THE LONDON STOCK EXCHANGE, AND COMPARISONS WITH ITS NEW YORK PROTOTYPE  
There were Exchanges in London in the sixteenth century. Merchants from Lombardy had given their name to a street, and had flourished so well that they had branched out in the business of money-changing—that is, of exchanging worn, abrased and clipped coins, foreign and domestic, for those of standard weight and fineness. As trade increased and the first faint signs of progress in the matter of wealth began to develop, it was seen that this business of exchanging money was sufficiently important to warrant royal recognition; accordingly there was created the office of Royal Exchanger, and the person entrusted with this office was given the privilege of exchanging coins in the manner described. Smaller offices for the purpose were farmed out in other English towns, and each place where the business was carried on thus came to be known as “The Exchange,” a name that was ultimately applied to324 any covered place where merchants met to buy and sell commodities.
After the money-changers came the money-lenders—Jews, more Lombards, and finally the Guild of Goldsmiths. The last named, having long practised the business of money-lending, finally became money-borrowers, issuing receipts for these borrowings known as Goldsmiths’ Notes—the earliest form of English bank-notes—and the first step in the convenient process of translating capital, and debt, and credit, into bits of interest-bearing paper.102 This was the state of English finance until 1694, when the Bank of England was founded, and stocks and shares came into being since the bank was a joint-stock affair. That the invention of stock certificates was a popular one, and that the authorities and the public seized upon it as a convenient means of directing capital into new and hitherto untried forms of enterprise is seen by the rapidity with which fresh undertakings were put forth. In 1698 the New East India Company loaned its325 capital to the government; by 1711 there was a funded debt of ￡11,750,000 in the shape of bank stock, East India stock, and annuities. There was also the famous South Sea Company, to be followed ten years later by a reorganization of the company with its first subscription of a million in ￡100 stock at ￡300, and a second and third subscription of larger magnitude, each accompanied by prodigious promises, and each snapped up with avidity by a public saturated with the new and hazardous pastime of speculation.
“All distinction of party, religion, sex, character, and circumstance,” writes Smollett, the historian of the time, “were swallowed up in this universal concern. Exchange Alley was filled with a strange concourse of statesmen and clergymen, churchmen and dissenters, Whigs and Tories, physicians, lawyers, tradesmen, and even with multitudes of females. All other professions and employments were utterly neglected; and the people’s attention wholly engrossed by this and other chimerical schemes, which were known by the denomination of bubbles. New companies started up every day, under the countenance of the prime nobility. The Prince of Wales was constituted governor of the Welsh Copper Company; the Duke of Chandos appeared at the head of the York Buildings Company; the Duke of Bridgewater326 formed a third, for building houses in London and Westminster. About a hundred such schemes were projected and put in execution, to the ruin of many thousands. The sums proposed to be raised by these expedients amounted to three hundred millions sterling, which exceeded the value of all the lands in England. The nation was so intoxicated with the spirit of adventure that people became a prey to the grossest delusion. An obscure projector pretending to have formed a very advantageous scheme, which, however, he did not explain, published proposals for a subscription in which he promised that in one month the particulars of his project should be disclosed. In the meantime he declared that every person paying two guineas should be entitled to a subscription for ￡100, which would produce that sum yearly. In the forenoon this adventurer received a thousand of these subscriptions; and in the evening set out for another kingdom.”
No sooner were there bits of paper to deal in than jobbers or brokers sprang up to handle them, and by natural gregarious processes these dealers gathered in one spot. Thus competition was stimulated and active markets created. The rotunda of the bank and the Royal Exchange were their first haunts, indeed until Archbishop Laud drove them out they were to be found bargaining327 on the wide floors of St. Paul’s Cathedral. As the business expanded they took to the neighboring streets and coffee houses, and so Change Alley, Jonathan’s Coffee House, Cornhill, Lombard Street and Sweeting’s Alley became their familiar retreats. Old Jonathan’s burned down in 1748 and New Jonathan’s in Threadneedle Street succeeded it. Here, in July, 1773, “the brokers and others at New Jonathan’s came to a resolution that, instead of its being called New Jonathan’s, it should be called ‘The Stock Exchange,’ which is to be wrote over the door.” Thus while business in the public funds was still conducted on a large scale at the bank, and dealings in foreign securities still centred at the Royal Exchange, London may be said to have had a Stock Exchange in the modern sense from that day in 1773 when the name was “wrote over the door” at New Jonathan’s.103
We have authority for the early history of the London Stock Exchange in a report made in 1877 by the officials of the institution to the Royal Commission. From this report it appears that328 the Stock Exchange at New Jonathan’s in 1773 “afforded a ready market for the operations of the bankers, merchants, and capitalists connected with the floating of the numerous loans raised at that period for the service of the State.” The members or frequenters paid a subscription of sixpence to defray expenses, drew up rules, and placed its control in the hands of a “Committee for General Purposes.” The functions of this committee were then, as now, “judicial as regards the settlement of disputed bargains, and administrative as regards rules for the general conduct of business and for the liquidation of defaulter’s accounts.” The earliest minutes on record are dated December, 1798.
