for cash at the busiest time of the day, and who
looks so pathetically indignant upon being told that the transfer will
not be ready for an hour. But the day spins along at a great pace, and
everyone is thankful when the last batch of cheques goes into the Bank
upon the stroke of four o'clock. Echoes of the settlement haunt the day
following, and if the Pay day chances to fall on a Friday, there is
flying round to be done in order to clear the decks for Sunday. Provided
that the office is not too large a one, the number of duties that call
for attention is varied enough to make a day in a broker's office much
less monotonous than it is in so many other City spheres.



                              CHAPTER XVI
                      FROM A SOCIAL POINT OF VIEW


Other publications besides those mentioned in a previous chapter
frequently emanate from the Stock Exchange, but these are not, as a
rule, of an official character, nor even of a business character. The
members at times lay down their dealing books and pencils to turn to
literature of a more generally popular order. They have produced many a
book, mainly in the cause of charity. Such, for instance, is "The House
Annual," recently inaugurated. This is a sumptuously produced volume of
light stories, sketches, and articles, handsomely illustrated. It is
edited by a member of the Stock Exchange, and many of the contributions
are made by members, although its tasteful pages are not closed against
the work of eminent writers and artists outside the House. It is sold in
the Stock Exchange at Christmas time to provide poor children with
dinners. A most remarkable volume, or rather, couple of volumes,
produced entirely by members of the Stock Exchange unassisted, issued
for the same branch of charity, were entitled "The House on Sport." The
first contained articles on home sports, all written by members of the
Stock Exchange, and yet all written by authorities who would be
acknowledged as such throughout the world. Cricket by Mr. Gregor
MacGregor, boxing by Mr. B. J. Angle, golf by Mr. Mure Fergusson,
cycling by Mr. George Lacy Hillier, rowing by Mr. F. I. Pitman and Mr.
S. D. Muttlebury, sculling by Mr. Guy Nickalls, and so on with no fewer
than forty branches of sport. Such a volume might have been considered
sufficient to indicate the sporting proclivities of the Stock Exchange,
but it was followed a year afterwards by another compiled in the same
way with the same objects, containing articles on sport abroad--lion,
elephant, and rhinoceros shooting, big horn hunting in the Canadian
Rockies, wild sheep hunting on the borders of the Sahara--all the
articles contributed from personal experience by members of the Stock
Exchange.

The institution undoubtedly possesses the distinction of being the most
athletic body of business men in the whole world--when it walks it sets
the world a-walking. It holds its own small race meeting every year,
furnishes county cricket captains, international football players, and
so on.

It is doubtful, however, whether the members enjoy these organised forms
of sport more than they enjoy the impromptu games within the walls of
the House itself on slack afternoons, with all the practical jokes which
are found for idle hands to do. Cricket with walking-sticks and paper
balls, football with a tall hat, a lighted newspaper under the seat of a
dozing jobber, sweepstakes and raffles, a labelled back--all these
things are common enough. Sometimes the spirit of play is closely linked
with the spirit of business; when, for instance, a susceptible member is
induced by his conspiring friends to deal in Chartered Second
Debentures, or some other stock which does not exist, only to find, when
he has made something like a fortune or half ruined himself, that all
bargains are of necessity off. The Stock Exchange has many fixed
holidays during the year--they include not only all the Bank Holidays,
but also the first days of January, May, and November--and some unfixed
holidays on summer Saturdays, but the members do not await official
leave to play.

The institution has its own Orchestral and Choral Society of about 200
members, which has been established twenty years, gives a series of
subscription concerts each season, and is quite an acknowledged factor
in the musical world. There is an Art Society, also a Christian
Association, with a roll of members comprising some 250 names; and in
the Christian attribute of charity the members of the Stock Exchange as
a body are ever to the fore. Beginning at home, there is a Benevolent
Fund as old as the Stock Exchange itself, for the benefit of members who
fall upon troublous times. It has a capital of nearly a quarter of a
million sterling, and an annual income which, although it varies in
accordance with the prosperity of the times, has recently been over
£20,000. There is also a Stock Exchange Clerks' Provident Fund that has
been in existence about forty years, its income of about £2,000 a year
comprising the subscriptions of those clerks who are members of the
fund, and donations and subscriptions by members of the Stock Exchange.
There are about 1,500 members, and grants are made from the fund in
out-of-employment cases, in cases of illness and of death, and when
there are any special calls.

