CHAPTER X. The Paris Bourse; a Monopoly Under Government

THE PARIS BOURSE; A MONOPOLY UNDER GOVERNMENT

“Patriotism makes it a duty for us to acknowledge the fact that the Bourse represents one of the live forces of France,” wrote Anatole Leroy-Beaulieu in one of the finest tributes ever paid to a Stock Exchange. “It has been for France an instrument of regeneration after defeat, and it remains for us a powerful tool in war and in peace. Let us recall the already remote years of our convalescence, after the invasion, years at once sorrowful and comforting, when with the gloom of defeat and the suffering of dismemberment, mingled the joy of feeling the revival of France. Whence came our first consolation, our first vindication before the world? Whether glorious or not, it originated on the Bourse.”

The victorious Prussians were at the door in the humiliating crisis of 1870 and ’71 to which the author refers, France was prostrate. Alsace and parts of Lorraine were to be ceded to the victors, together with an indemnity of five billion francs, and Paris was in control of the Reds. In that dreadful saturnalia of violence and crime which has made the name of the Commune infamous, the honor of France was threatened, and the credit of the new Republican government, especially its ability to maintain its authority and to fulfill its terms with the Prussians, seemed hopeless and cheerless indeed. How Thiers became the brains of the rehabilitation of France, with what vigor he entered upon the task that has handed down his name as the most influential political figure in French history--with what rigorous measures MacMahon suppressed the Commune--these are spectacular incidents with which every schoolboy is familiar. But the work of the Bourse in that episode--silent, unobtrusive, and lacking the sensational features of which popular histories are made, is by no means so well known, although upon its labors devolved the real upbuilding of France. Thiers never ceased to congratulate himself on the assistance it gave the country at a time when the liberation of French territory hung in the balance.

“The Paris market came out unscathed from the ruins of the war and of the Commune,” continues our author, “and straight from the hardly ratified peace and quelled insurrection it threw itself into the work for France’s regeneration; because it was, indeed, for France’s regeneration that the stockbrokers and merchandise brokers worked under Thiers and MacMahon. In the worst days the Bourse had the uncommon merit of showing an example of faith in France. When more than one political skeptic and discouraged thinker allowed themselves to write down upon the crumbling walls of our burned-down palaces “Finis Galliae,” the Bourse kept its faith in France and her fortune, and that faith in France was spread by it all around, at home and abroad.

“Speculation was patriotic in its way; it exhibited a confidence in our resources which the discretion of many a wise man rated as foolhardy. Have we already forgotten our great loans for liberation? Without the Bourse, these colossal loans, the amount of which exceeded the dreams of financiers, would never have been subscribed for, or, if ever, it would have been only at rates much more onerous for the country. Without the Bourse, our French rentes would not have taken such rapid flight; our credit, restored even more quickly than our armies, would not have equaled that of our victors, on the very morrow of our defeat. In that regard, all that justice demanded us to say previously of the higher banking institutions may with right be repeated concerning the Bourse.

“To those who lived through that pale dawn of France’s recovery--the rush of the Bourse and of capitalists to offer us the thousands of millions which we required exceeded the eagerness and boldness of speculation. But even if we were to consider it but gambling and betting for speculation, such speculation was betting for France’s regeneration; it bravely placed its bet on the vanquished. Those national and foreign financiers, who have been accused of pouncing upon her like birds of prey, brought to the noble wounded their dollars and their credit, and if they reaped a profit thereby, are we to reproach them for it, when they helped us to reconstruct our armies, our fleet, and our arsenals?

“If France regained her rank among the nations of the world so quickly, the credit for it should be mainly given to the Bourse. And to its services in war, we should, if we wanted to be just, also add its services in time of peace. Without the extensiveness of the Paris market, and the stimulus given to our capitalists through speculation, how many things would have remained unaccomplished in the recklessly overdriven condition of our finances? We should have been unable to complete our railroad system, or renew our national stock of tools, or create beyond the seas a colonial empire which shall cause France to be again one of the great world powers. When the Bourse is on trial, such credentials should not be overlooked. Before condemning it in the name of morality and private interests, a patriot should give due consideration to its services rendered for the national weal; if all its defects and misdeeds be heaped up on one scale tray, then services of like importance will easily counterbalance them.”

Singing the praises of Stock Exchanges is a thankless task, and one that falls upon deaf ears. The very nature of its functions makes dull reading. It cannot hope to enlist the lively enthusiasm of the casual observer, nor has it picturesqueness to brighten the pages of history. The layman visits the great exchanges as a matter of course; the scene is animated and diverting; he sees the outward manifestations of energy and movement, but too often he misses the great silent forces at work. The eye has a fine time of it, but the intellect comes away empty. These are reasons why I have ventured to quote the foregoing passages from M. Leroy-Beaulieu. Somewhere in his earnest tribute to the work of the Paris Bourse the reader may find food for thought.

The Bourse in Paris differs from all others in that its membership consists of but seventy. These Agents de Change, as they are called, enjoy an absolute monopoly not only to trade in government and other officially listed securities, but also to negotiate bills of exchange and similar instruments of credit. In these circumstances it is easy to see why the Bourse is an institution of enormous strength, notwithstanding the fact that, because of the deep-rooted conservatism of the French in financial matters, it stands a poor second to London in international business.

It exists by virtue of the decree of October 7, 1900, regulating the execution of article 90 of the Code du Commerce and of the law of March 28, 1885, as modified by the decree of January 29, 1898. These laws provide that Agents de Change of the Paris Bourse must be French citizens over twenty-five years of age, and in possession of civil and political rights; they must be nominated by official decree signed by the President of the Republic. They must have performed their military service or satisfied the law as to such service, they must produce a certificate of fitness and good character signed by the heads of several banking and commercial firms. Agents de Change are, in reality, officers of the government, since the seventy ministerial appointees are entrusted with the exclusive right of dealing in government securities; all such dealings, in fact, when not made directly by private individuals, must be made through Agents de Change.

The enjoyment by stockbrokers of a complete monopoly under government is sufficiently unique to warrant an inquiry as to the origin of such a curious privilege. The employment of stockbrokers by persons who wished to sell certificates, or other negotiable instruments of the period, was made obligatory by an edict of Louis XIV in 1705. Twenty “offices” (memberships) of brokers in Paris were then created, and these twenty were accorded a monopoly similar to that of to-day. Prior to that period there had been “offices” of exchange brokers, bank brokers, and merchandise brokers, but the King felt that these were not contributing enough to the Royal exchequer and swept them all away in the edict of 1705, when the present system had its birth. The wars and the King’s extravagances had placed the exchequer in a bad way, and between 1691 and 1709, some 40,000 privileges of various kinds were sold for cash, among them the privilege under which these twenty men were to do the business of stockbroking in Paris. “Sire,” said Pontchartrain, “every time Your Majesty creates an office, God creates a fool to buy it.”

But the stockbrokers were not to remain in undisturbed possession of their new privileges, for, whenever the state of the Royal finances was low, the King withdrew the old offices in order to grant new ones, always for cash, to fresh buyers, and this was repeated again and again. Thus the next King Louis XV, whose personal follies, together with the schemes of the Scotchman, John Law, brought the country to the verge of ruin, repealed in 1726 the Edict of 1705 and returned to it again in 1733. His successor, the weak and incapable Louis XVI, repeated this performance in 1785, 1786, and in 1787. In 1788, the stockbrokers having agreed to waive accumulated interest on their security deposits, were again established in their powerful monopoly. The critical financial situation that arose in the early days of the Revolution saw them again legislated out of office (June 27, 1793); the Bourse was closed, the stockbrokers arrested and their goods confiscated, because, in the imperfectly understood economics of the period, the decline in Frenchpaper currency (assignats) was attributed, faute de mieux, to stock-jobbing. Two years later the Bourse was opened again, and after eight days--the assignat continuing to decline, it was again closed. Meantime France went into bankruptcy.

In 1801 the modern Bourse was established and firmly fixed by the legislative work of the Consulate. The law then enacted requires that stockbrokers be appointed to their public trust by the government, which shall be guided in its choice by their moral character and their professional knowledge, and shall, besides, demand the pledging of a part of their fortune with the State as a guarantee of their good conduct and of proper expiation for their errors or failures. The law also emphasizes the principle of the freedom of commerce, expressly stating that nobody is obliged to have recourse to an intermediary, if he does not desire it. Further, the stockbrokers were subjected to several regulations with a view to prevent speculation and stock-jobbing. Thus, they were obliged to keep a journal; their books were to be marked and signed by the president of the Tribunal de Commerce; they could not trade nor carry on banking for their own account; no one who had been in bankruptcy was allowed to assume the duties of a stockbroker.

The law also makes the stockbroker responsible for the delivery of the securities sold and for the payment of the sums stipulated, even before either have been received by him from his clients, his security being appropriated for this pledge if need be. This responsibility was intended as a check upon transactions for future delivery, which, however, were made legal in 1885. This law of 1801, it will be observed, provided that stockbrokers were to be appointed by the government, and that their commissions were subject to repeal. In 1816 they scored a great advantage by securing the enactment of a measure by which they were permitted to introduce their successors with the consent of the government. This “right of introduction,” says M. Vidal, “is practically an article for sale. The stockbroker, on retiring, does not sell his office (membership), but he sells to his successor the right of introduction.”

The price of this right in recent years has varied from 1,500,000 to 2,000,000 francs ($300,000 to $400,000). A candidate, proving satisfactory to the government, must in addition deposit 250,000 francs ($50,000) as a bond or security to the government, which pays interest on the deposit, and 120,000 francs ($24,000) as a fee to the caisse commune of the chambre syndicale, which means the treasury funds of the institution. The variations in the price of the “offices” or memberships have an interesting history. The first office sold was valued at 30,000 francs; about 1830 they rose to 850,000 francs; after the July Revolution they fell to 250,000 francs, and rose again to 950,000 francs before 1848. They declined at that time to 400,000 francs, and in 1857 reached 2,400,000 francs. After the war they fell to 1,400,000 francs. In 1898, when the number of Agents de Change was increased from sixty to seventy under the government’s reorganization, designed to meet the expansion in business, it was provided that each of the ten new members should purchase the offices from the old members at 1,372,000 francs each.

While the stockbrokers, as I shall term the Agents de Change henceforth, are placed by law under the disciplinary rule of the Minister of Finance, they themselves, as an association, choose by ballot a governing board (chambre syndicale) of eight of their members, to whom, with a chairman (Syndic) are entrusted the maintenance of discipline, the listing of securities, and all general matters concerning the welfare of the body.

In addition to the exclusive privileges entrusted to stockbrokers as already cited, they are constituted the sole authority for the quotations of the securities in which they deal, including quotations of metals; they alone give the necessary certificates for transfers of government securities on terms provided by law; they regulate processes by which lost or stolen certificates are rendered non-negotiable or restored to owners; they may be commissioned by the courts to negotiate loans, to liquidate pledged securities, and to dispose of the property of minors. Settlement days in Paris are similar to those in London, occurring twice a month. That at the end of the month lasts five days, and that in the middle of the month four days. French rentes are settled only at the end of the month.

In forming partnerships, only one person in the firm is entitled to act as stockbroker; the other partners must be simply financial partners, responsible for losses, as “special” partners are in New York, to the extent of the capital contributed. The holder of the membership must be the owner, in his own name, of at least one quarter of the sum representing the purchase price of his membership, plus the amount of the bond or security given. Stockbrokers are forbidden by law to disclose the name of any person for whom they buy or sell; for this reason all dealings are made in the broker’s own names, as are also transfers. They must not, under any circumstances, carry on trading or banking operations for their own account, under penalty of expulsion. The bankruptcy of a stockbroker is prima facie a fraudulent bankruptcy, rendering him liable to arrest and other penalties, even under circumstances where an outsider would be immune.

While the impression prevails in many quarters that members of the Bourse are made responsible by law for any liabilities that may be incurred by their colleagues, such is not the case. The practice is, however, that the chambre syndicale, or governing body, voluntarily meets the liabilities of defaulting members from the general funds, although not compelled to do so. The nature of the monopoly which stockbrokers enjoy in Paris, and their position as officers of the French Executive government, renders this a thoroughly wise method, for, as we shall presently see, there is grave opposition to the exclusive rights entrusted to them, and it would not be good policy to fan the flames of this hostility by anything less than a mutual guarantee of solvency.

Rates of commission to be charged by stockbrokers on the Paris Bourse are fixed by the decree of the Minister of Finance (July 22, 1901). These are the minimum charges, and no stockbroker is allowed to reduce them under any circumstances. He may, however, and usually does, share them with intermediates who bring him business.

If a client gives, say, an order to buy “at the average price” (cours moyen), the transaction takes place in this way: Before the opening of the session the stockbrokers and their clerks meet in a special room, where bids and offers are made “at the average price,” which is as yet undetermined; it will be decided during the session. When an offer and a bid coincide, the transaction is closed; only the price is missing. When the bell rings to announce the opening of the market, the brokers and their clerks leave the special room and proceed to the public hall around the railed enclosure (corbeille) whereupon the day’s business begins.

As orders are executed the dealer gives the price to a marker, whose entries establish the prices for the official quotation list, and, when this has been made up, those who have traded on the basis of “the average price” ascertain it by striking a mean between the high and low level. If only one price is quoted, that, of course, takes the place of the average price. If orders are given at fixed prices, or “at the market,” they are executed as elsewhere. It is important to note in this connection, that the market in Paris enjoys an intimate connection with many banks and credit institutions that act as intermediates in procuring business. Orders transmitted to the Bourse by the Bank of France in 1908, for account of its clients, amounted to 98,721, involving 500,000,000 francs capital.

While, as we have seen, stockbrokers alone have the right to deal in government and other listed securities, there are very many securities dealt in, in Paris, that have not been admitted to the Official List, either because the stockbrokers did not care to adopt them or because the securities did not fulfill the very rigorous statutory conditions. These may, however, be dealt in outside the Bourse, and the law recognizes and protects such transactions. In what I have written heretofore, I have confined myself to the operations of the parquet, meaning the stockbrokers market, and so called because of the parquet floor on which they stand; we come now to the dealings on the coulisse, or curb, named from the narrow passageway, la coulisse, in which these curb brokers congregate. This market is called “the banker’s market” (marche en banque), but for our purpose we may call these dealers curb brokers, as distinguished from the stockbrokers of the parquet. The number of curb brokers is not limited; any one may become a coulissier if he is a French subject. He must have a capital of 100,000 francs in order to do business in the cash market for rentes, and of 500,000 francs for the settlement market. The curb is governed, as is the parquet, by two chambres syndicale, one for the account, and one for the cash market.

Although the French law provides that dealings in French rentes are the sole prerogative of the monopoly of stockbrokers, and fixes punishment for any intrusion into that field, the curb brokers, as a matter of fact, deal extensively and openly in rentes, and are powerful competitors of the stockbrokers. Their operations are not valid, strictly speaking, but they are tolerated by the government for the reason that the credit of the State is benefited by making the market for rentes as free and extensive as possible. This tacit recognition by the government, of the fundamental law of economics that wide and unrestricted markets are the best markets, would seem on its face to raise a point as to the wisdom of a system that perpetuates a monopoly of seventy stockbrokers. The question is not a new one; it has been agitating financial Paris for years. Monopolies of any kind are not considered beneficial in this enlightened age; monopolies that make markets and establish values and prices are peculiarly abhorrent. On this point we may quote M. Vidal, the author of a brilliant study on this subject:

“The actual financial power of the Paris stockbroker is put forward as an argument,” he says, speaking of the argument in favor of continuing the monopoly, “and it is affirmed that our financial market is the first in the world. In our opinion, even granting that this is true, which is far from having been proven, the cause is confounded with the effect. When a country, owing to its geographical location, its climate, and the character of its inhabitants, possesses numerous natural riches, and even moral riches, they co-operate in increasing its wealth; when it has the advantage of certain political and economic conditions, when it enjoys a monetary and commercial organization which promotes, instead of paralyzing, human activity in most of its manifestations, then that country is rich and deserves to be rich. And it may then happen that some organization, defective in itself, and the source of manifold vexations, is nevertheless prosperous, as much on account of certain facts of adaption as because it unavoidably lies within the reach of the rays of national wealth. It reflects that wealth.

“But the Paris Bourse does not owe its prosperity to its organization. Seventy ministerial appointees entrusted with the negotiation of one hundred and thirty billions of transferable securities are powerful personalities. They would be more powerful if they were but thirty-five. They would be more powerful if there were but twenty of them, or ten, or five, or even one, if there were in the market but one autocrat, a single arbiter of securities, centralizing bids and offers, and the king of the Bourse, just as we see in America an oil king and a steel king. In such a case the soundness of a market is more seeming than real. If that system had been applied to provisions and merchandise, infinitely more necessary for consumption than rentes or shares in companies, the market for wine, bread, and meat, appropriated by a few barons, might, perhaps, be stupendously high, but in this respect experience speaks in favor of freedom of trade only.

“It seems, therefore, necessary that public and private credit should enjoy the benefit of an organization more pliable and more in harmony with the general condition of a country’s commerce. Let us therefore beware of mistaking the appearance of force for force itself--a deception that should impress us no more than the sight of the effigies of iron-clad warriors, standing on rich trappings in a military museum. If our financial market were opened to all who have funds and understand the profession, it would be stronger still. If the market’s favorable situation were distributed among several hundred individuals, the division of risks would render the market more stable, competition would secure for our market the desired elasticity, and, if wanted, regulation under the supervision of the Minister of Finance would create a condition halfway between unlimited freedom, which, with more or less reason, scares so many people, and monopoly, which is an old outfit, in no way suiting our customs, and disturbing the harmony of our laws without rendering the services expected from it.”

From the point of view of an American this would seem to be an unanswerable argument. If seventy men are constituted sole managers of a market for 130,000,000,000 francs of transferable securities, one of two things is sure to happen; either a public market will establish itself outside these seventy men, or the seventy will prevent the establishment of the public market. The first of these alternatives has occurred in the establishment of the coulisse; the second would have occurred if the stockbrokers could have accomplished it.

While the government took no hand in the matter, it was recognized that the coulisse gave to the public market a breadth and activity that did great good; as a matter of fact it benefited the stockbrokers themselves in a large way, for it enabled them to obtain from the government liberties not formerly enjoyed, but practised freely by the coulissiers, such as transactions in time bargains, dealings in foreign securities, and similar concessions. This grant of a right to do business on time, or as we term it “future delivery,” was a tremendous step forward, since it removed an obstacle in the way of large speculative markets that had long been abolished in other financial centres. It put a stop to the “welching” of speculators on the plea of the gambling act, it legalized short sales, and it established a distinct advance in economic progress. To that extent the stockbrokers are indebted to their neighbors on the curb.

Meanwhile, the opposition to the monopoly of the stockbrokers continues. “At all times,” says M. Vidal, “whenever there have been privileges, some men have been found to oppose them. Of course, these men are not theorists or pedants; they are simply men whom this or that privilege prevents from working freely, and who represent the manifestation of that mysterious force of things which tends toward freedom of trade. Commercial law owes its birth only to these protestations of practical men in apparent revolt against the laws, which become the unconscious shapers of future legislation. From the day when there was an Agent de Change there was a “coulissier.” The first called the second a thief, because he encroached upon his privilege. The second hurled back the compliment, because the privilege robbed him of his natural right.”