War loans and a national debt increasing by leaps and bounds, with consequent activity in consols, was the principal source of business in those early days, and as these increased, so also the savings of the public and a new national spirit led to a steady growth in the business of dealing in securities. The dim receding voice of those early days still echoes in Capel Court through the medium of two holidays—May 1st and November 1st. More than a century ago these days marked the closing of the Bank of England’s books for the transfer of consols, and as consols were the only things then traded in,329 there was nothing for stockbrokers to do on those occasions; hence they took a holiday. And they still close the Exchange on these days—an eloquent instance of the Englishman’s adherence to tradition.
By 1801 there was not room enough in the old building, and, moreover, the report says: “It became apparent that the indiscriminate admission of the public was calculated to expose the dealers to the loss of valuable property.” Accordingly a group of Stock Exchange men acquired a site in Capel Court, close to the bank, raised a capital of ￡20,000 in four hundred shares of ￡50 each, and in May, 1801, laid the foundation of what has become through numerous additions the London Stock Exchange of to-day. The building was opened in March, 1802, with a list of five hundred subscribers, and the deed of settlement (March 27, 1802), vested the management in a committee of thirty members, chosen annually by ballot, with nine trustees and managers, separate from the committee, to have charge of the treasury and represent the proprietors. Although the rules and regulations have been amended and enlarged from time to time to meet new conditions, the constitution of the London Stock Exchange remains substantially unaltered.
As it stands to-day, there are nine managers330 who represent the shareholders or proprietors, and thirty committeemen, who look after the administration of the Exchange and the well-being of the members. The managers are elected in threes for terms of five years by the votes of the shareholders. They fix the admission fees, appoint almost all the officials, and look after the building and the property in general, while the thirty committeemen enforce the rules and regulations, adjudicate differences, and regulate the admission of securities. They are elected every year by the members, and they choose from their number a chairman and vice-chairman. In March of each year, before retiring from office, the committee elects all the old Stock Exchange members who wish to be re-elected, membership on the London Exchange being granted for one year only. Any member may object to the re-election of any other member, but this is a very unusual incident.
“The great principle upon which the committee acts,” says Mr. Francis W. Hirst, “and to which most of its regulations are directed, is the inviolability of contracts. It has power to suspend or expel any member for violating its rules, or for non-compliance with its decisions, or for dishonorable conduct. A member of the London Stock Exchange is prohibited331 from advertising or from sending circulars to any but his own clients. He is also forbidden to belong to any other Stock Exchange, or ‘bucket-shop,’ or other competing institution. New members are now compelled to become proprietors by acquiring at least one Stock Exchange share, paying a heavy entrance fee and an annual subscription of forty guineas. Yet the precautions against impecuniosity are inadequate. Defaults are far too common.”104
In such a dual form of control as that of these managers and committeemen it is obvious that causes of friction must of necessity arise from time to time, and that jarring and discord are inevitable. The owners or proprietors are, of course, a minority of the members, and their decisions on matters that come before them are necessarily biased in favor of a course that will increase the dividends on their shares. Naturally they would favor a practically unlimited membership, since the dividends are largely acquired from this source.
The plan of compelling each new member to become a shareholder or proprietor was devised332 to meet this difficulty, and in a measure it has succeeded. “Within the course of the next half century,” says the Quarterly Review, “it is pretty certain that the Stock Exchange, as a company, will belong to the members, of whom each will have a stake in the enterprise; and that happy consummation, when it arrives, will put an end to a good many minor problems which still harass the House in its workings, and possibly check those bolder plans for reform which are advocated by many of the members.”105 The difficulties arising from these causes had their origin, as we have seen, as far back as the year 1801, when the new building was erected. As only the wealthier members of the association had provided the capital for the Capel Court structure, in order to protect their investment, they demanded control of its financial affairs; thus the Stock Exchange thenceforth consisted of two distinct bodies, proprietors and subscribers.
