LIBRARY UNIVERSITY OF CALIFORNIA, Class 61ST CONGRESS ) OTPTVTATI? /DOCUMENT 2d Session / SENATE j No. 573 NATIONAL MONETARY COMMISSION The History and Methods of the Paris Bourse BY E. VIDAL Washington : Government Printing Office : 1910 NATIONAL MONETARY COMMISSION. NELSON W. ALDRICH, Rhode Island, Chairman. EDWARD B. VREELAND, New York, Vice -Chair man. JULIUS C. BURROWS, Michigan. JOHN W. WEEKS, Massachusetts. EUGENE HALE, Maine. ROBERT W. BONYNGE, Colorado. PHILANDER C. KNOX, Pennsylvania. SYLVESTER C. SMITH, California. THEODORE E. BURTON, Ohio. LEMUEL P. PADGETT, Tennessee. HENRY M. TELLER, Colorado. GEORGE F. BURGESS, Texas. HERNANDO D. MONEY, Mississippi. ARSENE P. Pujo, Louisiana. JOSEPH W. BAILEY, Texas. ARTHUR B. SHELTON, Secretary, A. PIATT ANDREW, Special Assistant to Commission. TABLE OF CONTENTS. BOOK I. Page. GENERALITIES _ - 3 BOOK II. THE BOURSE. THE TRADERS. THE OPERATIONS ._ 21 First Division: Bourses. Merchandise brokers. Stock- brokers. Curb brokers. Securities 23 Second Division: The operations for cash 33 Third Division: Operations for future delivery 45 Fourth Division: On Exchange. Concerning the negotiation of bills of exchange and precious metals 76 Fifth Division: Bourses in the Departments 85 BOOK HI. JUDICIAL CONSIDERATIONS ON THE MONOPOLY OF STOCKBROKERS. 89 BOOK IV. HISTORICAL AND ECONOMIC CONSIDER ATIONS in First Division: The exchange market. Origin of public credit. 114 Second Division 124 Third Division: The Council's decisions of 1724 to 1788. The financial market on the eve of the revolution 142 Fourth Division: The financial market during the revolution 148 Fifth Division: The nineteenth century 162 212709 Of THE ( UNIVERSITY | ILIF< THE HISTORY AND METHODS OF THE PARIS BOURSE. By E. VIDAL. BOOK I. Generalities. Page. 1. Transferable securities are products of industry, subject to the general conditions of the production and exchange of wealth. 3-5 2. What is meant by a financial market? 5 3. Difference between fairs, markets, and the Bourse. Merchandise brokers and stockbrokers (courtiers et agents de change) 5-6 4. The Bourse is a public place, a public mart. Commerce in France is free, but in the right belonging to the authorities to keep order in a public place originated the right to regulate the Bourse. Under the old regime, the selling of the right to work was mainly the cause of the establishment of merchan- dise brokers and stockbrokers 6-9 5. The revolutionary period. The freedom of the market. Stock- jobbing (agiotage} and its causes 9-16 6. Laws now governing the French financial market 16-17 7. Brief considerations on the "reorganization" of the French market, effected in 1898 17-18 8. The grounds for the present organization have disappeared, but the organization remains 1 8-20 (i) The author of the present work deems it necessary, first of all, to connect the study of a financial market with that of the totality of elements belonging to the field of political economy. Are the emission of fiduciary values and the trading therein special phenomena? Or are they, on the con- trary, subject to the general conditions of the production and exchange of wealth? Beyond a doubt, fiduciary values, more generally known in France as ualeurs mobilieres, i. e., transferable secu- National Monetary Commission ities, a are wealth created by man's industry, and circu- lating by virtue of the general causes which create and dominate commerce. The producer extracts the raw material or transforms it, in order to render it suitable to the requirements of the consumers; the tradesman conveys the manufactured product, or, as merchant, as commission agent, as broker, or even as money lender, causes it to circulate. In the same way there are producers, traders, and consumers of transferable securities. The producers of transferable securities are the financiers, who negotiate with borrowing governments or with repre- sentatives of provinces or cities desirous of borrowing. They decide upon the rates of interest, the conditions of sinking funds, and the maturity of the coupons. They prepare and arrange the emissions; they do the same for borrowing stock companies. Often, they even create these stock companies; they lay down their by-laws, and they secure for them the executive and professional staffs. They have as auxiliaries the guaranty syndicates and the bankers genuine dealers in transferable securities, who buy and sell for their own account. Dealers are likewise those auxiliaries of commerce who are represented by the a Article 516 of the Code civil: "All wealth (biens} is either transfer- able or intransferable." ART. 529. Transferable are, by the determination of the law, bonds and shares which represent monetary claims or movable effects; the shares or interests in financial, commercial, or industrial companies, even when the real estate used in these undertakings belongs to the companies. These shares or interests are deemed transferable with regard only to each partner, as long as the company exists. Perpetual or life annuities paid by the state or by individuals are also deemed transferable wealth according to law. History and Methods of the Paris Bourse brokers and commission merchants in securities, and who trade for account of third parties in the public marts. The capitalists, and even the speculators, are the con- sumers of transferable securities. Thus we see producers, dealers, and consumers in the domain of transferable securities, just as may be seen producers, dealers, and consumers in any other field of commodities. (2) By a financial market, in the widest sense of the word, is meant the totality of elements, either universal or regional, which cooperate in the issuing and circulating of transferable securities. In a limited sense, we understand by a financial market the public place in a city where dealings in securities are carried on the public place specially set apart for these dealings. That public place is the Bourse. Thus, the Bourse is a public place. This fact should be constantly borne in mind. Only thus is it possible thor- oughly to understand not only its history but also, in cer- tain cases, aggregate of regulations and laws which control its workings. (3) Bourses differ from fairs and markets in that, ac- cording to the accepted usage on the bourses, articles need not be exhibited to the buyer at the time the contract is made, whereas the customary procedure at fairs and mar- kets is different. The bourses themselves are divided into commercial exchanges proper (bourses de commerce), where merchan- dise is dealt in such as wheat, flour, spirits, sugar, etc. "Thaller, Droit Commercial, 26. ed. No. 824. Lyon-Caen et Renault, Traite de Droit Commercial, T I, Nos. 20 and 328. National Monetary Commission and stock exchanges (bourses des valeurs) , where securities are dealt in. On the commercial exchanges the brokers formerly traded in merchandise, coins, bills of exchange, and deeds, which are in some way the predecessors of modern securi- ties. The commission agents operating on the bourses were called brokers in exchange, provisions, and merchan- dise (les courretiers de change, denrees et marchandises) . Thus, a decree of Charles IX, of June, 1572, is called, "A decree concerning brokers in exchange and provisions, as well as cloths, silk, woolens, linens, leather, and other kinds of merchandise, wines, wheat and other grains, horses and all other kinds of cattle." It is only since the year 1639 that the functions of stockbrokers and merchan- dise brokers seem to have been separated. 6 Indeed, a decree of the King's council of April 2, 1639, gives to the brokers in exchange the name of agents de change (stock- brokers). 6 As we stated, it is the fact that the Bourse is a public place which has determined its regulation. It is now important to enlarge upon this statement. (4) In France commerce is unfettered, and yet the administration of stock exchanges is so overridden with regulations as to constitute, in that regard, an exception, a considerable derogation from common law. Article 7 of the law of March 17, 1791, says: "Every one shall be free to carry on such business, or to practise such profession, as he may see fit, subject, however, to such police regulations as have been or may be made." a Manuel des Agents de Change, p. 7. & Lyons-Caen & Renault, Traite de Droit Commercial, T. IV, No. 872. c Manuel des agents de change, p. 15. History and Methods of the Paris Bourse On September 17, 1807, Regnaud de St. Jean d'Angely, when he tendered the draft of commercial law establish- ing a Code, expressed himself as follows: "At the beginning of Book I and under the title of 'General Provisions,' the drafters had laid down rules, some of which are purely theoretical and superfluous. Some others have been found more fit to belong elsewhere. Thus, for instance, we have not thought it necessary to state that in France everyone had the right to trade * * * ." Thus no one disputes that the principle of freedom of trade remains to-day one of the rights of man (except in the politico-economical school which causes personal rights to be swallowed up by common rights). The principle of freedom of trade is a positive right, and is, in some way, confirmed by our constitutional laws. Indeed, one may read in the preliminary draft of the constitutional laws of 1875 the following sentence, characteristic of M. Lepere's style: "We have enacted a series of constitutional pro- visions, without endeavoring to promulgate principles any more than to formulate philosophical statements. Our principles are known. They are the principles of 176*9, which all succeeding governments have recognized. ' ' b However, notwithstanding the principle of freedom of trade, the French financial market is not free. The pro- fession of stockbroker (agent de change) is, as will be seen, a monopoly. It is not a State monopoly, like that of the sale of tobacco, gunpowder, matches, or of carrying a Expos6 des Motifs du Code de Commerce. Corps Legislatif. iSep- tembre, 1807, Archives Parlementaires, 1807. & Session of February 17, 1875. Annales de I'Assemblee Nationale, T. XXXVI, p. 619. The principle of freedom of trade, started in 1791, belongs to the principle of freedom to work proclaimed in 1789. (Ducrocq) Droit Administratif, T. Ill, p. 574. 7 National Monetary Commission the mails ; it is a monopoly held by certain persons for their own benefit. It is a question of a private monopoly intrusted to individuals. What is the origin of this phenomenon? Why this ex- ception? We have found this question quite brilliantly elucidated in the pleadings of an eminent barrister, Dean du Buit, during a famous financial lawsuit. "The Bourse," said he, "is a public mart where bills and securities are purchased, just as fairs are public marts where grain and cattle and all kinds of merchandise are purchased. These public marts, these bourses, are always spontaneously and gradually formed, by one and the same process either in answer to requirements, or through habits, or by the cooperation of populations. "There is, for instance, in a given place, a center for gatherings, and, by and by, as it becomes known that purchasers will be found there, everyone brings to this center what he has to sell. Customs and regulations are also spontaneously here established. The way to buy, or to sell, is learned; and thus is formed what commercial laws designate as local usage (V usage de la place) . "Finally, the market is established; it develops, and, as is necessarily the case with all that is human, abuses gradually make their appearance. These abuses become glaring; stockjobbing sets in; quarrels, brawls, and dis- orders take place; and the central power investigates. "The authorities interfere and take the market in hand. There are abuses, they say; we are going to correct them; In the matter of the People and the Association of Stockbrokers v. Messrs, de Buzelet & Perriere. Tribunal de la Seine 22 Femier 1907. Compte rendu de la Cote de la Bourse et de la Banque du 24 Fewier, 1907. History and Methods of the Paris Bourse there are fraudulent middlemen we shall replace them by middlemen whom we ourselves shall appoint. We shall make regulations; they will be carried out in the market; and thus we shall fix as a regulation that when a party desires to enter the market to dispose of securities, instead of trusting himself to one of these intermeddlesome mid- dlemen, who bring business into disrepute, he will ad- dress himself to the middlemen whom we shall appoint. Through them alone he will be bound to trade." Thus spoke Maitre du Buit; and it can not be denied that it is from the police authority that the power of regu- lating the Bourse as a public place originates. But the authorities have found some advantage in the exercise of that power of regulation. Under the old regime the Gov- ernment considered itself as the master of persons, as the owner of their right to work. Accordingly, it sold it to them. It often occurred that it bestowed monopoly and privilege on certain people who bought their benefits. The traffic in charges, employments, offices, which was the plague of the old regime, was practised also on the pro- fessions of merchandise broker and of stockbroker. The monopoly of agents de change, in reality, was pur- chased from the Government under the old regime. (5) The revolution takes place. The law of March 17, 1791, which suppressed offices, charters, and wardenships of trade companies, also abol- ished the monopoly of the agents de change, which had been established by a series of successive royal decrees from 1724 to 1788 decrees by which the privileges of monopoly had been by turns bestowed, modified, with- drawn, restored, or confirmed. National M on et ar y Commission But the disturbances at home and abroad at the time of the French Revolution, and the financial policy which, in the domain of private property, manifested itself in the suppression of stock companies, and, in the domain of public credit, assumed the form of the emission of assig- nats, forced loans, and bankruptcy all this caused a terrible repercussion on the financial markets. When the Bourse was closed for the first time (from June 27, 1793, to April 25, 1795) and stock companies were suppressed, rentes disappeared from the market. 