THE STOCK EXCHANGE COMMISSION.
TRE principal result of the Stock Exchange Commission is, to a great extent, the rehabilitation of the Stock Ex- change itself. The Commissioners give it as their opinion that "in the main the existence of such an Association, and the coercive action of the rules which it enforces upon the transaction of business and upon the conduct of its members, has been salutary to the interests of the public ; while in the administration of its laws the Committee of General Purposes (which is the governing body of the Association) has, so far as we have been able to discover from the evidence, acted up- rightly, honestly, and with a desire to do justice." There are other statements throughout the report to the same effect, while the principal recommendation of the Commissioners— that the Stock Exchange should be incorporated—is made not because the Commissioners "have any reason to think that the present Association has at all, in the main, fallen short of its duties in the past, but rather for the purpose of strengthening its hands, and increasing its efficiency in the future." We may assume that these views are borne out by the evidence (which has not yet been published, however); and it is no doubt satisfactory to find that so important an Institution as the Stock Exchange emerges so well from the trial to which it has been exposed. It has suffered much in the public esti- mation through the losses which have been made in connection with the securities which are the subject of its dealings, but for these losses it is found in substance the Institution as such is not responsible, and on the balance it has been useful, not injurious. There will be surprise in many quarters at this result, after the abuse to which the Stock Exchange and its members en mane have been subjected for several years past ; but a little reflection would show that any other result ought to have been surprising. As Carlyle has often remarked of established religions and political institutions, they would hardly have come into existence, or had powers of endurance, but for something good in them ; and it would have been really astonishing if an Association like the Stock Exchange had grown up, and gradually absorbed almost the entire busi- ness of dealing in stocks and shares in the country, without its being really in the main a useful Association to the public. At the very lowest calculation, the annual business in stocks and shares, including only the sales and purchases of the public, and excluding all speculative and intermediate dealings, must be immense. The property on which legacy and succession duty is paid amounts now to about £150,000,000 a year, of which, according to the proportions indicated by the Income-tax returns, probably not less than one-third consists of securities dealt in on the Stock Exchange. In other words, about £50,000,000 worth of securities are annually liable to be dealt with on the Stock Exchange, through the one cause of the death of the owners and the necessity of dividing the property ; and although we do not suppose that all this mass is in effect realised, trustees and executors having often power to continue investments, there is no doubt but that a large part must annually come on the Stock Exchange. When we think of the many other causes of legitimate Stock Exchange business, —the investments and sales of Banks and Insurance Companies, the sales and purchases of the public who are desirous of changing their investments, the exchanges into and from securities which are not dealt in on the Stock Exchange, and the business of the public which has made new savings, often very large,—it may be seen at once that the great market of the Stock Exchange could hardly have existed unless it had facili- tated business, and been of real service to the public in their daily wants. If the cheating had been incessant and uniform, as it has often been asserted to be, the Stock Exchange would have been found out long ago, and it never could have had the monopoly it has acquired. We believe, in fact, that the odium it has incurred arises very much from the advantage which rogues have taken of its great success. It has made so good a market for the better descriptions of securities—securities which are really solid, and which exist in large masses—that promoters and schemers of all sorts have been able to make a profit by imitating the success with inferior securities, and so deluding the public. The ordinary fluctuations in the market have also been reduced within such narrow limits, that people are tempted to speculate in fabulous amounts of stock who ought never to speculate at all, and a business of speculation has grown up which is almost wholly evil. But the evils would not have existed without great excellence in the Institution itself. The testimonial of the Royal Commission to the Stock Exchange is in this way a natural and not an extraordinary result of their labours. It would have been most surprising if the chief business of the Stock Exchange had been found to be gambling and the victimising of the public, and not as it is found to be, a vast amount of buying and selling on behalf of the public, with a facility and convenience such as no other market presents.
The view which the Commissioners have taken of the Stock Exchange is necessarily decisive of the character of their re- commendations. There have been palpable abuses and mal- practices, but the Commission go into the matter from what would be the point of view of the Stock Exchange Committee itself, and suggest various amendments such as that Committee might consider. Their final suggestion also is, that for the sake of the Institution itself, and to enable its government to be steadier and more powerful, as well as more extended, it should apply for a charter of incorporation under the amended rules, with a provision for their alteration, if sanctioned by the Board of Trade. As may be imagined, therefore, nothing can be milder or less drastic than the recommendations, or less likely to satisfy the fancies of those who looked for a Commission so purifying the Stock Exchange that the loss of money upon it would no longer be possible. We should say, too, that apart from the last recommendation of all, that of incorporation, which involves wider questions, the amendments proposed as a rule appear to be such as the outside common sense applied to the technicalities of Stock Exchange business would suggest, and will probably commend themselves to the Stock Exchange Committee, the Stock Exchange members on the Commission only dissenting in one case. They are to the effect that the security required from new members should be increased ; that the discipline as regards defaulters and exces- sive speculation should be strengthened,—that is, that the read- mission of defaulters should be made more difficult, and that excess in speculation, like other misconduct, should be a bar to readmission ;—that means should be taken to communicate to the clients of defaulting brokers the fact of default and readmission ;—that a broker should not accept a commission from both a buyer and a seller without communicating the circumstance to both clients, a rule pointed at what is an obvious abuse on which the Stock Exchange conscience seems not to be quite sensitive enough ;—that the present anomaly of having an official list in which only the record of "business done" is official, and the closing quotations