The story of the Stock exchange; its history and position

Front matter

THE STORY OF THE STOCK EXCHANGE

PUBLISHER'S ANNOUNCEMENT.

HOW TO DEAL WITH YOUR BANKER.

Preface

In relating this, the Story of the Stock Exchange, on the occasion of the centenary of the laying of the foundation-stone of its present home, it is the pleasant duty of the narrator to express his deep indebtedness to those members and officials of the Institution, besides others, who, themselves keenly interested in the subject, have rendered him much kindly aid, by placing at his disposal data, documentary and reminiscent, of the utmost value, with which to supplement the result of his own research.

It must not be assumed, however, that the Story may be regarded as anything in the nature of an official record of the history of the Stock Exchange ; the narration has been neither aided nor trammelled by official inspiration.

It is based upon the contribution, tracing the history of the House, which the narrator was invited to make to the Stock Exchange Souvenir, a sumptuously -produced work of

42,'?" 57 vi THE STOCK EXCHANGE

strictly limited circulation, compiled by Mr. W. Eden Hooper, and published by Messrs. Spottiswoode & Co., at the end of the century. It was thought by generous critics that this historical contribution to the Souvenir might be worthy of a wider publicity ; and accordingly, revised, popularised, and brought up to date, it has been developed into the Story of the Stock Exchange now presented.

It is deferentially submitted that the book appeals not only to those who take interest in finance, both historical and practical ; not only to those who take interest in the growth, traditions, and status of our important institutions ; but also to those who take interest in a true fascinating story, told, even if only indifferently, for the first time. ^ j^

Chapter I Page

The Royal Exchange as the Stock Exchange . i

CHAPTER n In Change Alley i8

CHAPTER HI

At the Time of the South Sea Bubble . . 34

CHAPTER IV

Sir John Barnard's Act against Speculation . 46

CHAPTER V

In Sweeting's Alley . . . . . .61 viii THE STOCK EXCHANGE

CHAPTER VI

PAGE

The Stock Exchange in the Bank of England 73

CHAPTER VH

The First Decade at Capel Court ... 87

CHAPTER VHI

The Napoleonic Hoax 107

CHAPTER IX

Manlvs and Lotteries 123

CHAPTER X

The Railway Mania . . . . . .146

CHAPTER XI

In the Middle of the Nineteenth Century 158

CHAPTER XII The Rebuilding of the House . . . -175

CONTENTS ix

CHAPTER XIII

PAGE

At the Time of the Overend Gurney Crash . 190

CHAPTER XIV

End of the Third Quarter of the Century . 212

CHAPTER XV

The Foreign Loans Inquiry in 1S75 . . . 236

CHAPTER XVI The Royal Commission on the Stock Exchange 257

CHAPTER XVII

Freeing the Brokers from the Lord Mayor's

Yoke 282

CHAPTER XVIII

The New House and the Baring Crash . . 302

CHAPTER XIX

A Committee of Reform and many Official

CHAPTER XX

PAGE

Literature, Sport, and Discipline of the House 354

CHAPTER XXI

The Stock Exchange Militant and Loyal . 381

CHAPTER XXn

At the Time of the Centenary, . . .419

INDEX 45J

ILLUSTRATIONS

Exterior of the Stock Exchange in Broad Street Frontispiece

Plan of Royal Exchange, with Brokers' Walk

" The Kingdom of Change Alley " .

Plan showing Sweeting's Alley Exchange

Site of the Exchange in Queen Elizabeth's Time

The First Stock Exchange in Capel Court

The Price List a Hundred Years ago

A Brokers' Lottery Handbill

The Consol Market ....

A Comer of the Yankee Market

Facsimile of the old Broker's Licence

Under the Great Dome

The Stock Exchange from End to End .

A Scene in the Street ....

Exterior of the E.xchange in Throgmorton Street

In the Kaffir Market ....

A Scene in the House ....