6 It was not rentes and shares of stock companies that attracted speculation, and for very good reasons. In- stead, people dabbled in metals and in bills of exchange, owing to two causes : The decline in the value of assignats, and the scarcity of metallic currency. It could not be otherwise. The phenomenon was inevitable, and so it actually took place. Let us ex- plain it. If you piace in a safe 1,000 francs in napoleons, > and if you cause these 50 pieces of 20 francs each to be repre- sented by i ,000 sheets of paper, these i ,000 sheets of paper will theoretically, and yet quite accurately, be worth i franc each. If, instead of 1,000 sheets, 2,000 sheets are issued, the value will normally have to fall to 50 centimes. If 4,000 are issued, the value will fall to 25 centimes, and so on. It may happen that the party who emits them (especially if it be the Government) should become indig- nant because of the decline, and, in its ignorance, assign the reasons for the decline to stockjobbing. But, whatever a Decree of August 24, 1793. b Because interest was paid in paper which was gradually shrinking in value. 10 History and Methods of the Paris Bourse it may do, the paper will always tend to be worth exactly that which it represents. If the Government threatens those it holds responsible for the decline with the worst punishments the carcan, the pillory, death even it will be all in vain; the paper money will tend to be worth only that which it represents. Perhaps the paper may fall even below its intrinsic value, owing to the endeavors of the issuing party to boost it; but it will not really be the merchants who have caused the paper to fall, nor even those in whose hands the paper is found. The author of the phenomenon is the very party issuing the paper. The scarcity of metal currency is a corollary to the decline of the paper. When paper declines, those who have gold do not care to exchange it for paper steadily depreciating in their hands. In consequence, they de- mand for a little gold a great deal of paper. Paper declines, gold rises. Finally, when a country is in the throes of a revolution, home production of produce and of the most ordinary objects of utility diminishes for the very reason of the existing troubles. What is wanting, must be drawn from abroad; but how should payment be made for it? In gold, in coin used abroad that is to say, in foreign bills of exchange. This is a new reason for the rise in gold and for a rise in the rates of foreign exchange which represents gold. These grounds for a rise will be still greater when the country is at war with one or several foreign nations. Such is, in some way, the physiology of the double economic movement the decline of paper, and the rise of metal. The speculations of the revolutionary times did National Monetary Commission not cause the decline of paper, nor the rise of metal; they merely gave expression to the double phenomenon. On this occasion the complete history of the French Revolution can not be given; the domestic strife, the riots, the famines, the wars of the Republic at its birth, need not again be narrated. But what is very well known is that, after a first issue of assignats for 400,000,000 French livres, in pursuance of the decree of December 19, 1790, other issues followed and successively brought up to 45,000,000,000 livres the amount of assignats issued. And the first form of the double phenomenon made its appear- ance the decline of paper. The rise in metallic currency followed, aggravated by the state of war between France and nearly the whole of Europe combined. Famines occurred, and the Convention authorized the supreme executive councils in the Depart- ments to fix the maximum prices. Thereupon the mer- chants ceased to sell, and the manufacturers to produce, as the maximum had taken no account of the cost price. Stockjobbing assumed fabulous proportions. In order to procure food, people disposed of their belongings. The possessor of gold and silver or of bills of exchange dictated the prices. The convention took alarm at the rise of the metallic currency that accompanied the decline of the assignats a rise still more aggravating the situation at home and the a Rambaud. Histoire de la Civilisation Contemporaine en France, p. 291. See also in the Magistral of M. Emile Levasseur, L' 'Histoire des classes ouvrieres depuis 1789 a 1870 (T. I, Ch. Les Assignats), the verification of the repercussions caused by the decline of assignats. In 1795 a bushel of potatoes was worth 200 livres in assignats; i pound of butter, 560 livres; a new coat, 15,000 livres; and a "clean" hat, 500 livres (p. 224). 12 History and Methods of the Paris Bourse wars abroad. The convention attributed the rise of the metal to stockjobbing, which, it should be borne in mind, had thrown off all restraint. Thus, two laws were pro- mulgated the law of 1 8 Fructidor, year III (April 30, 1795), forbidding the selling of gold and silver anywhere save on the Bourse, and that of 28 Vendemiaire, year IV (October 20, 1 795) , on the regulations of the Bourse. The law of 18 Fructidor, year III, provided the follow- ing in article i : " ARTICLE i . It is forbidden to anyone in Paris or in all commercial cities where there is a bourse, to sell gold or silver, either coined, or in bars or ingots, or manufactured; or to make trades having these metals for basis, in public places or premises other than the Bourse. All offenders shall be sentenced to two years' imprisonment, to be ex- posed to public view, with a sign board on the chest bear- ing the word 'agioteur ' (stockjobber) , and by the same process all his property shall be confiscated for the bene- fit of the Republic." As to the law of 28 Vendemiaire, year IV, on bourse regulation, it contained the following provisions: " ART. 6. The committees of public safety and of finance shall appoint, within twenty-four hours, 25 stockbrokers; 20 of them shall be assigned to banking operations and negotiations in foreign bills in Paris ; the remaining 5 shall be assigned to the purchase and sale of coined metal, and gold and silver bullion ; all of them shall be called ' agents de change' (stockbrokers). "ART. 7. They shall be invested with a commission, which shall be delivered to them at once by the committees National Monetary Commission of public safety and of finance, for the exclusive exercise of the functions which are conferred upon them." Thus the law of 28 Vendemiaire, year IV, reestablished the stockbrokers, suppressed in 1791, as merchants vested with a monopoly. The law reestablishes their power only with regard to dealing in bullion and foreign bills. Concerning bullion, article 13 of Chapter I stated: "No statement concerning the sale or purchase of bul- lion shall be admitted in court except when made by the 5 appointed stockbrokers (Aucune declaration . . . ne sera recu en justice que celle des cinq agents choisis . . .), and no bargain shall be considered valid unless transacted through their agency." Concerning the negotiating of bills of exchange, article 8 of Chapter II stated: "No statement concerning the negotiation of bills of exchange, notes, or other commercial instruments shall be admitted in court except when made by the 20 appointed brokers, and no bargain shall be considered valid, unless transacted through their agency." It is, therefore, quite evident that the lawmaker of Venddmiaire, year IV, was not guided by any respect for the principle of freedom of trade; that there existed at that time no principle but that of public safety. The life, the liberty, and the property of citizens, were of little moment. When the law of 28 Vendemiaire, year IV, was promulgated, the amount of assignats outstanding was 1 7,879, 337> 8 98 French livres, and the total number issued during the last three months was for the amount of 5,541,194,037 livres. a a J. M. Fachan, Historique de la Rente Franqaise et des valeurs du Tresor, p. 107. History and Methods of the Paris Bourse The assignat of i livre had declined during these three months from 0.304 to 0.136. A forced loan without interest had been levied on "the rich, the selfish, and the indifferent." 6 Terrible famines had afflicted the country and provoked bloody insurrections (12 Germinal, year III, i Prairial, year III, 13 Vendemiaire, year IV). England had determined to fight France in every way; she did not limit herself to merely organizing the Quiberon expedition. The Marquis de Puysage had convinced Pitt of the advan- tages to be derived from flooding French territory with coun- terfeit assignats which the best engravers of Holland were to manufacture with such consummate skill that " Cambon himself would have accepted them." c A first issue of these counterfeit assignats had taken place, and from Berne 3,000,000,000 livres of these had been let loose. c Meanwhile, on the 13 Fructidor, year III, a law which we have already mentioned forbade the sale of gold and silver elsewhere than on the Bourse, and almost immediately after that, on the 28 Vendemiaire, year IV, another law on bourse regulation declared valid, as far as bullion and foreign bills of exchange were concerned, only such trades as were made through a stockbroker. d Let us now resume our account: It is a settled fact that in France commerce is free. This, however, does not apply to matters of brokerage in securities, under the old law, the old monarchical regime, because the Government considers itself entitled a Ibid, p. 108. & Ibid, pp. in and 115. c Michelet, Hisloire du XI X e siecle. Directoire in the chapter Quiberon. & See further Ch. Gomel, Histoire financiere de la Legislative et de la Con- vention, Vol. II, Chap. II. National M on et ar y Commission to dominate the public place where the Bourse is kept, and to sell the right to work. That state of things ceased with the revolution. During the revolutionary period speculation was turned to bullion and bills of exchange. The convention then reestablished the monopoly of stockbrokers, which had not long ago been suppressed, because it ascribed the responsibility for the occurrences to speculation. The monopoly was applied to bullion and bills of exchange only. (6) The laws which have in some way reconstituted the legal prerogatives of bourse operations are: The law of 28 Ventose, year IX; the decree of 27 Prairial, year X, and the Code de commerce, in 1807 ; the first two provisions under the Consulate, the third under the Empire. To-day they still govern the matters forming the subject of the present work. The law of 28 Ventose, year IX, and the Code de com- merce of 1807 conferred on stockbrokers a monopoly of trade in government and other securities susceptible of being quoted. By the law of April 28, 1816, stockbrokers, as well as notaries, barristers practising before the Cour de cassa- tion (highest court of appeal in France), lawyers, court clerks, bailiffs (huissiers officials who protest bills, notes, etc.), merchandise brokers, and appraisers, acquire the right to introduce their successors, in consideration of additional surety bonds aggregating about 40,000,000 francs for the totality of these ministerial offices. As to the stockbrokers, their bond, which had then been 100,000 francs, was increased to 125,000 francs. The 16 History and Methods of the Paris Bourse interest on all these bonds was reduced from 5 per cent to 4 per cent. The stockbrokers become by that fact the owners of their offices. The right to introduce a successor to the Government is sold by the holder when he withdraws from business. It is only thus that a stockbroker may sell his office. The law of 1816 has always been severely criticised. The State can give back freedom to the trade in secu- rities only by purchasing the commissions or indemnifying the holders of these commissions. Well, as time goes on, securities become more and more numerous, and conse- quently the commissions of stockbrokers must become more and more valuable. Moreover, the more the State's budgets tend to