THE STOCK EXCHANGE.
THE Stock Exchange is a market for the
sale and purchase of all kinds of securities.
The buildings, wherein business is transacted,
occupy a triangular plot of ground near the
Bank of England, and comprise the Hall where
the various markets are held, and other rooms
and offices for the use of the numerous officials.
There are 2,500 members, and the management
is vested in a Committee selected from their
number. Admission to membership is open to
any person not engaged in another business,
and who is properly proposed and seconded;
but very strict regulations and guarantees are
enforced before entry, so as to exclude any one
whose circumstances and character will not bear
the strictest investigation. The hours of busi-
ness are eleven to four o'clock on all days except
Saturday, when they are until two o'clock. The
members of the house are divided into Jobbers
and Brokers, the former being dealers in stocks
and shares. It is contrary to practice for
brokers to deal with brokers, and all trans-
actions are between brokers and jobbers.
What are known as "markets" are groups of
jobbers distributed about the house, each group
having its own particular dealings, one in
Government Stocks, another in English rail-
ways, a third in Foreign securities, and so on.
A broker having received an order from a
customer to sell £1,000 Great Eastern Railway
Stock, would go to the English railway group
and inquire of a jobber the price or quotation
for Great Easterns, without disclosing whether
he wants to buy or to sell. The jobber replies,
"115 1/4 to 115 1/2"; whereupon the broker says, "I
sell at 115 1/4," when the bargain is completed,
without any memorandum or written contract,
the verbal communication being alone in use,
and the jobber is bound by it. It will be
observed that the lower price, 115 1/4, is accepted
by the broker on behalf of his customer, as a sale
is always effected at the lowest quotation, and a
purchase at the highest. Another broker pre-
sently goes to the jobber and asks the same
question receiving the same reply, 115 1/4 to 115 1/2
the broker says, "I buy of you at 115 1/2," being
the highest quotation. The difference of 5s.
between the sale and the purchase is the Job-
ber's profit. The broker charges his customer
his own commission or brokerage on the trans-
action, which ranges from 2s. 6d. per cent. on
the Government and Colonial Stocks up to
10s. per cent. on railway stocks. This is the
elementary stage of the business of the Stock
Exchange, but the variety of the securities dealt
in, under constantly changing circumstances,
the number of transactions, and the amount
of money changing hands, involve intricate
accounts and arrangements, which need not be
particularised here. Accounts are settled fort-
nightly, the precise dates being fixed some time
before by the Committee of the house.
Many speculators, however, especially those
who have bought stocks and shares with the
expectation that they will speedily rise in price,
do not find it convenient to pay the purchase-
money on the appointed settling day; so pay-
ment may, by arrangement, be carried over to
the next settling day. For the accommodation
a certain charge, which is called "contango,"
is made, the amount varying with the value of
money and the quality of the stock. "Back-
wardation," on the other hand, is a commission
paid in order to postpone the delivery of stocks
or shares which a speculator contracts to sell,
but which he never possessed. He is a specu-
lator for the fall, hoping by the delay to be able
to purchase the same stocks and shares at a less
price than he bargained to sell them for, and so
make a profit out of the transaction. Specu-
lations for a rise are known on the Stock
Exchange as "Bulls," and their object is by
every manner of means to get the prices of the
stocks they are dealing in pushed up as much
as possible. Speculators for a fall are called
"Bears," and they are equally anxious to send
prices _down_. So sensitive is the stock market
that prices are easily affected; the rumoured
prospect of an important dividend from a rail-
way company will at once probably influence
the price of its shares, whilst a report of a
disastrous accident will have the contrary effect.
A "boom" in the money market is a cheerful
desire on the part of the speculative public to
be purchasers at advancing prices, and this
betokens good business for the brokers and
jobbers. A "boom" in any particular stock is
a buoyancy in prices, caused by some favourable
rumour, whether founded or unfounded, more
often the latter, and set agoing in the interest of
persons who desire to get rid of surplus stock.
A "boom" in railway shares is often brought
about by increased traffic receipts; a "boom"
in mining shares is caused by one or two com-
panies having produced more gold this month
than last; and a "boom" in foreign stocks
is due to the settlement of some political or
other difficulty, &c., &c. A "slump" is just the
reverse, being an unaccountable depression
which sometimes fastens upon the specula-
tive world, and betrays distrust in everything.
