Charles Duguid

“ Justice Wright remarked that "if persons for their own purposes of speculation create an artificial price in the market by transactions which are not real, but are made at a nominal premium merely for the purpose of inducing the public to take shares, they are guilty of as gross a fraud as has ever been committed and of a fraud that can be criminally brought home to them." ”

“ Without the Bulls and Bears, life in the Stock Exchange would be a dull affair, for the anxiety that stocks and shares should rise and fall within a short period, before too many rates have been paid, naturally leads to excitement, and undoubtedly causes the promulgation of many rumours and the exaggeration of actual news. The very existence of a big Bull account, or of a big Bear account, naturally has a most important effect upon the market—the former in weakening it, and the latter in strengthening it. Every Bull is, of course, a potential seller, and every Bear a potential buyer. ”

“ The gambler, frequently usurping the name of speculator and thus bringing legitimate speculation into ill-odour, risks money which he cannot afford to lose, staking all in an inordinate desire for riches. Although the line between speculation, which is perfectly legitimate, and mere gambling can easily be drawn, it must be drawn by each individual for himself. A perfectly legitimate speculation for a rich man might be an act of folly for a man of moderate means. ”

“ For instance, if a broker, as not infrequently happens in the case of an active security, simultaneously receives an order to sell certain stock for one client and to buy it for another, it would obviously mean delay and expense, to the detriment of both clients, if the broker had to go into the market to sell the stock and to go into the market again to buy it. It is better for all concerned that the business should be carried out as a cross-transaction, even if in the process the broker receives a commission from both clients, as he would if he went into the market. ”

“ Cricket with walking-sticks and paper balls, football with a tall hat, a lighted newspaper under the seat of a dozing jobber, sweepstakes and raffles, a labelled back—all these things are common enough. Sometimes the spirit of play is closely linked with the spirit of business; when, for instance, a susceptible member is induced by his conspiring friends to deal in Chartered Second Debentures, or some other stock which does not exist, only to find, when he has made something like a fortune or half ruined himself, that all bargains are of necessity off. ”

“ The buying may cost the promoter a good deal, but if a public demand is thus created, it is merely a case of the sprat to catch the whale. The public demand is not created, of course, through the honest brokers, who have no difficulty in seeing through the game, but with the aid of financial and other newspapers of a certain class. The character of these papers is notorious, but there seem to be always some among the public ready to be misled, and in this way the process of making a market sometimes succeeds even in these days of awakened intelligence in Stock Exchange affairs. ”

“ Perhaps, however, the Stock Exchange can best be defined and described as a market. Just as Smithfield is the market for meat and Covent Garden the market for flowers, fruit, and vegetables, so is the Stock Exchange the market for stocks and shares. ”

“ As a matter of fact, call options are much more frequently entered upon by the public than are put options, for the same reason that the public are far more frequently Bulls than Bears. Perhaps it is the optimism of human nature that accounts for this, or perhaps it is the fact that to buy is more natural than to sell, especially when the operator has got nothing to sell. Whatever may be the explanation, some of those who are frequently Bulls themselves regard with horror anything in the nature of a Bear transaction. ”

“ HOW BUSINESS IS TRANSACTED When the broker, armed with his client's order, goes to the market in which it can be executed, and confronts the jobber with whom he usually deals because he finds he does his business best, he asks the jobber to make him a price in the stock concerned. ”

“ At all events, the buyer is in practical possession of the stock for some time before he pays for it, and that is why a broker requires an introduction with proper references, and, perhaps, even security, before he will enter into transactions for an unknown client. Cases have been known of people buying stock and carrying out the bargain faithfully, provided they can sell it at a profit before Settlement day arrives, and thus receive a cheque through the broker; whereas if Settlement day arrives before the price has risen, the buyer has vanished. ”

“ The holder of railway stock is a part-proprietor of the railway, and is entitled to his proportion of its profits; the holder of shares in a mining company is similarly part-proprietor of the mine. Even although the holders of the stocks of a nation, such as Consols, or of the debenture stocks of a company, are creditors and not proprietors, they depend, for the income which those stocks yield them, upon revenue and profits, just as does a partner in a business. ”

“ Similarly, if the stock is bought at a higher price than that at which it is redeemable at some future date, the buyer must regard the yield which it gives him as so much less, for when the date arrives he must take for the stock less than he gave for it. Some stocks are irredeemable, which means, of course, that they go on bearing the rate of interest for ever. The holder of the stock may sell it and thus get rid of the arrangement, but the company or corporation is saddled with the debt and the obligation of paying the fixed rate of interest upon it for all time. ”