become complicated and to increase, the less easy it becomes, in consequence, for the French Gov- ernment to place the financial market on a footing con- sistent with the principle of freedom of trade. Thus the Bourse in France rests legally on the basis of these old laws of the years IX and 1807. (7) Several attempts have beeji made to modify the legal status of the Bourse, but they have failed for sundry reasons. The last attempt took place in 1897. Two Senators, MM. Trarieux and Boulanger, presented the draft of a law which caused a discussion of the finance law of 1 898. During this discussion a question was raised relating to the mode of collecting the tax on bourse operations, in answer to which the Government declared, that, taking for a basis the laws then in force, it would modify the status of the financial market simply through decrees. National Monetary Commission Indeed, on June 29, 1898, the Minister issued three decrees, which, respectively, increased the number of stockbrokers in Paris from 60 to 70, fixed a new table of brokerage, and modified some articles in the decree of October 7, 1870, concerning the number of members of the Chambre Syndicate and concerning the time allowance for settlements. The most striking modification was the new provision of article 55 of the decree of October 7, 1890, which created what has been called the Solidarity, of Stockbrokers. The totality of these measures received the name "Reorganisation du Marche Financier" (reorganization of the financial market), an incorrect designation, since these decrees have brought no modifying element in the bases of the bourse organization, as the present organiza- tion is no other than that of the year IX. But the use of these terms aimed to cut short all endeavor toward a new organization, and to suggest to public opinion the consid- eration that it would be unwise to demand new reforms when a reorganization had but recently been effected. (8) It behooves us finally to call attention to one of the most singular phenomena connected with the age of the provisions governing the bourse. None of the reasons which influenced the establishment of the monopoly of stockbrokers exists to-day. No doubt, other grounds have arisen to warrant their preservation, but none the less singular is the phenomenon presented by an institution outliving all the considerations which determined its establishment. Indeed, in the year IX, in the year X, and in 1807, a fundamental consideration quickened the legislator the 18 History and Methods of the Paris Bourse discredit fastened upon speculation. Operations for future delivery were considered, if not as tabooed, at least as having become impossible. Thus it was that the broker was enjoined to have in his hands at the moment of the trade both the securities of the seller and the money of the buyer. (Art. 13 of the decree of 27 Prairial, year X.) Finally, speculations were directed toward bills of exchange and government securi- ties; and, because it was considered necessary for the economic welfare that official intermediaries be appointed for the negotiation of bills of exchange, bullion, and gov- ernment securities, article' 76 of the Code de commerce declared that the stockbrokers (agents de change) alone could trade for account of others in bills of exchange, or transact dealings in bullion brokerage and French government securities. The official quoting of foreign securities remained forbidden, in pursuance of the Council's decree of August 7, 1785. At present the prohibition restraining a stockbroker from giving his services to short sellers has entirely disap- peared. It was abolished by the law of March 28, 1885, concerning contracts for future delivery. That same law declared these kinds of contracts legal, even when settled by paying the difference. On the other hand, stockbrokers no longer negotiate a single bill of exchange. The bullion brokerage, which could be concurrently carried on by stockbrokers (agents de change) and merchandise brokers (courtiers), either class by itself having the right to trade, is free since 1866. Further, as to government securities, and with especial reference to French rentes, which represent government National Monetary Commission securities par excellence, it remains to be said that free trading in them is tolerated, although not legally recog- nized, as will be seen later. Finally, it should be noticed that a royal ordinance of November 23, 1823, abolished the interdiction to quote foreign securities. The monopoly of stockbrokers has, therefore, lost all its grounds for subsisting. Nevertheless, it still exists in law, and is, moreover, sustained by it more strongly than ever. This is a consideration which will acquire its full value when the subject of the present work shall have been treated in full. 20 BOOK II. The Bourse The traders The operations. FIRST DIVISION. Bourses Merchandise brokers Stockbrokers Curb brokers Securities. 1. Commercial exchanges (Bourses de commerce} Stock exchanges Page. (Bourses des valeurs} 23 2. The brokers on the commercial bourses Stockbrokers (agents de change} are the traders on the Bourse des -valeurs 23-24 3. The functions of the stockbrokers 24-25 4. The curb brokers (coulissiers} 25-28 5. The exchange brokers (courtiers de change} 28 6. Which are the securities traded in on the Bourse Government loans Certificates of private enterprises Certificates for stocks and bonds fully paid in and partially paid in 29-30 7. Certificates for stocks and bonds registered, registered as to principal only, " to bearer" Transfer and its mechanism, con- version of certificates "to bearer" into registered certificates, and vice versa 30-32 SECOND DIVISION. The operations for cash. 8. Operations for cash (Operations au comptant} 33 9. Orders at a fixed price (a cours fixe}, at best (au mieux), at the average rate (au cours moyen}, on the floor (au Parquet}- 33~34 10. How orders for cash are given on the Coulisse (au marche en Banque} ._. 35 n. What amounts can be traded in for cash? How long are orders in force? 35~3 6 12. The quotation list, official quotation list, curb quotation list (cote en Banque} 37~3^ 13. Settlement of operations for cash Irregular, counterfeit, lost, stolen certificates 38-39 14. Concerning interest accrued on certificates traded in 39 15. Certificates must be in order as regards stamps and taxes 39 16. Expenses Concerning brokerage with the stockbrokers (on the parquet) , with the bankers (en coulisse) 40 17. The tax on bourse operations Receipt stamp Fee for record- ing on the statements the numbers of the certificates pur- chased 40-41 18. Transfer and transmission fees 41 21 National Monetary Commission Page. 1 9 . Delays in delivering registered certificates. _ 42 20. On the right of "execution" (buying-in, or selling-out) 42-43 21. Delays in delivering certificates "to bearer," on the right of " exe- cution." 43-44 22. On deliveries and "execution" on the "Coulisse" 44~45 THIRD DIVISION. Operations for future delivery (a terme). 23. Operations for future delivery Definition Taking up secu- rities Delivering securities Differences 45 -47 24. Reports (loans for " carrying-over " operations) 47~49 25. Operations in certificates "when issued" 49 26. Options 49-5 1 27. Single options 5 I- 54 28. Option against non-option 54~55 29. Non-option against option 55-56 30. Option against option 56-57 31. Usefulness of combinations above described 57~58 32. Put and call (stellage) 59-62 33. Settlements Option declarations The clearing system 62-63 34. Mechanism of the clearing system The making-up price (clear- ing price) 63-66 35. Some practical remarks Nature of bourse orders 66-67 36. How long do orders remain in force? 67 37. Covers 68 38. On the amounts that may be dealt in 68 39. Discounting privilege (faculte" d'escompte) 69 40. Small options 69 41. What the quotation list shows 69-70 42. Fortnightly and monthly settlements 70-7 2 43. State of securities delivered on settlement days 72 44. Defaulting of brokers or of customers 7 2-74 45. Expenses Transfers Brokerages 74-76 FOURTH DIVISION. On Exchange Concerning the negotiation of bills of exchange and precious metals. 46. Generalities 76 47. Mission of the bill of exchange; its value as commercial currency. 76-77 48. Exchange fluctuations " Gold point " 1 77~78 49. How the bill of exchange is made negotiable 78-79 50. Exchange quotations 79-80 51. "Short paper" and "long paper" 80-81 52. Special functions of the "long paper;" its " pensioning " 81-82 53. Different methods of quoting; units quoted 82-83 22 History and Methods of the Paris Bourse Page. 54. How quotations are fixed 83 55. How exchange is negotiated 83-85 56. Dealings in precious metals 85 FIFTH DIVISION. Bourses in the Departments. 57. Generalities 85-86 58. Bourses " a parquet," and bourses without " parquet" 86-88 FIRST DIVISION. Bourses. Brokers, stockbrokers (agents de change), curb brokers (coulissiers) . Kinds of securities dealt in. (1) The Bourse is a public market for merchandise and securities. It is the meeting place for those having to deal in merchandise or securities, either for their own account or for the account of their constituents. In the case of merchandise proper wheat, flour, spirits, etc. the bourse is usually called Bourse de Commerce (a commer- cial bourse) . In the case of securities the bourse is called Bourse des Valeurs (a stock exchange) . The operators on the Bourse de Commerce are merchan- dise brokers (courtiers en marchandises) . The profession of merchandise broker is free, but this has not always been the case. It was a monopoly under the old regime. It was made free in 1791, monopolized again in the year IX of the Republic that is, at the time when the law- makers established commercial exchanges (28 Ventdse), as well as the institution of stockbrokers then freed again by the law of July 18, 1866. (2) The operators on the Bourse des Valeurs are stock- brokers (agents de change) , whose profession is monopolized. It was monopolized under the old regime, like the profes- sion of merchandise broker, with which it was long con- founded. It was made free by the law of March 17, 1791, National Monetary Commission and monopolized again by the law of 28 Vent6se, year IX. But while, in 1866, the law again freed merchandise brokerage, the profession of stockbroker remained a monopoly. It is so still. (3) The stockbrokers (agents de change} are not the only ones to operate on the Bourse as brokers, as will be seen later. The following, however, are the prerogatives of the stockbrokers : 1. As brokers they have the exclusive right to trade in government or other securities susceptible of being quoted. (Art. 76 of the Code de commerce). a 2. As brokers, they have also the exclusive right to negotiate bills of exchange, notes, and all commercial in- struments. (Art. 76 of the Code de commerce.) 3. To verify the quotations of these securities. (Art. 76 of the Code de commerce.) 4. Before the law of July 18, 1866, they divided with the merchandise brokers (courtiers) the privilege of deal- ing in metals. Brokerage as regards mechandise having become free, the privilege of the stockbrokers disappeared on that account. But they alone have the right to verify the quotations of metals. (Art. 76 of the Code de com- merce.) 5. The stockbrokers give the necessary certificates for transfers of rentes, on the terms provided for by the It should be borne in mind that stockbrokers are not permitted to reveal the names of their customers. (Art. 19, decree of 27 Prairial, year X.) Therefore, in contradistinction to the merchandise broker proper, who places the parties in personal contact and then withdraws, the stockbroker bririgs them into relation, but hides their identity. The stockbroker is, therefore, to be more accurate, a commission agent. According to article 94 of the. Code de commerce, a commission agent is a party who binds himself in his own name between the parties. 24 History and Methods of the Paris Bourse decree of 27 Prairial, year X, royal ordinance of April 14, 1819, and the decrees of July 12, 1883, and June 10, 1884. (Decree of October 7, 1890, art. 76.) 6. They are intrusted with the publication of the Official Bulletin of Oppositions to the Negotiation of Securities "to Bearer." (Law of June, 1872, art. n.) 7. They may be commissioned by the courts to nego- tiate securities especially, pledged securities. Art. 93 of the Code de commerce; art. 70 of the decree of October 7, 1890.) 