(I^t, o e „

St „

CHAPTER I

THE ROYAL EXCHANGE AS THE STOCK EXCHANGE

Introductory — Bird's-eye view of the domiciles of the Stock Exchange — The broceur or the brogger of 1376 — The stocks market of 1 4 1 o and the security of the stocks — Bonds of the Merry Monarch — The poet Pope's family investment — The germs of speculation and the outburst of 1692 — The financial newspaper of the day explains time bargains — First issue of Government Stock and beginning of the National Debt — Plan of the Royal Exchange as the Stock Exchange — Scenes in the interior — Tontine at the time — Some companies at the end of the seventeenth century — A gamble in guineas— ^^^n^act to check stockjobbing in 1697 — ^The Lord Mayor's yoke on the brokers — The silver "5adge of the profession — Exodus of the Stock Exchange from the Royal Exchange.

Conceived in a coffee-house and born with the nineteenth century : thus tersely might the genesis of the Stock Exchange, as we know it, be described. But it would not suffice to beein even an attempt at a sketch-history of the great institution — the mart of the world, the nervecentre of the politics and finances of its nations, the barometer of their prosperity and adversity — at a point where it had attained all the advantages of firm establishment and sound constitution. Something must be told of the chrysalis stage out of which the Stock Exchange was evolved into the state in which it has now flourished for a hundred years. If as an institution, and one of the most important institutions in the world, the Stock Exchange as an entity is just completing a century's career of phenomenal development, expansion, and prosperity, it was only after an apprenticeship of more than a century that it commenced that career — an apprenticeship served first in the old Royal Exchange at the end of the seventeenth century ; then in the Coffee Houses of Change Alley throughout three-quarters of the eighteenth century, and in the Rotunda of the Bank of England ; and then during the last quarter of the eighteenth century in a house which it could at last call its own, at the corner of Sweeting's Rents and Threadneedle Street. It was not until 1801 that the foundation-stone in Capel Court was laid.

Broadly speaking, then, the exchange of stocks commenced a couple of hundred years ago, at the end of the seventeenth century. There were brokers and brokerage, it is true, at least as early as the glorious reign of the third Edward, but at that time even the official rendering of the mere description of the calling was uncertain. A Parliament held by that monarch in 1376 ordained that "No strangermerchant, nor other stranger, shall use or exercise the occupation of ' brocage ' between merchant and merchant, or other persons, nor be a ' broceur ' within the City of London or its suburbs " ; and twelve years afterward we find, in an Act of the second Richard, that the description " broceur " had been altered to "brogger." This Act of anti-alienism seems, by the way, to have fallen into some disregard, for in 1442 we find a band of brokers petitioning Parliament for its more strict enforcement. They deemed their profession overrun, the competition too fierce, although their number could have been told on the fingers and toes. More than a hundred years later, at the beginning of the last quarter of the sixteenth century, there were only thirty brokers in the City of London. Now, the mercantile brokers are innumerable, — look at the list in the London Directory, — and the number of members of the Stock Exchange alone is now nearly five thousand. These thirty brokers were under the licence and the nominal control of the Lord Mayor and Aldermen : that yoke which lasted until the beginning of the third quarter of the nineteenth century, when, after a struggle which forms an important feature of their history, the brokers of the Stock Exchange succeeded in shaking it off.

Those broceurs or broggers of the fourteenth, fifteenth, and sixteenth centuries were not brokers of the Stock Exchange, needless to say ; they were mercantile brokers. The stock- . brokers first appeared at the end of the seventeenth century. It is true that as early as the year 1410 a Stocks Market was established on the site where the Mansion House and adjacent buildings now stand, and this was the great market of the City for three or four centuries, but the class of security from which it took its name has long been obsolete. The dread stocks, to afford security from offenders and their public punishment, were erected as early as the year 1281, and survived all the other stocks of a similar nature in London. In the Stocks Market they dealt not in stocks but in market produce. Seek how wc will, it is impossible to find any regular investment or speculative dealing until the reign of William HI., although the bonds of Charles II., twenty or thirty years previously, seem to have been hawked about the streets, especially at church doors, and sold to the highest bidders.