This has a familiar American ring. In 1843 a voluminous report to the Minister of Justice by the stockbrokers asked that the coulisse be destroyed. Nothing came of it, but in 1859 another attempt succeeded; the coulisse was suppressed. But the level of public credit which, it was hoped, would be raised by the suppression, actually sank. The business of the coulisse, and the market it created, disappeared with the coulisse itself. The government was very sensitive then as now in the matter of market prices for its rentes, and after the laborious process of hoisting them to 71, it was distressing to find that, coincident with the abolition of the curb market, they had fallen to 69. So, in 1861, the coulisse was permitted to reappear, and I fancy the days of its suppression are now at an end.

But the old hostility will break out again when business slackens, for the French have a saying that “horses fight when there is no more hay in the manger.” The problem is a pretty one from any angle, especially from the standpoint of American stockbrokers. It would seem plain that the monopoly, as such, cannot forever continue, yet the government faces a financial power of tremendous strength--a Frankenstein which the State itself has created--“and of which,” to quote M. Vidal, “it can rid itself only by indemnifying it.” At the present time the 70 memberships are worth 96,000,000 francs as a grand total; meantime, the longer the problem is postponed the more valuable they will become as the size and importance of the Paris market increases.

“But the French government does not seem inclined to study the question seriously; first, because the stockbrokers would have to be indemnified; and, secondly, because the stockbrokers themselves are desirous of holding on to their present monopoly. As time passes, the securities, continually on the increase, tend to increase their profits. A financial power has been created whose existence, whose ever spreading influence, forms the subject of a serious economic problem, which some day may turn out to be an even more serious political problem.”

It is interesting to note, in passing from this subject, that a much larger business is done in the coulisse than in the parquet, due to the fact that the curb brokers are not restricted in their securities as are the stockbrokers. The market for foreign securities alone, on the curb, has made wealthy men of many of the coulissiers. They publish a special quotation list, and while they have no officially fixed commission rates, these are established by custom and in practical operation they work satisfactorily. As might be expected, the curb brokers require from their customers smaller margins than those exacted by the stockbrokers--another reason why their business is large; again, the clients of the curb broker may attend the Bourse with him, be present and confer with him while he buys or sells for them, and in this way get into close touch with the market, a privilege not so easily enjoyed by the client of the stockbroker.

The Official Paris Bourse is open from 12 noon to 3 P.M.; the coulisse from 11:45 A.M. to 4 P.M. The Official List is published daily, and is divided into two parts, the first containing a full list of all the officially listed securities and of the dealings in them, and the second part a list of the dealings in what we used to call in New York “the unlisted department.” Rates of Exchange, prices of gold and silver bullion, quotations of treasury bonds, and the rates of the Bank of France for discounts, interest, and loans, are also included. The coulisse also issues a list.

The volume of transferable securities in negotiation through the medium of the Paris stock markets was estimated by M. Alfred Neymarck in his report to the Institut International de Statistique, session of 1907, at 155,000,000,000 francs, an amount slightly in excess of the listed securities on the New York Stock Exchange. Of this total, which has been increased somewhat since 1907 through the admission of various Russian industrial securities, 65,000,000,000 francs were in French securities, 67,000,000,000 in foreign securities on the official (parquet) market, and 18,000,000,000 on the coulisse. Of home securities, the value of French rentes is here estimated at 24,000,000,000 francs, of bonds of the City of Paris, of treasury bonds, including those of the department and colonies, at 3,069,000,000; insurance securities at 702,000,000; those of the Crédit Foncier at 4,447,000,000; of banks and credit companies at 3,101,000,000; of railroad and navigation companies at 24,268,000,000; of railways and tramways at 2,200,000,000; of electricity, iron mills, foundries, and coal mines, at 2,463,000,000.

Of the foreign securities in the French market, Russian securities were valued at 10,000,000,000 francs in 1907, although they are to-day considerably in excess of that sum; divers foreign government funds at 47,000,000,000 and foreign railway securities at 6,000,000,000.

Next to London, Paris easily leads the markets of the world from the standpoint of power and resources in an international sense. It is the great market for Russian bonds and for Russian industrials, speculation in the latter having reached such volume in 1912 as to lay the French public open to the charge of having lost its head, something that has not occurred in France since the Panama frenzy of 1894. France also holds most of the Spanish and Portuguese (3,500,000,000 francs) debt and has large capital invested in Egypt and the Suez Canal (3,500,000,000 francs). Capital investments in Roumania and Greece, Argentine, Brazil and Mexico, Tunis and the French colonies, Austria and Hungary, Italy, China and Japan, United States and Canada, Great Britain, Belgium and Holland, Germany, Turkey, Servia and Bulgaria, and Switzerland, aggregate 16,150,000,000 francs, distributed in value in the order named.

The caution of French investors is proverbial; notwithstanding the two outbursts of imprudence that have occurred in this generation, it is difficult to induce the Frenchman to place his money in anything not a safe interest-yielding security under French laws. In no other country is investment raised to a higher plane, and speculation confined to a lower one. The political nature of the relationship between France and Russia has resulted from time to time, in patriotic subscription of French funds to Russian government loans, and thence to Russian industrials of all kinds, but the latter have suffered so severely in the demoralization of the autumn of 1912 as to justify the prediction that their popularity with the French has been seriously impaired.

As to Russian government loans, the French investor is in a secure position, most of these issues having been endorsed by such powerful banks as the Bank of France, the Credit Lyonnais, the Comptoir d’Escompte, and the Société Génerale, and, indeed, it is to banks such as these and to the myriad smaller institutions throughout the country that investors of the peasantry and the middle classes are accustomed to turn for advice in financial matters. The large speculative clientele, as we know it in America, in England, and in Germany, is a decided minority in France, and those who indulge freely in speculation are canny and shrewd beyond their fellows in other lands. The foresight with which they diagnosed the events of the Boer War in 1899, and the celerity with which they disposed of their large speculative holdings of South African mining shares at top prices, is said by those who witnessed it to have been a prodigy of speculative skill.

Like all other careful observers French economists realize in a large sense that the creation of negotiable instruments and their distribution throughout all the countries of the world through the medium of the Stock Exchange is a very real cause of the wealth of nations; indeed, this point seems to be more thoroughly understood and appreciated by the mass of the French people than by the public elsewhere. When, in 1885, the government legalized transactions for future delivery and thus placed transactions in securities in the same category, under common law, with all other commercial transactions, it established a free market in France that has done wonders for the credit expansion of the Republic--an expansion likewise due, in no small measure, to the growth and development of the coulisse and to the consequent enlargement of a market that must have been restricted, of necessity, by a too rigorous strengthening of the stockbroker’s monopoly. In a word, the government, by France, of credit in its higher forms, clearly recognizes that as states, railways, and industrial enterprises have need to resort to credit through issues of securities, a wide market in constant contact with sources of wealth is required, and that nothing should be done by the government to interfere with the ebb and flow of these essential forces.

“The creating and successive issuing of this mass of securities,” to quote M. Neymarck, “always easy to purchase and to sell on the Bourse, have been the real cause of credit expansion. They were instrumental in accomplishing real marvels in France and abroad. As personal property has increased, endeavors have been made to render exchanges easy, and to make transfers as little expensive as possible; transferable securities, owing to their denomination, their form, their mode of maturity for the payment of interest, their conditions for redemption, and the ease with which they are negotiated, have been brought within the reach of all purses, and have thus developed the spirit of saving. The consolidation of capital, under the form of stock companies, issuing shares and bonds that everybody can obtain, encompasses on all sides the civilized nations of the world.

“We may say, with Paul Leroy-Beaulieu, that now, owing to capital being accumulated in the shape of negotiable instruments, it is the stock company which takes us on a journey; often it provides us with food and lodging, sells us coal and light, makes up our clothing, and even sells it to us; it procures news for us and inspires our newspapers. Further, it insures our lives and our dwellings; it feeds the unassuming Parisian in the ‘Bouillons’ (cheap cook-shops), and feasts the stylish Parisian in the fashionable wine taverns.

“The distribution of all these securities has materially contributed to the formation of small inheritances. It has influenced the development of savings institutions, mutual benefit societies, pension funds, and insurance; it has thus rendered invaluable service in the public rôle it has fulfilled. Thanks to it, these companies multiply and increase as the capitalization of their funds is made easier.

“It has also had another result. It has shown that there is no longer a plutocracy, but a veritable financial democracy; when these thousands of millions of certificates are minutely segregated, there are only found atoms of certificates of stocks and bonds, and atoms of income--so great is the number of capitalists and independent individuals who divide these securities and these incomes among themselves.”

APPENDIX

REPORT

OF THE GOVERNOR’S COMMITTEE ON SPECULATION IN SECURITIES AND COMMODITIES

1909

NEW YORK, June 7, 1909

Hon. Charles E. Hughes, Governor, Albany, N. Y.:

Dear Sir: The committee appointed by you on December 14, 1908, to endeavor to ascertain

“what changes, if any, are advisable in the laws of the State bearing upon speculation in securities and commodities, or relating to the protection of investors, or with regard to the instrumentalities and organizations used in dealings in securities and commodities which are the subject of speculation,”

beg leave to submit the following report:

We have invited statements from those engaged in speculation and qualified to discuss its phases; we have taken testimony offered from various sources as to its objectionable features; we have considered the experience of American States and of foreign countries in their efforts to regulate speculative operations. In our inquiry we have been aided by the officials of the various exchanges, who have expressed their views both orally and in writing, and have afforded us access to their records.

THE SUBJECT IN GENERAL

Markets have sprung into being wherever buying and selling have been conducted on a large scale. Taken in charge by regular organizations and controlled by rules, such markets become exchanges. In New York City there are two exchanges dealing in securities and seven in commodities. In addition there is a security market, without fixed membership or regular officers, known as the “Curb.” The exchanges dealing in commodities are incorporated, while those dealing in securities are not.

Commodities are not held for permanent investment, but are bought and sold primarily for the purpose of commercial distribution; on the other hand, securities are primarily held for investment; but both are subject of speculation. Speculation consists in forecasting changes of value and buying or selling in order to take advantage of them; it may be wholly legitimate, pure gambling, or something partaking of the qualities of both. In some form it is a necessary incident of productive operations. When carried on in connection with either commodities or securities it tends to steady their prices. Where speculation is free, fluctuations in prices, otherwise violent and disastrous, ordinarily become gradual and comparatively harmless. Moreover, so far as commodities are concerned, in the absence of speculation, merchants and manufacturers would themselves be forced to carry the risks involved in changes of prices and to bear them in the intensified condition resulting from sudden and violent fluctuations in value. Risks of this kind which merchants and manufacturers still have to assume are reduced in amount, because of the speculation prevailing; and many of these milder risks they are enabled, by “hedging,” to transfer to others. For the merchant or manufacturer the speculator performs a service which has the effect of insurance.

In law, speculation becomes gambling when the trading which it involves does not lead, and is not intended to lead, to the actual passing from hand to hand of the property that is dealt in. Thus, in the recent case of Hurd vs. Taylor (181 N. Y., 231), the Court of Appeals of New York said:

“The law of this State as to the purchase and sale of stocks is well settled. The purchase of stocks through a broker, though the party ordering such purchase does not intend to hold the stocks as an investment, but expects the broker to carry them for him with the design on the part of the purchaser to sell again the stocks when their market value has enhanced is, however, speculative, entirely legal. Equally so is a ‘short sale,’ where the seller has not the stock he assumes to sell, but borrows it and expects to replace it when the market value has declined. But to make such transactions legal, they must contemplate an actual purchase or an actual sale of stocks by the broker, or through him. If the intention is that the so-called broker shall pay his customer the difference between the market price at which the stocks were ordered purchased and that at which they were ordered sold, in case fluctuation is in favor of the customer, or that in case it is against the customer, the customer shall pay the broker that difference, no purchases or sales being made, the transaction is a wager and therefore illegal. Such business is merely gambling, in which the so-called commission for purchases and sales that are never made is simply the percentage which in other gambling games is reserved in favor of the keeper of the establishment.”

This is also the law respecting commodity transactions.

The rules of all the exchanges forbid gambling as defined by this opinion; but they make so easy a technical delivery of the property contracted for, that the practical effect of much speculation, in point of form legitimate, is not greatly different from that of gambling. Contracts to buy may be privately offset by contracts to sell. The offsetting may be done, in a systematic way, by clearing houses, or by “ring settlements.” Where deliveries are actually made, property may be temporarily borrowed for the purpose. In these ways, speculation which has the legal traits of legitimate dealing may go on almost as freely as mere wagering, and may have most of the pecuniary and immoral effects of gambling on a large scale.

A real distinction exists between speculation which is carried on by persons of means and experience, and based on an intelligent forecast, and that which is carried on by persons without these qualifications. The former is closely connected with regular business. While not unaccompanied by waste and loss, this speculation accomplishes an amount of good which offsets much of its cost. The latter does but a small amount of good and an almost incalculable amount of evil. In its nature it is in the same class with gambling upon the race-track or at the roulette table, but is practised on a vastly larger scale. Its ramifications extend to all parts of the country. It involves a practical certainty of loss to those who engage in it. A continuous stream of wealth, taken from the actual capital of innumerable persons of relatively small means, swells the income of brokers and operators dependent on this class of business; and in so far as it is consumed like most income, it represents a waste of capital. The total amount of this waste is rudely indicated by the obvious cost of the vast mechanism of brokerage and by manipulators’ gains, of both of which it is a large constituent element. But for a continuous influx of new customers, replacing those whose losses force them out of the “street,” this costly mechanism of speculation could not be maintained on anything like its present scale.

THE PROBLEM TO BE SOLVED

The problem, wherever speculation is strongly rooted, is to eliminate that which is wasteful and morally destructive, while retaining and allowing free play to that which is beneficial. The difficulty in the solution of the problem lies in the practical impossibility of distinguishing what is virtually gambling from legitimate speculation. The most fruitful policy will be found in measures which will lessen speculation by persons not qualified to engage in it. In carrying out such a policy exchanges can accomplish more than legislatures. In connection with our reports on the different exchanges, as well as on the field of investment and speculation which lies outside of the exchanges, we hall make recommendations directed to the removal of various evils now existing and to the reduction of the volume of speculation of the gambling type.

THE NEW YORK STOCK EXCHANGE

The New York Stock Exchange is a voluntary association, limited to 1100 members, of whom about 700 are active, some of them residents of other cities. Memberships are sold for about $80,000. The Exchange as such does no business, merely providing facilities to members and regulating their conduct. The governing power is in an elected committee of forty members and is plenary in scope. The business transacted on the floor is the purchase and sale of stocks and bonds of corporations and governments. Practically all transactions must be completed by delivery and payment on the following day.

The mechanism of the Exchange provided by its constitution and rules, is the evolution of more than a century. An organization of stockbrokers existed here in 1792, acquiring more definite form in 1817. It seems certain that for a long period the members were brokers or agents only; at the present time many are principles as well as agents, trading for themselves as well as for their customers. A number of prominent capitalists hold memberships merely for the purpose of availing themselves of the reduced commission charge which the rules authorize between members.

The volume of transactions indicates that the Exchange is to-day probably the most important financial institution in the world. In the past decade the average annual sales of shares have been 196,500,000 at prices involving an annual average turnover of nearly $15,500,000,000; bond transactions averaged about $800,000,000. This enormous business affects the financial and credit interests of the country in so large a measure that its proper regulation is a matter of transcendent importance. While radical changes in the mechanism, which is now so nicely adjusted that the transactions are carried on with the minimum of friction, might prove disastrous to the whole country, nevertheless measures should be adopted to correct existing abuses.

PATRONS OF THE EXCHANGE

The patrons of the Exchange may be divided into the following groups:

(1.) Investors, who personally examine the facts relating to the value of securities or act on the advice of reputable and experienced financiers, and pay in full for what they buy.

(2.) Manipulators, whose connection with corporations issuing or controlling particular securities enables them under certain circumstances to move the prices up or down, and who are thus in some degree protected from dangers encountered by other speculators.

(3.) Floor traders, who keenly study the markets and the general conditions of business, and acquire early information concerning the changes which affect the values of securities. From their familiarity with the technique of dealings on the Exchange, and ability to act in concert with others, and thus manipulate values, they are supposed to have special advantages over other traders.

(4.) Outside operators having capital, experience, and knowledge of the general conditions of business. Testimony is clear as to the result which, in the long run, attends their operations; commissions and interest charges constitute a factor always working against them. Since good luck and bad luck alternate in time, the gains only stimulate these men to larger ventures, and they persist in them till a serious or ruinous loss forces them out of the “Street.”

(5.) Inexperienced persons, who act on interested advice, “tips,” advertisements in newspapers, or circulars sent by mail, or “take flyers” in absolute ignorance, and with blind confidence in their luck. Almost without exception they eventually lose.

CHARACTER OF TRANSACTIONS

It is unquestionable that only a small part of the transactions upon the Exchange is of an investment character; a substantial part may be characterized as virtually gambling. Yet we are unable to see how the State could distinguish by law between proper and improper transactions, since the forms and the mechanisms used are identical. Rigid statutes directed against the latter would seriously interfere with the former. The experience of Germany with similar legislation is illuminating. But the Exchange, with the plenary power over members and their operations, could provide correctives, as we shall show.

MARGIN TRADING

Purchasing securities on margin is as legitimate a transaction as a purchase of any other property in which part payment is deferred. We therefore see no reason whatsoever for recommending the radical change suggested, that margin trading be prohibited.

Two practices are prolific of losses--namely, buying active securities on small margins and buying unsound securities, paying for them in full. The losses in the former case are due to the quick turns in the market, to which active stocks are subject; these exhaust the margins and call for more money than the purchasers can supply. The losses in the latter case are largely due to misrepresentations of interested parties and unscrupulous manipulations.

To correct the evils of misrepresentation and manipulation, we shall offer in another part of this report certain recommendations. In so far as losses are due to insufficient margins, they would be materially reduced if the customary percentage of margins were increased. The amount of margin which a broker requires from a speculative buyer of stocks depends, in each case, on the credit of the buyer; and the amount of credit which one person may extend to another is a dangerous subject on which to legislate. Upon the other hand, a rule made by the Exchange could safely deal with the prevalent rate of margins required from customers. In preference, therefore, to recommending legislation, we urge upon all brokers to discourage speculation upon small margins and upon the Exchange to use its influence, and, if necessary, its power, to prevent members from soliciting and generally accepting business on a less margin than 20 per cent.

PYRAMIDING

“Pyramiding,” which is the use of paper profits in stock transactions as a margin for further commitments, should be discouraged. The practice tends to produce more extreme fluctuations and more rapid wiping out of margins. If the stockbrokers and the banks would make it a rule to value securities for the purpose of margin or collateral, not at the current price of the moment, but at the average price of, say, the previous two or three months (provided that such average price were not higher than the price of the moment), the dangers of pyramiding would be largely prevented.

SHORT SELLING

We have been strongly urged to advise the prohibition or limitation of short sales, not only on the theory that it is wrong to agree to sell that what one does not possess, but that such sales reduce the market price of the securities involved. We do not think that it is wrong to agree to sell something that one does not now possess, but expects to obtain later. Contracts and agreements to sell, and deliver in the future, property which one does not possess at the time of the contract, are common in all kinds of business. The man who has “sold short” must some day buy in order to return the stock which he has borrowed to make the short sale. Short sellings endeavor to select times when prices seem high in order to sell, and times when prices seem low in order to buy, their action in both cases serving to lessen advances and diminish declines of price. In other words, short selling tends to produce steadiness in prices, which is an advantage to the community. No other means of restraining unwarranted marking up and down of prices has been suggested to us.