8. They may be commissioned by the courts to dis- pose of tne property of minors within the terms pre- scribed by the law of February 27, 1880. The stockbrokers in Paris number 70. (Later we shall speak of stockbrokers in the provinces.) They form an association, and a part of them, chosen by ballot, form the syndical chamber, composed of a syn- dic and eight members, and intrusted with the carrying out of disciplinary measures, along with all general matters concerning the collective welfare of the corporation. The stockbrokers are named by decree of the President of the Republic; they are placed under the disciplinary rule of the Minister of Finance. (The stockbrokers in the Depart- ments (provinces) are in some cases under the Minister of Finance, and in others under the Minister of Commerce.) (4) Stockbrokers alone have the right, according to o By this law, the dispossessed owners of lost or stolen certificates are given the means of obtaining duplicates of the same after a certain delay. They must declare their protest against (faire opposition} the negotiation of their certificates, and publish a note to that effect in the "Bulletin ojficiel des Oppositions." All negotiations made in disregard of this publi- cation are rejected, without affecting the protesting party. (See note to No. 13.) Translator. National Monetary Commission law, to trade in government and other securities suscep- tible of being quoted. It is understood, however, that securities which have not been explicitly admitted on the official quotation list, either because the stockbrokers did not care to adopt them, or because the securities did not fulfiH the required statutory conditions, may, nevertheless, be dealt in outside the Bourse. There exist for this purpose free intermediaries, called bankers (oftener "coulissiers" curb brokers), who deal on the bankers' market (marche en banque), known as the "coulisse," in securities called bank securities, or curb securities (valeurs en banque ou vdleurs de coulisse) . Frequently, one may hear on the Bourse these two words pronounced in opposition to one another: the Parquet (the floor) , the Coulisse (the curb) . By Parquet is meant the stockbrokers' market, on account of the parquet floor on which they stand. The Coulisse (equiva- lent to the New York curb) is thus called, owing to the fact that formerly the bankers congregated in a narrow passageway called La Coulisse. The number of curb brokers (coulissiers) is not limited. Anyone can become a curb broker who wishes to estab- lish himself as such, to employ sufficient capital for meet- ing the requirements of the business, to pay the license, and to style himself banker. But a certain number of the bankers club together, form a syndicate, agree upon com- mon rules, and elect a syndical chamber authorized to see to it that the professional discipline is lived up to. Thus there are three categories outside of which, we must a Decision of the Cour de cassation of July i, 1885. Recueil de Sirey, 1885, i. 257. 26 History and Methods of the Paris Bourse again repeat, the profession remains free. They are the syndicate of bankers dealing in securities for cash (Syn- dicat des Banquiers en valeurs au comptant), the syndicate of bankers dealing in securities for future delivery (Syndicat des Banquiers en valeurs a terme], and the curb for French rentes (la Coulisse des rentes francaises). It should be noted that, although, according to law, dealings in French rentes are the prerogative of the monopoly of stockbrokers, and any intrusion into the business reserved for them is an offense punishable by fine, nevertheless curb brokers are tolerated as dealers in French rentes, alongside of the stockbrokers thus becom- ing their powerful competitors. No suit is brought against them for interfering with the business of the stock- brokers, but their operations are not valid in court. For that reason the curb for rentes does not take the name of a Article 8 of the law of 28 Ventose, year IX. The penalty is very severe. It is a fine which amounts to not less than one-twelfth of the amount of the surety bond, and not more than one-sixth. Which is the bond that shall be taken as a basis? Shall it be the one of the year IX (60,000 francs)? Is it the present bond (250,000 francs)? The Cour de cassation took as a basis the bond at the time the offense was committed. (Aug. 28, 1857, S 1857-1879; Jan. 14, 1860, S 1860, i, 481, Trib. correc- tionnel de Lyon; Mar. 12, 1906, Journal I' Information of May 9, 1906.) That decision is sustained by M. Boistel (Droit Commercial, p. 431) and by M. Ruben de Couder. (Dictionnaire de Droit Commercial, V. Agent de Change, 112.) But it is sharply criticized by most authors (Buchere Traite des Operations de Bourse No. 114, Lyon, Caen & Renault, Traite de Droit Commercial, vol. IV, No. 904; Mollot, Bourses de Commerce, No. 15, Dalloz, Rep. V, Bourse 164; Rolland de Villargues, Rep. du Notariat, v. Bourses de Commerce; Albert Broussois, Du Mono pole des Agents de Change et de sa Suppression, p. 88). No extenuating circumstances are allowed when there is interference with the functions of a stockbroker. (Tribunal correctionnel Seine, June 24, 1859; and on appeal, Paris, August 2, 1859, S 1860, i, 481); Mollot, Bourses de Commerce, No. 16. Ruben de Couder. Dictionnaire de Droit Commercial, No. 115. Buchere, Traite des Opera- tions de Bourse, No. 119. National Monetary Commission Syndicate. Indeed, professional syndicates are recog- nized by law, and may bring actions and sue in court. It is not possible, therefore, to recognize under the name of syndicates associations of persons carrying on an un- lawful business. The toleration enjoyed by the curb market in rentes originates from the consideration that the credit of the State is benefited if dealings in rentes are as free and extended as possible, in spite of the fact that the law intrusts the stockbrokers alone with the transac- tions in government securities. (5) Finally, another category of bankers busies itself with dealings in bills of exchange and treasury bonds. The law likewise reserves for the stockbrokers the nego- tiation of these instruments, but, owing to the expansion of securities, and owing to the fact that the negotiation of commercial bills of exchange is little remunerative, the stockbrokers relinquish that part of their prerogatives to free commerce. They never negotiate a bill of exchange; they merely receive the list of quotations prepared by the bankers and insert it in their official list. The free dealers of this last category are called bankers and ex- change brokers (courtiers de change). The word " coulis- sier" is never used to designate them. Let us mention that these bankers traders in bills of exchange sometimes indorse the bill of exchange which is the object of the operation; they then negotiate the bill of exchange through themselves and for themselves, becoming parties to the contract. When they only transfer it to the buyer without indorsing it, they posi- tively act as brokers, dealing for account of others. History and Methods of the Paris Bourse (6) We shall now briefly review the nature of the securities negotiated by stockbrokers and curb brokers. We shall look into the mechanism of operations for cash, and the mechanism of operations for future delivery. Comparing the two, we shall see the differences in the manner they are traded in, either on the Parquet (stock- brokers' market) or on the Coulisse (bankers' market), in the manner of quoting, and in the modes of settlement; and, finally, we shall look into the dealings in bills of exchange. The operations on the Bourse are purchases and sales. They bear upon : i , the certificates of loans of states, cities, counties (departements) , and territories of foreign coun- tries having an organization distinct from the state, such as provinces and states united by federal bonds; 2, the certificates of private or public enterprises constituted as stock companies that is, the shares of companies called shares of common stock, shares of preferred stock, dividend shares, profit shares, or founders' shares (parts de fon- dateur), and the certificates of indebtedness bonds, debentures, etc. The rules for operations are, some of them general ones, referring to the ordinary commercial conditions; the others are of a special character, relating to the traffic in securities on the Bourse. We shall take as a guide the rules of the Paris financial market. Certificates are either fully paid in or partially paid in. They are fully paid in when the owner, whether he be the original subscriber or the assignee, has no further assess- ment to make on the certificate. For instance, one share of 100 francs of a company is said to be fully paid in, when the 100 francs of money it represents in the stated capital National Monetary Commission have been paid in full. The certificates are partially paid in, when there remain one or more assessments to be made, before the certificate is fully paid in. For instance, one share of 100 francs is "25 francs paid in. " That means that there remains a sum of 75 francs due on that certifi- cate, to be effected in one or more payments. (7) Securities are issued registered, mixed (registered as to principal only), or " to bearer." The registered certificate (litre nominatif) bears the name of its owner, and the interest or dividends are pay- able on presentation of the certificate itself. The mixed certificate (litre mixte) is different from the preceding one in that the coupons for interest and dividends may be cut off from the certificate, and are payable to bearer. The certificate "to bearer" (au porteur) does not bear the name of the owner; the holder is supposed to be the owner, and the coupons are, as in the preceding case, pay- able to the party presenting them. The delivery to the purchaser of registered or mixed certificates can be considered good delivery only when the latter has been entered as titulary on the registers of the debtor concern, and when a new certificate has been issued in pursuance of that operation. That operation is called transfer. There are three kinds of transfers the transfer "reel," the transfer " d'ordre, " and the transfer " de garantie. " The actual (reel) transfer is effected by means of a request of the titulary of the registered certificate, addressed to the debtor concern, aiming at the cancellation of the existing certificate and at the creation of a new one in the name of a third party. The transfer is a deed in itself; it may be History and Methods of the Paris Bourse the consequence either of a gift or of a sale. It is subject to a tax of 0.75 per cent. The transfer "d'ordre" or " de forme" has for its object any alteration in the wording of the registration of a cer- tificate, resulting from a deed different from the transfer declaration whether the title remains vested in the name of the same titulary, with a modification of his social state, or it is transferred to a new titulary (deed of gift, income granted by deed before a notary). These transfers are free of tax, because they are made in pursuance of deeds, which are themselves free of tax, or of deeds for which the tax has been paid. Transfer "d'ordre" also applies to an operation now obsolete, the object of which was to safeguard profes- sional secrecy by the stockbrokers (agents de change) ; the stockbroker signed a first transfer in the name of his fellow-broker, the buyer, who effected the transfer in the name of his customer; the intermediate transfer is called transfer "d'ordre" and is free of tax. This latter transfer, like the transfer "reel," has become very rare, stockbrokers making a practice of delivering to one another only certificates " to bearer." (Droit de 1890, art. 47.) The purpose of the transfer " de garantie" (provided for by art. 91 of the Code de commerce) is to establish the pledge of certificates the transmission of which is effected by a transfer on the books of the company; it is free of tax, because it does not carry with it a change of owner- ship. Conversion is the act of causing a registered or mixed certificate to be transformed into a certificate " to bearer," 90312 io 3 31 National M on et ar y Commission or a certificate "to bearer" into a registered or mixed certificate. The transfer following a transaction is effected as fol- lows: The seller signs a transfer blank, by which he requires the company whose certificate is being sold (be it a government or private corporation) to transfer his status of bondholder or shareholder to the purchaser. On the other hand, the purchaser signs another sheet, called transfer acceptance blank. The seller then hands in at the public or private counter (i) his transfer blank, (2) the certificate, and (3) the transfer acceptance blank. When the operation is closed by the entries made within the debtor establishment, the transfer has been exe- cuted. A new certificate, bearing the name and profes- sion of the purchaser, is handed to him. Usually it is the intermediary of the seller (stockbroker or banker) who demands the transfer in the name of his customer. Many corporations will not effect transfers, unless a stockbroker (agent de change) guarantees the signatures, even when the sale has been effected without the help of a stockbroker. Especially, so far as transfers of regis- tered certificates of French rentes are concerned, the signature of a stockbroker is always required. A certificate " to bearer " is delivered to the purchaser by merely being handed over to him. Article 2279 of the Code civil says: "With regard to chattels, possession is as good as title." These words mean that the holding of a certificate of personal property leaves it for granted that the holder is the owner thereof. The simple handing over of a