But the charity of the Stock Exchange by no means ends at home. To use
words recently written by a Lord Mayor of London, "the spirit of loyalty
and patriotism which has ever characterised the members of the House is
especially exhibited in practical and overflowing sympathy in times of
distress and anxiety." Those words were written in acknowledgment of the
receipt of a sum of nearly £35,000, which the members of the Stock
Exchange had subscribed to the Mansion House Fund for the relief of the
widows and orphans and other sufferers by the Transvaal War. They had
subscribed over £20,000 to the Transvaal Refugees' Fund, and gave not
only of their money but of their blood in the cause. One member returned
from the field with the Victoria Cross. The Stock Exchange supports its
own hospital wards, its own lifeboats, its boys' home, and so on.

Except in the vague idea of the puritanical faddist, the Stock Exchange
is an institution as lovable as it is fascinating. It may be, and often
is, the cause of ruin to those who abuse its facilities--to those who
are gamblers rather than either investors or speculators. It is quite
easy to draw the line between the three classes of business, or rather,
the two classes of business and the one class of folly. The investor
lends his money on perfectly safe security to the aid of commerce and
industry, expecting a comparatively small return, but that a safe one.
By so doing he is encouraged in thrift, whilst commerce and industry
enjoys the benefit of the capital, and the Stock Exchange is the medium
of it all. The speculator, less conservative, risks money, the loss of
which he is perfectly well able to afford, in the furtherance of
experiments in commerce and industry, be it the trial of a patent or the
opening up of a mine. He expects a big return should the experiment
prove successful, but is prepared to face the loss should it turn out
otherwise. He hopes to enrich himself, and without his aid commerce and
industry would make none of those rapid strides which are for the
welfare of the world, for speculation is the handmaid of enterprise. The
gambler, frequently usurping the name of speculator and thus bringing
legitimate speculation into ill-odour, risks money which he cannot
afford to lose, staking all in an inordinate desire for riches. Although
the line between speculation, which is perfectly legitimate, and mere
gambling can easily be drawn, it must be drawn by each individual for
himself. A perfectly legitimate speculation for a rich man might be an
act of folly for a man of moderate means. Between risking money which
can easily be afforded in a project well studied and thought out,
however uncertain, and risking money which cannot be afforded in a
project of which nothing is known, on the chance that some extraneous
circumstance may arise to multiply its value, there is a wide gulf
fixed. The gamblers it is from whom are drawn the operators and dabblers
who play with the Stock Exchange as they would with a pack of cards, or
with the chances of the race-course, to their own loss and to the profit
of insiders who, whenever they are called upon to play such a game,
always show in the long-run that they know most of it. It is the Stock
Exchange gambler rather than the investor, or the speculator who moves
legitimately within his means, who may rejoice in the boom with its
roaring business and rising prices, but who forms the real element of
danger in a slump with its sudden depreciation, and who frequently turns
the slump into a crisis, and eventually into a panic. These panics are
less frequently with us than they were, less widespread and less
disastrous in their effects, thanks to the rapid dissemination of true
news, and to the highly organised state to which the machinery of
finance has attained; but they will ever recur to provide a wholesome
check to those who are tempted to go beyond their depth, allowing
legitimate speculation to deteriorate into mere gambling. The Stock
Exchange offers facilities for such gambling, just as food offers
facilities for over-eating; yet food is not only a good thing, but a
necessity, and so is the Stock Exchange.