While there is but one way by which a man may become a member of the New York Stock Exchange, in the London Exchange there are various ways. The most direct way, and the easiest but most expensive way, is to pay an entrance fee of 500 guineas, and find three members who will stand surety for four years for the333 sum of ￡500 each, this ￡500 being forfeited to the estate if the member is “hammered”—i. e., if he fails during the period. The candidate must in addition buy three Stock Exchange shares, the price of which at present is about ￡190 each.106 He must also purchase from a retiring member a nomination, which can be bought at present for ￡40, although they have sold as high as ￡700. Candidates who wish to join the Exchange under easier conditions may have their entrance fees reduced to 250 guineas if they have served for four years in the Stock Exchange as a clerk; and for these candidates concessions are also made in respect to sureties, of which they need provide but two, and to shares, of which they are required to buy but one instead of three. The committee is also empowered to elect each year a few candidates without nomination.
This is a rather curious practice which requires a word of explanation. In England, as elsewhere, there is a latent objection to monopolies of all forms, and the foresighted governors of the Exchange, with an eye to the possibility of difficulties that might be raised against their institution at some time in the future on the ground of monopoly, hit upon this expedient as a precautionary measure. Should such objection be raised,334 the governors have only to admit a few more members without nomination. The door is thus thrown open; and there is no de facto monopoly. It is very simple and very ingenious.
In all these cases the annual subscription, or dues, is the same. These, which were originally 10 guineas, then 20 and 30, are now 40 for all new members, while old members pay, of course, the subscription prevailing at the time of their election. As a condition precedent to election, a candidate must present himself before the committee with his sureties, and each of them must give satisfactory answers to the questions put to him.
From this it will be seen that a man who wants to become a member of the London Stock Exchange without first serving an apprenticeship of four years as clerk must pay for his entrance fee 500 guineas, his shares ￡570, his nomination ￡40, and his annual dues 40 guineas, or a total of about ￡1150, of which ￡570, the price of his shares, yields him a return in Stock Exchange dividends. These shares are, of course, excellent investments, and the managers may be relied upon to see to it that their value is not impaired. During the first seventy-five years of its existence Stock Exchange shares paid an average dividend of 20 per cent.; for the last completed year the dividend was 100 per cent. No one person may335 hold more than 200 shares, and holders must be members of the Exchange in all cases except those where representatives of proprietors acquired their shares before December 31, 1875. When a proprietor dies, his shares must be sold to a member within twelve months. The membership is not limited, strictly speaking, and whereas in 1802 there were 500 members, in 1845 there were 800, in 1877, 2000, and in 1910, 5019.
I say the membership is not limited, but when the time arrives, as it probably will within this generation, that the 20,000 shares are divided at the ratio of three shares for each member, 6666 members will then own all the shares and the membership will be full. Hence there is, in a way, a limit to the total membership.
One important respect in which the London Stock Exchange differs from all others—American, Continental, or Provincial—is the division of its members into two classes, jobbers and brokers, a division that appears to be as old as the Exchange itself. As to which of these classes it is better to belong there are differences of opinion, but the wise men in the business seem to be a unit in recommending a few years’ experience as a broker to be followed by the business of the jobber. The broker, under the London system, deals with the outside public and acts merely as336 agent between the public and the jobber, with whom he trades on the floor of the Exchange. The jobber, on his part, is not allowed to deal with the public at all, but must confine his activities to the brokers and to his fellow jobbers. “Thus the broker,” as Mr. Hirst puts it, “feeds the jobber much as the solicitor feeds the barrister,” or, continuing the metaphor, we may say that like the barrister the jobber gets the cause célêbre and all the great prizes, and like the solicitor the broker hunts up the business and must be content with small returns. The broker works for his commission; the jobber for what he can get out of the trade in the way of a profit.
The system in vogue in the New York Stock Exchange would seem to possess many advantages over this curious division of functions between the two classes. Here, as every one knows, brokers are not restricted in their operations; the field is alike open to all members, and the market is not limited by placing it in the hands of any one man or any group of men. On the London Exchange the attempt to define strict dividing lines between brokers and jobbers has not been successful; for years there has been a strong undercurrent of resentment between them because of acts which each regards as encroachments by the other upon its especial domain.