But in the reign of William III. the germs of speculation were sown. It was the demand for channels of investment that created the supply. The public sought some one to employ for it its surplus savings, before the first company promoter floated his first ingenious scheme and before the Government decided to borrow of its people. The need for investment was urgent. The father of Pope, the poet, at the time of the Revolution which placed William III. on the throne, carried to a country retreat a box containing an uninvested hoard of twenty thousand pounds. But a stockjobber had been heard of in London during the Interregnum, and by the year 1692 there was a crowd of public companies, with the East India Company as its nucleus. Nay, there was even a financial paper, the Collection for the Improvement of Husbandry and Trade, which gave a weekly history of commercial and financial speculation ; and in its issue of 13th July 1694 it was actually referring to time bargains — time bargains, beloved of the speculator, who undertakes to pay for what he has bought at the end of a certain period, with no intention of ever receiving it or paying for it ; if the price has fallen when settling day arrives, he pays the difference to the seller, if the price has risen the seller pays the difference to him, A speculative mania, the first in the history of the country, had sprung up, which on a limited scale foreshadowed those which were to convulse the country in 1720, in 1825, and in 1845. By the year 1693 a play had been written satirising stockjobbers and their ways ; and there was plenty of scope, for a stockjobber at that time was a financier, a promoter, and a broker as well ; to-day the callings are distinct. The first investor was eager to part with his money ; and the Government of the day, seeing it flowing into all kinds of concerns, determined to divert part of the flux into its own coffers. The French Government had forestalled it by a long time, for during the Seven Years' War, which ended in 1679, our financiers had been supplying it with funds. Of course, there was no real public subscription for these loans ; the first Government loan which filtered into the hands of the investor was an EngHsh Government loan. On 20th January 1693, the first Loan Bill was read a third time, and this country had launched into that National Debt which was for ever after to provide a means of investment for the public and business for the stockbroker. The loan was duly contracted with a certain new institution, the Bank of England to wit. Fifteen years later, in the reign of Queen Anne, another loan was raised, bringing the total debt up to over five millions sterling; and by the year 171 7 the funded debt of the country was nearly 43^^ millions sterling. It is now 700 millions sterling.

Kings and Governments had borrowed before; a loan from the City to Queen Elizabeth had been arranged by Sir Thomas Gresham ; but it remained for William III. to thus inaugurate a funded national debt, a debt which should remain for a long term of years, upon which interest should be regularly paid. It was not that he instituted a system of borrowing— the earlier Stuarts with their forced loans had accomplished that quite effectively ; what William III. instituted was a system of regular repayment. Few who could possibly avoid it would have lent to the Government in the time of a Charles ; in the reign of William and Mary the national Funds became a recognised investment, although without the stability since attained. It is a little difficult to conceive that at this time, only two hundred years ago, our

Funds were as insecure as is the debt of a South American repubHc at the present day. The revenue was constantly falling short of the National Debt charges, and the default of the Government always seemed possible. England's financial extremity was the usurer's opportunity ; and usury became so profitable that citizens showed a tendency to adopt it as a profession. They left their workshops and their offices, and, calling themselves stockbrokers or stockjobbers, became financiers of the usurious type. The worse the national credit, the more uncertain the ability of the Government to meet its engagements, the more remunerative became their profession either as lenders or as dealers. All feeling of patriotism was subjugated to considerations of speculation, and the terms stockbroker and stockjobber soon became terms of obloquy.

It was in the Royal Exchange that dealings in stocks and shares were transacted at first, although only for a short period ; for just as at the beginning of the nineteenth century the stockbrokers migrated to Capel Court, so at the beginning of the eighteenth century they migrated to Change Alley. But for a few years at the end of the seventeenth century the Royal Exchange was the first Stock Exchange.

There have been three Royal Exchanges ; the present is the third. Even the original building, provided through the munificence of Sir Thomas Gresham and opened in 1567, was called The Bourse. It was not until three years later that it was renamed The Royal Exchange, on the occasion of the visit of Queen Elizabeth. A fresco representing the ceremony has recently been unveiled, 330 years later, on the walls of the third Royal Exchange. This first building was totally destroyed in the Great Fire of London in 1666, and in the following year Charles II. laid the foundation-stone of the second Royal Exchange, which was subsequently to be used as the Stock Exchange, stockbrokers congregating with merchants. It was expected that the Merry Monarch would perform the opening ceremony, but it was opened on 28th September 1669 by the Lord Mayor, Sir William Turner. Within the quadrangle there was a spacious area, measuring 144 ft. by 117 ft., surrounded by a wide arcade, which, as well as the area itself, was, for general accommodation, arranged into several distinct parts, called Walks, where English and foreign merchants, and other persons engaged in commercial pursuits, as well as stockbrokers, daily met. Here is given a plan of the interior taken from an old work. The Microcosui of London.

