The London and New York Stock Exchanges 1850-1914 (Routledge Revivals)

Ranald Michie

• Verlag: Routledge
• Jahr: 2012
• ISBN:
  9781136736681
• Auflage: 1
• Thema: Economics
• Thema: Economic Conditions

First published in 1987, this is a reissue of the first book to offer a detailed comparison of two of the foremost stock exchanges in world before 1914. It is not only an exercise in comparative economic history but it also relates these institutions to wider world markets, thereby clarifying their functions and how they related to the general financial and economic framework.

Students and researchers in economic and social history will welcome the reissue of this groundbreaking account of two historically important institutions in a crucial period of their development. Financial practitioners and others will also find much of interest here, in terms of both fascinating history and of insights into an era when a global market was rapidly evolving largely free of the twentieth-century distortions and hindrances introduced by wars, interventionist governments and exchange controls.

PART ONE

London

1	The London Stock Exchange and the British Securities Market

In 1876 Ellis referred to the London Stock Exchange as ‘the most highly organized market in the world’ and, as such, it attracted considerable interest and research.¹ Contemporaries wrote extensively about its history, structure and development, while its merits and defects were the subject of controversy and debate, reaching the level of a Royal Commission in 1878. Since then it has continued to attract attention either directly or as an important factor in Britain's economic performance between 1870 and 1914.² While this work has produced much information and understanding, it has also created a certain ambiguity concerning the role and importance of the London Stock Exchange. Studies of the London Stock Exchange itself tend to give it the central role in the securities market, but that is contradicted, especially for domestic finance, by work done on the provincial stock exchanges and on the general functioning of the capital market.³ This conflict of opinion stems largely from the nature of the studies conducted into the London Stock Exchange, for these have concentrated upon its internal history and development to the virtual exclusion of its external relationships.

The London Stock Exchange was not the sole market for securities in Britain during the nineteenth century, but no attempt has been made to assess the relationship between the various British stock exchanges in a systematic way, or to examine the particular position occupied by London.⁴ Through the examination of London's involvement with the Scottish securities market, which possessed a distinct regional identity, the growing integration of the national securities market can be traced, and the role played by the London Stock Exchange and its membership examined in detail. What emerges from this inquiry is the need to extend work on the Stock Exchange from the institutional trading floor to the offices of the members, where their connections and business can be studied so that a fuller picture of the operation of the securities market can be obtained.

Until the mid-nineteenth century, the London Stock Exchange was largely occupied in providing a market for government securities, mainly those issued by the British government. There was trading in the stocks and shares issued by numerous joint-stock concerns, such as banks and insurance companies, gas-and waterworks, docks, canals, railways and miscellaneous institutions. However, even as late as 1840 activity in these was completely dwarfed by that in the obligations of the British and foreign governments. For example, of the £1.3 billion securities known in the London market in 1840, only 11 per cent had not been issued by governments, and, of that, much consisted of such quasi-government organizations as the East India Company, the South Sea Company and the Bank of England.⁵ To an extent this domination of the London Stock Exchange by government securities reflected the concentration of their ownership in London. However, even those holders of the National Debt who resided far from London, such as the Scottish and Irish banks, channelled most of their buying and selling through members of the London Stock Exchange. This was so even where an alternative and more convenient stock exchange existed, as in the case of Dublin and the Irish banks. It was found that only London could provide a market that was both large enough and sufficiently well organized to cope quickly with substantial purchases and sales without extreme fluctuations in price.⁶

Despite the difficulties of communication in the early nineteenth century, investors outside London could keep in touch with activity on the London Stock Exchange, while London brokers had long-established contacts with country clients for whom they bought and sold government stock. By granting power of attorney, country clients could give their London brokers authority to deal on their behalf, while large investors, such as banks, could appoint agents who would act for them in such matters. Problems of delay and distance could be circumvented reasonably successfully, though it involved an element of trust by non-London investors. As a result, all trading in the National Debt was concentrated on the London Stock Exchange despite the fact that the holders were to be found nationwide.⁷

The securities known in London did not represent all those in existence in Britain. For example, only London-based joint-stock companies had their issues traded on the London Stock Exchange, because concerns begun elsewhere did not look to that institution for a market. Fenn noted in 1837, for instance, that ‘the shares in the provincial gas companies are but little known in the London market’, and a similar situation existed for all other forms of provincial joint-stock enterprise.⁸ One statistical measure of London's involvement with provincial issues is the proportion of Scottish securities traded in the London market. In 1840 the Scottish securities in existence had a paid-up value of £18.6 million, and, of these, 37 per cent were known in London while 63 per cent were unknown (Table l.l).⁹ This percentage significantly overstates London's interest in Scottish securities, for the London Stock Exchange normally copied from the list produced by Edinburgh brokers, and knowledge therefore did not necessarily reflect participation. Generally, it was only the issues of major provincial enterprises, such as important railways, that attracted any attention on the London Stock Exchange.¹⁰