337 The quarrel reached an acute stage in the paralysis that hit the Stock Exchange after the South African war; there were too many members and too little business. Brokers took it upon themselves to make prices and to deal directly with other brokers and with outsiders, disregarding the jobbers altogether; and jobbers in turn sought in self-defence to establish connections of their own, outside the Stock Exchange, and with non-members. Both parties have violated the spirit, if not the letter of the Stock Exchange rules, and even at the present time, when much stricter rules have been passed defining the limitations of each division, the same unfortunate feeling of resentment is heard daily. Violations of the rule, however technical, are bound to create friction, and friction among the members of a Stock Exchange is not a good thing for the members nor for the business. Fortunately, there is nothing of that sort in the New York Exchange.
In active securities where there are very many transactions, Mr. Hirst is disposed to think that the separate existence of jobbers makes for a free market and close prices the very essence of an Exchange’s functions. This may be true, since the jobber is a host in himself, specialist, speculator, trader and jobber—all in one. Where there is a free market, the presence of such a participant338 undoubtedly adds to it, as any one knows who has dealt with him in lots of from 5,000 to 10,000 shares, at a difference of only a sixteenth. Such a market is a close market in excelsis. But in the New York Stock Exchange the same result is obtained far more openly and above-board by the presence in all active securities of a host of such jobbers—brokers, traders, specialists, and speculators—each actively bidding and offering by voice and gesture, and without collusion, and each thereby contributing to the making of the freest possible market and the closest possible price. In New York no middleman stands between the public and the market.
It is a fact recognized by all economists that the larger the number of dealers and the freer the competitive bidding, the more accurate the resultant price and the nearer its approach to true value; hence it would seem to follow that in this highly desirable attainment the New York system is superior to that of London. The same comment applies to the market for inactive securities. In London, notwithstanding the quotations printed in the Official List, the public has no assurance that jobbers can be found to deal at those prices, or at prices approaching them. “And when there is a slump in the market and a rush of selling orders with no support,” as Mr. Hirst candidly339 admits, “as happened in rubber shares in the months of June and July, 1910, the jobbers are apt to be away at lunch all day, and the brokers have to report to their clients that they simply cannot find a purchaser.”107
Such things do not happen in the New York Exchange, for when there is a slump in any group of shares, instantly there gathers a number of individuals who are there for the very purpose of making a market. It may be a “soft” market, with wide fluctuations, but it is a market for all that, and the timely absence at an all-day luncheon of any one man or any group of men cannot possibly affect it. There have been occasions on the New York Stock Exchange, no doubt, where a broker with a “hurry” order in a very inactive security has not found a market awaiting him, but there are various ways by which he may seek the desired market and ultimately he is sure to find it. In any case such an incident is the exception that proves the rule that a free market, affording all the advantages which excellent markets possess, is nowhere to be found more easily and more quickly than on the floor of the New York Stock Exchange. “American securities,” says the Paris correspondent of the Journal of Commerce340 in his cabled despatches of October 23, 1912—referring to the Balkan crisis in that city—“may with complete conservatism be regarded as having received a splendid advertisement in the French market by reason of their recent remarkable instantaneous conversion into cash.”
In the course of many years of active experience as broker, trader, and speculator, I do not now recall an instance in which I was unable to find a market on the New York Exchange for any security, however inactive, which I wished to buy or sell. If the specialist in this particular stock cannot satisfy me with his quotation, there are always room traders to whom I may submit my offer; there are also arbitrageurs, wire houses, and banking houses interested in this particular security. Somewhere among all these agencies the New York broker must inevitably find or create a market. But I fancy he would have a sorry time of it were he restricted, under the rules, to dealing with a jobber who “is apt to be away at lunch all day,” when trouble comes and risks are involved.
Such a system, it would seem, is all very well for the jobber, but quite unfair to the outsider and to the conscientious broker who is striving all the while to protect the interests of the public341 and maintain the welfare of the Exchange. Indeed, as it works out in London, the broker has all the worst of it in many ways. Even though the jobber “runs a book,” as the phrase is, his work is done at 4 P.M.—when the market closes—and if he is not doing a large business he may then follow his inclinations. Unless his business involves dealing in South Africans or Americans, his work is substantially completed with the official closing of the Exchange. But the broker, on the other hand, enjoys no such freedom. After the closing he must go to his office—for in the nature of things he must have one—and there he will find correspondence awaiting him, orders to be executed in the “Street markets,” and telephone messages to send to his customers. The mere fact that a London broker must use the London telephone is in itself a curse, for nowhere under the canopy is there a telephone service so dreadful and so exasperating.