Unless this feeling is checked in time it
degenerates into "panic," when prices fall to
a ruinously low figure.
Each fortnightly settlement includes three
days -- the first being continuation or "con
tango" day, when all transactions of a specula-
tive description are arranged to be carried over
to the next settlement day. The second is the
ticket day, when the names of purchasers and
sellers are handed over. The third is pay-day
when all amounts or balances due for stocks
bought or sold are paid or received. The great
bulk of business being purely speculative, the
first day is the busiest; after noon on that day
all new transactions entered into are for settle-
ment at the next account day, unless otherwise
specially arranged.
Any sums of money may be invested in, or
any particular amount of stock purchased of, the
Government Funds, through a broker or banker,
and there is practically no limit to the quantity
that may be held. In the books of the Bank of
England an account is opened, and the name,
address, and description of the investor care-
fully registered. A memorandum is given of the
transaction, but it is of value only as such, not
being in the nature of a certificate or receipt,
and it is not required to be given up or produced
in the event of a sale or transfer of the stock or
any portion of it. Accounts may be opened in
one, two, three, or four names, but not more, and
four different accounts may be open at the same
time in the same name or names, but they must
be distinguished as accounts A, B, C, and D.
In order to sell stock the holder may attend
at the Bank of England himself accompanied
by his broker, and then and there have the
transfer made and the money paid. But this
would be unusual and held to imply mistrust,
without perhaps occasion for it. The safest plan
is for the holder to instruct his bankers to carry
out the transaction, and give them a Power of
Attorney to enable them to do so. A special
form of power is provided by the Bank of Eng-
land, the cost of which is 11s. 6d. The Inscribed
or Registered Stocks of most of the Colonial
Governments are dealt with in the same way, as
well as Indian stocks and the stocks of many of
our larger towns. The account of an investor
may be added to or diminished at any time with-
out difficulty or delay.
The stocks and shares of railway and other
companies may be purchased through a broker
or banker, and the holder passes them over to
a buyer by a formal deed of transfer. The
purchaser's name, address, and description are
carefully registered in the books of the company,
and he has then accepted all the responsibilities
that may attach to the shares. For instance, the
shares he has bought may be only partly paid
up. The shares in railway companies are
usually paid up in full, but it may so happen
in an issue of new shares that they are paid up
by periodical instalments; in which case what
has already been paid is known as "scrip," and
retains that name until developed into fully-paid
shares. A company formed of £20 shares may
have called up only £5 on each, and with no
intention of demanding more, yet the holder is
liable for £15 on every share he holds, and
before he invests his money he should be careful
to ascertain the full extent of his liability.
Some little time after the transfer of the stock or
shares has been completed, a certificate will be
issued by the company, giving full particulars
of the holding, and this certificate must be care-
fully preserved, as it will be required to be given
up before all or any portion of the property can
be sold. The Colonial, foreign, and other bonds
payable to the bearer, which have been pre-
viously described, are purchasable through a
broker or banker, and handed over without any
transfer or other formality. Bonds of this
description should be left in the safe custody
of a banker, who would cut off and collect the
interest coupons attached, as they became due.
As an example of the hazard incurred by
keeping securities of this kind in one's own
house, the writer remembers a case where a
gentleman was examining in a room of his
house, by the light of a candle, some bonds
which he afterwards locked up in an iron safe.
It was dark outside and the blind was drawn up,
so that any one from the garden could see all
that was going on in the room. Next morning
the empty safe was found in the grounds and
the contents had been carried off. All the par-
ticulars of the bonds were at once telegraphed to
the Stock Exchange, the London banks, and the
Police authorities. Some months afterwards the
bonds turned up in the hands of a banker in
London, who had received them from an agent
abroad. An action was brought by the original
owner for their recovery, but it was of no avail,
as the securities had come into the hands of the
banker in the course of regular business, and so
the loser could get no redress and, moreover,
had to pay a large amount in costs.