The legislation of the State of New York on the subject of short selling is significant. In 1812 the Legislature passed a law declaring all contracts for the sale of stocks and bonds void, unless the seller at the time was the actual owner or assignee thereof or authorized by such owner or assignee to sell the same. In 1858 this act was repealed by a statute now in force, which reads as follows:

“An agreement for the purchase, sale, transfer, or delivery of a certificate or other evidence of debt, issued by the United States or by any State, or municipal or other corporation, or any share or interest in the stock of any bank, corporation or joint-stock association, incorporated or organized under the laws of the United States or of any State, is not void, or voidable, because the vendor, at the time of making such contract, is not the owner or possessor of the certificate, or certificates, or other evidence of debt, share or interest.”

It has been urged that this statute “specifically legalizes stock gambling.” As a matter of fact, however, the law would be precisely the same if that statute were repealed, for it is the well-settled common law of this country, as established by the decisions of the Supreme Court of the United States and of the State courts, that all contracts, other than mere wagering contracts, for the future purchase or sale of securities or commodities are valid, whether the vendor is, or is not, at the time of making such contract, the owner or possessor of the securities or commodities involved, in the absence of a statute making such contracts illegal. So far as any of these transactions are mere wagering transactions, they are illegal, and not enforceable, as the law now stands.

It has been suggested to us that there should be a requirement either by law or by rule of the Stock Exchange, that no one should sell any security without identifying it by a number or otherwise. Such a rule would cause great practical difficulties in the case of securities not present in New York at the time when the owner desires to sell them, and would increase the labor and cost of doing business. But even if this were not the effect, the plan contemplates a restriction upon short sales, which, for the reasons set forth above, seems to us undesirable. It is true that this identification plan exists in England as to sales of bank shares (Leeman act of 1867); but it has proved a dead letter. It has also been used in times of apprehended panic upon the French Bourse, but opinions in regard to its effect there are conflicting. While some contend that it has been useful in preventing panics, others affirm that it has been used simply for the purpose of protecting bankers who are loaded down with certain securities which they were trying to distribute, and who, through political influence, procured the adoption of the rule for their special benefit.

MANIPULATION OF PRICES

A subject to which we have devoted much time and thought is that of the manipulation of prices by large interests. This falls into two general classes:

(1.) That which is resorted to for the purpose of making a market for issues of new securities.

(2.) That which is designed to serve merely speculative purposes in the endeavor to make a profit as the result of fluctuations which have been planned in advance.

The first kind of manipulation has certain advantages, and when not accompanied by “matched orders” is unobjectionable per se. It is essential to the organization and carrying through of important enterprises, such as large corporations, that the organizers should be able to raise the money necessary to complete them. This can be done only by the sale of securities. Large blocks of securities, such as are frequently issued by railroad and other companies, cannot be sold over the counter or directly to the ultimate investor, whose confidence in them can, as a rule, be only gradually established. They must therefore, if sold at all, be disposed of to some syndicate, who will in turn pass them on to middlemen or speculators, until, in the course of time, they find their way into the boxes of investors. But prudent investors are not likely to be induced to buy securities which are not regularly quoted on some exchange, and which they cannot sell, or on which they cannot borrow money at their pleasure. If the securities are really good and bids and offers bona fide, open to all sellers and buyers, the operation is harmless. It is merely a method of bringing new investments into public notice.

The second kind of manipulation mentioned is undoubtedly open to serious criticism. It has for its object either the creation of high prices for particular stocks, in order to draw in the public as buyers and to unload upon them the holdings of the operators, or to depress the prices and induce the public to sell. There have been instances of gross and unjustifiable manipulation of securities, as in the case of American Ice stock. While we have been unable to discover any complete remedy short of abolishing the Stock Exchange itself, we are convinced that the Exchange can prevent the worst forms of this evil by exercising its influence and authority over the members to prevent them. When continued manipulation exists it is patent to experienced observers.

“WASH SALES” AND “MATCHED ORDERS”

In the foregoing discussion we have confined ourselves to bona fide sales. So far as manipulation of either class is based upon fictitious so-called “wash sales,” it is open to the severest condemnation, and should be prevented by all possible means. These fictitious sales are forbidden by the rules of all the regular exchanges, and are not enforceable at law. They are less frequent than many persons suppose. A transaction must take place upon the floor of the Exchange to be reported, and if not reported does not serve the purpose of those who engage in it. If it takes place on the floor of the Exchange, but is purely a pretence, the brokers involved run the risk of detection and expulsion, which is to them a sentence of financial death. There is, however, another class of transactions called “matched orders,” which differ materially from those already mentioned, in that they are actual and enforceable contracts. We refer to that class of transactions, engineered by some manipulator, who sends a number of orders simultaneously to different brokers, some to buy and some to sell. These brokers, without knowing that other brokers have countervailing orders from the same principal, execute their orders upon the floor of the Exchange, and the transactions become binding contracts; they cause an appearance of activity in a certain security which is unreal. Since they are legal and binding, we find a difficulty in suggesting a legislative remedy. But where the activities of two or more brokers in certain securities become so extreme as to indicate manipulation rather than genuine transactions, the officers of the Exchange would be remiss unless they exercised their influence and authority upon such members in a way to cause them to desist from such suspicious and undesirable activity. As already stated, instances of continuous manipulation of particular securities are patent to every experienced observer, and could without difficulty be discouraged, if not prevented, by prompt action on the part of the Exchange authorities.

CORNERS

The subject of corners in the stock market has engaged our attention. The Stock Exchange might properly adopt a rule providing that the governors shall have power to decide when a corner exists and to fix a settlement price, so as to relieve innocent persons from the injury or ruin which may result therefrom. The mere existence of such a rule would tend to prevent corners.

FAILURES AND EXAMINATION OF BOOKS

We have taken testimony on the subject of recent failures of brokers, where it has been discovered that they were insolvent for a long period prior to their public declaration of failure, and where their activities after the insolvency not only caused great loss to their customers, but also, owing to their efforts to save themselves from bankruptcy, worked great injury to innocent outsiders. For cases of this character, there should be a law analogous to that forbidding banks to accept deposits after insolvency is known; and we recommend a statute making it a misdemeanor for a broker to receive any securities or cash from any customer (except in liquidating or fortifying an existing account), or to make any further purchases or sales for his own account, after he has become insolvent; with the provision that a broker shall be deemed insolvent when he has on his books an account or accounts which, if liquidated, would exhaust his assets, unless he can show that he had reasonable ground to believe that such accounts were good.

The advisability of requiring by State authority an examination of the books of all members of the Exchange, analogous to that required of banks, has been urged upon us. Doubtless some failures would be prevented by such a system rigidly enforced, although bank failures do occur in spite of the scrutiny of the examiners. Yet the relations between brokers and their customers are of so confidential a nature that we do not recommend an examination of their books by any public authority. The books and accounts of the members of the Exchange, should, however, be subjected to periodic examination and inspection pursuant to rules and regulations to be prescribed by the Exchange, and the result should be promptly reported to the governors thereof.

* * * * *

It is vain to say that a body possessing the powers of the board of governors of the Exchange, familiar with every detail of the mechanism, generally acquainted with the characteristics of members, cannot improve present conditions. It is a deplorable fact that with all their power and ability to be informed, it is generally only after a member or a firm is overtaken by disaster, involving scores or hundreds of innocent persons, and causing serious disturbances, that the Exchange authorities take action. No complaint can be registered against the severity of the punishment then meted out; but in most cases the wrongdoing thus atoned for, which has been going on for a considerable period, might have been discovered under a proper system of supervision, and the vastly preponderant value of prevention over cure demonstrated.

REHYPOTHECATION OF SECURITIES

We have also considered the subject of rehypothecating, loaning, and other use of securities by brokers who hold them for customers. So far as any broker applies to his own use any securities belonging to a customer, or hypothecates them for a greater amount than the unpaid balance of the purchase price, without the customer’s consent, he is undoubtedly guilty of a conversion under the law as it exists to-day, and we call this fact to the attention of brokers and the public. When a broker sells the securities purchased for a customer who has paid therefor in whole or in part, except upon the customer’s default, or disposes of them for his own benefit, he should be held guilty of larceny, and we recommend a statute to that effect.

DEALING FOR CLERKS

The Exchange now has a rule forbidding any member to deal or carry an account for a clerk or employee of any other member. This rule should be extended so as to prevent dealing for account of any clerk or subordinate employee of any bank, trust company, insurance company, or other moneyed corporation or banker.

LISTING REQUIREMENTS

Before securities can be bought and sold on the Exchange, they must be examined. The committee on Stock List is one of the most important parts of the organization, since public confidence depends upon the honesty, impartiality, and thoroughness of its work. While the Exchange does not guarantee the character of any securities, or affirm that the statements filed by the promoters are true, it certifies that due diligence and caution have been used by experienced men in examining them. Admission to the list, therefore, establishes a presumption in favor of the soundness of the security so admitted. Any securities authorized to be bought and sold on the Exchange, which have not been subjected to such scrutiny, are said to be in the unlisted department, and traders who deal in them do so at their own risk. We have given consideration to the subject of verifying the statements of fact contained in the papers filed with the applications for listing, but we do not recommend that either the State or the Exchange take such responsibility. Any attempt to do so would undoubtedly give the securities a standing in the eyes of the public which would not in all cases be justified. In our judgment, the Exchange, should, however, adopt methods to compel the filing of frequent statements of the financial condition of the companies whose securities are listed, including balance sheets, income and expense accounts, etc., and should notify the public that these are open to examination under proper rules and regulations. The Exchange should also require that there be filed with future applications for listing a statement of what the capital stock of the company has been issued for, showing how much has been issued for cash, how much for property, with a description of the property, etc., and also showing what commission, if any, has been paid to the promoters or vendors. Furthermore, means should be adopted for holding those making the statements responsible for the truth thereof. The unlisted department, except for temporary issues, should be abolished.

FICTITIOUS TRADES

Complaint is made that orders given by customers are sometimes not actually executed, although so reported by the broker. We recommend the passage of a statute providing that, in case it is pleaded in any suit by or against a broker that the purchase or sale was fictitious, or was not an actual bona fide purchase or sale by the broker as agent for the customer, the court or jury shall make a special finding upon that fact. In case it is found that the purchase or sale was not actual and bona fide the customer shall recover three times the amount of the loss which he sustained thereby; and copies of the finding shall be sent to the district attorney of the county and to the Exchange, if the broker be a member.

UNIT OF TRADING

The Exchange should insist that all trading be done on the basis of a reasonably small unit (say 100 shares of stock or $1000 of bonds), and should not permit the offers of such lots, or bids for such lots, to be ignored by traders offering or bidding for larger amounts. The practice now permitted of allowing bids and offers for large amounts, all or none, assists the manipulation of prices. Thus a customer may send an order to sell 100 shares of a particular stock at par, and a broker may offer to buy 1000 shares, all or none, at 101, and yet no transaction take place. The bidder in such a case should be required to take all the shares offered at the lower price before bidding for a larger lot at a higher price. This would tend to prevent matched orders.

STOCK CLEARING HOUSE

We have also considered the subject of the Stock Exchange Clearing House. While it is undoubtedly true that the clearing of stocks facilitates transactions which may be deemed purely manipulative, or virtually gambling transactions, nevertheless we are of the opinion that the Exchange could not do its necessary and legitimate business but for the existence of the clearing system, and, therefore, that it is not wise to abolish it.

The transactions in stocks which are cleared are transcribed each day on what are called “clearing sheets,” and these sheets are passed into the Clearing House and there filed for one week only. In view of the value of these sheets as proving the transactions and the prices, they should be preserved by the Exchange for at least six years, and should be at the disposal of the courts, in case of any dispute.

SPECIALISTS

We have received complaints that specialists on the floor of the Exchange, dealing in inactive securities, sometimes buy or sell for their own account while acting as brokers. Such acts without the principal’s consent are illegal. In every such case recourse may be had to the courts.

Notwithstanding that the system of dealing in specialties is subject to abuses, we are not convinced that the English method of distinguishing between brokers and jobbers serves any better purpose than our own practice, while its introduction here would complicate business. It should also be noted that the practice of specialists in buying and selling for their own account often serves to create a market where otherwise one would not exist.

BRANCH OFFICES

Complaint has been made of branch offices in the city of New York, often luxuriously furnished and sometimes equipped with lunch rooms, cards, and liquor. The tendency of many of them is to increase the lure of the ticker by the temptation of creature comforts, appealing thus to many who would not otherwise speculate. The governors of the Exchange inform us that they realize that some of these offices have brought discredit on the Exchange, and that on certain occasions they have used their powers to suppress objectionable features. It seems to us that legitimate investors and speculators might, without much hardship, be compelled to do business at the main offices, and that a hard-and-fast rule against all branch offices in the city of New York might well be adopted by the Exchange. In any event, we are convinced that a serious and effective regulation of these branch offices is desirable.

INCORPORATION OF EXCHANGE

We have been strongly urged to recommend that the Exchange be incorporated in order to bring it more completely under the authority and supervision of the State and the process of the courts. Under existing conditions, being a voluntary organization, it has almost unlimited power over the conduct of its members, and it can subject them to instant discipline for wrongdoing, which it could not exercise in a summary manner if it were an incorporated body. We think that such power residing in a properly chosen committee is distinctly advantageous. The submission of such questions to the courts would involve delays and technical obstacles which would impair discipline without securing any greater measure of substantial justice. While this committee is not entirely in accord on this point, no member is yet prepared to advocate the incorporation of the Exchange and a majority of us advise against it, upon the ground that the advantages to be gained by incorporation may be accomplished by rules of the Exchange and by statutes aimed directly at the evils which need correction.

The Stock Exchange in the past, although frequently punishing infractions of its rules with great severity, has, in our opinion, at times failed to take proper measures to prevent wrongdoing. This has been probably due not only to a conservative unwillingness to interfere in the business of others, but also to a spirit of comradeship which is very marked among brokers, and frequently leads them to overlook misconduct on the part of fellow-members, although at the same time it is a matter of cynical gossip and comment in the street. The public has a right to expect something more than this from the Exchange and its members. This committee, in refraining from advising the incorporation of the Exchange, does so in the expectation that the Exchange will in the future take full advantage of the powers conferred upon it by its voluntary organization, and will be active in preventing wrongdoing such as has occurred in the past. Then we believe that there will be no serious criticism of the fact that it is not incorporated. If, however, wrongdoing recurs, and it should appear to the public at large that the Exchange has been derelict in exerting its powers and authority to prevent it, we believe that the public will insist upon the incorporation of the Exchange and its subjection to State authority and supervision.

WALL STREET AS A FACTOR

There is a tendency on the part of the public to consider Wall Street and the New York Stock Exchange as one and the same thing. This is an error arising from their location. We have taken pains to ascertain what proportion of the business transacted on the Exchange is furnished by New York City. The only reliable sources of information are the books of the commission houses. An investigation was made of the transactions on the Exchange for a given day, when the sales were 1,500,000 shares. The returns showed that on that day 52 per cent. of the total transactions on the Exchange apparently originated in New York City, and 48 per cent. in other localities.

THE CONSOLIDATED STOCK EXCHANGE

The Consolidated Exchange was organized as a mining stock exchange in 1875, altering its name and business in 1886. Although of far less importance than the Stock Exchange, it is nevertheless a secondary market of no mean proportions; by far the greater part of the trading is in securities listed upon the main exchange, and the prices are based upon the quotations made there. The sales average about 45,000,000 shares per annum. The fact that its members make a specialty of “broken lots,” i. e., transactions in shares less than the 100 unit, is used as a ground for the claim that it is a serviceable institution for investors of relatively small means. But it is obvious that its utility as a provider of capital for enterprises is exceedingly limited; and that it affords facilities for the most injurious form of speculation--that which attracts persons of small means.

It also permits dealing in shares not listed in the main exchange, and in certain mining shares, generally excluded from the other. In these cases it prescribed a form of listing requirements, but the original listing of securities is very rarely availed of. The rules also provide for dealing in grain, petroleum, and other products. Wheat is, however, at present the only commodity actively dealt in, and this is due solely to the permission to trade in smaller lots than the Produce Exchange unit of 5000 bushels.

There are 1225 members, about 450 active, and memberships have sold in recent years at from $650 to $2000. In general the methods of conducting business are similar to those of the larger exchange, and subject to the same abuses.

Very strained relations have existed between the two security exchanges since the lesser one undertook in 1886 to deal in stocks. The tension has been increased by the methods by which the Consolidated obtains the quotations of the other, through the use of the “tickers” conveying them. It is probable that without the use of these instruments the business of the Consolidated Exchange would be paralyzed; yet the right to use them rests solely upon a technical point in a judicial decision which enjoins their removal.

COGNATE SUBJECTS

HOLDING COMPANIES

Connected with operations on the Stock Exchange are a class of manipulations originating elsewhere. The values of railway securities, for example, depend upon the management of the companies issuing them, the directors of which may use their power to increase, diminish, or even extinguish them, while they make gains for themselves by operations on the Exchange. They may advance the price of a stock by an unexpected dividend, or depress it by passing an expected one. They may water a stock by issuing new shares, with no proportionate addition to the productive assets of the company, or load it with indebtedness, putting an unexpected lien on the shareholders’ property. Such transactions affect not only the fortunes of the shareholders, who are designedly kept in ignorance of what is transpiring, but also the value of investments in other similar companies the securities of which are affected sympathetically. Railroad wrecking was more common in the last half-century than it is now, but we have some glaring examples of it in the débris of our street railways to-day.

The existence and misuse of such powers on the part of directors are a menace to corporate property and a temptation to officials who are inclined to speculate, leading them to manage the property so as to fill their own pockets by indirect and secret methods.

A holding company represents the greatest concentration of power in a body of directors and the extreme of helplessness on the part of shareholders. A corporation may be so organized that its bonds and preferred stock represent the greater part of its capital, while the common stock represents the actual control. Then, if a second company acquires a majority of the common stock, or a majority of the shares that are likely to be voted at elections, it may control the former company, and as many other companies as it can secure. The shareholders of the subsidiary companies may be thus practically deprived of power to protect themselves against injurious measures and even to obtain information of what the holding company is doing, or intends to do, with their property.

As a first step toward mitigating this evil we suggest that the shareholders of subsidiary companies, which are dominated by holding companies, or voting trusts, shall have the same right to examine the books, records, and accounts of such holding companies, or voting trusts, that they have in respect of the companies whose shares they hold, and that the shareholders of holding companies have the same right as regards the books, records, and accounts of the subsidiary companies. The accounts of companies not merged should be separately kept and separately stated to their individual stockholders, however few they may be.

We may point out the fact that the powers which holding companies now exercise were never contemplated, or imagined, when joint stock corporations were first legalized. If Parliament and Legislatures had foreseen their growth they would have erected barriers against it.

RECEIVERSHIPS

Our attention has been directed to the well-known abuses frequently accompanying receiverships of large corporations, and more especially public service corporations, and the issue of receivers’ certificates. We feel that the numerous cases of long-drawn-out receiverships, in some instances lasting more than ten years, and of the issue of large amounts of receivers’ certificates, which take precedence over even first mortgage bonds, are deserving of most serious consideration.