The area was paved with real Turkish stones, of small size, the gift, as tradition reports, of a merchant who traded with Turkey. In the centre, on a pedestal surrounded with an iron railing, was a statue of Charles II., in a Roman habit, even as a statue of Queen Victoria stands in the centre to-day. It was adjoining this statue, on its

NORTH.

Threadneedle Streer.

^''waJk""^ Irish Walk.

OS

Silkmens

Walk.

Clothiers Walk.

Grocers and

Dru^girtj

Walk.

Hamburgh

Walk.

Canary Walk.

Barbadoe?

Walk.

'gr»0»BjOOgOCOOOOC 0000 COOP 00000300

Virgina Walk.

Jamaica Walk.

Scotch Walk.

Salfen Walk.

Brokers, &c.

of Stocks

Walk.

Walk.

Italian Walk.

French f Walk. I

dceeoviraoeosoooeooeeMseoeeooooceoceiJi

^r

Spanish Walk.

Jewj

Walk.

From an old print.

SOUTH.

Cornhill.

ft..

>H

Plan of Interior of Royal Exchange, showing Brokers' Walk.

east side, that the stockbrokers took up their stand, or rather walk, as it was called. The frontage of the Royal Exchange faced south then, not west as it does to-day. Amongst much statuary was a presentment of Sir John Barnard, which was placed there whilst he was yet living, at the expense of his fellow-citizens, in testimony of his merit as a merchant, a magistrate, and a faithful representative of the City in Parliament. Of Sir John Barnard, his financial schemes, and his Act against stockbrokers, we shall learn something anon. It is said that he refused ever to enter the Royal Exchange again after the erection of his statue.

We are told that the stockbrokers caused the walls of this Royal Exchange to resound with the din of new projects, and that no more striking scene could be conceived than that presented in the handsome area. " The grave Fleming might be seen making a bargain with the earnest Venetian. The representatives of firms from every civilised nation — the Frenchman with his vivacious tones, the Spaniard with his dignified bearing, the Italian with his melodious tongue — might be seen in all the variety of national costume ; and the flowing garb of the Turk, the fur-trimmed coat of the Fleming, the long robe of the Venetian, the short cloak of the Englishman, were sufficiently striking to attract the eye of the painter to a scene so varied. There, too, the sober manner of the citizen formed a strong contrast to the lo THE STORY OF

courtier who came to refill his empty purse ; and there, also, might be seen the broken-down merchant, pale, haggard, and threadbare, haunting the scene of his former glory, passing his now valueless time among those who scarcely acknowledged his presence." Merchandise of all kinds appears to have formed the chief pabulum of speculation amongst this picturesque motley crew, but there were securities as well, Government securities and other securities.

William III. had borrowed by means of annuities granted for life or for long or short periods, and these were freely dealt in ; he had borrowed by lottery, and there were the tickets to buy and sell ; and he had borrowed by tontine. The curious idea of the tontine loan came from Paris, where it was introduced by Lorenzo Tonti, of Naples. Each subscriber to the tontine loan was granted by the Government, which of course took the proceeds of the loan, an annuity to be enjoyed during his lifetime. When he died his annuity did not lapse but was divided amongst the surviving subscribers. As time went on, of course the whole of the annuities became the property of very few surviving subscribers, and he who was fortunate enough to survive all his fellowsubscribers enjoyed the continuance of the whole of their annuities. When this last survivor died the liability of the Government ceased. It can easily be imagined how fruitful a source of speculation was dealing in these

THE STOCK EXCHANGE ii

tontine shares, whose value was exactly as uncertain as life itself.