These non-London issues, however, were not devoid of a market, for there existed reasonably active trading in their securities in the area in which they operated, and in which the majority of their shareholders lived. There was also considerable trading between adjacent centres, especially where concerns such as banks, insurance companies and, later, railways operated outside one area and attracted a wider shareholding. The inter-market activity took place at the level of direct personal contact between individual brokers in each area, with communication being maintained by regular correspondence. Such an arrangement did not imply the existence of regional, let alone national, markets, but merely a willingness by brokers to try to effect a deal elsewhere on behalf of a client, if the local market proved inadequate. If a purchase or sale could not be made, the transaction became void, while it could often take a considerable time to arrange a deal in a specific security at a specific price and for a specific number of shares.¹¹

The contrast between London and these provincial markets can be drawn by comparing the business of the London stockbroking firm of Marjoribanks, Capel & Co. in 1830 with that of the Edinburgh firm of John Robertson & Co. in 1833. During 1830 the London firm handled business worth about £17.7 million, or £1.5 million per month, of which 88 per cent was in British government stock, 7 per cent in foreign government stock (mainly of France, Denmark and the United States), 4 per cent in the stock of the East India Company and only 4 per cent in other British and colonial securities. Virtually no business was done in British non-government issues. By contrast, in 1833 the Edinburgh firm handled a total of £152,000 of business, or £13,000 per month, of which 76 per cent was in Scottish banks and insurance companies, 19 per cent in local gas, water and industrial undertakings and 3 per cent in local canals and railways. The only non-local component was a few transactions in East India Company stock, amounting to 2 per cent of the total. Thus, the London broker's turnover was 38 times that of the Edinburgh broker, while the patterns of business were exact opposites, with London trading almost exclusively in government stock and Edinburgh in the issues of local joint-stock enterprise.¹² Therefore, as late as the 1830s there existed a compartmentalized securities market with activity centred on local markets, each with their own separate securities, personnel and institutions, and only limited interconnections between them. Where the London Stock Exchange possessed unique advantages, such as in providing, through trading in the National Debt, the only ready market for securities in Britain, it attracted business from throughout the country. Where it possessed no particular advantages, such as in the stocks and shares of joint-stock companies, it could not monopolize dealings.

Table 1.1 Scottish Securities in 1840 and 1883

Category	Paid–up capital	Proportion quoted in London
	1840	1883	1840	1883
Local government stock^a	£0.3m	£2.1m	—	—
Railways^b	£2.9m	£91.6m	30%	90%
Services^c	£2.2m	£1.7m	—	19%
Financial^d	£12.9m	£23.3m	47%	19%
Industrial, commercial, mining, etc.^e	£0.3m	£8.2m	—	32%
Total	£18.6m	126.9m	37%	71%

Notes

Scottish securities were classified as the issues of local authorities or joint–stock companies domiciled in Scotland and known on the Scottish securities market. National concerns which operated in Scotland, and had shareholders there, were excluded.

^a The great expansion of local authority borrowing did not come until the later 1880s, and much of that found a market in London.

^b In 1840 about the only Scottish railway known in London was the Edinburgh to Glasgow line.

^c The 1883 source omitted many of the smaller utilities which proliferated, such as cemetery companies, steam laundries, market halls, etc., while some gas– and waterworks had been taken over by the municipal authorities.

^d By 1883 the London Stock Exchange had ceased to quote the Scottish banks. The financial concerns it did list were the larger Scottish insurance and investment companies, such as the North British (£625,000), Northern (£300,000), Scottish American (£360,254) and Scottish Australian (£800,000).

^e By 1883 the larger Scottish industrial and mining enterprises found a market on the London Stock Exchange, such as Nobel's Explosives (£360,000), Young's Paraffin (£586,625) or Tharsis Sulphur (£1,453,960).

Source: C. Fenn, A Compendium of the English and Foreign Funds (London, 1840); J. Reid, A Manual of the Scottish Stocks and British Funds (Edinburgh, 1841); H. C. Burdett, Burdett's Official Intelligence (London, 1884); W. R. Lawson, The Scottish Investors’ Manual (Edinburgh, 1884).

In the era of contact by correspondence, activity on dista...