Legislation providing for a short-time limitation on receiverships or for a limitation of receivers’ certificates to a small percentage of the mortgage liens on the property, could be rendered unnecessary, however, by the action of the courts themselves along these lines, so as to make impossible in the future the abuses which have been so common in the past.

EFFECT OF THE MONEY MARKET ON SPECULATION

It has been urged that your committee consider the influence of the money market upon security speculation.

As a result of conditions to which the defects of our monetary and banking systems chiefly contribute, there is frequently a congestion of funds in New York City, when the supply is in excess of business needs and the accumulated surplus from the entire country generally is thereby set free for use in the speculative market. Thus there almost annually occurs an inordinately low rate for “call loans,” at times less than 1 per cent. During the prevalence of this abnormally low rate speculation is unduly incited, and speculative loans are very largely expanded.

On the other hand, occasional extraordinary industrial activity, coupled with the annually recurring demands for money during the crop-moving season, causes money stringency, and the calling of loans made to the stock market; an abnormally high interest rate results, attended by violent reaction in speculation and abrupt fall in prices. The pressure to retain funds in the speculative field at these excessively high interest rates tends to a curtailment of reasonable accommodation to commercial and manufacturing interests, frequently causing embarrassment and at times menacing a crisis.

The economic questions involved in these conditions are the subject of present consideration by the Federal authorities and the National Monetary Commission. They could not be adjusted or adequately controlled either through Exchange regulation or State legislation.

THE USURY LAW

The usury law of this State prohibits the taking of more than 6 per cent. interest for the loan of money, but by an amendment adopted in 1882 an exception is made in the case of loans of $5000, or more, payable on demand and secured by collateral. It is claimed by some that, since this exception enables stock speculators, in times of great stringency, to borrow money by paying excessively high rates of interest, to the exclusion of other borrowers, a repeal of this provision would check inordinate speculation. We direct attention, however, to the fact that the statute in question excepts such loans as are secured by warehouse receipts, bills of lading, bills of exchange, and other negotiable instruments. Hence its operation is not limited to Stock Exchange transactions, or to speculative loans in general. Moreover, the repeal of the statute would affect only the conditions when high rates of interest are exacted, and not those of abnormally low rates, which really promote excessive speculation. Finally, our examination indicates that prior to the enactment of the statute of 1882 such loans were negotiated at the maximum (6 per cent.), plus a commission, which made it equivalent to the higher rate; and a repeal of the statute would lead to the resumption of this practice. Therefore, as the repeal would not be beneficial, we cannot recommend any legislation bearing upon the interest laws of the State, unless it be the repeal of the usury law altogether, as we believe that money will inevitably seek the point of highest return for its use. In nine States of the Union there are at present no usury laws.

THE CURB MARKET

There is an unorganized stock market held in the open air during exchange hours. It occupies a section of Broad Street. An enclosure in the centre of the roadway is made by means of a rope, within which the traders are supposed to confine themselves, leaving space on either side for the passage of street traffic; but during days of active trading the crowd often extends from curb to curb.

There are about 200 subscribers, of whom probably 150 appear on the curb each day, and the machinery of the operations requires the presence of as many messenger boys and clerks. Such obstruction of a public thoroughfare is obviously illegal, but no attempt has been made by the city authorities to disperse the crowd that habitually assembles there.

This open-air market, we understand, is dependent for the great bulk of its business upon members of the Stock Exchange, approximately 85 per cent. of the orders executed on the curb coming from Stock Exchange houses. The Exchange itself keeps the curb market in the street, since it forbids its own members engaging in any transaction in any other security exchange in New York. If the curb were put under a roof and organized, this trading could not be maintained.

ITS UTILITY

The curb market has existed for upward of thirty years, but only since the great development of trading in securities began, about the year 1897, has it become really important. It affords a public market-place where all persons can buy and sell securities which are not listed on any organized exchange. Such rules and regulations as exist are agreed to by common consent, and the expenses of maintenance are paid by voluntary subscription. An agency has been established by common consent through which the rules and regulations are prescribed.

This agency consists solely of an individual who, through his long association with the curb, is tacitly accepted as arbiter. From this source we learn that sales recorded during the year 1908 were roughly as follows:

Bonds $66,000,000 Stocks, industrials, shares 4,770,000 Stocks, mining, shares 41,825,000

Official quotations are issued daily by the agency and appear in the public press. Corporations desiring their securities to be thus quoted are required to afford the agency certain information, which is, however, superficial and incomplete. There is nothing on the curb which corresponds to the listing process of the Stock Exchange. The latter, while not guaranteeing the soundness of the securities, gives a prima facie character to those on the list, since the stock list committee takes some pains to learn the truth. The decision of the agent of the curb are based on insufficient data, and since much of the work relates to mining schemes in distant States and Territories, and foreign countries, the mere fact that a security is quoted on the curb should create no presumption in its favor; quotations frequently represent “wash sales,” thus facilitating swindling enterprises.

EVILS OF UNORGANIZED STATUS

Bitter complaints have reached us of frauds perpetrated upon confiding persons, who have been induced to purchase mining shares because they are quoted on the curb; these are frequently advertised in newspapers and circulars sent through the mails as so quoted. Some of these swindles have been traced to their fountainheads by the Post Office Department, to which complaint has been made; but usually the swindler, when cornered, has settled privately with the individual complainant, and then the prosecution has failed for want of testimony. Meanwhile the same operations may continue in many other places, till the swindle becomes too notorious to be profitable.

Notwithstanding the lack of proper supervision and control over the admission of securities to the privilege of quotation, some of them are meritorious, and in this particular the curb performs a useful function. The existence of the cited abuses does not, in our judgment, demand the abolition of the curb market. Regulation is, however, imperative. To require an elaborate organization similar to that existing in the Exchanges would result in the formation of another curb free from such restraint.

As has been stated, about 85 per cent. of the business of the curb comes through the offices of members of the New York Stock Exchange, but a provision of the constitution of that Exchange prohibits its members from becoming members of, or dealing, on, any other organized Stock Exchange in New York. Accordingly, operators on the curb market have not attempted to form an organization. The attitude of the Stock Exchange is therefore largely responsible for the existence of such abuses as result from the want of organization of the curb market. The brokers dealing on the latter do not wish to lose their best customers, and hence they submit to these irregularities and inconveniences.

Some of the members of the Exchange dealing on the curb have apparently been satisfied with the prevailing conditions, and in their own selfish interests have maintained an attitude of indifference toward abuses. We are informed that some of the most flagrant cases of discreditable enterprises finding dealings on the curb were promoted by members of the New York Stock Exchange.

REFORMATION OF THE CURB

The present apparent attitude of the Exchange toward the curb seems to us clearly inconsistent with its moral obligations to the community at large. Its governors have frequently avowed before this committee a purpose to co-operate to the greatest extent for the remedy of any evils found to exist in stock speculation. The curb market as at present constituted affords ample opportunity for the exercise of such helpfulness.

The Stock Exchange should compel the formulation and enforcement of such rules as may seem proper for the regulation of business on the curb, the conduct of those dealing thereon, and, particularly, for the admission of securities to quotation.

If the curb brokers were notified that failure to comply with such requirements would be followed by an application of the rule of non-intercourse, there is little doubt that the orders of the Exchange would be obeyed. The existing connection of the Exchange gives it ample power to accomplish this, and we do not suggest anything implying a more intimate connection.

Under such regulation, the curb market might be decently housed to the relief of its members and the general public.

THE ABUSE OF ADVERTISING

A large part of the discredit in the public mind attaching to “Wall Street” is due to frauds perpetrated on the small investor throughout the country in the sale of worthless securities by means of alluring circulars and advertisements in the newspapers. To the success of such swindling enterprises a portion of the press contributes.

Papers which honestly try to distinguish between swindling advertisements and others may not in every instance succeed in doing so; but readiness to accept advertisements which are obviously traps for the unwary is evidence of a moral delinquency which should draw out the severest public condemnation.

So far as the press in the large cities is concerned the correction of the evil lies, in some measure, in the hands of the reputable bankers and brokers; who, by refusing their advertising patronage to newspapers notoriously guilty in this respect, could compel them to mend their ways, and at the same time prevent fraudulent schemes from deriving an appearance of merit by association with reputable names.

Another serious evil is committed by men who give standing to promotions by serving as directors without full knowledge of the affairs of the companies, and by allowing their names to appear in prospectuses without knowing the accuracy and good faith of the statements contained therein. Investors naturally and properly pay great regard to the element of personal character, both in the offering of securities and in the management of corporations, and can therefore be deceived by the names used in unsound promotions.

BRITISH SYSTEM CONSIDERED

We have given much attention to proposals for compelling registration, by a bureau of the State government, of all corporations whose securities are offered for public sale in this State, accompanied by information regarding their financial responsibility and prospects, and prohibiting the public advertisements or sale of such securities without a certificate from the bureau that the issuing company has been so registered. The object of such registration would be to identify the promoters, so that they might be readily prosecuted in case of fraud. Such a system exists in Great Britain. The British “Companies Act” provides for such registration, and the “Directors’ Liability Act” regulates the other evil referred to above. Some members of your committee are of the opinion that these laws should be adopted in this country, so far as they will fit conditions here.

This would meet with some difficulties, due in part to our multiple system of State government. If the law were in force only in this State, the advertisement and sale of the securities in question would be unhindered in other markets, and companies would be incorporated in other States, in order that their directors and promoters should escape liability. The certificate of registration might be accepted by inexperienced persons as an approval by State authority of the enterprise in question. For these reasons the majority of your committee does not recommend the regulation of such advertising and sale by State registration.

In so far as the misuse of the post-office for the distribution of swindling circulars could be regulated by the Federal authorities the officials have been active in checking it. They inform us that vendors of worthless securities are aided materially by the opportunity to obtain fictitious price quotations for them on the New York Curb market.

LEGISLATION RECOMMENDED

For the regulation of the advertising evils, including the vicious “tipster’s” cards, we recommend an amendment to the Penal Code to provide that any person who advertises, in the public press, or otherwise, or publishes, distributes or mails, any prospectus, circular, or other statement in regard to the value of any stock, bonds, or other securities, or in regard to the business affairs, property, or financial condition of any corporation, joint stock association, copartnership or individual issuing stock, bonds, or other similar securities, which contains any statement of fact which is known to such person to be false, or as to which such person has no reasonable grounds for believing it to be true, or any promises or predictions which he cannot reasonably justify, shall be guilty of a misdemeanor; and, further, that every newspaper or other publication printing or publishing such an advertisement, prospectus, circular, or other statement, shall, before printing or publishing the same, obtain from the person responsible for the same, and retain, a written and signed statement to the effect that such person accepts responsibility for the same, and for the statements of fact contained therein, which statement shall give the address, with street number, of such person; and that the publisher of any such newspaper or other publication which shall fail to obtain and retain such statement shall be guilty of a misdemeanor.

BUCKET-SHOPS

Bucket-shops are ostensibly brokerage offices, where, however, commodities and securities are neither bought nor sold in pursuance of customers’ orders, the transactions being closed by the payment of gains or losses, as determined by price quotations. In other words, they are merely places for the registration of bets or wagers; their machinery is generally controlled by the keepers, who can delay or manipulate the quotations at will.

The law of this State, which took effect September 1, 1908, makes the keeping of a bucket-shop a felony, punishable by fine and imprisonment, and in the case of corporations, on second offences by dissolution or expulsion from the State. In the case of individuals the penalty for a second offence is the same as for the first. These penalties are imposed upon the theory that the practice is gambling; but in order to establish the fact of gambling it is necessary, under the New York law, to show that both parties to the trade intended that it should be settled by the payment of differences, and not by delivery of property. Under the law of Massachusetts it is necessary to show only that the bucket-shop keeper so intended. The Massachusetts law provides heavier penalties for the second offence than for the first, and makes it a second offence if a bucket-shop is kept open after the first conviction.

AMENDMENT OF LAW RECOMMENDED

We recommend that the foregoing features of the Massachusetts law be adopted in this State; also that section 355 of the act of 1908 be amended so as to require brokers to furnish to their customers in all cases, and not merely on demand, the names of brokers from whom shares were bought and to whom they were sold, and that the following section be added to the act:

Witness’s privilege:

No person shall be excused from attending and testifying, or producing any books, papers, or other documents before any court or magistrate, upon any trial, investigation, or proceeding initiated by the district attorney for a violation of any of the provisions of this chapter, upon the ground or for the reason that the testimony or evidence, documentary or otherwise, required of him may tend to convict him of a crime or to subject him to a penalty or forfeiture; but no person shall be prosecuted or subjected to any penalty or forfeiture for or on account of any transaction, matter, or thing concerning which he may so testify or produce evidence, documentary or otherwise, and no testimony so given or produced shall be received against him upon any criminal investigation or proceeding.

There has been a sensible diminution in the number of bucket-shops in New York since the act of 1908 took effect, but there is still much room for improvement.

Continuous quotations of prices from an exchange are indispensable to a bucket-shop, and when such quotations are cut off this gambling ends; therefore every means should be employed to cut them off.

SALES OF QUOTATIONS

The quotations of exchanges have been judicially determined to be their own property, which may be sold under contracts limiting their use. In addition to supplying its own members in New York City with its quotations, the Stock Exchange sells them to the telegraph companies, under contracts restricting the delivery of the service in New York City to subscribers approved by a committee of the Exchange; the contracts are terminable at its option. This restriction would imply a purpose on the part of the Exchange to prevent the use of the quotations by bucket-shop keepers. But the contracts are manifestly insufficient, in that they fail to cover the use of the service in places other than New York City; if corroboration were needed it could be found in the fact that the quotations are the basis for bucket-shop transactions in other cities. In such effort as has been made to control these quotations the Exchange has been hampered to some extent by the claim that telegraph companies are common carriers, and that as such they must render equal service to all persons offering to pay the regular charge therefor. This claim has been made in other States as well as in New York, and the telegraph companies have in the past invoked it as an excuse for furnishing quotations to people who were under suspicion, although it was not possible to prove that they were operating bucket-shops. Recent decisions seem to hold that this claim is not well-founded. We advise that a law be passed providing that, so far as the transmission of continuous quotations is concerned, telegraph companies shall not be deemed common carriers, or be compelled against their volition to transmit such quotations to any person; also a law providing that if a telegraph company has reasonable ground for believing that it is supplying quotations to a bucket-shop, it be criminally liable equally with the keeper of the bucket-shop. Such laws would enable these companies to refuse to furnish quotations upon mere suspicion that parties are seeking them for an unlawful business, and would compel them to refuse such service wherever there was a reasonable ground for believing that a bucket-shop was being conducted.

LICENSING TICKERS

Tickers carrying the quotations should be licensed and bear a plate whereon should appear the name of the corporation, firm, or individual furnishing the service or installing the ticker, and a license number. Telegraph companies buying or transmitting quotations from the exchanges should be required to publish semi-annually the names of all subscribers to the service furnished, and the number and location of the tickers, in a newspaper of general circulation published in the city or town in which such tickers are installed. In case the service is furnished to a corporation, firm, or person, in turn supplying the quotations to others, like particulars should be published. A record, open to public inspection, should be kept by the installing company showing the numbers and location of the tickers. Doubtless local boards of trade, civic societies, and private individuals would, if such information were within their reach, lend their aid to the authorities in the enforcement of the law.

Measures should be taken also to control the direct wire service for the transmission of quotations, and for the prompt discontinuance of such service in case of improper use thereof. In short, every possible means should be employed to prevent bucket-shops from obtaining the continuous quotations, without which their depredations could not be carried on a single day.

THE COMMODITY EXCHANGES

Of the seven commodity exchanges in the city of New York, three dealing with Produce, Cotton, and Coffee, are classed as of major importance; two organized by dealers in Fruit and Hay, are classed as minor; and two others, the Mercantile (concerned with dairy and poultry products) and the Metal (concerned with mining products) are somewhat difficult of classification, as will appear hereafter.

THE MAJOR EXCHANGES

The business transacted on the three major exchanges is mainly speculative, consisting of purchases and sales for future delivery either by those who wish to eliminate risks or by those who seek to profit by fluctuations in the value of products. “Cash” or “spot” transactions are insignificant in volume.

The objects, as set forth in the charters, are to provide places for trading, establish equitable trade principles and usages, obtain and disseminate useful information, adjust controversies, and fix by-laws and rules for these purposes.

Trading in differences of price and “wash sales” are strictly prohibited under penalty of expulsion. All contracts of sale call for delivery, and unless balanced and canceled by equivalent contracts of purchase, must be finally settled by a delivery of the merchandise against cash payment of its value as specified in the terms of the contract; but the actual delivery may be waived by the consent of both parties. Possession is for the most part transferred from the seller to the purchaser by warehouse receipts entitling the holder to the ownership of the goods described.

DEALING IN “FUTURES”

The selling of agricultural products for future delivery has been the subject of much controversy in recent years. A measure to prohibit such selling, known as the Hatch Anti-Option bill, was debated at great length in Congress during the years 1892, 1893, and 1894. Although it passed both House and Senate in different forms, it was finally abandoned by common consent. As shown hereafter, similar legislation in Germany has proved injurious; and when attempted by our States it has either resulted detrimentally or been inoperative. The subject was exhaustively considered by the Industrial Commission of Congress which in 1901 made an elaborate report (Vol. VI), showing that selling for future delivery, based upon a forecast of future conditions of supply and demand, is an indispensable part of the world’s commercial future delivery has been the subject of machinery, by which prices are, as far as possible, equalized throughout the year to the advantage of both producer and consumer. The subject is also treated with clearness and impartiality in the Cyclopedia of American Agriculture, in an article on “Speculation and Farm Prices”; where it is shown that since, the yearly supply of wheat, for example, matures within a comparatively short period of time somebody must handle and store the great bulk of it during the interval between production and consumption. Otherwise the price will be unduly depressed at the end of one harvest and correspondingly advanced before the beginning of another.

Buying for future delivery causes advances in prices; selling short tends to restrain inordinate advances. In each case there must be a buyer and a seller and the interaction of their trading steadies prices. Speculation thus brings into the market a distinct class of people possessing capital and special training who assume the risks of holding and distributing the proceeds of the crops from one season to another with the minimum of cost to producer and consumer.

HEDGING

A considerable part of the business done by these exchanges consists of “hedging.” This term is applied to the act of a miller, for example, who is under contract to supply a given quantity of flour monthly throughout the year. In order to insure himself against loss he makes a contract with anybody whom he considers financially responsible, to supply him wheat at times and in the quantities needed. He “hedges” against a possible scarcity and consequent rise in the price of wheat. If the miller were restricted in his purchases to persons in the actual possession of wheat at the time of making the contract he would be exposed to monopoly prices. If the wheat producer were limited in his possibilities of sale to consumers only, he would be subjected to the depressing effects of a glut in the market in June and September, at times of harvest.

To the trader, manufacturer, or exporter, the act of transferring the risk of price fluctuations to other persons who are willing to assume it, has the effect of an insurance. It enables him to use all of his time and capital in the management of his own business instead of devoting some part of them to contingencies arising from unforeseen crop conditions.

ALTERNATIVE CONTRACTS

In order to eliminate the risk of a shortage of specific grades of the merchandise thus traded in, contracts generally permit the delivery of alternative grades, within certain limits, at differential prices; and if the grade to be delivered be not suitable for the ultimate needs of the purchaser, it can under ordinary circumstances be exchanged for the grade needed, by the payment of the differential. It is true that in this exchange of grades there is sometimes a loss or a profit, owing to some unexpected diminution or excess of supply of the particular grade wanted, due to the weather or other natural causes.