certificate ' ' to bearer ' ' transfers the ownership thereof. History and Methods of the Paris Bourse SECOND DIVISION. Operations for cash (operations au comptant). (8) Bourse operations are made for cash or for future delivery (au comptant ou a terme). The operation for cash is an operation to be settled immediately or after a very short delay certificate against cash, cash against certificate. The operation for future delivery (operation a terme) is to be settled within a period fixed in advance. We shall first consider operations for cash. It is very easy to understand the mechanism of opera- tions, if we follow in their logical order the successive stages of execution. How is a bourse order given? Let us follow that order to the market and let us see how it will be exe- cuted. When executed, how will it be checked by the party who gave it; how will the operation be settled; what expenses are to be borne by the party who gave the order; the delays it shall be subjected to; what are the means of recourse in case of delay or default of the party who received the order; for what is the party who gives an order liable, when he infringes the essential conditions of the contract? To all these questions the following expla- nations will give an answer, showing at the same time the workings of the financial market. (9) Orders are given to stockbrokers either at a fixed price (a cours fixe) , or at best (au mieux) , or at the average price (au cours moyen) . Instance of an order at fixed price: "Please buy i bond of the Credit Fonder 1895 at 465 francs;" or "Please sell 3 shares of the Edison Company at 1,100 francs;" or "Please buy 3 francs French Rente Z%% at 98 francs." An order at best shall be worded in the same way; but no price shall be fixed, because the stockbroker will buy 33 National Monetary Commission or sell at the price at which he will be able to buy or to sell. For an order at the average price, the indication of price shall be replaced by the words " cours moyen " (aver- age price), or simply by the letters "c. m." "Cours moyen" (average price) is a price halfway be- tween the highest and the lowest prices quoted. "Avant bourse" (before the opening) , that is to say, before the opening of the session, the stockbrokers and their clerks meet in a special room. Some offer, and others ask for, securities at the average price. Neither know what the price will be; that will be decided during the session. When an offer and a demand coincide, the transaction is closed. Only the price is missing. A ring of the bell an- nounces the opening of the bourse session; the stock- brokers and their clerks leave the special room and pro- ceed to the public hall around the railed inclosures. The session begins. As the dealers execute orders, they give the prices to a marker, whose entries will serve to make up the quotation list. The quotation list having been made up, the parties who have traded on the basis of the average rate, will be able to ascertain that average, by merely taking the highest and the lowest rates. If only one price is quoted, that single price shall take the place of the average price. If there are no quotations, the operations are considered as "non faites" (not executed). It may happen that an order given at the average rate is not executed. The stockbroker (agent de change) may have been unable to find a counterpart. The party giving the order can make no claim on that account. 34 History and Methods of the Paris Bourse (10) In the bankers' market, that is to say, "en cou- lisse" (on the curb), orders are received either at fixed prices or at best. The bankers do not trade on the basis of average price. The party giving an order and the banker may, however, contract that a certain operation shall be executed at the average rate; but in such cases the banker will have contracted a personal obligation, and the operation contracted with his client will be distinct from the one closed in the public market. a (n) Later, when we turn to transactions for future de- livery (operations a terme) , we shall see that such transac- tions can not be made for less than 25 shares or for less than a certain number of francs of government rentes. But it should be borne in mind that for cash the minimum to be traded in is one unit; that is to say, one share, one bond, one debenture, etc. Some bonds, especially the bonds of the city of Paris or of the Credit Fonder (Mort- gage-loan Society), are divided into quarters and into fifths. Then such portions bear the name "quarter of a bond," "fifth of a bond." Orders remain in force according to agreement between the parties. An order may be given, good for the day's session, or until canceled that is to say, up to the time jvhen the party giving the order shall have expressed the a The stockbroker (agent de change) can not personally make a contract with his customer. Article 85 of the Code de commerce forbids him dealing for his own account. The result is, with a bourse order in hand, he can not enter into a private agreement with the party giving the order concerning the execution of same. However, article 85 of the Code de commerce was especially intended for the stockbroker; the banker (curb broker) may enter into a personal agreement and act for himself. In practice, when he per- sonally becomes a party to the contract, he must notify his client of the fact. In certain cases the personal intervention of the broker is the result of circumstances. 35 National Monetary Commission desire to withdraw it, if it has not been filled. However, to avoid errors, stockbrokers and bankers often stipulate that, unless notified to the contrary, every order is con- sidered as remaining in force until canceled. But even orders, good until canceled, can not remain in force for an unlimited period. Therefore, it is often understood that if an order, good until canceled, has not been executed during the first week, it shall be considered as canceled, so that, within each banking house or each stockbroker's office, new orders are issued every Monday. This con- dition is often mentioned on the printed forms of stock- brokers and bankers, who thus protect themselves against any eventuality. When, after the closing of the Bourse, the stockbrokers and bankers return to their respective offices, they start checking. They sort out the trades they have made with their colleagues, and send to one another confirma- tions of the closed transactions, in order to avoid all possible errors. It is very apparent that during the scramble and noise errors may occur. One has bought instead of selling, another has bought or sold too much. It happens, also, that a figure has not been correctly under- stood, or erroneously entered on the blotter. In short, operations having been verbally contracted on the Bourse, it is necessary that this fiduciary process be replaced by a safer one. The checking includes, also, the entering on the books, of the transactions effected, as well as of the names of the parties who had given the orders, and for whose account they were executed. Notice thereof is at once sent to them. History and Methods of the Paris Bourse (12) The party who gave the order, can control the notice he receives by means of the quotation list. He must be advised of the execution of his orders at quota- tions within the limits of published prices. No doubt, in some cases he may rightfully claim more favorable prices than those reported to him, although the prices at which his orders were executed have actually prevailed. In such a case, his representative has been disloyal. It may be realized that in that line of reasoning it is impos- sible to foresee the nature of the discussions that may ensue. The party who gave the order, will then apply for redress to the Syndical Chambers of stockbrokers or bankers (aux chambres syndicates des agents de change ou banquiers), and, if need be, to the courts. The fact remains that in most cases the controlling means is fur- nished by the quotation list. The prices of securities listed by the stockbrokers, (agents de change) are published on a sheet called "Cote Officielle" (official price list). The prices of curb securities (Les cours des valeurs de coulisse), listed by the "Syndicat des Banquiers au comp- tant" (syndicate of bankers trading for cash), are pub- lished in a special list called "Cote du Syndicat des Ban- quiers en valeurs au comptant" (price list of the syndicate of bankers trading in securities for cash) . The prices of curb securities which are not listed by any syndicate, and which are traded in owing to the natural phenomenon of offers and bids for securities tending to concur to the same place, are recorded on free quotation lists. These last, besides, publish the quota- tions of all other securities; those of the official market, 37 National M on et ar y Commission and those of the curb syndicates. The best known are " Le cours de la Banque et de la Bourse (cote Des fosses) " and "La cote de la Bourse et de la Banque (cote Vidal)." On the official list of the stockbrokers (Cote Officielle des agents de change) the prices are given in the order of transactions. The "Cote du Syndicat des Banquiers en -valeurs au comptant" gives only the lowest and highest quotations. The free quotation lists, however, give also the closing prices of the curb securities. (13) When a stockbroker or banker, buying for account of a party who gave an order, has received the securities, the settlement is effected when he has delivered them and received the cash. The same applies to the stockbroker or banker selling, in his intercourse with the party who gave the order. The securities must be " good delivery," free of all oppo- sition to their negotiation, and with the interest agreed upon. The stockbroker or the banker who should happen to deliver counterfeit securities, or lost or stolen securities, with an opposition existing to their being negotiated, would find himself exposed to have his deliveries refused, or sentenced to deliver securities of good delivery and free from defects. By application of the same principle, the a The owner deprived of his securities "to bearer" has the right to make opposition to their being negotiated, and to the interest and dividends and principal demandable being paid, by means of a special process provided for by the laws of June 15, 1872, and February 8, 1902. He thus puts himself in a position to obtain duplicates of his securities after a certain time. Unfortunately, this sort of proceeding does not apply to securities dealt in abroad. It would be desirable that an International Congress should prepare a similar clearing in every country, and thus insure the safe- guarding of owners against the loss and theft of securities "to bearer." History and Methods of the Paris Bourse stockbroker or banker is not allowed to deliver bonds drawn for redemption or subject to certain conditions. (14) The "jouissance" (interest accrued) is the right to the interest or the dividends. It starts from the date of the last payment. Instance: On October 19, 1908, French rentes 3 per cent were quoted for cash 95.40 francs, jouis- sance October, 1908. These last words mean that the purchaser is entitled to the interest coupon following the one of October, 1908. This latter one has been cut by the owner, who had the benefit of his property. For shares of corporations, the coupons are numbered. They are traded in, for instance, ' 'ex-coupon" 6 or 7, which means that the purchaser shall only be entitled to the dividend coupons subsequent to coupon 6 or coupon y. 6 Securities which are irregular as to the interest accrued, may be rejected. However, within the month preceding maturity, if the owner has detached the coupon, he may sell and make a good delivery, but the purchaser will deduct the amount of the missing coupon when settling. This option applies only to French securities. (15) Finally, securities dealt in are supposed to be in order with the internal revenue concerning the payment of stamp taxes to which securities are subjected. a To avoid all trouble in this regard, the transactions in securities subject to drawings are made on the stock exchange "ex droit" (minus the right) to the advantage obtained by the drawing, a few days before it takes place (art. 45 of the regulations of stockbrokers of Jan. 30, 1899); five days before, for bonds "to bearer," and seven days before, for registered bonds. 