Then there were Seamen's Tickets in which to deal, another national security of which there will be something to say ; there was Bank stock; and, above all. East India stock, the first East India Company having been formed as early as 1599. There were also the shares of various companies, shares which were called actions, even as they are called actions on the Paris Bourse now. There were free dealings in the shares of the Blyth Coal Company, the Sea Diving Company, Pointz's Dredger Engine Company, Lofting's Fire Engine Company, the Greenland Fishing Company, the Glass and Glass Bottle Company, the Lutestring Company, the Sword Blades Company — formed to manufacture the article hitherto made in Germany ; and there were the shares of the Hudson's Bay Company and of the New River Company, which are now, two hundred years after, still well known. There was also Africa stock, but this did not represent the capital of the present Chartered Company.

There were many others, yet the stockjobbers, not content, organised a gamble in guineas. This operation can best be described in the words oi .th&^J^Jying /W, in one of its issues of 1695: "A number of stockjobbers," it says, "appeared at the Exchange with the offer of any number of guineas, not exceeding 1,000, at the price of 27s. each. This did not a little damp and lower the current price; but a merchant, taking one of these stockjobbers at his price, and demanding where the guineas were deposited, he could produce no more than two single guineas in his pocket, which was looked upon as a plain indication of their sinister design ; upon which he was cudgelled from among the merchants, and left to be buffeted by the mob. Yet this did not deter others from practising the like ; for another of the gang did proffer guineas a shilling cheaper, but was soon beaten off the Exchange, in the swift pursuit made after him by the mob, who drew him out of the sanctuary of a neighbouring tavern, and haled him to the Lord Mayor's; but his lordship not being at home, they threatened to do justice on him themselves, by cooling his violent humour of avarice with the watery element of a neighbouring pump. Upon the discovery of this fallacy of the stockjobbers, guineas began to advance to their customary price."

It was doubtless dealing of this character which contributed to drastic legislation, as early as 1697, to check stockjobbing and to put a brake upon the speculative mania which had broken out for the first time in the history of the country. In that year was passed an Act of Parliament, 8 and 9 William III. c. 32, containing most important regulations. Its preamble declared that brokers and stockjobbers had lately set up and carried on most unjust practices in selling and discounting tallies, Bank stock. Bank bills, shares and interest on joint stock and other matters. It further declared that brokers and stockjobbers were in the habit of unlawfully combining to raise or lower the value of such securities for their own private advantage.

,On the ground that their number had very much increased during the few preceding years and that they were daily multiplying, several provisions were enacted to come into force in May 1697. I" the first place, the Act was most minatory against any one acting as a broker without the licence of the Lord Mayor and the Court of Aldermen of the City of London. The outside broker, the bane of the Stock Exchange at the present day, had already sprung up. To show that he was licensed the authorised broker was compelled to carry on his person a silver medal or token, with his name duly inscribed, bearing on the observe side the Royal Coat of Arms, and on the reverse side the Arms of the City of London. This token had to be produced on the completion of every bargain, or the sum of forty shillings forfeited. The number of these licensed brokers was limited to one hun- — dred, and the licence fee was forty shillings. Their names had to be displayed on the Royal Exchange, in the Guildhall, and at other public places in the City. The brokers were forbidden to receive more than ten shillings per cent for brokerage, under a penalty of twenty times that amount for each offence ; nowadays they may receive as much as competition and custom amongst themselves allows, which is usually halfa-crown per cent in the case of dealings in the Funds and about 25s. per cent in the case of dealings in mining shares, but there is no fixed charge and rates vary widely. They were compelled to keep books in which every contract had to be entered. Penalties for contravening this Act were heavy. To deal as a broker without the necessary licence was to render oneself liable to a penalty of ;^500, and persons employing an unlicensed broker were subject to a penalty of ^50. Any one who was not a sworn broker and who acted as such was liable not only to a fine of ^500 but to be sentenced for every offence to stand three times in the pillory! The penalty for omission to make the proper entry of contracts in the stipulated books was ;^50 for each offence. Brokers were, moreover, forbidden to deal on their own account under penalty of permanent forfeiture of their licences and a fine of ^"200. In order to deal in Government Funds they had to be licensed by any three of the Lords of the Treasury under penalty of ;i^500. The Act applied to stockbrokers proper ; not to those dealing in coal, corn, or other merchandise. It was originally passed for three years, but it was extended for another seven. When it expired in 1707, in the reign of Queen Anne, there was a strong agitation for its renewal, but the petitioners failed. All they could achieve was the imposition of a tax on brokers of forty shillings per annum, payable to the City of