Deposits of cash margins may be required mutually by members at the time of making contracts, and subsequent additional ones if market fluctuations justify.

Dealings for outsiders are usually upon a 10 per cent. margin; obviously, if this margin were increased generally, say to 20 per cent., a considerable part of the criticism due to losses in speculation, particularly as to the Cotton Exchange, would be eliminated.

The major part of the transactions are adjusted by clearing systems, the method most prevalent being “ring settlements,” by which groups of members having buying and selling contracts for identical quantities, offset them against each other, canceling them upon the payment of the differences in prices.

THE PRODUCE EXCHANGE

The New York Produce Exchange was chartered by the Legislature in 1862, under the style of the “New York Commercial Association.” The charter has been amended several times; in 1907 dealing in securities, as well as in produce, was authorized. There are over 2000 members, but a larger number are inactive. Some members are also connected with the Stock and Cotton Exchanges. The business includes dealing in all grains, cottonseed oil, and a dozen or more other products; wheat is, however, the chief subject of trading, and part thereof consists of hedging by and for millers, exporters, and importers, both here and abroad. The quantity of wheat received in New York in the five years 1904–1908 averaged 21,000,000 bushels annually. No record of “cash” sales is kept. The reported sales of “futures” show in five years an annual average of 480,000,000 bushels, the year 1907 showing 610,000,000. Although some of these sales were virtually bets on price differences, all of them were contracts enforceable at law.

CLEARING SYSTEM

The greater part of the transactions are settled by a clearing system. The Clearing Association is a separate organization, duly incorporated, with a capital of $25,000. All members of the association must settle daily by the clearing system; other members of the Exchange may do so. The Clearing Association assumes responsibility for the trades of all its members, and accordingly controls the exaction of margins from members to each other, and may increase them at any time if the fluctuations require it. The records of the clearings show day by day the status of each member’s trading--how much he may be “long” or “short” in the aggregate. Thus the members have a system of protection against each other; the welfare of all depends upon keeping the commitments of each within safe limits. The official margin system operates as a commendable restraint upon over-speculation.

From our examination of the trading in mining stocks recently introduced, we conclude that the lack of experience of this body in this class of business has resulted in a neglect of proper safeguards to the investor and an undue incitement to speculative transactions of a gambling nature, and should not be tolerated on the Produce Exchange.

THE COTTON EXCHANGE

The New York Cotton Exchange was incorporated by a special charter in 1871. Its membership is limited to 450. It is now the most important cotton market in the world, as it provides the means for financing about 80 per cent. of the crop of the United States, and is the intermediary for facilitating its distribution. In fact, it is the world’s clearing house for the staple. Traders and manufacturers in Japan, India, Egypt, Great Britain, Germany, France, and Spain, as well as the United States, buy and sell here daily and the business is still increasing.

Cotton is the basis of the largest textile industry in the world. The business is conducted on a gigantic scale in many countries by means of vast capital, complicated machinery, and varied processes involving considerable periods of time between the raw material and the finished product. Selling for future delivery is necessary to the harmonious and uninterrupted movement of the staple from producer to consumer. Nearly all the trading, beginning with that of the planter, involves short selling. The planter sells to the dealer, the dealer to the spinner, the spinner to the weaver, the weaver to the cloth merchant, before the cotton of any crop year is picked. Dealers who take the risk of price fluctuations insure all the other members of this trading chain against losses arising therefrom and spare them the necessity of themselves being speculators in cotton. The risks connected with raising and marketing cotton must be borne by some one, and this is now done chiefly by a class who can give their undivided attention to it.

GRADING OF COTTON

The grading of cotton is the vital feature of the trade. When no grade is specified in the contract, it is construed to be middling. There are now eighteen grades, ranging from middling stained up to fair. This classification differs somewhat from that of other markets, and last January the Department of Agriculture at Washington took up the subject of standardizing the various grades for all American markets. The New York Cotton Exchange participated in this work; a standard was thus adopted, the types of which were supplied by its classification committee. It varies but little from the one previously in use here. The samples chosen to represent the several types are now sealed, in possession of the Department of Agriculture, awaiting the action of Congress.

The cotton plant is much exposed to vicissitudes of the weather. A single storm may change the grade of the crop in large sections of the country. It becomes necessary therefore to provide some protection for traders who have made contracts to deliver a particular grade which has become scarce by an accident which could not be foreseen. For this purpose alternative deliveries are allowed by the payment of corresponding price differentials, fixed by a committee of the Exchange twice annually, in the months of September and November.

Settlements of trades may be made individually, or by groups of members, or through a clearing system, the agency of which is a designated bank near the Exchange. No record is kept of the transactions, but it is probable that for a series of years the sales have averaged fully 50,000,000 bales annually.

INORDINATE SPECULATION

There have been in the past instances of excessive and unreasonable speculation upon the Cotton Exchange, notably the Sully speculation of 1904. We believe that there is also a great deal of speculation of the gambling type mentioned in the introduction to this report. In our opinion, the Cotton Exchange should take measures to restrain and so, far as possible, prevent these practices, by disciplining members who engage in them. The officers of the Exchange must in many cases be aware of these practices, and could, in our opinion, do much to discourage them.

THE COFFEE EXCHANGE

The Coffee Exchange was incorporated by special charter in 1885. It has 320 members, about 80 per cent. active.

It was established in order to supply a daily market where coffee could be bought and sold and to fix quotations therefor, in distinction from the former method of alternate glut and scarcity, with wide variations in price--in short, to create stability and certainty in trading in an important article of commerce. This it has accomplished; and it has made New York the most important primary coffee market in the United States. But there has been recently introduced a non-commercial factor known as “valorization,” a governmental scheme of Brazil, by which the public treasury has assumed to purchase and hold a certain percentage of the coffee grown there, in order to prevent a decline of the price. This has created abnormal conditions in the coffee trade.

All transactions must be reported by the seller to the superintendent of the Exchange with an exact statement of the time and terms of delivery. The record shows that the average annual sales in the past five years have been in excess of 16,000,000 bags of 250 pounds each.

Contracts may be transferred or offset by voluntary clearings by groups of members. There is no general clearing system. There is a commendable rule providing that, in case of a “corner,” the officials may fix a settlement price for contracts to avoid disastrous failures.

THE OTHER EXCHANGES

Of the exchanges which we have classed as minor, those dealing with Fruit and Hay, appear to be in nowise concerned with speculation. No sales whatever are conducted on them, all transactions being consummated either in the places of business of the members or at public auction to the highest bidder. No quotations are made or published.

In the case of the other two commodity exchanges, the Mercantile and the Metal, new problems arise. Although quotations of the products appertaining to these exchanges are printed daily in the public press, they are not a record of actual transactions amongst members, either for immediate or future delivery.

It is true that on the Mercantile Exchange there are some desultory operations in so-called future contracts in butter and eggs, the character of which is, however, revealed by the fact that neither delivery by the seller nor acceptance by the buyer is obligatory; the contract may be voided by either party by payment of a maximum penalty of 5 per cent. There are nominal “calls,” but trading is confessedly rare. The published quotations are made by a committee, the membership of which is changed periodically. That committee is actually a close corporation of the buyers of butter and eggs, and the prices really represent their views as to the rates at which the trade generally should be ready to buy from the farmers and country dealers.

Similar, but equally deceptive, is the method of making quotations on the Metal Exchange. In spite of the apparent activity of dealings in this organization in published market reports, there are no actual sales on the floor of the Metal Exchange, and we are assured that there have been none for several years. Prices are, however, manipulated up and down by a quotation committee of three, chosen annually, who represent the great metal-selling agencies as their interest may appear, affording facilities for fixing prices on large contracts, mainly for the profit of a small clique, embracing, however, some of the largest interests in the metal trade.

These practices result in deceiving buyers and sellers. The making and publishing of quotations for commodities or securities by groups of men calling themselves an exchange, or by any other similar title, whether incorporated or not, should be prohibited by law, where such quotations do not fairly and truthfully represent any bona fide transactions on such exchanges. Under present conditions, we are of the opinion that the Mercantile and Metal Exchanges do actual harm to producers and consumers, and that their charters should be repealed.

THE EXPERIENCE OF GERMANY

In 1892 a commission was appointed by the German Government to investigate the methods of the Berlin Exchange. The regular business of this exchange embraced both securities and commodities; it was an open board where anybody by paying a small fee could trade either for his own account, or as a broker. The broker could make such charge as he pleased for his services, there being no fixed rate of commission. Settlements took place monthly. Margins were not always required. Under these circumstances many undesirable elements gained entrance to the Exchange and some glaring frauds resulted.

The commission was composed of government officials, merchants, bankers, manufacturers, professors of political economy, and journalists. It was in session one year and seven months. Its report was completed in November, 1893. Although there had been a widespread popular demand that all short selling should be prohibited, the commission became satisfied that such a policy would be harmful to German trade and industry, and they so reported. They were willing, however, to prohibit speculation in industrial stocks. In general the report was conservative in tone.

THE LAW OF 1896

The Reichstag, however, rejected the bill recommended by the commission and in 1896 enacted a law much more drastic. The landowners, constituting the powerful Agrarian party, contended that short selling lowered the price of agricultural products, and demanded that contracts on the Exchange for the future delivery of wheat and flour be prohibited. The Reichstag assented to this demand. It yielded also to demands for an abatement of stock speculation, and prohibited trading on the Exchange in industrial and mining shares for future delivery. It enacted also that every person desiring to carry on speculative transactions be required to enter his name in a public register, and that speculative trades by persons not so registered should be deemed gambling contracts and void. The object of the registry was to deter the small speculators from stock gambling and restrict speculation to men of capital and character.

The results were quite different from the intention of the legislators. Very few persons registered. Men of capital and character declined to advertise themselves as speculators. The small fry found no difficulty in evading the law. Foreign brokers seeing a new field of activity opened to them in Germany, flocked to Berlin and established agencies for the purchase and sale of stocks in London, Paris, Amsterdam, and New York. Seventy such offices were opened in Berlin within one year after the law was passed, and did a flourishing business. German capital was thus transferred to foreign markets. The Berlin Exchange became insignificant and the financial standing of Germany as a whole was impaired.

DETRIMENTAL CONSEQUENCES

This, however, was not the most serious consequence of the new law. While bankers and brokers, in order to do any business at all, were required to register, their customers were not compelled to do so. Consequently the latter could speculate through different brokers on both sides of the market, pocketing their profits and welching on their losses as gambling contracts. Numerous cases of this kind arose, and in some the plea of wagering was entered by men who had previously borne a good reputation. They had yielded to the temptation which the new law held out to them.

Another consequence was to turn over to the large banks much of the business previously done by independent houses. Persons who desired to make speculative investments in home securities applied directly to the banks, depositing with them satisfactory security for the purchases. As the German banks were largely promoters of new enterprises, they could sell the securities to their depositors and finance the enterprises with the deposits. This was a profitable and safe business in good times, but attended by dangers in periods of stringency, since the claims of depositors were payable on demand. Here again the law worked grotesquely, since customers whose names were not on the public register could, if the speculation turned out badly, reclaim the collateral or the cash that they had deposited as security.

MODIFICATION OF LAW IN 1908

The evil consequences of the law of 1896 brought about its partial repeal in 1908. By a law then passed the government may, in its discretion, authorize speculative transactions in industrial and mining securities of companies capitalized at not less than $5,000,000; the Stock Exchange Register was abolished; all persons whose names were in the “Handels-register” (commercial directory), and all persons whose business was that of dealing in securities, was declared legally bound by contracts made by them on the Exchange. It provided that other persons were not legally bound by such contracts, but if such persons made deposits of cash or collateral security for speculative contracts, they could not reclaim them on the plea that the contract was illegal.

In so far as the Reichstag in 1896 had aimed to prevent small speculators from wasting their substance on the Exchange, it not only failed, but, as we have seen, it added a darker hue to evils previously existing.

Germany is now seeking to recover the legitimate business thrown away twelve years ago. She still prohibits short selling of grain and flour, although the effects of the prohibition have been quite different from those which its supporters anticipated. As there are no open markets for those products, and no continuous quotations, both buyers and sellers are at a disadvantage; prices are more fluctuating than they were before the passage of the law against short selling.

THANKS TO THE CHAMBER OF COMMERCE

Our cordial thanks are due to the Chamber of Commerce of the State of New York for the free use of rooms in its building for our sessions, and of its library, and other facilities.

Respectfully submitted, HORACE WHITE, Chairman, CHARLES A. SCHIEREN, DAVID LEVENTRITT, CLARK WILLIAMS, JOHN B. CLARK, WILLARD V. KING, SAMUEL H. ORDWAY, EDWARD D. PAGE, CHARLES SPRAGUE SMITH,

MAURICE L. MUHLEMAN, Secretary.

THE END

FOOTNOTES

Principles of the Economic Philosophy of Society, Government and Industry, by Van Buren Denslow, LL.D., New York, 1888, p. 99.

Ibid., p. 107.

Ibid., p. 101. Consult also “Theory of Political Economy,” by W. S. Jevons, p. 92, and “A History of Prices,” by Thomas Tooke, Part II, p. 46.

Consult Report of the New York State Food Investigating Commission, September, 1912.

A detailed account of this incident was published in Country Life in America, July 1, 1912, from the pen of Graham F. Blandy, the producer.

Bourses or Exchanges, as we know them to-day, undoubtedly owe their origin to the Jews. M. Vidal’s scholarly work explains that the persecutions which those untiring and courageous merchants experienced in Spain after the expulsion of the Moors caused them to emigrate to Holland, where the market-place was called Change (Exchange) and where in later years there was to be established, as a result of their labors, the famous Bank of Amsterdam, which was for a century the foremost institution of its kind in the world. The modern use of the word Change or Exchange is thus plainly traced. The word Bourse originated at Bruges, where, according to one authority, merchants gathered at the house of one of their number known as van der Burse. Other historians state that the word originated from the three purses (bourses) carved on the gable of the house in which the meetings were held.

Charles A. Conant, “The World’s Wealth in Negotiable Securities,” Atlantic Monthly, January, 1908, estimated the total American securities as of 1905, at $34,514,351,382. Since that time there has been added to the securities listed on the New York Stock Exchange alone, a total averaging about one billion dollars per annum. The total given above is, therefore, a conservative one, since I have added to Mr. Conant’s 1905 estimate only Stock Exchange additions, and have taken no account of the millions added by small corporations.

“The Stock Exchange and the Money Market,” “Annals of the American Academy of Political and Social Science,” Vol. XXXVI, No. 3, November, 1910, p. 567.

If the discovery had then been made that bits of paper could be used as a medium of giving mobility to capital, there would have been a Stock Exchange at Rome eleven centuries before Christ. M. Edmond Guillard’s study of the subject shows that the argentarii (bankers) were then doing business at the imperial city, and that in addition to their central offices they had established branch offices at the Forum, where they gathered daily at a specified hour, together with the merchants, manufacturers, and capitalists, carrying on a business of money-changing in a public market that was, in its essentials, similar to our public financial markets of to-day (“Les Banquiers Atheniens et Romains, trapézites et argentarii,” Paris, 1875 Guillaumin). As the business was introduced into Rome by freed Greek slaves, it is perhaps safe to say that the practice of dealing in public money markets is in reality of still earlier origin. Plautus alludes to the crowd of merchants and bankers in the public square, and many chroniclers record the fact that at the time of Appius Claudius and Publius Sevilius, that is to say, five centuries before Christ, there was a public market in Rome known as the Assembly of Merchants (Collegium mercatorum).

“A hundred years ago the use of the cheque was hardly known even in London, and an English country gentleman would have had infinitely more trouble in making a small investment than would nowadays a remote Australian squatter, or a wheat-grower in the wildest West of Canada. A letter posted to London from a distant village of Saskatchewan in 1910 would arrive with far more certainty, and perhaps not less speed than a letter posted in 1810 from a village in Sutherland or Argyllshire. A penny stamp with a cheque enclosed in a brief letter of instructions to the banker, and the thing is done. But the thrifty Scot of 1810 would have had the utmost difficulty, and great expense as well as risk, in converting a similar amount of cash savings into an interest-bearing security. In 1710 the thing would have been practically impossible. The Bank of England had only just been called into existence, and, in fact, there were no bankers, no brokers, and no Stock Exchange in the modern sense of the word. A man who wished to invest, without personally employing his capital, had practically no choice but to buy property and let it out at a rent, or lend his money on mortgage. Bank of England Stock or National Debt had just begun to be a political speculation for the moneyed Whigs in London. Merchant venturers might risk a large sum in a joint-stock voyage. Otherwise the average Englishman at the beginning of the eighteenth century A. D. was hardly better off for investment than the average Athenian in the age of Pericles, or the average Roman in the days of Cicero.”--“The Stock Exchange,” by Francis W. Hirst, editor of the Economist, Williams and Norgate, London.

Article on “Speculation” in Schonberg’s “Handbuch der Politischen Oekonomie” (Tubingen, 1896–98).

“Scope and Functions of the Stock Market.”--“The Annals of the American Academy of Political and Social Science,” Vol. XXXV, No. 3. May, 1910.

Charles A. Conant, “The Uses of Speculation,” Forum (August, 1901).

Suppose for a moment that the stock markets of the world were closed, that it was no longer possible to learn what railways were paying dividends, what their stocks were worth, how industrial enterprises were faring--whether they were loaded up with surplus goods or had orders ahead. Suppose that the information afforded by public quotations on the stock and produce exchanges were wiped from the slate of human knowledge. How would the average man, how even would a man with the intelligence and foresight of a Pierpont Morgan, determine how new capital should be invested? He would have no guides except the most isolated facts gathered here and there at great trouble and expense. A greater misdirection of capital and energy would result than has been possible since the organization of modern economic machinery. “Wall Street and the Country,” by Charles A. Conant, pp. 92–93.--G. P. Putnam’s Sons, New York, 1904.

The student who wishes to go more thoroughly into the subject of Stock Exchange usefulness is referred to “The Annals of the American Academy of Political and Social Science,” Vol. XXXV, No. 3, May, 1910, Philadelphia. “Some Thoughts on Speculation,” by Frank Fayant, New York, 1909; “The Stock Exchange,” by Francis W. Hirst, London, Williams & Norgate, 1911; “Wall Street and the Country,” by Chas. A. Conant, New York, G. P. Putnam’s Sons, 1904; “Story of the Stock Exchange,” by Chas. Duguid, London, New York, E. P. Dutton & Co., 1902; “The Stock Exchange, London,” Methuen & Co., 1904; “The New York Stock Exchange,” by Francis L. Eames, New York, 1894; “Der Deutsche Kapitalmarkt,” by Rudolph Eberstadt, Leipzig, Duncker & Humbolt, 1901; “The Stock Exchange,” (London), by C. D. Ingall & G. Withers, Longmans, Green & Co., 1904; “A Simple Purchase and Sale Through a Stockbroker,” by Eliot Norton, Harvard Law Review, Vol. VIII, No. 8; “Stock Exchange Investments; History, Practice, and Results,” London, Simpkin, Marshall, Hamilton, Kent & Co., 1900.