6 On the Paris Bourse the coupons of French rentes are considered as detached fifteen days before their maturity. French rentes 3 per cent certificates are provided with coupons maturing January i, April i, July i, and October i. They are dealt in "interest accrued from January, begin- ning from the preceding December 16; interest accrued from April, begin- ning from the preceding March 16; interest accrued from July, beginning from the preceding June 16, and interest accrued from October, beginning from the preceding September 16 " 39 National Monetary Commission (16) The expenses to be borne by the party who gives the orders, are the brokerage, the duty on bourse oper- ations, the receipt stamp, and, in some cases, the fee for entering the numbers of certificates on the statement ; also the transfer fee on registered certificates. The brokerage (courtage) of stockbrokers (agents de change) is o.io per cent of the net amount of the trans- action, with a minimum of 0.50 francs on each statement. The fee is raised to 0.25 per cent of the amount on transac- tions resulting from matters in litigation. These rates are binding on all stockbrokers. The rates of brokerage on the Coulisse are unrestricted. However, in most cases, there is a charge of 25 centimes for certificates worth less than 250 francs and of o.io per cent for certificates worth more than that. The minimum charge is 50 centimes. Two orders executed at the same session, one for a purchase and one for a sale, occasion but one brokerage (what is called the "franco''). The brokerage is figured on the transactions either on the side of sales or on the side of purchases whichever gives rise to the larger fee. But in order to obtain "franco," the transactions must have taken place in the same market. In other words, there is no "franco" between securities dealt in by the stockbrokers and securities dealt in by the bankers. (17) The tax on bourse operations is, for each party to the contract, 5 centimes per 1,000 francs, or fractions thereof; that tax is reduced to one-quarter (0.0125 francs per fraction of i ,000 francs) on all transactions in French rentes. (Law of Apr. 28, 1893, and Dec. 31, 1907.) a They have been fixed by a ministerial decree of July 22, 1901. * 40 History and Methods of the Paris Bourse Statements containing receipts for securities or receipts for money, are subject to the special receipt stamp of 10 centimes, established by the law of August 23, 1871. Any purchaser of securities may require his stock- broker to enter the numbers on tfie delivery statement. This record is subject to a fee of 5 centimes for each cer- tificate. (Art. 13 of the law of June 15, 1872, and art. n of the law of Apr. 10, 1873.) (18) The transfer of a registered or mixed certificate, and the conversion of either into a certificate " to bearer," are subject to a special tax called " droit de transmission " (transfer tax) . That tax is 0.75 per cent net that is to say, exempting income of later maturity. (Laws of June 13, 1857, June 16, 1871, June 23, 1872, and Dec. 26, 1908.) The transfer tax is borne by the purchaser. It is col- lected by the corporation for account of the treasury (pour le compte du Tresor) at the time the transfer is made. Disbursed by the banker or stockbroker, for account of the purchaser, it must be reimbursed at once by the latter. Transfers of French rentes, resulting from sales, are free of the 75-centime (0.75 per cent) tax. a a There is a transfer tax on securities " to bearer." That transfer tax is paid by the corporations and various establishments; but these have re- course against the holders of their securities at the time the interest and divi- dends are paid. That fee is 25 centimes per 100 francs (0.25 per cent) with- out extra tithes (secondary fees). (Art. 3 of the law of June 29, 1872, and of Dec. 26, 1908.) It is a yearly and obligatory tax, figured on the capital of all securities, appraised on their average price during the preceding year, or, for want of a rate, by appraising according to the rules provided by article 1 6 of the law of 22 Frimaire, year VII. There is no transfer charge on certificates " to bearer" of French and foreign rentes. The conversion of certificates " to bearer" into registered certificates is free of taxes, according to the law of December 26, 1908. 41 National Monetary Commission (19) The time for delivery differs in the cases of reg- istered certificates or certificates "to bearer." Registered certificates that have been purchased must be at the disposal of the party who gave the order, the very next day after tTiey have been received at the office of the stockbroker. If, after the twentieth session follow- ing the one when the transaction was effected, the securi- ties have not been handed to the party who gave the order, the latter may call upon the stockbroker to fulfill the contract, and give notice of said notification to the Syndical Chamber of Stockbrokers (Chambre syndicate des agents de change) , which shall take the necessary measures to insure the carrying out of the contract, at the risk of the stockbroker. In Paris the Syndical Chamber can not decline to effect that execution (then it is said that the stockbroker is "executed") even if the syndical chamber has to bear the consequences. (20) The stockbroker, buying, who has not received the securities from his fellow-member, selling, may, at the fifteenth session following the session at which the trans- action took place, disclose said fellow-member, seller, and call upon the Syndical Chamber of Stockbrokers to pur- chase ("buy in") the securities for account of said seller, and at the risk of the latter. The proceeds from sales of registered securities must be placed at the disposal of the party who gives the order, on the day following the completion of the transfer. Having waited until after the twentieth session follow- ing the transaction, the party who gives the order to sell, may have recourse to the same measures which, we saw, the purchaser may resort to that is to say, cause the History and Methods of the Paris Bourse "execution" of the stockbroker. On his side, the stock- broker, selling, may, at the fifteenth session following the one of the transaction, demand the "execution" of his fellow-member through the Syndical Chamber. The above-mentioned delays are increased by eight days for securities, the transfers of which are subject to the approval of the boards of directors. (21) Securities "to bearer" must be placed at the dis- posal of the buyers, on the very day following the delivery effected by the sellers. In their intercourse between them- selves, the stockbrokers must deliver securities before the tenth session following the transaction. After that time they must exact the "buying in " for account of the stock- broker, seller, through their Syndical Chamber. On his side, the party who gave the order, may, after the fifteenth session following the one of the transaction, and after having called upon the stockbroker to effect delivery, give notice of this call to the Syndical Chamber of Stock- brokers, within twenty-four hours of the same, but must not use legal formalities. The Syndical Chamber will take the necessary steps, and, if need be, it will itself insure the proper execution of the contract. (Art. 55 of decree of June 29, 1898.) The proceeds from sales must be at the disposal of the party who gave the order, two days after the securities have been handed to the stockbroker. It should also be noted that .the stockbroker, selling, when dealing with a fellow-member who does not accept delivery, may en- force purchase through the Syndical Chamber for account of his fellow-member, buying, after the tenth session fol- lowing the transaction. The party giving an order of 43 National M o n et ar y Commission sale, who has not received a settlement after the fifteenth session, may apply to the Syndical Chamber of Stock- brokers, as has been said concerning the party giving purchasing orders. (22) Dealings on the curb are not subject to the same delay in respect to deliveries. In theory, we may con- ceive that a buyer or seller for cash may exact the delivery of his securities or payment immediately after the trans- action, provided he can on the spot fulfill the obligations of the purchaser or seller, which consist in paying the purchase money or delivering the securities sold, as the case may be; however, a certain delay is unavoidable on account of the banker, who acts as an intermediary, and who is, in fact, himself subjected to delays. The Asso- ciated Bankers of the City of Paris (Les Banquiers Syn- diques du marche de Paris), united in a professional syndicate within the provisions of the law of May 21, 1884, established the rule that securities "to bearer" must be delivered by the seller before the seventh session following the transaction. After that delay the buyer may make a demand on the seller by registered letter, at the same time notifying the Syndical Chamber of that syndicate. The latter effects the " buying in " for account of the defaulter at the tenth session following the day when it will have received the advice. The party giving an order may also be "executed." A stockbroker is not bound to accept an order if, previ- ous to all trading, he has not received the securities to be disposed of, or the funds intended to settle for the amount. But he may have been led to grant credit to the party giving the order. In such a case, if, after 44 History and Methods of the Paris Bourse notice by registered mail, the party who gave the order; has not, within three days from the time the letter was sent, come up with the securities or the cash, the " buying in" of the securities sold, or the "selling out" of the securities purchased, may be proceeded with immediately. THIRD DIVISION. Operations for future delivery (a terme). (23) An operation for future delivery is one engaging the parties from the day of the contract, but the execution of which is put off to a maturity fixed in advance. For instance: Peter buys on the ist of the month 100 shares for the 1 5th of the current month at 100 francs. 6 On the 1 5th of the month, date of maturity that is, the day of settlement the winding up of the operation will take place. Peter must accept delivery of the stock and pay the price 10,000 francs. c On the other hand, if he has sold 100 shares at 100 francs, he will have to deliver on settling day that is, on the 1 5th of the month 100 shares, and receive iv.,ooo francs. d Hence, the first settlement following operations for future delivery is the taking up of securities bought by the purchaser, and the delivery of securities sold by the seller. It may happen that the purchaser for future delivery does not wish to take up the securities purchased. In such a case, he will resell them for the same maturity, and these two operations will show a difference, which, a Art 1 185 of the Code civil. & In the instances mentioned no account is taken of taxes or brokerages; this is done for the sake of simplicity. c Art 1650 of the Code civil. d Article 1603 of the Code civil. 45 National Monetary Commission according to circumstances, will cause him to be debtor or creditor. Instance: Peter, buyer of 100 shares at 100 francs, resells them at no: Debtor of 10,000 francs, creditor of n,ooo, he retires with a balance in his favor of 1,000 francs. On the other hand, if he has resold with a loss, for instance at 90 francs, then, being a debtor of 10,000 francs and a creditor of 9,000 francs, he retires with a balance against him of i ,000 francs. To purchase with a view of reselling at a higher price, is called to speculate for a rise (tire a la hausse). To speculate for a fall (Hre a la baisse) is to make the reverse operation, that is, to sell first with the hope of buying in later at a lower price. Let us take up the various instances, by illustrating them with the account- ing which results from these transactions, in order to comprehend better their working. When Peter has bought with the intention to resell, and then has resold, or when he has sold with the intention to repurchase, and then has repurchased, the result on Some people experience difficulty in understanding the "short" sale (vente & dtcouvert) which is the original transaction of speculation for a fall. It is often considered as illegitimate. The following anecdote will explain and justify it. "M Boscary de Villeplaine, deputy syndic of the association of stock- brokers, was conversing with Napoleon regarding the discussion in the council of state of article 422 of the Penal Code (now repealed) ' Your Majesty,' said M, Boscary de Villeplaine, ' when my water carrier is at the door, would he be guilty of stellionate (selling property one does not own or selling the same property to two different parties) if he sold me two casks of water instead of only one, which he has? ' ' Certainly not, because he is always sure of finding in the river what he lacks.' ' Well, Your Majesty, there is on the Bourse a river of rentes.'" (Memorial of the stockbrokers addressed to the Minister of Finance, 1843, p. 44, footnote.) 46 History and Methods of the Paris Bourse striking a balance will show- him creditor or debtor, owing to the balancing of his debit with his credit. Instance : Settling account of Peter, who had purchased 100 shares at 100 francs, which he resold at no francs: Dr. Cr. Francs. Francs. ioo shares at ioo francs 10,000 100 shares at no francs n,ooo Credit balance.. .