“ THE MARKET-PLACE The market-place, where the dealing in this mass of securities is carried on, is by no means of imposing appearance from the exterior point of view. Of all the Stock Exchanges, Bourses, and Bolsas throughout the country and the world, the London Stock Exchange makes, perhaps, the least exterior show. The tourist often seeks it in vain, and thousands of Londoners pass it every day without knowing that behind the suites of offices, with their Portland-stone walls relieved by granite, is hidden the mighty market-place. ”

“ We struggle by Banks and come into the cosmopolitan waters of the Foreign Market, where may be heard half a dozen different languages all being spoken at the same time. The Foreign Market is in shape like a sleeve, and the cuff end of it leads out to the main door of the Stock Exchange in Throgmorton Street, so that we have traversed, roughly speaking, the north-west quarter of the Stock Exchange. ”

“ A BROKER'S DAY Having mastered roughly some of the mysteries and technicalities of the Stock Exchange, we are now able to follow a broker through an average day of his life with some interest. The broker's office-boy sighs wearily to himself when he hears clerks in other walks of life dilating upon the easy hours enjoyed by the Stock Exchange and its employees. It is true that the office-boy does not have to reach his sphere of labour early enough to sweep out the place and dust the desks ”

“ It is the Stock Exchange gambler rather than the investor, or the speculator who moves legitimately within his means, who may rejoice in the boom with its roaring business and rising prices, but who forms the real element of danger in a slump with its sudden depreciation, and who frequently turns the slump into a crisis, and eventually into a panic. ”

“ The outsider buys from or sells to the jobber through the medium of the broker. The broker, except in special cases, may not do business direct with his client, although the rule is sometimes honoured in the breach; it is the custom of many a broker to inform the client of the name of the jobber from whom he has bought the stock, and it is within the right of the client even to examine the jobber's book to see that the transaction has been properly carried through. ”

“ When one talks of a Stock Exchange market, he has in his mind a mere space in the Stock Exchange near some pillar or window; or, much more likely, he has in his mind the group of men who occupy it, dealing, or prepared to deal, in certain securities. Generally speaking, custom alone forms the barrier between the various departments, and the consequence is that when one particular market attracts many members by reason of its animation, the dealers in the busy part frequently overflow the fancy boundaries and press hard upon the neighbouring space. ”

“ OPTION DEALING There is a class of business, in which some freely indulge on the Stock Exchange, which, if transacted cautiously, results in the limitation of losses, whilst providing full scope for Bull and Bear proclivities and a great deal of fascination for the skilful operator. This class of business is called option dealing, and although it is not practised to nearly the same extent as is ordinary speculative buying and selling, perhaps because of its intricacies, the fact that it is full of fascination attracts to it many staunch votaries. ”

“ When a member of the Stock Exchange finds that a fellow-member, who is his debtor, cannot meet his engagements, it is his duty, far from giving him time or any other consideration, to report the fact to a member of the Committee, and with the utmost celerity inquiry is made into the truth of the statement, and the insolvent member is immediately declared a defaulter. The news of insolvency is, as a matter of fact, very frequently communicated to the Committee by the unfortunate member himself, so that it does not fall upon his creditors to perform the unpleasant task. ”

“ These panics are less frequently with us than they were, less widespread and less disastrous in their effects, thanks to the rapid dissemination of true news, and to the highly organised state to which the machinery of finance has attained; but they will ever recur to provide a wholesome check to those who are tempted to go beyond their depth, allowing legitimate speculation to deteriorate into mere gambling. The Stock Exchange offers facilities for such gambling, just as food offers facilities for over-eating; yet food is not only a good thing, but a necessity, and so is the Stock Exchange. ”

“ The gamblers it is from whom are drawn the operators and dabblers who play with the Stock Exchange as they would with a pack of cards, or with the chances of the race-course, to their own loss and to the profit of insiders who, whenever they are called upon to play such a game, always show in the long-run that they know most of it. ”

“ It would succeed less if it were not the fact that some straightforward and successful companies exist to-day which have never issued a prospectus, and which in some form or other have made a market in their shares. It is conceivable, of course, that a market may be made naturally without the underhand expenditure of the promoter. But the manner in which the public has been fleeced over and over again by the process of market-making has led to much of the unpopularity with which the Stock Exchange has to contend. ”

“ For this reason, some members of the Stock Exchange—for the rule against advertising applies to the jobber as well as to the broker, although the jobber has naturally less temptation to advertise—show much repugnance even to their names appearing in the newspapers in any connection whatever, though it may be quite apart from business, and some are even chary of announcing a mere change of partnership, or a removal of offices, lest it might be construed as an advertisement. ”