The Stock Exchange is an organization of individuals formed for the purpose of listing securities and for facilitating the sale and delivery of stocks.... Through its agency corporations are enabled to sell their shares and get the money capital to conduct their business. The Stock Exchange has come into existence because of a demand for trade facilities that will adjust differences of opinion in reference to future values of corporation securities and give the purchaser some idea of values. (“Modern Industrialism,” by Frank L. McVey, Professor of Political Economy in the University of Minnesota. N. Y., 1904.)

“Principles of Economics,” by Edwin R. A. Seligman, Professor of Political Economy in Columbia University (N. Y., 1905).

“Nouveau Dictionnaire d’Economie Politique,” by Paul Leroy-Beaulieu, Paris, 1892.

Consult “The (London) Stock Exchange,” Francis W. Hirst, London, Chap. VI, p. 164, Williams & Norgate, 1911.

“Principles of Economics,” by J. R. McCulloch, London, 1825.

“Speculation on the Stock and Produce Exchanges of the United States,” by Henry Crosby Emery, Professor of Political Economy at Yale University. New York, 1896.

In its effort to study all possible remedial methods affecting speculation on margins, the Hughes Commissioners in 1909 put this question to the Governors of the Stock Exchange:

“Would taxation of loans made on margin transactions tend to discourage margin speculation? If so, would it be desirable to graduate the tax in accordance with the margin ratio?”

To which the Governors replied:

“In our opinion the taxation of loans could not be made upon margin transactions, as the lender of the money would be absolutely ignorant as to whether the securities pledged with him were carried on margin or whether they were owned absolutely. Any species of taxation upon loans would work a great injury to the money prosperity of the banking institutions of the City of New York. Loans are made to individuals and institutions upon bona fide property; they are also made to borrowers of money upon stocks and bonds offered to the institution, which are marginal in their nature; further, they are made upon securities only in part marginal, and any effort to distinguish would be practically impossible and would retard the entire business of the community. The effect of taxation upon loans would be to drive capital instantly from the city, and would force a species of financial institution to arise in every State which would profit by our inquisitorial laws, should such be enacted, to their own advantage and to our serious detriment. Such a restriction upon the free lending of money is not only unsound, impossible of enforcement, but could not help resulting in a constant evasion of the law.”

“The Hughes Investigation,” by Horace White, Journal of Political Economy, October, 1909, p. 537.

The governors of the Stock Exchange, when asked by the Hughes Commission, “Would a change in the practice of dealing on margins be desirable?” replied as follows:

“The practice of dealing on margins is absolutely essential to the conduct of many transactions, whether in stocks or bonds. To prohibit it would be to deny to a man the right to invest his funds and to purchase property upon such terms as he pleases. As well might the purchase of real estate, where a portion of the consideration is left on mortgage, be prohibited. The responsibility of the individual enters so largely into these transactions that it will be impossible to define specific instances where the margin would be too small or unnecessarily great. It is to be left to the discretion of the bankers, as well as to the judgment of those who furnish the money upon which these transactions are based. There may be certain classes of securities, like city bonds or government bonds, where a very small margin is ample. There may be other transactions in stocks selling at very high prices where a very strong margin should be required. Like many other details of a banking and brokerage business, these matters are frequently subjects of arrangement, whereby the broker protects himself and a satisfactory protection is given to him by his client. It would be manifestly impossible for the enactment of rules or regulations suitable to every case, and, in conclusion, we would say that it is almost unknown for an institution, bank, or trust company, to lose money upon any loans made on margins to members of the Stock Exchange in good standing.”

“Ten Years’ Regulation of the Stock Exchange in Germany.” Yale Review, May 1908, q. v., post.

“The Stock Exchange,” by Francis W. Hirst, London, 1911, p. 101.

“The Hughes Investigation,” by Horace White, Journal of Political Economy, October, 1909, pp. 532–3.

“Board of Trade Case,” 88 Fed. 868.

“Chicago Board of Trade Case,” May 8, 1905.

Several authorities among those quoted in this chapter have been taken from Mr. Frank Fayant’s pamphlet, “Some Thoughts on Speculation,” N. Y.., 1909. It would be difficult to compress in small space a more instructive array of data than that presented in Mr. Fayant’s work.

“Scope and Functions of the Stock Market,” by Prof. S. S. Huebner, Ph. D., University of Pennsylvania. “Annals of the American Academy of Political and Social Science,” Vol. XXXV, No. 3, May, 1910.

Journal of Political Economy, October, 1909, pp. 531–2.

Consult the Wall Street Journal, February 18, 1909.

“The borrower is also bound to pay the lender whatever interest by way of coupons or dividends or otherwise and all bonuses and accretions that would have been paid to the lender on the securities he has lent had he kept them. These are in practice treated as increases to the market price of the borrowed securities. The reason for this provision is that the lender is the actual owner of the securities and as such owner he is entitled to whatever they may earn by way of interest or in any other way. He has simply temporarily let another have the use of them, and, since the securities can be and are disposed of by the borrower, the lender would lose the interest, etc., which is paid on the borrowed securities between the date that they are borrowed and the date when they are returned and the loan cancelled, unless the borrower paid an equivalent amount to him. On the other hand, any assessment the lender would have had to pay on the borrowed securities during the continuance of the loan is a charge against him; for such an assessment is a burden adherent to ownership. In practice it is treated as a reduction of the market price.”--Eliot Norton “On Short Sales of Securities through a Stockbroker.” The John McBride Co., New York, 1907.

(Memorial of the stockbrokers addressed to the Minister of Finance, 1843, p. 44, footnote. Quoted by Vidal, q. v., p. 46.)

Some of those who admit the value of the stock market have subjected to severe criticism those who speculate for the fall of stocks. One reads constantly of the “bears” trying to accomplish such and such results by depressing securities. Napoleon had a long talk with Mollien, his Minister of Finance, in seeking to demonstrate that those who sold “short,” in the belief that national securities would fall, were traitors to their country. He argued that if these men were selling national securities for future delivery at less than their present value they were guilty of treason to the State. But Mollien replied in substance: “These men are not the ones who determine the price; they are only expressing their judgment upon what it will be. If they are wrong, if the credit of our State is to be maintained in the future at its former high standard, in spite of your military preparations, these men will suffer the penalty by having to make delivery at the price for which they sold, for they must go into the market and buy at the price then prevailing. It is their judgment, not their wish, that they express.”--“Wall Street and the Country,” by Charles A. Conant, pp. 111–112, G. P. Putnam’s Sons, New York, 1904.

“Lombard Street,” p. 158.

Charles A. Conant, “Principles of Money and Banking” (New York, 1905). The reader is invited to consult, in this connection, that portion of the Report of the Hughes Commission, (see Appendix) having to do with short selling.

Report of the Commissioner, Washington, 1908.

Despite the effort to avoid technical terms in these pages, the value of the bear should be considered from still another angle. Smith, a bear, sells short to Jones, a bull. The economic usefulness of Jones then becomes problematical, since he may sell out at any moment. His permanence as a holder or owner is merely optional, and his usefulness in the economic scheme of things is impaired. As a market factor he may be ignored. But there is nothing optional about Smith’s position, for he is now a compulsory buyer; his economic status is fixed; he has become a very real potential force.

“The Stock Exchange and the Money Market,” by Horace White, “Annals of the American Society of Political and Social Science,” Vol. XXXVI, No. 3, Nov., 1910, pp. 563–573.

Ibid., p. 564.

The Stock Exchange authorities were asked by the Hughes Commissioners in 1909 what effect would result if this law were repealed. An interesting historical summary is involved in the reply to this question.

“In our opinion the repeal of such a law would simply lead to constant evasions, which would cause the law to be practically a dead letter, and it is far better to leave it as it is, and to allow the supply and demand to regulate the rate for money.

“It is reasonable to assume that the repeal of this law would result in a recurrence of the conditions which existed prior to its enactment. Prior to 1882, when this Act was passed, such loans were subject to the drastic provisions of the Usury Law, which imposes the forfeiture of the principal as a penalty for violation. The Usury Law, however, as to this class of loans, had for years been a dead letter, and whatever risks were incurred through its penalties were taken by lenders without hesitation. Demand loans were made at interest plus a commission, and in times of money stringency the interest rate represented by the so-called commission attained proportions which have been unknown since the passage of the Act of 1882. Extreme instances are to be found of a rate as high as 700 per cent. per annum.

“Such violent fluctuations in the rate have been unknown since the passage of the Act of 1882. Since that time all quotations of interest on call loans have been at so much per cent. per annum, not, as was formerly the case, at ⅛ or ¼ of 1 per cent. per day. Through the extreme stringency which existed in the autumn of 1907, the rate ran from 12 to 30 per cent., with the exception, perhaps, of one or two days when practically no money was procurable at any price, when the quotation ran up to 100 or 110 per cent. per annum. It would seem demonstrated by experience that the law of 1882 has been a most potent factor in reducing the interest rate in times of stringency and in rendering it at all times more stable and equable.”

Cf. Mr. White’s article supra, p. 570.

Report of the Comptroller of the Currency, October, 30, 1912.

The Wall Street Journal, August 31, 1912.

December 7, 1912. Consult also p. 235.

“The Hughes Investigation,” by Horace White, Journal of Political Economy, October, 1909, pp. 537–8.

In his article on “The Hughes Investigation” (Journal of Political Economy, October, 1909, p. 539), Mr. Horace White refers to the attempt of the Hughes Commission to devise a means whereby the company-promoter’s activities might be curbed. He says: “The British ‘Companies Act’ forbids the public advertisement or sale of any securities unless the issuing company has been registered in a bureau of the government with information regarding the business to be transacted, the names of the officers and other persons responsible for the statements of fact, etc. Much time was spent by the committee in discussing the advisability of adopting the English system, regardless of the fact that it would be operative in only one state of the union, and that it would serve as an obstacle to all securities, sound and unsound, alike. Thus, if the Pennsylvania Railroad Company desired to issue a new lot of bonds it could advertise and sell them everywhere except in New York, without the trouble and expense of registration. Would it be worth while to give to other markets such an advantage over that of New York? The opinion of the governors of the Stock Exchange was sought and was given orally, to the effect that it would be unwise to take the risk unless the benefits to be derived from registration were preponderating and reasonably certain. It was their belief, however, that a certificate from state officials that a company was registered at Albany would be interpreted by the class of investors, who are most liable to deception, as a certificate of the soundness of the securities, in which case the act of registration would do more harm than good. The latter consideration prevailed in the committee, but recommendations as to advertising were made, which, if adopted by the legislature, will add something to the responsibilities of greedy and unscrupulous newspapers, while not going upon the doubtful ground of a censorship of the press.”

“The Hughes Investigation,” by Horace White, Journal of Political Economy, October, 1909, p. 529.

The report of the Hughes Investigating Committee is published in full in the appendix to this volume.

One of the witnesses before the Hughes Committee actually recommended that the stock ticker be suppressed. Such a suggestion is silly and would lead to great confusion and many complaints from the public. The ticker is essential to publicity and offers the very protection which the Stock Exchange seeks to extend. Speculation was never so unscrupulous and wrongdoing never so abundant as in the days before this instrument was invented.

L’Economiste Français, Paris, October 5th.

When the first issue of Union Pacific convertible bonds matured, so many people had failed to notice that their bonds could be exchanged dollar for dollar against the stock, selling at much higher price with greater yield, that the company extended the time for conversion. It would have been entirely warranted in paying off such bondholders at par, but it spent considerable sums in advertising them of a privilege they should have known all about. In the face of all this, bonds came in for conversion many months after the extended time, and the bondholder sincerely believed that he had a grievance because his bond was redeemed at par.

The same thing happened in the case of the old St. Paul 7’s, which were convertible into preferred stock. Bondholders allowed themselves to be paid off at par for a bond which had been standing at 170 and apparently had never read the terms of their own mortgage. What can the law, the press, or the banker do against such criminal negligence as this? And if bondholders are remiss, what shall be said of the average stockholder? He is improving undoubtedly, but he has still a great deal to learn. His right to information is unquestionable, but he fails to exercise it in anything like the degree he should. It is to be feared also that he does not take a great deal of trouble in learning to analyze such reports and balance sheets as may be submitted to him.

A stockholder should never hesitate to write to the officers of his company for information. He should do it often, and he should get other stockholders to do the same thing. One stockholder writing frequently may be regarded as a nuisance. Ten will be treated with respect, and it will be a very autocratic control which will venture to deny information to a hundred stockholders, taking a legitimate step to protect their own proper interests. The newspapers are glad to furnish any information in their power, but if the stockholder would write to the company first and the newspaper afterward, he would probably derive more ultimate advantage.--Wall Street Journal, September 22, 1909.

Address by President Finlay of the Southern Railway, before the Transportation Club of Indianapolis, October, 1912.

“If there is one man who really understands the nature of the transactions in the New York Stock Exchange from day to day, it is Robert L. Doremus, the chairman of the Stock Exchange Clearing House Committee, which has the power to lay bare the character of any broker’s business. His reputation for veracity is of that high character which Wall Street demands from the men in its responsible positions. When he says that the main influence in any day’s trading is a legitimate and widespread demand for sound securities, in lots small enough to be within reach of the investor of moderate means, he is talking facts and not theories.

“Our politicians, however, are legislating for a Wall Street of twenty years ago. The stock market is not controlled by large speculators creating deceptive prices by manipulative orders. That kind of business is passing away, and it may be said that another kind, that of the purely gambling accounts carried on the lightest of margins, has practically gone, and is not likely to return. The few houses whose business is still of this character are dying of dry-rot; while the active houses who are doing the real business of the stock market report their speculative accounts so broadly margined as to be of a semi-investment character.

“What is still more satisfactory is the wide diffusion in the ownership of industrial and railroad stocks. This is not new. The Illinois Central’s great strength for forty years was in the small stockholder, who made his voice heard to some purpose when “strike” legislation developed in his State legislature or in Congress. But the ever-widening character of the investment area, the recognition of the convenience and convertibility of Stock Exchange securities, safeguarded by sound management and full publicity, is a growth of the most hopeful character. It indicates a force of enlightened conservatism of the greatest value to the country.”--The Wall Street Journal, October 22, 1912.

It is truthfully declared by Courtois, in his Traité des Opérations de Bourse et de Change, that a fictitious movement, even on the part of the most powerful operators, cannot overcome the natural tendencies of values, and that the most that can be accomplished is sometimes to hasten or retard slightly the certain effect of a foreseen event. “Wall Street and the Country,” by Charles A. Conant, p. 88, G. P. Putnam’s Sons, New York, 1904.

The Wall Street Journal, December 7, 1912.

The distinction between “panics,” “crises,” and “depressions,” are clearly stated in the opening chapter of “Financial Crises and Periods of Industrial and Commercial Depression,” by Theodore E. Burton, D. Appleton & Co., N. Y., 1902. In the following pages, I use the terms as they are commonly applied in Wall Street, although this application is not always governed by sound etymology. Thus in Wall Street we speak of “the panic of 1907,” meaning broadly the events of that entire year. Strictly speaking a “panic” is the brief period of a day or an hour of unreasoning fear, brought about by the “crisis” of a money scarcity which preceded it. The period of commercial and financial suffering, which continues after the panic and the crisis have passed, is the “depression.”

“Des Crises Commerciales,” Clément Juglar, Paris, 1889, pp. 44–5.

“Annals of the American Academy of Political and Social Science,” Vol. XXXV, No. 3, May, 1910, p. 13.

“Financial Crises and Periods of Industrial and Commercial Depression,” Theodore E. Burton, New York, 1902, p. 234.

The report of the New York State Superintendent of Banks for the same period emphasizes this point by showing a steady contraction of loans by State banks and trust companies of New York City during the period quoted, while all other authorities reveal a steady expansion in loans by similar institutions outside the city.

“The Hughes Investigation,” by Horace White, Journal of Political Economy October, 1909, pp. 528–540. Mr. White quotes in this connection an article on “The Panic of 1907,” by Eugene Meyer, Jr., Yale Review, May, 1909, from which many facts in this chapter have been taken.

Cf. Burton, supra, pp. 49–50–51.

Ibid., pp. 227–8–9.

The panic of 1837 was caused by a great expansion of banking and bank credits, and an intense speculation in real estate. In 1830 there were 329 banks in the country with a capital of $110,000,000. In 1857 there were 788 with a capital of $290,000,000. When the crisis was subsequently examined it was found that there had been an actual shrinkage of $2,000,000,000 in the value of the assets of the country, and that $600,000,000 of indebtedness had been wiped out by bankruptcy.

The panic of 1857 was due primarily to the influx of gold from California after its discovery in 1848, and to the intense passion for speculative gain which attended it. Suspension of specie payments by the banks lasted fifty-nine days. Complete recovery to the normal standard did not take place until 1860, when it was again interrupted by the events antecedent to the Civil War of 1861.

The antecedents of the crisis of 1873 were identical with every other commercial crisis--namely, speculation--the act of buying with a view to selling at a higher price, and overtrading, or the act of buying and selling too much on a given capital. Most commonly these two elements are accompanied by two others, viz.--the destruction or loss of previously accumulated capital, and the rapid conversion of circulating into fixed capital. Speculation and destruction of capital usually go together in preparing the way for a crisis.--Horace White, Fortnightly Review, Vol. XXV, p. 819.

The panic of 1893 was distinctly a currency panic. By a curious paradox it came at a time when the volume of currency was unprecedentedly large and constantly increasing. But the inception of the disaster had to do with its quality rather than its quantity. The repeal of the silver purchasing clause of the Sherman Law, November 1, 1893, restored confidence by assuring the commercial world that the existing volume of silver coin would be maintained on a parity with gold.

Real Estate Record and Guide, 1906–7.

Consult Bradstreet’s, 1907; the Construction News, Chicago, 1907; the Engineering News, 1907.

“The New York Stock Exchange and the Panic of 1907,” by Eugene Meyer, Jr., Yale Review, May, 1909.

“Credit Cycles and the Origin of Commercial Panics,” Manchester Statistical Society, December 11, 1867.

Remarks of Joseph French Johnson, dean of the New York University School of Commerce, at the American Institute of Banking, October 25, 1907.

Consult Burton, supra, pp. 109–110; Muhleman. “Monetary Systems of the World,” pp. 128, 130, 135, 140.

“The Banking and Currency Problem in the United States,” Victor Morawetz, New York, North American Review Publishing Company, 1909, pp. 87, et. seq.

“Collected Works,” Vol II, p. 2.

Senator Burton “Crises and Depressions,” pp. 51, 52, enumerates the important indicia of crisis-producing conditions as follows:

(a) An increase in prices of commodities and later of real estate.

(b) Increased activity of established enterprises and the formation of many new ones, especially those which provide for increased production and improved methods, all requiring the change of circulating to fixed capital.

(c) An active demand for loans at higher rates of interest.

(d) The general employment of labor at increasing or well-sustained wages.

(e) Increasing extravagance in private and public expenditure.

(f) The development of a mania for speculation, attended by dishonest methods in business and the gullibility of investors.

(g) A great expansion of discounts and loans and a resulting rise in the rate of interest; also a material increase in wages, attended by frequent strikes and by difficulty in obtaining a sufficient number of laborers to meet the demand.

Not one of these indications of trouble was lacking in the period preceding the panic of 1907.