__ 1,000 11,000 11,000 Profit, 1,000 francs. (24) Operations for future delivery give rise to ''re- ports " ( " carrying-over ' ' operations, ' ' continuations ") . It is in place here succinctly to explain their object and mechanism. Object. Let us suppose, in the instance above men- tioned, that Peter, buyer for the i5th instant of ioo shares at ioo francs, wishes, when the i5th arrives, to extend his maturity until the 3oth of the month. Mechanism. On that same day, the isth instant, he will resell the securities at a special price, called " cours de compensation" (making-up price or clearing price 6 ), and will rebuy, at the same time, for the end-of-the-month maturity at the same making-up price, increased by an amount called " prix du report" (cost of carrying over, ''contango")- Let us suppose that no francs is the making-up price, and that the cost of carrying over is i franc. You find below the transaction on two accounts. Let us first give the first account. o Articles 1289 and 1290 of the Code civil. & The clearing price is an accounting process with a view to unifying "carrying-over" operations. It is fixed by an agreement in the public market. The syndical chambers fixes that rate. 47 National Monetary Commissio n Peter, his settlement account for the i5th instant: Dr. Cr. Francs. Francs. i oo shares at i oo francs 10, ooo 100 shares at no francs Credit balance 1,000 (clearing price) 11,000 1 1 , ooo 1 1 , ooo Profit, i, ooo francs. Now, this is the second account for the end of the month. Peter, his settlement account for the end of the month : Dr. Cr. Francs. Francs. i oo shares at n i francs (i i o Sales None. francs plus i) 11,100 The two accounts are thus established: One, which in- cludes a settled transaction, showing the operator as creditor or debtor, as the case may be, for an amount to collect or to pay; the other, showing a new operation, which, at the following settlement, will be the object of a liquidation that is to say, another winding up, either by taking up or reselling the securities, or by a new "report " (continuation). The continuation has, therefore, the same result as a renewal of maturity. Capitalists wishing to make temporary investments put their money out in "reports" (loans for carrying over, investments in continuations) . On settling day they pur- chase, on the stock exchange, securities from buyers who desire to prolong their operations; they resell them to the same parties for the next maturity at the clearing price increased by the price of carrying over (contango). On settling day these operations are easy, owing to the abundance of funds available for continuations (capitaux reporteurs). If there is no superabundance of funds, and if the engagements for a rise (engagements h la hausse) are not very numerous, continuations are cheap. 4 8 History and Methods of the Paris Bourse If money is plentiful and purchases are few, continua- tions are at par. In case securities are wanting in comparison with the money available, the sellers will pay a premium in order not to make deliveries; this is called "deport" (back- wardation) . For instance: Peter, seller of 100 shares at 100, finds himself unable to effect a delivery. He will pay, for instance, i franc per share for "deport'' (backwardation), and his settling account will carry a repurchase at the clearing price (cours de compensation). His account at the following maturity will carry a sale at the clearing price, less i franc. (25) Some operations for future delivery (a terme) are contracted for uncertain dates, though the maturity is foreseen. Such are transactions in securities ' ' a remission" ("when issued"). Speculators undertake to deliver an issue of securities in perspective when they are issued. Hence, operations "a remission" are transactions sub- ject to settlement at a time when certain formalities will have been accomplished, and in a place where the delivery of the securities will be actually possible. Some emissions of securities are subject to reductions in the allotments when the subscription lists are closed. That phenomenon gives rise to special operations called "ventes de resultats" (sales of percentage of securities obtained, or sale of allotments). One can sell, or pur- chase, the results of subscriptions for 3,000 francs rentes, for instance, or 100 shares, etc. (26) Among operations for future delivery there are special ones called " operations a prime " (options). These 49 National Monetary Commission are purchases concerning which the purchaser reserves for himself the right to abandon the trade, in considera- tion of a certain sum fixed in advance. For instance, Peter buys for the i5th instant 100 shares at 120 francs "dont" 5 francs. a The transaction is entered as 120/5. At a time fixed during the settling operations, called "reponse des primes" (option declaration) this is the session preceding the day devoted to "contango" opera- tions (reports) Peter must announce whether he will take up the stock at 120, or whether he abandons the trade, by giving up 5 francs for each share to the seller. As a rule, the prices for transactions in options are as much higher as the premium to be forfeited is smaller. Instance: A stock is worth 100 on the average. Let us suppose the rate is 120 francs " dont "5; then we can take the rate as 125 francs "dont" 2.50; also we can take it as 127 francs "dont" i. There is no absolute rule for these differences, the same as there is no absolute rule for prices in a general way. Offers and bids cause the variations. The maturity also plays a part in the option prices. Thus a transaction in options maturing in a month or six weeks or two months costs more than an option at a nearer date. It is thought that transactions in options have been carried on in France from the time of a special operation made by George Law in 1718, in order to make an impres- sion on people, and foster purchases of shares in his bank. a The expression "dont" serves to indicate the sum to be forfeited. It implies the undertaking thus expressed. Peter buys securities at 120 francs, "dont" (of which) he shall forfeit 5 francs if he does not take up the securities. History and Methods of the Paris Bourse He bought 200 shares deliverable in six months for an amount greater by 40,000 livres than the price they were worth then (300 livres) it being understood that if, after six months, the shares were not worth 500 livres, he would forfeit the 40,000 livres to his seller. This was a real option transaction, and by entering upon such a contract, Law confirmed his faith in the rise of his shares. Numer- ous purchases by the public then took place. (See Edmond Guillard, Operations de Bourse, p. 24.) (27) Option transactions give rise to manifold combi- nations at the pleasure of the operator. We shall name the principal ones: [a] "operations a primes isolees" 4 (plain options); [b] "operations a prime contre ferme" (operations of "option against non-option") ; [c] "opera- tions ferme contre prime" ( " non-option against option") ; [d] operations a prime contre prime" ("option against option "). [a] Plain options. The plain option (operation a prime isolee) is the option transaction in its simplest form. Thus a capitalist or a speculator wants to buy stocks, but fears a decline, and prefers, in case the fall should be too severe, to reserve for himself the right to forego the trade, in return for a small sum. He will purchase, as we saw in the above instance, by supposition, at 120/5. By keeping to that supposition, the following will happen: Just as it may be to the advantage of that pur- chaser to forego his trade at the cost of 5 francs for each share, so, on the other hand, his advantage may demand that he. carry out his contract. In the latter case, as already stated, his transaction will be a fixed transaction (operation ferme) . National Monetary Commission Below you will find two instances illustrated by an account. Instance of a transaction when the option is abandoned. The rate at the option declaration having been, let us suppose, 1 1 4 francs : Peter, his settling account on the i5th instant. Dr. Francs. Cr. Francs. Sales Nil. Balance due 500 i oo shares at 120/5 Nil. Option abandoned 500 Loss, 500 francs. On the other hand, if we take for granted that the quo- tation at the option declaration was such that Peter found it advantageous tp carry out the transaction, he becomes a non-optional buyer. Naturally, he may take up his securities, resell them, or have them carried over this goes without saying. Having, indeed, become fixed, the transaction will be governed by the general principles enumerated above for fixed transactions. Such is the second case. Let us dwell upon it one moment more, in order to see the effect that a subsequent fixed sale will have on an account. If we suppose the transaction on option carried out and wound up by a sale at a price which we will suppose to be 130 francs, a Peter's account will be made out as follows: Peter, his settling account on the i5th instant. Dr. Francs. 100 shares at 120/5 12,000 Credit balance _ . i , ooo Profit, 1,000 francs. 13,000 Cr. Francs. 100 shares at 130 13,000 13,000 The price of 130 is hypothetical. Let us remark that, provided the price is above 115, our option purchaser finds his advantage in selling, even if the price is below 120, and he, consequently, sells at a loss. 52 History and Methods of the Paris Bourse Thus, during the half month, the option operator has had the opportunity to sell non-op tionally (ferme), if events led to an advantageous transaction. The above transaction illustrates a fixed sale taking place after a purchase on option. But, instead of a fixed sale, a sale on option may be made. In that case, the transaction becomes a combination of option against option, which we shall investigate later in the combi- nation [d]. We shall now proceed with the investigation of sale on simple option. It has been said that " option" is a purchase which the purchaser could abandon. The case can not be reversed. The seller on option can not waive the contract; he is bound to the buyer. The sale on " simple option" is suitable to the holder of securities who, in order to sell better, desires to take advantage of the difference existing between the rates of fixed transactions and the rates for options. For instance: A security is quoted "ferme" (without option) 100, the price of options is 120/5. Peter sells 100 shares at 120/5. If the purchase is taken up by the buyer, Peter has indeed sold profitably, since he sold his securities at 120, while they were worth 100 "ferme." If the purchase is aban- doned, Peter keeps his securities, but the 500 francs pre- mium which he collects, reduce, relieve, allay the loss which he experiences on the securities he owns. Options therefore are not, as superficial minds formerly stated, a gambling operation. The gambler is bold. On the other hand, the one who guards himself when he buys, the one who limits his loss 53 National Monetary Commission beforehand, like the one who, when selling, insures himself against danger, manages his property and acts cautiously. (28) [b] Transactions at "option against non-option'' (prime contre ferme) We saw in the preceding instance a purchaser of options who made a fixed sale some time after his purchase. The combination, linked in some way, may be planned and carried out within a very short time, the same day, almost at the same moment. The operator devises the transactions simultaneously. Let us imagine, therefore, that Peter buys 100 shares for the 1 5th instant at 120/5, and that simultaneously he makes a fixed sale at 100 francs. Peter has at once registered a paper loss the differ- ence between 120 and 100, that is to say, 20 francs per share. But if a heavy decline occurs, and if the purchase on option is abandoned on the day of option declarations, Peter will find himself in the position of a speculator for a fall (bear) , who sees the expected phenomenon happening, and who has limited his possible loss in case of a rise. Below you will find the supposed outcome of the exer- cising and of the abandoning of the purchased option. L,et us take for granted that, on the day of option declaration, the option is exercised. The statement ap-. pears as follows: Peter, his settling account on the i5th instant. Dr. Purchases. Francs. 100 shares at 1 20/5 12, ooo 12,000 Cr. Sales. Francs. 100 shares at 100 10,000 Debit balance 2,000 12,000 Loss, 2,000 francs. 