London, and to legalise this a new Act was brought in and carried. The smouldering agitation burst into flame again four years later, with the result that a Committee of the House of Commons was appointed to consider the whole matter. It recommended the revival of the Act of 1697, and a Bill was actually brought in and read a second time, but it was never passed. Soon afterwards, however, the limit of the charge for brokerage, fixed in the Act of 1697 at ten shillings, was reduced to 2s. 9d. The Act itself, after remaining inoperative for so long, was finally repealed in 1867 by the Statute Law Revision, 30 and 31 Vict. c. 59.

But this drastic Act of 1697 was not the full tale of the sufferings of the members of the Stock Exchange of the time. Of course they were not then entitled to that designation. As a body they were without a name, and the new disaster left them without a local habitation. They were driven from home. While the Legislature was harassing the new business of stockdealing in general because of the nefarious practices of the tatterdemalion vagabond element, the merchants of the Royal Exchange were, in a similar way, objecting to the presence of the Stock Exchange in the Royal Exchange. The numbers of the stockdealers had grown immensely and the limits of the building were becoming inconveniently crowded. It is true, as we have seen, that the dealers in stocks and shares were allotted their own walk, as were the merchants in their different branches of commerce. The Royal Exchange was divided into markets as is the Stock Exchange to-day. But the dealers overflowed into the preserves of the merchants, who objected to the noise and the hustling and the false reports. The merchants were as interested in the rumours of the loss of a ship laden with jewels and gold from the East as were the stockdealers in rumours relating to political events, and there is little to show that they were not equally responsible for the false news that was habitually put about with the utmost effrontery in those days, when the sources of information were few. But with a fine hypocrisy they charged the stockbrokers with abusing the objects of the Royal Exchange ; their gambling was a scandal which undermined the morals of the nation ; they tempted the public to ruin ; their presence in the Royal Exchange was a pollution.

The agitation against the stockdealers, always annoying, became unbearable ; besides, they could themselves see that their numbers, expanding rapidly, had become too great for the confines of the Royal Exchange. And so eventually, worried by the Gresham Committee, they voluntarily withdrew. It was in 1698 that the great exodus occurred, and Exchange Alley was the natural place of refuge — Change Alley close by, with its considerable unoccupied space and its convenient coffee-houses. That the withdrawal was more or less voluntary cannot be doubted ; the stockjobbers could easily have kept their ground had they cared to put up with petty annoyance ; indeed, the authority of the City of London itself was exercised against the change. ,Every effort^ was made to keep the brokers at the Royal Exchange, even to the extent of introducing a penal clause against transacting business in the Alley into the bond by which the City authorities bound every broker. But the penalisation of Change Alley was useless ; the provision in the bond was a dead letter from the first. Dealings in foreign stocks were continued in the Royal Exchange for many years afterwards, but its career as the Stock Exchange may be said to have ended with the seventeenth century. Then and thenceforth common places of assemblage for brokers were Change Alley, South Sea House, the offices of the East India Company, and the offices of the Hudson's Bay Company. But the greatest of these was Change Alley. The second Royal Exchange was in 1838 utterly destroyed by fire, as, we shall see, were some of the subsequent haunts of the stockbrokers.

Chapter II In Change Alley

Obloquy poured on stockjobbers— The topography of Change Alley — Traits of brokers and their business — The origin of Bull and Bear — The first foreign loan in 1706 — Speculations of Dean Swift — Bank stock as a gambling counter — A scurvy affair in lottery tickets — Queen Anne is dead — A Pretender hoax — The news service of Change Alley — The genesis of the "Official List"— Sir Robert Walpole and the Stock Exchange — Proposal to abolish stockjobbing.