The student who wishes to inquire at length into the subject of panics, crises, and depressions will find useful aids in the authorities already quoted, and in the following additional works:

A. Allard, La Crise Agricole et manufacturiere devant la Conference monetaire de Bruxelles; Brussels, 1893.

A. Baring (Lord Ashburton), The Financial and Commercial Crises Considered; London, Murray, 1847.

C. W. Smith, Commercial gambling, the principal cause of depression in agriculture and trade; London, Low, 1893.

C. Wooley, Phases of Panics; a brief historical review; London, Good, 1897.

C. Juglar, A brief history of panics and their periodical occurrences in the United States; New York, Putnam, 1893.

E. Goodby & W. Watt, The present depression in trade, its causes and remedies.

Henry Wood, The Political Economy of Natural Law, Boston, Lee & Sheppard, 1894.

H. M. Hyndman, Commercial Crises of the Nineteenth Century; London, Swan Sonnenschein & Co., 1892.

H. Denis, La Dépression Économique et Sociale et l’histoire des prix; Brussels, 1895.

J. Eadie, Panics in the money market, etc.; New York, 1893.

Michael G. Mulhall, History of Prices Since 1850; London, Longmans, Green & Co., 1885.

R. Browning, The Currency considered with a view to the effectual prevention of panics; London, 1869.

The Pears prize essays. London, Chatto, 1885.

W. W. Lloyd, Panics and their panaceas; London, Harrison, 1869.

W. H. Crocker, The cause of hard times; Boston, Little, Brown & Co., 1896.

(8 and 9 Will, III, Ch. 32.)

(6 Anne, Ch. 16.)

See appendix.

See p. 140.

For a legal opinion concerning the rights of plaintiffs arising from memberships in a corporation as contrasted with those arising from memberships in a voluntarily unincorporated association the reader is referred to White vs. Brownell (2 Daly at p. 337), opinion at Special Term by Justice Van Vorst; and the same case at General Term, opinion by Justice Daly. The courts of New York State have on a number of occasions expressed their approval of the manner in which the Stock Exchange has discharged its functions under this form of organization. The reader’s attention is called to Belton vs. Hatch, 109, New York, 597, Court of Appeals.

“The German Exchange Act of 1896,” by Dr. Ernst Loeb, in the Quarterly Journal of Economics, July, 1897.

“Ten Years Regulation of the Stock Exchange in Germany,” by Henry Crosby Emery in the Yale Review, May, 1908.

Ibid.

“The German Bourse Law,” by G. Plochmann, North American Review, May, 1908.

“An act to regulate sales at public auction and to prevent stock-jobbing,” New York State Legislature, 1812.

“An act to regulate sales at public auction and to prevent stock-jobbing,” New York State Legislature, 1858, repealing act of 1812.

“Statutes at Large,” Ch. 127 and Ch. 209, repealing Ch. 127.

“Economics,” by Arthur T. Hadley, New York, 1896.

“Money and Banking,” by Horace White, New York, 1895.

In the appendix to his work, “Some Thoughts on Speculation,” New York, 1909, Mr. Frank Fayant gives a summary of the laws of all the States, pp. 57–58. I am greatly indebted to this pamphlet for many authorities quoted in this chapter.

The London Stock Exchange is also an unincorporated body. See pp. 231 et seq. for the report of the royal commission bearing on this matter.

The question put to sureties on the London Stock Exchange is, “Would you take this man’s cheque for £3000 in the ordinary way of business?” to which an unprepared sponsor once replied, “Well, I should not pick it out.”

A similar question by the governors of the New York Stock Exchange once met with the reply, “Yes, but I would have it certified as quickly as possible.”

A similar cry, “Fourteen hundred,” was long used for the same purpose on the London Stock Exchange. For a time there were but 1399 members, and each stranger who appeared was thought to be number 1400. Hence, the words came to be applied to all new members, long after the membership exceeded that figure.

The celerity and accuracy of the cable service between New York and foreign centres, as perfected in arbitraging, has no parallel elsewhere. Twenty minutes are often required to complete a cable transaction between the London Stock Exchange and the Paris Bourse, and so it frequently happens, where speed is required, that messages between those two centres are cabled by way of New York.

Consult “The World’s Wealth in Negotiable Securities,” by Charles A. Conant, Atlantic Monthly, (July, 1908).

Hopkinson Smith, in the World’s Work (August, 1912).

“They are like unto children sitting in the market-place and calling one to another, and saying, ‘We have piped unto you, and ye have not danced; we have mourned to you, and ye have not wept.’”

July, 1912, p. 94.

“Worry, the Disease of the Age,” by C. W. Saleeby, M. D., F. A. Stokes Co. (New York, 1907).

The English Exchequer has left a permanent impression on the language no less than on the world’s finance. Such words as “cheque,” “tally,” and “stocks,” in the sense of securities, possess an interesting history easy to trace. If one lent money to the Bank of England down to so comparatively recent a period as one hundred years ago, tallies for the amount were cut on willow sticks just as they were cut at the Exchequer in the time of the Crusades; the bank kept the “foil,” and the lender the “stock”--the earliest “bank-stock” on record. Very recently a bag of Exchequer tallies was found in a chapel of Westminster Abbey.

The first Stock Exchange book was published in 1761--“Every Man His Own Broker, or a Guide to Exchange Alley,” by J. Mortimer. Mortimer, Mr. Hirst tells us, had been British Consul in Holland, and had seen the workings of the Amsterdam Bourse and the arbitrage business between London and Amsterdam, which was considerable in the middle of the eighteenth century. The book shows that many phases of speculation were already in vogue before the Stock Exchange was formally organized.

“The (London) Stock Exchange,” Francis W. Hirst, London, Williams and Norgate, 1910. The attention of the reader is invited to this book. As a short study of investment and speculation in England it is exceedingly instructive, doubly so in that it comes from the pen of the editor of the Economist.

The Quarterly Review, July, 1912.

There are 20,000 shares (£13 paid) and £416,700 debentures outstanding.

It should be said, in fairness to the London jobber, that the incident here mentioned by Mr. Hirst is a rare exception.

L’Economiste Français, Paris, October 5, 1912.

Rule 150 reads as follows: “The committee will not fix a special settling day for bargains in shares or securities issued to the vendors, credited as full or partly paid, until six months after the date fixed for the special settlement in the shares or securities of the same class subscribed for by the public, but this does not necessarily apply to reorganizations or amalgamations of existing companies, or to cases where no public shares are issued for cash.”--Rules and Regulations of the Stock Exchange. London, June 3, 1911, pp. 64–5.

These figures are taken from Mr. Hirst’s Chapter VIII on “The Creation of New Debt and Capital,” pp. 212–241.

It should be said that at least a part of the decline in these securities had taken place before the Balkan scare became a reality. A foreknowledge of what was impending may have influenced the earlier decline; certainly the event itself accentuated and hastened it.

London jobbers were, in a way, instrumental in checking the furious speculation in “rubbers” toward the culmination of the boom of 1909–10. Their absolute refusal to carry rubber shares for brokers, and their concerted insistence that such shares should be paid for in full on the ensuing account day, undoubtedly put the brakes on a furious speculation, and prevented many failures.

The Wall Street Journal, November 13, 1912.

On the New York Stock Exchange the minimum difference between prices is one eighth and splitting of this fraction is prohibited save in the case of “rights” to subscribe or similar instances.

In the settling room on ticket day stocks that are not cleared pass by ticket from broker to broker in much the same way as that provided by the Clearing House.

Although an effort has been made in these pages to avoid complicated Stock Exchange technique, the contango, which is not fully understood in America, requires technical explanation. It may be defined as a double-bargain, in that it consists of a sale for cash of the stock previously bought which the broker does not wish to carry, and a repurchase for the new settlement two weeks ahead, of the same stock at the same price as the sale, plus interest agreed upon up to the date of that settlement.

The methods of transacting business on the London Stock Exchange are admirably stated in condensed form in an article by Walter Landells in the Quarterly Review, July, 1912, pp. 88–109, and I am indebted to his article for many of the foregoing facts, and for this brief summary of London’s booms and crises.

In addition to the authorities quoted in the foregoing chapter, the attention of the reader is directed to the following works having to do with the London Stock Exchange:

Lombard Street, by Walter Bagehot, New York, Chas. Scribner’s, and Sons.

Stocks and Shares, by Hartley Withers, London, Smith Elder, 1910.

Stock Exchange Law and Practice, by W. A. Bewes, London, Sweet & Maxwell, 1910.

Rise of the London Money Market, 1640–1826, by W. R. Bisschop, London, King, 1910.

The Mechanism of the City, by Ellis T. Powell, London, King, 1910.

Anatole Leroy-Beaulieu, La Régence de l’argent, “Revue des Deux Mondes.” February 25, 1897, pp. 894 and 895.

(M. Leroy-Beaulieu is the elder brother of Paul, the French economist. In 1881 he became professor of modern history at the Ecole Libre des Sciences Politiques, and in 1887 was made a member of the Academy of Moral and Political Sciences. His fame as a publicist is established.)

John Law was the inventor of “bearer” certificates.

“The History and Methods of the Paris Bourse,” by E. Vidal, Senate Document No. 573, Sixty-first Congress (Second session), pp. 161–2.

“Opérations de Bourse et de Change,” Courtois, 13th ed., p. 239.

Provincial bourses in France are divided into two classes--those with parquets, and those without them. Bourses with parquets are those at Lyons, Bordeaux, Marseilles, Nantes, Toulouse, and Lille. The Minister of Finance is in control of these parquet bourses, while the Minister of Commerce controls those that have no parquet.

“History and Methods of the Paris Bourse,” by E. Vidal, published by the National Monetary Commission, Washington, 1910, pp. 262–3–4.

The report of the Paris Chamber of Commerce, February 8, 1882, which paved the way for this reform, is interesting reading:

“An administration of justice which would permit a speculator to carry on two deals of equal importance with two different brokers, one for a rise and the other for a fall, and, while collecting from one the profit he had made to advance the plea of gambling toward the other, in order to avoid paying the loss which the operation showed--such an administration, I say, could not hold any longer; that fact alone would condemn it.

“Experience shows that the plea of gambling has never protected anybody but those of bad faith, and has only encouraged the excess of speculation, as was stated by M. Andrieux in his report presented to the Chamber in 1877, in the name of the Seventh Commission of Initiative.

“Prompted by these reasons, and, considering that the present legislation, far from preventing gambling, encourages it; considering that bad faith finds protection in the jurisprudence sanctioned; and, further considering that in commercial affairs, as in any other, it behooves to allow every one his full freedom, as well as to hold him responsible for his actions--I beg to suggest that an address be sent to the Minister of Commerce, confirming the letter of the Chamber of Commerce of November 25, 1877, and requesting the Government to introduce a bill in the Chambers, declaring that article 1965 of the Code civil does not apply to debts resulting from dealings for future delivery, and that articles 421 and 422 of the Code penal are repealed.”

The law legalizing dealings for future delivery was enacted March 28, 1885, and formally promulgated April 8, 1885.

Vidal, p. 217, supra.

Ibid, p. 276.

Ibid, pp. 192–3.

Remarks of M. Alfred Neymarck, at the International Congress of Securities, 1900, quoted by Vidal, pp. 166–7.

INDEX

Asterisks indicate foot-notes

Account Day, in London, 372.

Advertising, Abuse of, 434.

Advertising, by members prohibited, 56.

Agents de Change, 51.

Agents de Change (see Paris Bourse).

Agora, of Greece, 262.

Aldrich, plan, 101.

Allard A., Crises in France, 219*.

American Acad. of Polit. and Social Science, 16*, 26*, 32*, 80*, 102*, 191*.

American Bankers’ Association, 207.

American, finance of future, 377.

American Institute of Banking, 208*.

Arbitrage brokers, duties of, 283.

Ashley, W. T., on Economic History, 224.

Assignats, 390.

Atlantic Monthly, 288*.

Bagehot, Walter, on Credulity of Speculators, 92.

Bagehot, Walter, on Banking, 99.

Bagehot, Walter, on Panics, 215–218; Lombard Street, 378*.

Balkan Crisis of 1912, 76, 340, 368, 369.

Banking and Currency Problem in U. S., by Victor Morawetz, 209*.

Banking facilities in London, 362.

Bank loans, N. Y. (1904–1907), 190; in the U. S. (1904–1907), 192; in London, 362.

Bank of England, 324, 328, 357.

Bank of England, Origin of, 18*.

Bank of France and currency, 209; and Bourse, 396; and Germany, 209.

Banks, certifications of checks, 113; borrowings by London brokers, 353.

Bank, deposits in N. Y., 125.

Bankers as peacemakers, 371.

Bank stock, earliest form of, 324.*

Baring, A., on Financial Crises, 219*.

Baring failure, 156, 376.

Barnard, Sir John, Act to prevent stock-jobbing, 226.

Barometer, The Stock Exchange as a, 23, 190, 308, 309.

Bearer certificates, 365, 374.

Bears, Value of, 76; in Germany, 77. (See short selling).

Benefactions and charities of members, 317.

Bewes, W. A., Stock Exchange Law and Practice, 379*.

Bisschop, W. R., Rise of the London Money Market, 379*.

Black Friday, 251.

Blackmar, Frank W. on Legislation against Speculation, 255.

Bond brokers on ’Change, 282.

Borrowing and lending stocks in N. Y.. and London, 353–4.

Bourse, Origin of, 12*.

Bourse, Paris. (See Paris).

Bradstreet’s, 202*.

Branch offices, 426.

Brokers in London, relation to jobbers, 335, 339; methods, 372 et seq. (See London Stock Exchange).

Browning, R., on Currency, 219*.

Bryce, James, on Good Citizenship, 133.

Bucket-shops, 55, 143, 252, 435.

Bucket-shops, War against, 149.

Burr, Aaron, 31.

Burton, Theodore E., on Financial Crises, 183*; on Forecasting, 191, 197, 198.

Burton, Theodore E., on Crisis-producing conditions, 216*.

Burton, Theodore E., on Currency, 208.

Business Conduct Committee, 255

Business on ’Change, how conducted, 288, et seq.

Cable service, Excellence of, 284*.

Cammack, Addison, on publicity, 161.

Capital of brokerage houses, 152.

Capital, reasons for scarcity of, 122; exports of in London, 366.

Carry-over, contango, 375–6*.

Central Bank in America, 101.

Certificates, registered and bearer, 365, 374.

Certifications of stockbroker’s checks, 113.

Chamber of Commerce, N. Y., 206.

Chambre Syndicale, of Paris Bourse, 393.

Change Alley, 327.

Charities and benefactions of members, 317.

Chicago Board of Trade Case in U. S. Circuit Court, 65; in U. S. Supreme Court, 66*.

China, Speculative possibilities in, 62.

Clearance Orders, 279.

Clearing House, N. Y. Banks, 109.

Clearing House, N. Y. Stock Exchange, 119, 426; London, 365, 373.

Clearings, volume of, in N. Y. and London, 344.

Coffee Exchange, 442.

Colbert, and the French manufacturers, 254.

Collectors, on ’Change, 315.

Collegium mercatorum at Rome, 16*.

Commercial honor on ’Change, 264.

Commission dealers in markets for produce, 8.

Commissions, rate of, N. Y., 278, 281; in London, 342; in Paris, 395.

Committee of Arrangements, 277.

Committee on Stock List, requirements of, 363.

Companies Act, in England, 147*.

“Comparisons” by stockbrokers, 120.

Competition, essential to freedom of trade, 5.

Comptroller of Currency, Report of, 126*.

Conant, Charles A., on Establishment of prices, 28.

Conant, Charles A., on Short-sales, 89*, 93*; on manipulation, 175*.

Conant, Charles A., on Stock Exchange Quotations, 29*.

Conant, Charles A., on Value of American Securities, 14*.

Consolidated Stock Exchange, 428.

Consols, as affected by war, 368; dealings in, 374.

Construction News (Chicago), 202*.

Contango, 375–6*.

Control of members by governors, 265.

Conveniences for members, 304.

Cordage Trust, 30, 311.

Corner in Northern Pacific stock, 290.

Corners, 30; opinions of Hughes Commission, 423.

Corn Laws, History of the, J. Shield Nicholson, 255.

Cost of Living, 8.

Cotton Exchange, 441.

Coulisse, in Paris, 397, et seq.; membership, 398; origin, 401; progress, 402; history, 404; volume of business, 405.

Coulissiers, 51.

Courtois, A., on manipulation, 175*; Opérations de Bourse, 393*.

Credit Cycles and Origin of Panics, John Mill, 204*.

Crises and depressions, 183*.

Criticism of the Stock Exchange, 29.

Crocker, W. H., on depressions, 219*.

Curb market, 141, 431–2–3.

Currency and the panic of 1907, 206, 210.

Currency, famines in America, 123; inadequate laws, 352, 357; contrasts with London, 353.

Currency, panic of 1893, 199*.

Daily settlements in N. Y., 349.

Daly, Justice, opinion, 236*.

Denis, H., depressions, 219*.

Denslow, Van Buren, on Prices and Values, 6*.

Depositors in banks, number of, 126.

Depressions, in relation to panics, 183*.

Deutsche Bank, opinion on Bourse Law, 78, 243.

Deutsche Kapitalmarkt, by Rudolph Eberstadt, 32*.

Dictionnaire d’Economie Politique, by Paul Leroy-Beaulieu, 44*.

Discipline, as maintained on ’Change, 266–7, 277.

Disconto-Gesellschaft, opinion on Bourse Law, 244.

Discounting the future, 23.

Disputes and differences, adjustment of, 294.

Diversions of members, 313.

Doremus, Robert L., on transactions, 173*.

Dresdner Bank, opinion on Bourse Law, 78, 244.

Duguid, Chas., Story of the Stock Exchange, 32*.

Eadie, J, on panics, 219*.

Eames, Francis L., on The N. Y. Stock Exchange, 32*.

East India Company, 325.

Eberstadt, Rudolph, Der Deutsche Kapitalmarkt, 32*.

Economics, by Francis W. Blackmar, 255.

Economiste Français, 163*, 349*.

Economist, London, 16, 18*, 19, 197. (See Hirst, Francis W.).

Egyptian Speculation, 62.

Emery, Henry Crosby, on Advantages of broad speculative markets, 61.

Emery, Henry Crosby, on German Bourse Law, 239, et seq.; on control of speculation, 256–7–8.

Emery, Henry Crosby, on Speculation on the Stock Exchange and Produce Exchanges of the U. S., 49*.

Employes on ’Change, 289, 318.

Engineering News, 202*.

England, capital exports, 28.

England, Laws of, affecting company organizations, 147.

England, Laws, of affecting short sales, 95.

English capital in America, 20.

English Corn Laws, History of, by J. Shield Nicholson 255.

English Economic History, Introduction to, by W. T. Ashley, 224.

Exchange, Origin of, 12*.

Exchange Register, in Germany, 241.

Exchanges, in London in early days, 323.

Exchequer, English, 324*.

Exports of capital by London, 366.

Failures, of stockbrokers, 112, 152, 156; in London, 331; in Paris, 350, 395; opinion of Hughes Commission, 423.

Fairs, in primitive countries, 5.

Farmers’ Alliance, 7.

Farmers, Speculation by, 83.

Fayant, Frank, Some Thoughts on Speculation, 32*, 68*, 239, 252*.

Fictitious transactions, 425.

Financial Crises, etc., by Theo. E. Burton, 183*, 191*.

Financial press in London, 348.

Fortnightly Review, on panics, 199*.

Forum, at Rome, 262.

France, Volumes of Securities in, 406.

French Government, attitude toward stockbrokers’ monopoly, 401.

Future delivery, transactions for, in France, 402, 410; in America, 438.

Gambling as distinguished from speculating, 53–54, 417, 419, 421.