Even in the ebb-tide of a dwindling summer business the London broker, who cannot begin his day’s correspondence until four, finds it difficult to leave his office until an hour long after his American colleague has played his eighteen holes or dressed for dinner. Aside from the horrors of the telephone service, this is due in a measure to the fact that they have no ticker in342 London and the mechanical efficiency with which this machine faithfully records all over America each fluctuation of the market, finds no counterpart in England. The broker in London has therefore to perform, in a measure, the work of the ticker in New York. Perhaps I should not say they have no tickers in London. In point of fact there is such an instrument, identical with our own, which four or five times a day, at stated intervals, reels off with mechanical monotony a list of quotations in certain active securities—the same group every day. They are limited in number, almost nobody looks at them, and many really enterprising houses do not install them at all.
Worst of all, the London broker until very recently was not properly paid for his work; he was not protected by a rigorous commission law, as we are in the New York Exchange. In New York a broker charges ? per cent. commission on the par value of every hundred shares in which he deals for a non-member, each way, and the rules of the Exchange compel him to collect it in all cases. The slightest departure from this rule, however technical it may be, is severely punished, and no statute of limitations or other expedient will save him from the consequences of it. Thus all the brokers are insured343 an equal footing; competition for business is prevented, and the public which the Exchange seeks to serve is assured of equally fair dealing in every quarter. So rigorously is this rule enforced that the large and important branch of the Exchange’s business which has to do with joint-account trading between New York and foreign centres has recently been seriously restricted because, in the judgment of the governors, it involved an infraction of this important commission law.
On May 22nd of this year (1912) the London Stock Exchange put into effect an official scale of commissions, which was designed to remedy the unfortunate conditions that had prevailed, and this scale is now enforced. It provides for a charge of ? per cent. on British government securities, Indian government stocks and foreign government bonds; ? per cent. on certain other special cases, ? in railroad ordinary and deferred ordinary stocks at prices of ￡50 or under, and a sliding scale on shares transferable by deed, ranging from commissions of 1?d. per share to 2s. 6d. per share. On American shares the commission to be charged is 6d. per share on a price of $25 or under, 9d. on prices from $25 to $50, 1s. on prices from $50 to $100, 1s. 6d. on prices from $100 to $150; and 2s. on prices over $200.
344 In many other transactions the commission to be charged is left to the discretion of the broker who may, if he is doing a large business with a client in high-priced and low-priced shares on which the official scale of commission varies, arrange to charge ? on all transactions, regardless of the rules. Whatever the London broker may lose in the quality of his commissions as compared with the New York broker appears, however, to be compensated by their quantity. A firm of jobbers of my acquaintance once handled in a single day 262,000 shares of “Americans” alone, and when it is borne in mind that this was but one of perhaps 150 firms doing a similar business, an idea may be gained as to how London brokers and jobbers contrive to keep the wolf from the door.
The system of settlements twice a month as employed in London is another method quite different from that employed in New York, and one, too, that seems to suffer by comparison with our system. On the New York Stock Exchange everything is settled on the day following the transaction. Each broker and each customer knows just where he stands, and every trade is settled in full when the next day ends. Tell an English broker that on a single day our Clearing-House settled and balanced transactions in more345 than 3,000,000 shares of an approximate value of 50,000,000 sterling and he gasps. He says that such a thing would be impossible in London, and he is right, it would be impossible indeed. Clearings in London vastly exceed ours, but they do not occur daily; indeed our system would not do at all in a centre that transacts, as London does, a large international business in which transfers must be sent hourly to Egypt and India and to all quarters of the globe. Daily clearings in such circumstances would be very troublesome and vexatious.
The New York system, however, makes failures and defaults commendably rare, while the London system, by postponing the day of reckoning, actually invites over-extensions in speculation leading to failures that could not possibly occur here. To make this point clear to the layman it may be said concisely that the man who settles daily is in a safer position both toward himself and his creditors than is the man who postpones his settlement. The daily settlement protects the public, as well, by putting limits on speculative commitments. These matters are self-evident.
A gentleman who was for many years identified with a London firm of jobbers, and who is now a member of the New York Stock Exchange and, therefore, quite familiar with the different methods346 employed in these Exchanges, tells me that the London system of brokers and jobbers, commission laws, and fortnightly settlements, is the best possible system for the London Exchange, while the very different methods employed in New York seem to him to be the best that can be devised for the New York Exchange. This may be true, since conditions governing the two markets are widely different. In New York the whole system is cash; in London, credit. Here brokers may accept business with considerable freedom, knowing that but a single day elapses before the reckoning; in London brokers exercise greater caution because they must trust their clients until settlement day.