The broker, who is a member of the Stock
Exchange, from the precautions taken on his
admission, should be a responsible person, whom
it would be safe to entrust with any business
which might be put into his hands. His deal-
ings, however, are chiefly on behalf of the
bankers and outside brokers, acting for them-
selves and the public. There are numerous
outside brokers (that is, brokers who are not
members of the Stock Exchange) in London
and all over the country. In every profession
there are some doubtful members, and stock-
broking has its fair share, but with ordinary
vigilance on the part of their customers, well-
established brokers will carry out their com-
missions faithfully and reasonably. As to the
advice, however, a broker may have to offer in
the way of investments, it must be remembered
that he is no more than mortal, and would at times
be prone to submit such securities as he him-
self, on behalf of a client, would most desire to
dispose of. In this way, too, the country broker
is liable to be pressed by his London agent to
get rid of particular stocks or shares which hang
heavy on hand. However, bearing this well in
mind, an investor may gain much useful infor-
mation from his broker, although for sound
advice his banker is to be preferred.
Members of the Stock Exchange are not
allowed to advertise themselves or their firms,
but most of the daily newspapers in London
have an agent in the house, either a jobber or
broker, who furnishes to his principal for publi-
cation a daily report of the state of the markets
and the current prices of the day, which in that
way reach the eye of the public. It may be
assumed that in the better class of journals the
information thus afforded is perfectly trust-
worthy, although some years since one of the
leading newspapers was imposed upon by its
agent, who took advantage of his position to
manipulate certain matters for his own ends.
Less scrupulous publications, however, are freely
made use of to influence the public, to cry up
or prejudice the markets and particular concerns.
The provincial broker, as a rule, limits his ad-
vertisement to the name and address of his firm,
with a quotation of the prices of a few of the
stocks mostly dealt in, and monthly, or quar-
terly, sends an extended list to his customers.
The outside broker who advertises himself freely
in the newspapers, as well as by pamphlets and
circulars, is to be avoided. He will invite you
to participate in his system -- always an in-
fallible one -- of operating. He will suggest
"options," "put and call," the "cover" system,
and other devices by which the inexperienced
may be mystified and beguiled into losing their
money. However astute a man may consider
himself, experience proves that, with amateurs,
this kind of gambling is sure to result in loss.
An ingenious mode of practising on the cre-
dulity of the public may be noticed in some
financial publications. An editorial notice or
subsidised paragraph will be inserted in the
paper, extolling the merits and predicting the
certain success of some concern which it is
desired to bolster up or to foist upon the public.
This is done in such a way that the reader is
expected to believe that it is the genuine ex-
pression of a truthful opinion by the editor, who
has obtained his information from unimpeach-
able sources. Of course, this peculiar kind of
advertisement has to be paid for, but it has its
advantages to the advertiser, for it can (for a
consideration) be quoted by the country papers
as unbiassed news, and attention called to it in
a money article or leaderette. The pamphlets
issued by the advertising outside broker are
sometimes amusingly artless in the endeavour
to sell shares and attract custom. On the first
page will be found some paragraphs setting
forth the merits and prospects of certain named
companies, and advising the reader to buy
shares in them without a day's delay, as a con-
siderable and speedy rise in value is assured.
One may be permitted to wonder why the
broker and all his friends do not rush in and
secure every share that is to be had. At the
end of the paper the reason will be discovered;
in every one of the concerns referred to shares
are offered for sale, which cannot be got rid of
in the regular market. It must be inferred that
some credulous persons are taken in by this
transparent artifice, or it would not be so con-
stantly practised. The object of these publica-
tions is chiefly to puff up doubtful securities, in
the hope that some fatuous speculator may be
tempted to buy. It is delightful when two of
these gentry fall out and expose each other's
knavery. The reader is assured that "Codlin's
his friend, not Short"; the latter is denounced
as a fraud and retaliates, but no action for libel
is brought, because both know that on either
side the imputation is justifiable.
It may excite surprise in some who are
favoured with circulars and prospectuses which
are, through the Post Office, sown broadcast
over the whole country, how the name and
address of a comparatively obscure individual
should be known. Prospectus and circular
distributing is a business conducted on a regular
system. When it is desired to invite subscrip-
tions to float some new company or to bolster
up some concern, the share lists of the same
sort of companies already in existence are
drawn upon for names and addresses; and
court directories also furnish a wide field for
operations.