                                 INDEX



 Advertisement by members, 42
   outside brokers, 43

 Allotment, dealings before, 98-100
   Royal Commission on, 133, 137

 American prices, 156

 Apprenticeship of members, 18-19
   Royal Commission on, 127-8

 Arbitrage firms, 156

 Architecture of the House, 7

 Art Society, 164

 Athletics, 162-3


 Backwardation, 69

 Badges for clerks, 25

 Banging the market, 71

 Bank of England, Stock Exchange in, 43, 142-3

 Bankruptcy of members, 102-3

 Bank shares, dealing in, 145

 Baring crisis, 147

 Bar of the house, 9

 Battle of Throgmorton Street, 148

 Bearer bonds, 88

 Bearer securities, settlement in, 61

 Bears, 65-71
   definition, 67
   cornered, 71
   covering, 71
   raid, 71
   their effect, 70

 Benevolent Fund, 164

 Boom, 167


 Brokerage, 39-41, 49-50
   Royal Commission on, 132

 Brokers, 32-44
   advertising by, 42
   commission. _See_ Brokerage
   duties of, 150-60
   licensing of, 136, 139, 146-7
   list of, 43
   outside, 43-4, 121
   price lists of, 119
   underwriting by, 41-2
   and jobbers, disputes between, 36-7
   firms acting as both, 37

 Bucket shops, 121

 Bulls, 65-71
   campaign, 70

 Bulls, definition, 67
   stale, 71
   their effect, 70

 "Burdett's Official Intelligence," 146

 Business, how it is transacted, 45
   done, record of, 117-18

 Buying in, 61
   manager, 30


 Capel Court, 6
   Stock Exchange established in, 141-2

 Capital, organisation of, 3-4
   of the Stock Exchange, 13


 Carry-over, 51
   process of, 67-9

 Certification of transfers, 54

 Change Alley, Stock Exchange in, 65, 139, 140-2

 Charity, 161-2, 164-5

 Checking bargains, 48, 151
   room, 8

 Christian Association, 164

 Clearing house. _See_ Settlement Department

 Clerks, 23-5
   provident fund, 164

 Closing time, 119, 157

 Commission. _See_ Brokerage

 Committee, the, 26-31
   election, 26
   meetings, 28
   powers, 27-8
   qualification, 27
   Royal Commission on, 126-7

 Companies Acts, 145
   Committee on, 146

 Consols, put option on, 73-4
   put and call on, 76-7
   transfer of, 85-7

 Consol settlement, 56

 Contango day, 57
   rate, 68-9

 Continuation. _See_ Carry-over

 Contract note, 48-9

 Cost of the House, 13

 Coupons, 88

 Covering by bears, 71

 Cumulative preference shares, 93


 Debenture stocks, 91-3

 Debentures of the Stock Exchange, 14


 Defaulter, 60, 101-8, 131
   assistance forbidden to, 101
   declaring a, 102
   and clients, 103-6
   readmission of, 106-8, 131

 Deferred ordinary shares, 94-6

 Definitions of the Stock Exchange, 1

 Differences, speculation for, 50
   payment of, 60

 Directory of members, 124

 Discount, 115

 Dividends paid by the Stock Exchange, 16-17

 Drawings of the interior, 8

 Dual control of the Stock Exchange, 30
   Royal Commission on, 126


 Employees, dealing for, 50-51

 Entrance fee for members, 21, 25
   authorised clerks, 23
   unauthorised clerks, 24