Another point of difference between the methods of the two Exchanges lies in the phlegmatic deliberation of the Englishman. Here in New York there is a slap dash, touch-and-go system that is greatly facilitated by the use of the telephone and the private telegraph lines; a single commission house has 10,000 miles of leased lines. In London, where telephones and private lines are but sparingly used by brokers and clients, a broker often finds on his desk in the morning three or four hundred letters and telegrams. The care and attention required to handle an enormous lot of orders given in this deliberate manner is something with347 which New York stockbrokers are quite unfamiliar; indeed it may be doubted if they could meet such an emergency with their present facilities.
Publicity, as we are learning in the New York Stock Exchange, is a prime requisite of the business, and the advantages that thus accrue through the use of the ticker and the published summary of each transaction in the day’s work cannot be overestimated in its importance to the public and to the banks. In London, where a jobber may buy or sell large quantities of securities, the business is done quietly. Outside of the active participants in a transaction, nobody is permitted to know anything about it. There is no ticker service worthy of the name, nor is there a list of transactions published at the end of the day.
This, it seems obvious, would not do at all in America. We have here not only the ticker-tape, which prints an almost instantaneous report of prices all over the country, together with the volume of business done at those prices, but there are similar reports of the day’s business printed in all the morning and evening papers—one of the last-named going so far as to reproduce on its financial page a copy of the day’s tape from beginning to end. All the newspapers, moreover, print opening, high, low, and closing prices,348 together with the bid and offered price of each security at the market’s close.
In the course of the two days in which these lines are written, for example, 257,000 shares of Reading Railroad stock have changed hands within a range of 1? per cent. The public is enabled, through the medium of the news-ticker, to learn who the buyers and sellers were that engaged in these transactions; the tape shows the specific volume of business done at each fraction, the various news agencies contain all the information and gossip that throws any light on the matter, and the financial columns of the morning and evening newspapers comment freely for the public benefit.
The total amount of information that is thus laid before the public is as complete and as instructive as could be desired, and yet in London and on the Continent such information is never published, although the two leading financial newspapers in London, because of the immense field covered, actually publish a mass of miscellaneous news and gossip that exceeds any similar American effort. They make it pay, too; dividends declared by these newspapers are altogether unapproached by the American financial press. The essential information lacking, however, is the number of shares dealt in, and at what349 prices; even if they had a thoroughly good ticker system I doubt if this information could be recorded, because the volume of business done is too great. It is encouraging in this connection to note that so eminent an economist as M. Leroy-Beaulieu frankly concedes our superiority in these matters over the practice of the foreign Exchanges and urges their immediate adoption abroad.108
The second serious objection that may fairly be lodged against the London system applies, as I have said, to the increased inducements offered to foolhardy and reckless speculation by the plan of deferred settlements. Whether members of the various Stock Exchanges in the world’s capitals like it or not, they must recognize the fact that there are evils in speculation just as there are benefits, and that these evils are becoming a subject of increasing comment. The recent attempt to repress speculation in Germany and the conditions which led to the appointment of the Hughes Committee in New York are signs of an aroused public sentiment that cannot be ignored.
With these examples before them, members of Exchanges everywhere must realize that if it lies within their power to discountenance and350 discourage foolhardy ventures into speculation by persons ill-equipped to undertake them it is their plain duty to do so. The London Stock Exchange’s system of fortnightly settlements clearly does not aim at this highly desirable object as well as the method of daily settlements employed in New York, for it requires no student to see that by postponing the settlement risks will be incurred that would be impossible if a reckoning were called for each day. Moreover, the fact that there are ten failures on the London Stock Exchange to one in New York furnishes ample proof that the precautionary restriction imposed by daily settlements is quite as important to the welfare of brokers as it is to the protection of the public.
As a matter of fact, failures of brokerage houses are peculiarly abhorrent to every one concerned. In the Paris Bourse a broker must give security at $50,000, and his bankruptcy in all cases is considered a fraudulent one, rendering him liable to arrest. The French Agents de Change enjoy an absolute government monopoly, and naturally in the circumstances they are held to the strictest accountability; but aside from that a tendency is plainly discernible nowadays in all large financial centres to demand of stockbrokers on the Exchange a rigid adherence to such business351 methods as will prevent bankruptcies of dealers to whom the public entrusts its money.
The danger of the London fortnightly settlement system lies not in the deferred delivery of securities, but in the fortnightly settlement of “differences.” A London broker may be actually bankrupt, yet if he is desperate or unscrupulous, knowi............