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.