 Establishment of the Stock Exchange, 141-2

 Exchange Telegraph Company, 121-2

 Ex dividend, 115-16
   rights, new, all, 117

 Expulsion, 28


 Failures. _See_ Defaulter

 Fixed charge stocks, 92

 Foreign Loan Exchange, 142

 Foreign Loans Committee, 146

 Foreigners, exclusion of, 18

 Founders' shares, 96-8


 Gambling, speculation, and investment, 130, 165-8

 Garraway's Coffee-house, 139

 Gorgonzola Hall, 7

 Guarantors for new members, 20


 Hall of Commerce, 144

 Hammering, 102

 Hammer price, 103

 History: a sketch, 138-49

 Holidays, 29, 163

 "House Annual, The," 161

 "House on Sport, The," 162


 Incorporation proposal, 135-7

 Inscribed stocks, 85-7

 Interior of the House, 7-13



 Jobbers, 32-44
   as specialists, 34-5
   abolition question, 129

 Jobber's turn, 47

 Jonathan's Coffee-house, 140-41


 King's visit, 8, 146


 Lame Duck, 65, 71

 Leeman's Act, 145

 Library of financial documents, 123-4

 Literature, 161-2


 Making a market, 113
   Mr. Justice Wright on, 148

 Making a price, 44

 Making-up day, 57
   price, 67-8

 Managers, the, 14

 Markets in the House, 9-12

 Marking prices, 48

 Members, 18-25
   admission, 20-21
   apprenticeship as clerks, 18-19, 25
   directory of, 124

 Membership restrictions, 18-19, 22

 Mining Contango day, 57


 Name day, 51, 57

 National Debt, 138

 New House, the, 146


 Official Assignees, 102, 104, 106

 "Official Intelligence," 123

 "Official Intelligence," predecessors, 146

 Official List, 29, 109-10
   growth, 5
   magnitude, 34
   marking prices for, 48
   quotation in, 110-15
   Royal Commission on, 133-5, 137

 Options, 72-83
   call, 72, 74
   day-to-day, 79
   effect on the market of, 83
   operating on, 80-83
   prices for, 77-9
   put, 72-4
   put and call, 73, 75-7

 Orchestral and Choral Society, 164

 Ordinary shares, 94

 Overend-Gurney crash, 145


 Panics, 144

 Par, 115

 Partnership prohibition, 33

 Photographs of the interior, 8

 Play in the House, 163

 Population of the House, 18

 Practical jokes, 163

 Preference shares, 94

 Preferred ordinary shares, 94-6

 Premium, 115


 Prices, double, 45-6
   marking, 48
   wide, 46-7

 Price lists and records, 109-24
   brokers', 120

 Proprietors, the, 13

 Prospectuses, 112-15

 Provident Fund, 164

 Public admission question, 131-2


 Quotations. _See_ Prices


 "Railway Intelligence," 146

 Railway mania, 144

 Registered securities, 87

 Rigging the market, 70

 Royal Commission, 125-37

 Royal Exchange as the Stock Exchange, 138

 Rules, 27-8, 142


 Scrip, 100
   settlement in, 62

 Secretary of the Stock Exchange, 15

 Secretary to the Committee, 30

 Selling out, 51-2, 61

 Settlement, the, 56-64
   office work of the, 159-60
   special, 62, 98


 Settlement department, 58-60
   establishment of, 145
   manager, 30
   Royal Commission on, 129

 Settling room, 8
   clerks, 24

 Share, definition of, 1-2, 84
   certificate, 53-5

 Share and loan department, 54
   manager, 30
   removal, 149

 Shares of the Stock Exchange, 16

 Shorter's Court, 119-20

 Situation of the house, 6-7

 Slump, 167

 South Sea House as the Stock Exchange, 139

 Speculative business restrictions, 50-51
   made illegal, 140

 Sport, 162

 Stags, 66-7

 Stamp duties, 49

 Stock, definition of, 1-2, 84
   certificate, 53-5
   inscribed, 85-7

 Strangers in the House, 8

 Street markets, 119-20
   battle of the, 148

 Subscription for members, 21-5
   authorised clerks, 23
   unauthorised clerks, 24

 Superintendent, general, 15


 Talons, 88

 Tape prices, 12, 121-2

 Telephone, use of the, 154-5

 Tickets, 51-2, 57-9
   for inscribed stocks, 86

 Ticket day, 51, 57

 Transfer, 52-5
   of Consols, 85-7

 Transvaal War Fund, 165
   Refugees' Fund, 165

 Trustees and Managers, the, 14

 Trustee stocks, 89

 Turn, jobber's, 47


 Underwriting of capital, 41-2


 Vendors' shares, 98


 Waiters, 12, 102

 Wares of the Stock Exchange, 84-100

 "Weekly Official Intelligence," 122

 Wide quotations, 46-7, 118


 _x d_, 115-16



Transcriber's Notes:

Missing or obscured punctuation was corrected.

Typographical errors were silently corrected.





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