are unofficial, should be put an end to, and means taken to have an entirely official list ;—and last of all, that dealings before allotment should be suppressed. With the exception of the last amendment, from which the Stock Exchange members dissent, all these propositions are clearly of the sort which the Committee of the Stock Exchange, if it is to deserve the high character given it by the Commission, and in the interests of the Institution, will probably be most ready to adopt. One or two of them seem, in fact, to have been adopted while the Commission was sitting, so that no lack of readiness to reform is shown. But obviously while they will do some good, while they will facilitate business and prevent losses here and there ; tbey will do nothing to cheek or restrain the tide of infatuation which from time to time lays hold of the public, and makes them the ready victims of promoters and others who are skilled in turning the machinery of the Stock Exchange to their own purposes. There will still be " rigs " and " corners " and " syndicates " as before, and when the infatuation seizes the public they will also lose as before. Probably it will be said, that if the recommendation, from which some of the Stock Exchange members of the Commission dissent, is adopted—viz., the sup- pression of dealings before allotment,—a fertile source of public loss will be closed ; but on this point, as they describe the evidence, the Commissioners appear to have been misled. Whatever may have been the case formerly, there can be little doubt that of late years the public have not been led largely to subscribe to new companies by dealings before allotment. If they have been injured at all in that way, it is by dealings in Government loans ; but at as precisely in such loans that dealings before allotment would arise naturally—in such loans, for instance, as those of the French Government after the war with Germany—and where the stoppage of deal- ings before allotment would, an fact, in some cases be injuri- ous to the public. The danger to be guarded against is, more- over, much more subtle than the Commissioners imagine. The Honduras and other loans, which made so much noise before the Foreign Loans Committee, were mainly floated after, and not before allotment. In almost all cases, indeed, it takes some time for a new issue to be what is called "classed," and before that occurs, no matter whether there is a formal allot- ment or not, the public are peculiarly liable to be victimised. We cannot but think that in this instance the Commission has been led on a false scent, and its recommendation, if it were adopted, would be of no sort of value to the public. The latter might be misled into thinking that they were safe because everything on the Stock Exchange open for them to deal in, had been allotted, whereas the fact of allotment is no sort of security against dangerous investments at all. With this exception, however, the detailed recommendations of the Commission appear wise and practical, and will probably be accepted by the Stock Exchange. That Institution will not be the first which has benefited from an inquiry conducted by intelligent outsiders, who see the detail for the first time, and inquire into the reason of things which those immersed in the business are apt to take for granted.
The proposal to incorporate the Stock Exchange, with a view to its rules being subject to Government revisal, is a more important one, but we doubt the expediency of it. There is no proved necessity for it, because the Stock Exchange, on the showing of the Commission itself, has governed itself well in the past, and has on the whole been useful to the public. The Commissioners are bound to show, as they do not, that Government supervision will enable the Stock Exchange to do something it has not hitherto done,—that it will be better managed, its good rules more stringently enforced, and frauds rendered more difficult ; and that, on the whole, the public will gain more in these or other ways than they will lose by imagining, as some are sure to do, that they have a Government guarantee against loss. If the Stock Exchange should apply for a Charter of Incorporation, it would be wise to give it unconditionally, except as to the definition of mem- bership, election of officers, and other matters of constitution, leaving the internal government and the regulation of such matters as dealings before allotment entirely to the governing body, whatever it may be. If any prospect could be held out of Government supervision doing any good, we should be quite prepared to consider what the Commissioners recom- mend, but the onus of proof is on those who make the proposi- tion, and we do not think the Commissioners even suggest a pringi facie case. If the proposal, again, were in its nature quite harmless, it would perhaps be unnecessary to say anything, but the manifest danger that the public will think themselves pro- tected, when they cannot be protected, would be a great deal to set in the balance against any advantages incorporation could be proved to give. The only distinct benefit which the Com- missioners do suggest, seems, moreover, of a most doubtful kind. Their idea evidently is that in giving the Charter of Incorporation, the Government should give a monopoly of buying and selling stocks and shares, at least as brokers, to those who are members of the Incorporation. They anim- advert on the facilities which now exist for people becoming stock-brokers without any inquiry or check, by merely paying an annual fee of five shillings to the Court of Aldermen. They look upon this as so great an evil, that failing an incorporated body which should have power to stop the business of brokers who are not of its number, a Government functionary should be appointed to look after the licensing of brokers. But in spite of the injury which is no doubt done to the public by some of these brokers who are not of the Stock Exchange, and who may have been expelled from it, it seems a strong thing to recommend that the business of brokers should either become an absolute monopoly or should require a special licence from a State functionary. The evils must be very flagrant indeed which require so drastic a measure. The principal object proposed to be accomplished by incorporation is of a most dubious character, and, as an interference with freedom of trade, would require more careful consideration than it seems to have received.
On the whole, the report of the Commission, with the evi- dence, will probably be found most valuable. The description of the business of the Stock Exchange itself is most interesting, and will be useful not only to the general public, but to writers on political economy ; and when a new period of infla- tion comes, there will be less room for misconception as to the causes of the losses which the public sustain, than there has lately been. Knowing what the mechanism of the Stock Exchange is, what it does and what it cannot do, the public, and those who instruct them, will be able to look out for and study the real causes which their past ignorance of Stock Exchange matters has obscured. This will be a great gain, apart from the improvements in the detail of Stock Exchange regulations, which may result from the labours of the Commis- sion, and although nothing may come of their chief recom- mendation, which appears open to so many objections.
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