At the present time the rage appears to have
set in for forming limited liability companies out
of private industrial concerns or trading firms.
Most of these companies, we are told by an
authority, "are brought out under the same
auspices" -- that is they are started and floated
by a skilled personage known as a "promoter."
The stereotyped prospectus must now be familiar
to most people, and the public respond freely
to the invitation to subscribe for shares, without
consideration or inquiry. The prospectus is
usually replete with statistics, showing the suc-
cess which has attended the business whilst in
private hands, and the enormous profits made;
and one is apt to wonder why they did not keep
it to themselves, instead of inviting the public
to share in the gains. But there are good com-
panies and bad companies, and it is to be feared
that the latter largely preponderate. A good
company may have a genuine reason for its
existence, such as the desire of a last surviving
partner to retire from active life, or the growth
of the business to such an extent that more
capital is required than could be obtained from
a private person, or upon some other equally
valid ground. A bad company is often the
make-shift to save a decaying firm from insol-
vency, or to dispose of a business at a price
quite out of proportion to its real value. The
prospectus affords no opportunity of discrimi-
nating what is genuine and likely to succeed
from what is false and sure to fail. If, as it has
been said, eighty per cent. of companies floated
sooner or later go to the wall, then, indeed,
inquiry and much circumspection are needed
before entering upon a speculation of the kind.
It must be said, however, that many companies
formed from trading concerns have become well
established and profitable, and if permanency
could be relied upon, they furnish a field for
lucrative investments. Those adventures which
are unduly pressed upon the notice of the public
should be regarded with suspicion. If a thing
is really good in itself, it will not require much
persuasion to commend itself; and if bad, no
purchased laudation will make it better. A
subtle mode of advertising is just now coming
into vogue, which, though expensive, will for a
time be successful. There need be no reflection
on the companies which adopt it, though calcu-
lated to beguile the innocent and confiding in-
vestor. A leaf or two introduced in some of
our illustrated papers, in no wise differing in
the printing from the remainder of the publica-
tion, and appearing as though it formed part
of the regular pabulum offered to the public.
This leaf or leaves contain well-executed pic-
tures of the works and machinery and other
interesting objects connected with the industry
of a company to which it is desired to call
attention, and a descriptive account is given of
its magnitude and success. To the casual reader
all this would appear to be a matter of public
interest, offered to the public as part of the
regular business of the paper, but it is only an
ingenious form of advertisement and has to be
paid for as such, but that is of no consequence
if the effect is produced, of a rise in the price
of the shares. There are some companies whose
shares are quoted at such enormous premiums,
and which pay such high dividends, that the
investor is sorely tempted to embark in similar
undertakings, apparently, that are brought be-
fore the public. But these prosperous concerns
are in most cases first taken up by a syndicate
-- that is, a certain limited number of persons
behind the scenes -- who finance and float the
company, and when success has been attained,
the public are granted the privilege of purchas-
ing shares -- but at such a price as the syndicate
choses to put upon them, and, not seldom, that
is the highest they ever attain. This is particu-
larly the case with mining companies, the
successful ones having certainly only benefited
the few. This syndicate system has given rise
to a bogus imitation, which, however, appears to
have met with but limited success. Circulars in
lithographed writing, marked "private and con-
fidential," and implying a friendly interest in
those addressed, are sent to persons whose
names are obtained in the manner already indi-
cated. An invitation is given them to join a
syndicate about to be formed to float a certain
company, the profits arising from the operation
being certain and enormous. Again, if it be
such an excellent and certain venture, why offer
a share to an entire stranger? These circulars
are very speciously worded, and there is an air
of candour about them likely to allure. Anyone
foolish enough to subscribe would probably,
after an interval, be informed that owing to un-
foreseen circumstances the adventure had turned
out a failure, and that all the money had gone
in expenses. Successful gold mines have
yielded large fortunes to their proprietors, but it
must be remembered that mines have but a
limited existence, and once they are worked out
the money invested in them is lost; for when
they cease to yield ore there is nothing more to
be obtained from them. Promiscuous dealing
in mine shares is nothing more or less than
gambling, or taking part in a lottery in which
the blanks are overwhelming and the prizes
next to nothing. If an enterprise has in it any
degree of soundness or promise, there are plenty
of the knowing ones ready to step in and take
all the advantages to be gained; it is the des-
perate ventures and unscrupulous swindles that
the public are mostly pressed to support -- only
to lose their money. It is to be hoped that the
dupes are at length awake to the pit-falls dug
for them by the mining company promoter and
speculator, whose seductive paragraphs are
everywhere in evidence in the advertising sheets
of the day.
