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Title: The Stock Exchange

Author: Charles Duguid

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Language: English

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*** START OF THE PROJECT GUTENBERG EBOOK THE STOCK
EXCHANGE ***

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
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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 18
Clerks

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 125
View

XIV. A Sketch History 138

XV. A Broker's Day 150

XVI. From a Social Point of 161
View

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 10s., 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
10s. 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 18s. It went on increasing
steadily for many years after that: £5 being paid for 1888, £6 for 1893, £7
10s. 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 10s. 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 2s. 6d. per cent. on the nominal value of
stock bought or sold; for Bank of England and Bank of Ireland stock it is
5s. 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, 5s. per cent. on the nominal value; for foreign
Government bonds the rate is 2s. 6d. 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-
1/2d. to 2s. 6d. 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 10s. 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, 1s. from £100
to £500, 2s. 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 2s. 6d. for each additional £25 or part up to £300; 5s. 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 10s. 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 10s. 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 10s.
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 10s. 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 13s. 1d. 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 6s. 8d.
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
20s. 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 10s. a year, exclusive
of postage, and single copies may be obtained for 1s. 3d. 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 50s. 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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