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.