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 five384 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;385 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.
386 “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 one387 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.”119
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.
388 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 entrusted389 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.”
390 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,120 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.
391 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 as392 a check upon transactions for future delivery, which, however, were made legal in 1885.121 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 July393 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.122 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 securities394 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 is395 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 the396 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 its397 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............