A typical example -- and not a fictitious one
-- of hundreds of knavish concerns foisted on
the public may be quoted. A certain company,
of which no prospectus has been issued, nor of
which anything is publicly known, appears in
the mining lists. One day, a paragraph in a
financial paper reports that the agent for the
mines, on the spot, has cabled that the promise
of success exceeds all expectations, that samples
of ore, yielding three ounces to the ton, have
been found, and that the necessary machinery
must be sent out at once. This is followed up
by an editorial leaderette (of course, paid for),
in which the writer expresses surprise that the
shares of so promising an enterprise should be
at so low a price, and predicting a rapid advance
when the work is further developed. These
notices effect their purpose to the extent of rais-
ing the quotations of the shares a few shillings,
but this is not enough for the promoter; a cir-
cular is next issued, in the usual way, to the effect
that the directors have been fortunate enough to
secure additional property near their own, which
furnishes wood and water, so essential to the
proper development of the mine, and including,
moreover, alluvial pits abounding in gold. An
elaborate lithographed sketch of the property,
with mines at work and a steam-engine, accom-
panies the circular, and the whole presents an
appearance of real business. The next move is
the statutory meeting of the shareholders, which,
however, is very sparsely attended, as the vic-
tims are chiefly people residing in the country,
who do not care to incur the expense of a journey
to London. The man who presides at the meet-
ing, an outside broker, begins a speech by
apologising for the absence of the chairman of
the company (of whom the shareholders hear
for the first time), and then goes on to describe
with tedious detail the technical working of the
mine, the stopes and veins, and bunches of gold
that there are, and the stamps, machinery, &c.,
that there are to be. He describes what has
been done in the alluvial pits, and the prospect
of wealth to be drawn therefrom as beyond the
dreams of avarice, and winds up with warm con-
gratulation of the proprietors on the valuable
property they possess. Whether he has over-
done his part or something prejudicial to the
company leaks out, the shares which had
changed hands at 10s. gradually drop to 5s.
Then a circular goes the round in which some
member of the ring of knaves invites the public
to join a syndicate to buy up five thousand of these
shares which he has, through peculiar circum-
stances, been able to secure the refusal of at 4s.
a share. A special meeting of the shareholders
is next called, when it is announced that more
capital is required, and that it will be necessary
to pay up the one shilling per share which still
remains outstanding. A last desperate effort
to get rid of the shares at any price is then
resorted to before the call of one shilling per
share becomes payable, and some thousands are
offered at one shilling and sixpence each. After
the time has expired for paying the call, a last
circular is issued, intimating briefly that the
eminent engineer, who has originally given such
a glowing account of the mine, now reports that
there is no present indication of gold on the
property, but that possibly some might be found
if they dug deep enough!
The name of the company has disappeared
from the mining share list, and it will be heard
of no more. It is doubtful if there ever was any
property, or engineer, or board of directors, or, in
fact, anything more than the outside broker and
his confederates.
Of the _bona fide_ speculative undertakings in
South Africa and Australia, the exploration
and finance companies, or some few of them,
have made the largest profits. Their system,
broadly speaking, is to acquire certain tracts of
land in a gold-bearing district, and then let
small portions on lease to different subsidiary
companies, which have been floated to develop
gold or whatever else these portions may con-
tain. The price paid to the parent company is
made up of; perhaps, one half in cash and the
other in the shares of the new concern. An im-
mediate profit accrues from the payment in cash,
and there is a wide field for further gains if the
operations of the subsidiary companies are suc-
cessful. But in this, as in all speculative enter-
prises, the prizes have been few and the blanks
many.