Gambling in bucket-shops, 144.

Georges-Levy, on short sales, 93.

German Bourse Law, The, by Geo. Plochmann, 245*.

German Bourse Law of 1896, 77, 236 et seq., 254; opinion of Hughes Commission, 444.

German credit in 1912, 372.

German Exchange Act of 1896, by Dr. Ernst Loeb, 238*.

German Government bonds, decline in, 368.

Germany, Regulation of the Stock Exchange in, 61*.

Gold Room, 251, 307.

Goldsmiths’ Notes, in England, 324.

Gold Speculation Act of 1864, 249.

Gossip and news on ’Change, 295.

Gould, Jay, 30.

Government bonds, as affected by war, 368.

Governors of the Stock Exchange on Freedom of Margin transactions, 59*; on Margin transactions, 52*; on Short sales, 90; on Usury law, 105*; on Incorporation, 235.

Governors of the Stock Exchange, their power over members, 139, 154; method of choosing, 266.

Grain Exchanges, 10.

Grosscup, Judge, on Value of Stock Exchange, 65.

Guarantee of stockbrokers, 154; in Paris, 395.

Guild of Goldsmiths, 324.

Guillard, Edmond, on Origin of Stock Exchanges, 16*.

Hadley, Arthur T., Economics, 250.

Harvard Law Review, 32*.

Hatch Anti-Option Bill, 55, 252.

Hazing of new members, 276.

Hedging in cotton futures, 81, 94, 416, 439.

Hirst, Francis W., on Early Exchange in London, 327*; on Stock Exchange rules, 330; on functions of jobbers, 336; on creation of new debt, 365*; on Chinese Speculation, 63; Early English Speculation, 18*; The Stock Exchange, 32*, 45*, 63*.

History of N. Y. Stock Exchange, 306.

History of the People of the U. S., by McMaster, 30.

Hobbies of members, 312.

Hocking Coal & Iron Company, 30, 311.

Holding Companies, 429.

Holidays on ’Change, 301.

Holmes, Justice, of the U. S. Supreme Court, on speculation, 66.

Honor and character on ’Change, 264.

Huebner, S. S. on Stock Exchange safeguards, 25; on Usefulness of bears, 78; on discounting future, 190.

Hughes Commission on German Bourse Law, 245; on Margins, 52; on Short selling, 80; on Curb market 142. (See also Appendix.)

Hughes Investigation, The, by Horace White, 64*.

Hyndman, H. M., Commercial Crises, 219.

Incorporation of Stock Exchange (London), 231–5.

Incorporation of Stock Exchange, N. Y., 139, 235, 265; opinion of Hughes Commission, 427.

Ingall, C. D., The Stock Exchange (London), 32*.

Insurance, as effected by hedging, 81.

Interest, rates of, in 1909–10, 116.

Investors in France, caution of, 408.

Inventor, dependent upon capital, 13.

Investment, its relation to speculation, 44.

Investor, Origin of word, 16.

Jevons, W. S., on prices, 7*.

Jevons, W. S., on sun-spots, 217.

Jobbers, in London, 277, 335; relation to brokers, 336, 340; methods, 372 et seq.

Johnson, Joseph F., on panic of 1907, 208*.

Jonathan’s Coffee House, 327.

Journal of Accountancy, regulation of speculation, 258*.

Journal of Commerce and Commercial Bulletin, on Volume of Securities in America, 15, 339.

Journal of Political Economy 53*, 64*, 82*, 143*, 147*, 159*, 196*.

Juglar, Clément, Des Crises Commerciales, 185*, 219*.

Kaffir Circus in London, 62, 365, 370, 376.

Keene, James R., 30.

Labor, Dependence on the Stock Exchange, 43.

Labor, Percentage of, in America, 42.

Laissez faire, theory of, 253.

Landells, Walter, on London Stock Exchange, 376–7*.

Law in England affecting companies, 147, 434.

Law in England, affecting short sales, 95; affecting speculation, 225.

Law in N. Y. regulating speculation, 247; repealed 248.

Law, John, 390*.

Laws affecting short sales in U. S., 95, 246; repealed, 247; decision of court, 416, 420.

Laws of France, short sales, 404, 410.

Laws of various states, affecting speculation, 251.

Law, Usury, in N. Y., 105*.

Leeman Act of 1867, 227.

Legislation recommended by Hughes Commission, 435.

Lending and borrowing stocks, N. Y. and London, 354–5.

Leroy-Beaulieu, Anatole, on Paris Bourse, 383 et seq., 387*.

Leroy-Beaulieu, Paul, Nouveau Dictionnaire d’Economie Politique, 44*; on Publicity, 163, 349; on Speculation, 44.

Lexis, Dr. W., on Necessity for Stock Exchanges, 21.

Liability of stockbrokers in Paris, 395.

Listing of new securities, 168; N. Y. and London 363; vendor’s shares, 364; opinion of Hughes Commission, 424.

Lloyds, 38.

Lloyd, W. W., on Panics, 219*.

“Loan Crowd,” 290.

Loans by banks to stockbrokers, 110, 190.

Lombard Street, by Walter Bagehot, 92*, 379*.

London Exchanges in XVI Century, 323.

London Money Market, Rise of the, by W. R. Bisschop, 379*.

London Stock Exchange, history of, 326, et seq.; management of, 329; rules, 330, 364*; membership, 332, 335; stockbrokers, 332; admission, 332–3; entrance fees, etc., 333; capital stock, 333*; precautions against monopoly, 333; jobbers, 336–7–8; commissions, 342; settlement days, 344; publicity, 347; borrowings from banks, 353; transfers, 355; volume of business, 356–7; official list, 358 et seq.; securities as affected by war, 368; the day’s work, 372.

London Stock Exchange, unincorporated, 267*.

London, The world’s banker, 366.

Luncheon Club, The, 305.

Manhattan Banking Company, 31.

Manipulation, efforts of governors to suppress, 169, 174.

Manipulation, opinions of Courtois and Conant,175*.

Manipulation, opinion of Emery, 257; comment of Hughes Commission, 421.

Manipulation prohibited, 254

Manipulation, value of, 170.

Margin, speculation on, 50, 51, 52.

Margins, insufficient margins prohibited, 255 and 256

Margins required by stockbrokers, 147.

Margin Trading a feature of all business, 58.

Margin Trading a matter of contract, 53.

Margin Trading defined by Hughes Commission, 419.

Market in N. Y. compared with London, 340.

Market in Paris as affected by stockbrokers’ monopoly, 397 et seq.

Markets, defined by Hughes Commission, 415.

Markets for produce, 6.

Marshall, Alfred, on legislation, 255.

Matched orders, 422.

McCulloch, J. R., Principles of Economics, 46*.

McMaster on Public Sentiment in Early Days, 30.

McVey, Frank L., on Stock Exchange Usefulness, 41*.

Mechanism of the City, The, by Ellis T. Powell, 379*.

Memberships, how obtained, 271; prices of, 273; value of, 274.

Members of Stock Exchange, interesting personalities, 312 et seq.

Memorial of Paris stockbrokers, 88*.

Metal Exchange, 443.

Meyer, Eugene, Jr., on Panic of 1907, 196*, 203*.

Middlemen in markets for produce, 8.

Mills, John, on panics, 204.

Mining shares in London, 365.

Mississippi Bubble, 390.

Mistakes in executing orders, 278, 293–4.

Modern Industrialism, by Frank L. McVey, 41*.

Mollien, on short sales in Paris, 89*.

Monetary Systems of the World, by Maurice M. Muhleman, 208*.

Money and Banking, by Horace White, 251*.

Money, high rates for, 106*, 116, 290, 353.

Money, rates for, as affecting speculation, 118, 430; as affected by deferred deliveries, 352.

Monopoly, on London Stock Exchange, precaution against, 333; of Paris Bourse, 388 et seq., 399.

Morawetz, Victor, on currency, 209*.

Mortimer, J., Every man his own broker, 327*.

Muhleman, Maurice, M., 208*.

Mulhall, Michael G., on Prices, 219*.

Musicians on ’Change, 316.

Napoleon, on short selling, 87, 89*.

National Banks contrasted with State Banks, 103.

National Banks of U. S., loans (1904–1907), 192.

National Monetary Commission, 426.

New Joanthan’s, 327.

News and gossip on ’Change, 295.

Newspapers, attitude toward Stock Exchange, 132.

“New Tennessee,” 276.

New York State Food Investigation Committee’s report, 9*.

Neymarck, Alfred, on volume of French securities, 406, 410.

Nicholson, J. Shield, on Corn Laws. 255.

North American Review, 209*, 245*.

Norton, Eliot, on Purchase and sales of securities, 32*.

Norton, Eliot, on short selling, 86*.

Notes, of stockbrokers, 111.

Odd-lot brokers, duties of 281; extent of business, 282.

Open Board of Brokers, 307.

Opinions of floor-brokers as to market, 297.

Overend, Gurney & Co., failure of, 376.

Panama mania in France, 62, 370, 408.

Panic of 1907, conditions antecedent to, 24.

Panic of 1873, in Austria, 197; in America, 199*, 308.

Panic of 1825, in England, 197; of 1847, in England, 376.

Panic of 1912, in Paris, 199, 200, 369.

Panic of 1837, in U. S., 199*, 308.

Panic of 1857, in U. S., 198–9, 308.

Panic of 1893, in U. S., 197–8–9*.

Panic of 1907, its origin, 189; effect, 201.

Panics, crises and depressions, 183*.

Panics of the future, 184; opinion of Mills, 204, 377.

Paris Bourse, Balkan Crisis, 369; after war with Germany, 383–87; Agents de Change, 388 et seq.; history, 388–9; the form of monopoly, 389; origin of monopoly, 389–390; regulations, 391; “right of introduction,” 392; exclusive privileges, 393; settlements 394; prohibitions, 394; liabilities, 395; rates of commission, 395; methods and transactions, 396 (see coulisse); objections to monopoly, 398 et seq.; differences with the coulisse, 404; volume of business, 405; caution of public, 408.

Paris Bourse, History and Methods of, by E. Vidal, 392*.

Parquet, in Paris, 397 et seq.

Partners of members, and partnership agreements, 270–1.

Pears Prize Essays, 219*.

Personalities on ’Change, 312 et seq.

Plochmann, George, on German Bourse Law, 245*.

Powell, Ellis T., The Mechanism of the City, 379*.

Pragmatism, in economic phenomena, 127.

Prices, Relation to value, 4.

Principles of Economics, by Alfred Marshall, 255.

Principles of Economics, by Edwin R. A. Seligman, 42*, 254.

Principles of Economics, by J. R. McCulloch, 46*.

Principles of Money and Banking, by Chas. A. Conant, 93*.

Produce Exchange, 440.

Promoters, swindles of, 141.

Publicity in N. Y. contrasted with London, 347.

Pujo Committee, 176.

Punishment of members, 267.

Pyramiding, opinion of Hughes Commission, 420.

Quarterly Review, London, 300, 332, 377*.

Quotations, the property of the Exchange, 436.

Railroads in U. S., in 1906–7, 212.

Real Estate, Market for, 22.

Real Estate Record and Guide, 202*.

Real Estate Speculation, in N. Y., 202; in other cities, 203.

Receiverships, 430.

Reforms, attitude of members toward, 311; in listing new securities, 364.

Regulation of Stock Exchange in Germany, Henry Crosby Emery, 241*.

Rentes, as affected by war, 368; settlement days, 394; market for, 398, 404.

Resolutions adopted by the Exchange; against manipulation, 254 against light margins, 255 on business conduct, 255

Rhodes, Cecil, 377.

Rise of the London Money Market, by W. R. Bisschop, 379*.

Roosevelt, Theodore, and the panic of 1907, 210–212.

Royal Commission of 1877, 238–9, 231–2.

Rubber boom, in London, 62, 369.

Russian government bonds, as affected by war, 368.

Russian industrial securities in France, 62.

Salaries of employees, 318.

“Scalping,” 355.

Scapegoat, making the Stock Exchange a, 137.

Schonberg, “Handbuch” on Speculation, 21*.

Scott, S. R., on incorporation of London Stock Exchange, 233.

Securities, Origin of, 11.

Securities, Owners of in America, 14–15.

Securities, Volume of in America, 14–15.

Securities, Volume of in London, 360; in Paris, 406, et seq.; in N. Y., 359–60.

Seligman, Edwin R. A., on Legislation, 254.

Seligman, Edwin R. A., on Principles of Economics, 42*.

Settlement days, London Stock Exchange, 344, 349; N. Y. Stock Exchange, 345; comparisons, 351.

Settling Room, in London, 372.

Shanghai Stock Exchange, 62.

Sherman Law, 199*.

Short selling, opinion of Prof. Huebner, 78; legalized in Paris, 402*; opinion of Court, 416; opinion of Hughes Commission, 420.

Silver purchasing clause, repeal of, 199*.

Smith, Adam, on Speculation, 37.

Smith, Adam, The Wealth of Nations, 37.

Smith, C. W., on depressions 219*.

Smith Herbert Knox, on hedging cotton, 94.

Smith, Hopkinson, on methods of brokers, 292.

Smollett, on South Sea Bubble, 325–6.

South Sea Bubble, 226, 325.

Spanish government bonds, as affected by war, 368.

Specialists, duties of, 278; vindications of, 279; opinion of Hughes Commission, 426.

Speculation, a feature of all enterprise, 38.

Speculation, in America contrasted with that abroad, 62.

Speculation, in American development, 307; contrasted with England, 366; in France, 408–9.

Speculation, in China, 62.

Speculation, in Egypt, 62.

Speculation, in France, 62.

Speculation, in Gold, (1864, 1866), 250.

Speculation, in London, 62.

Speculation, in relation to investment, 44.

Speculation, J. S. Mill, 47.

Speculation not gambling, 53, 54, 416, 417, 419, 421.

Speculation on the Stock & Produce Exchanges of the U. S., by Henry Crosby Emery, 49*.

Speculation, opinion by Judge Grosscup, 65.

Speculation, opinion by U. S. Supreme Court, 66.

Speculation, origin of the word, 36.

Speculation, Some Thoughts on, by Frank Fayant, 32*, 68*, 239, 252*.

Speculation, as distinguished from trading, 74.

Sponsors of candidates for memberships, 272.

Sportsmen on ’Change, 317.

Stamp Tax, N. Y., 75; in London, 355.

Stanhope, Edward, on incorporation of London Stock Exchange, 232.

State Banks contrasted with National Banks, 103.

Statist, The (London) on Hughes Investigation, 256.

Stockbrokers in London (See London Stock Exchange); in Paris, (Paris Bourse).

Stock certificates, registered and bearer, 365.

Stock companies in France, 410–11.

Stock Exchange and The Money Market, by Horace White, 102.

Stock Exchange, Distinction between Wall Street and, 64.

Stock Exchange Law and Practice, by W. A. Bewes, 379*.

Stock Exchange (London), by C. D. Ingall & G. Withers, 32*.

Stock Exchange, N. Y., Rules governing brokers, 138; the day’s work 288 et seq.

Stock Exchange, N. Y., the building, 304–5; history, 307; mechanism, 418.

Stock Exchange, Story of the, by Chas. Duguid, 32*.

Stock Exchange, The, by Francis W. Hirst, 32*, 45*.

Stock Exchange, The (London) Francis W. Hirst, 327*, 330*, 338, 367*.

Stock Exchange, The N. Y., by Francis L. Eames, 32*.

Stockholders, Rights of, 162, 164, 173*.

Stocks and Shares, by Hartley Withers, 379*.

“Switching,” 74.

Telephone clerks, on ’Change, their duties, 289.

Temperature of air on ’Change, how regulated, 305.

Ten years regulation of the Stock Exchange in Germany, by Henry Crosby Emery, 61*.

Ticker, value of, 162*; in London, 341–2; in N. Y., 347, 437.

Ticket Day in London, 373.

Timidity of capital, 17.

Tontine Coffee House, 307.

Tooke, Thos., on Prices, 7*.

Traders, as distinguished from speculators, 74; operations of, 285.

Trading posts, on ’Change, 289.

Transactions in securities, panic of 1907, 216.

Transactions on ’Change, how conducted, 288, et seq.

Transfer of certificates, in London, 355, 365, 374.

Transfer Tax, in N. Y., 75, in London, 355.

Trust Laws, attitude of brokers toward, 311.

Unlisted Department of Stock Exchange, 166.

Usury Law, in N. Y., 105, 431.

Values, Relation to prices, 4.

Van Vorst, Justice, opinion, 236*.

Vendors’ shares, in London, 364.

Vidal, E., History and methods of Paris Bourse, 392; monopoly of Bourse, 399, 401*, 403, 404.

Vidal, E., on Origin of Bourse and Exchanges, 12*.

Villeplaine, Boscary de, on short selling, 88.

Visitors’ Gallery, 286.

Wall Street and the Country, by Chas. A. Conant, 29*, 175*.

Wall Street, distinction between the Stock Exchange and, 64.

Wall Street Journal, 83*, 136, 139, 145, 165*, 173*, 178*, 372*.

Wall Street not the Stock Exchange, 428.

War, between England and a first-rate power, 367, et seq.

War, cost of, 367.

War, Franco-German, 383, et seq.

“Wash Sales,” 168, 422.

“Welchers,” 227, 249; in Paris, 402.

Wealth of Nations, The, 37.

White, Horace, on banking laws, 102, 104; on company promoters, 142, 147*; on gold speculation, 251; on margin transactions, 53*; on money rates, 115; on short selling, 80; on Stock market quotations, 15; on the distinction between Wall Street and the Stock Exchange, 64; on the Hughes Commission, 159; on the panic of 1907, 196; on the panics of 1837, 1857 & 1873, 199*.

Withers, G., The Stock Exchange (London), 32*.

Withers, Hartley, Stocks and Shares, 379*.

Witwatersrand, discovery of gold in, 365.

Wood, Henry, Political Economy, 219*.

Woolley, C., Phases of Panics, 219*.

World’s Wealth in Securities, by Chas. A. Conant, 288*.

World’s Work, The, 294*.

Worry on Change, 302 et seq.

Worry the Disease of the Age, by Dr. C. W. Saleeby 304*.

Yale Review, 61*.

Yale Review, on German Stock Exchange Law, 241*.

Yale Review, on panic of 1907, 196*.

“Yankee market,” in London, 300.

THE COUNTRY LIFE PRESS GARDEN CITY, N. Y.

Transcriber’s Notes

Punctuation, hyphenation, and spelling were made consistent when a predominant preference was found in the original book; otherwise they were not changed.

Questionable accent marks in non-English words were neither added nor removed by Transcriber.

Simple typographical errors were corrected; unbalanced quotation marks were remedied when the change was obvious, and otherwise left unbalanced.

Duplicate chapter title pages were removed by Transcriber.

The index was not systematically checked for proper alphabetization or correct page references. The original book contained a supplement of omissions to the Index; in this eBook, those omissions have been merged into the Index.

Footnotes, originally at the bottoms of pages, have been collected, sequentially renumbered, and moved to follow the Appendix.

The two illustrations are the publisher’s and printer’s logos.

Footnote 30, originally on page 68, was not referenced in the text. Transcriber added a reference at the end of the text on that page.

Page 255: “Section 5 of Article XVI” was printed imperfectly, so the “5” may be a “3”.

Page 408: Transcriber added “to” in “from time to time”.

Page 452: The Index reference to a footnote on page 258 is not correct.