54 History and Methods of the Paris Bourse On the other hand, the decline may have occurred to such an extent that Peter found it advantageous to abandon his trade at 120/5, and to repurchase "ferme" (non-optionally) ; let us then imagine a rate of re- purchase of 80 francs, for instance. The account of Peter will be as follows: Peter, his settling account on the i5th instant. Dr. Purchases. Francs. ioo shares at 1 20/5 Nil. Option abandoned 500 ioo shares at 80 8,000 Credit balance 1,500 10, ooo Cr. Sales. Francs, ioo shares at ioo 10,000 10,000 Profit, 1,500 francs. The combination of " option against non-option" with regard to the speculator for a fall (bear) is based on a desire to limit his loss by insuring him against a rise, without limit- ing his profit. For the holder of securities, the combi- nation permits the party who sold, and may be led to regret his sale on account of a very high ulterior rise, to accept a loss, but to keep his securities in order to sell them more advantageously, if the opportunity presents itself. (29) [c] The operation " non-option against option " (ferme contre prime) This operation tends to cover and to limit the risk of a fixed purchase. A non-optional purchaser is indeed exposed to a decline without limit. Peter bought ioo shares at ioo francs for 10,000 francs. If his shares decline to 90, 80, 70, etc., he loses on them i ,000, 2,000, 3,000 francs. In order to diminish his possible loss, or because he estimates that the rise, if it occurs, is not likely to amount 55 National Monetary Commission to much, our non-optional purchaser, who may have bought 100 shares at 100 francs, will, let us say, sell on option 100 shares at 120/5. His account, in case the option is exercised, will then be as follows: Peter, his settling account for i5th instant: Dr. Purchases. Francs. ioo shares at ioo 10,000 Credit balance 2,000 12,000 Cr. Sales. Francs, ioo shares at 120/5 12,000 12,000 Profit, 2,000 francs. On the other hand, if the option were abandoned, Peter would face a fixed purchase; and if he should wind it up later by means of a sale at 90 francs, for instance, the account would appear as follows: Peter, his settling account on the 15th instant: Dr. Cr. Purchases. Francs. Sales. Francs ioo shares at ioo 10,000 ioo shares at 120/5 Nil. Option abandoned 500 ioo shares at 90 9,000 Debit balance 500 10, ooo 10, ooo I/oss, 500 francs. Peter has, therefore, diminished his loss by 500 francs. Indeed, if he had purchased non-optionally at ioo francs, without protecting himself by an option, he would have lost i, ooo francs when he resold 'at 90. On the contrary, having protected himself by the sale of a call, he saved 500 francs on the loss he experienced. (30) [d] Operations in "option against -option" (prime contre prime) If the fact is borne in mind that quotations for transactions in options are as much higher as the costs of the options are smaller, that difference of prices may be utilized through a combination. 56 History and Methods of the Paris Bourse Let us, therefore, imagine that a purchaser of 100 shares at 120/5 f r the i5th instant resells them at 125/2.50 for the same date, and let us see how the account will show, in case the options are exercised, and in case they are abandoned. If the options are exercised, the account is as follows: Peter, his settling account for the i5th instant: Dr. Purchases. Francs. 100 shares at 1 20/5 12, ooo Credit balance 500 12,500 Cr. Sales. Francs. 100 shares at 125 12,500 12,500 Profit, 500 francs. If the options are abandoned, the account is as follows: Peter, his settling account for the i5th instant: Dr. Purchases. 100 shares at 120/5. Option abandoned _ Francs. Nil. 500 500 Cr. Sales. ioo shares at 125/2.50. Option abandoned Debit balance _ _ Francs. Nil. 250 250 500 Loss , 250 francs. This combination tends to limit either the profit or the loss. It may happen that one option will be abandoned and the other taken up. For instance, the rate at the option declaration is 121 francs. The "call" he pur- chased will be exercised, while the "call" he sold will be abandoned. In this case, Peter becomes the non-optional purchaser of ioo shares at 120 francs, and his purchase price is lowered by the amount of the premium he has received. (31) Therefore: [i] The "plain option" (b, prime isolee) suits the purchaser wishing to limit his loss, % as 57 National Monetary Commission well as the capitalist, the holder of securities, who, by becoming a seller of options, wishes to lessen the lower value he may have to stand. [2] The operation of "option against non-option" (prime contre ferme) suits the capitalist, the holder of securities, who, having sold them, resolves to pay a difference in order to sell more advantageously at a later date. It suits also the "short seller" who wishes to secure himself against an excessive rise. It limits his loss without limiting his possible profit. [3] The operation " non-option against option" (ferme contre prime) suits the purchaser who wishes to reduce his possible loss. It fixes the profit without limiting the loss, but lessens the latter by the amount of the premium. Finally, [4] the operation of "option against option" (prime contre prime) suits the speculator wishing to limit both the eventual profit and the eventual loss. No doubt, there are other combinations, such as the fixed sale of a certain amount against a purchase on option for double the quantity (operation called h cheval, "strad- dle") ; such are purchases and sales of options at different dates, notably "the scale " (I'echelle), an operation through which a purchaser sells an option for the present account, and at the same time buys another option for the follow- ing account. All these combinations are the result of reflection and are suggested by events. There is, however, one special operation in options which is of interest namely, the "stellage" (spread); we intend to describe and explain its working, although it is but little used. History and Methods of the Paris Bourse (32) The "stellage" is an operation through which a party, called buyer of the "stellage" (spread), must at a certain date declare whether he is buyer or seller of a certain amount of stocks, as against another party to the contract, called seller of the "stellage." This operation is but the synthesis of two supposititious operations, which present themselves, in the case of the purchaser of the "stellage," as a purchase on option of a certain amount of securities against a non-optional sale of half that amount, and, in the case of the seller of the "stellage," on the con- trary, as a sale on option of a certain amount of securities against a non-optional purchase of half that amount. For instance, a stock is quoted for the account of the 1 5th, 100 francs, while the option at 5 francs ("dont" 5 francs) for the same maturity is quoted 1 20. If Peter pur- chases the " call" of 100 shares at 120/5 against the non- optional sale of 50 shares at 100 francs, he would, in case he decided to exercise his right at the time of option declaration, appear as a purchaser at a cost price which would be 140 francs. But in case he should abandon the option, the selling price, lessened by the premium of 5 francs per share abandoned on the side of the purchaser, would amount to 90 francs. Indeed, let us imagine an account in which Peter is buyer of 100 shares at 120/5, an d seller of 50 shares at 100. He exercises the option, and in the result he becomes a buyer of 50 shares. In figures, he comes out a debtor for 7,000 francs. The 50 shares cost him, therefore, 140 francs each (7,000 : 50 = 140). If he abandons the option, he comes out as a seller of 50 shares. The price of his sale (5,000 francs) is lessened 59 National Monetary Commission by the amount of the premium of 500 francs he owes. He will therefore be a seller at 90 francs (4,500 : 50 = 90). If, now, instead of buying the " call "of 100 shares 120/5 against the non-optional (ferme) sale of 50 shares at 100, Peter buys a "stellage" (spread) at a price expressed as follows: 140/90, he will have the privilege of becoming a purchaser of a number of shares at 140 francs; but at the latest, on the day of option declaration, he will have to declare himself either purchaser or seller. In case of a great advance or heavy decline, Peter, as buyer of ' ' put ' ' and ' ' call , ' ' is sure of a profit . At the price of 140 francs and above, he becomes buyer he " calls." At the price of 90 francs and below, he becomes seller he "puts." But let quotations stand still, the variations remaining at a figure between 140 francs and 90 francs, and Peter will be loser. That loss, however, in the present case would be, at most, 25 francs per share. The loss, indeed, can not exceed for each share one-half of the difference between the figures of the ' ' put ' ' and ' ' call " ( 1 40 90 = 50 ; 50:2 = 25). Indeed, if on the day of option declaration 90 is quoted, Peter, who is bound to declare himself, will certainly not "call" at 140 for stock which he can resell only at about 90. He will declare himself seller, and the rates at the declaration will leave him neither gainer nor loser. Seller at 90, buyer at 90, his account balances, without gain or loss. 60 History and Methods of the Paris Bourse But if the price is 91 francs, he will declare himself seller and will lose i franc on each share; if 92 francs, he will lose 2 francs on each share; if 93 francs, he will lose 3 francs on each share; if 94 francs, he will lose 4 francs on each share; if 95 francs, he will lose 5 francs on each share; and so on. As the price at the declaration of options rises above 90 francs, Peter will find it to his interest to "put" at that price rather than "call," and yet he will be loser. Thus, at a price at the option declaration of 115, Peter, declaring himself seller at 90, will lose a difference of 25 francs on each share. However, it should be noted that when the price at option declaration is 115 francs, Peter might just as well declare himself purchaser at 140 francs as seller at 90 francs. Indeed, if he becomes purchaser at 140 and he resells at the price of the option declaration, 115, he will lose 25 francs on each share, as in the other case. Above 1 1 5 francs it will be to Peter's advantage not to exercise the "put," but to "call;" that is, to purchase rather than sell. Indeed, if the quotation is 1 16 francs, then, by becoming purchaser at 140, he will lose 24 francs on each share; if 117, he will lose 23 francs on each share; if 1 1 8, he will lose 22 francs on each share; if 119, he will lose 21 francs on each share; if 1 20, he will lose 20 francs on each share. 61 National Monetary Commission The nearer the rate of the option declaration rises toward 140, the less will the loss become. At 140, Peter will experience no loss; above that rate, profit will begin. Thus the two ends of a "stellage" (put and call) pre- sent an ascending and descending scale of losses, the apex of which will be the average rate between the two extreme limits. That average rate will determine the maximum loss to which the buyer of a "stellage" may be subjected. It remains for us to look into the position of Paul, seller of the "stellage. " At every intermediate rate, between 140 and 90, he will have a profit in the same proportion as Peter will experience a loss. But, in case of a considerable rise or fall, his loss is limited only by the limit of the fluctua- tions. Above 140, he runs the risk of being called upon to take up delivery at that price; he is also exposed, if the shares fall below 90, to have to deliver them at that price. Peter, buyer of the "spread," has in his favor the big bourse fluctuations, and against him their slight varia- tions, while Paul, seller of the "spread," has in his favor the comparative stagnation of prices, and against him the great fluctuations. (33) How are the accounts liquidated? To liquidate is to audit, to settle. The purchaser who exercises his "call" liquidates through the "call." In the same way for the seller who "puts." The purchaser who has resold, has liquidated his trans- action. But that operation, like the one of the seller a Yves Guyot & Raffalovitch, " Dictionnaire du Commerce, de I' Industrie et de la Banque," under the word "stellage," by Emmanuel Vidal. 62 History and Methods of the Paris Bourse who rebuys, only shows liquidation when the accounts have been established. The same applies to the party who loans money for the account, and the party who borrows for the account. Parties dealing between themselves on the Bourse stockbrokers between themselves, bankers between them- selves fix a time, called "declaration of options," when they declare what they decide to do. One day later the liquidation proper begins. Purchasers who do not care to exercise their "call," resell or have their purchases carried over until the next settlement; sellers who do not wish to deliver, rebuy or carry over. After that, in a common office, the work of central liquidation begins. (34) To understand the machinery, it is proper to recall that the " making-up " price is a price fixed by agreement, intended to facilitate deliveries and settlement on the bourses and markets. With this in mind, we shall suppose five people Peter, Paul, Jack, Will, and Ernst, operating on a hypothetical market. Peter sold on the Bourse 100 shares to Paul, at 100 francs that is to say, for 10,000 francs Paul resold them to Jack at 101, for 10,100 francs; Jack resold them to Will at 102, for 10,200 francs; Will resold them to Ernst at 103, for 10,300 francs. What happens at maturity in case there is no clearing? Peter delivers the 100 shares to Paul, the latter paying him 10,000 francs. Paul, holding these 100 shares, brings them to Jack, who pays for them 10,100 francs; 90312 10 '5 63 National Monetary Commission Jack calls on Will, hands him the 100 shares, and collects 10,200 francs; finally, Will betakes himself to Ernst, who disburses 10,300 francs and keeps the securities. This causes considerable disturbance to many people, numerous bookings, carrying around of funds and carry- ing around of securities. The clearing system, otherwise called the central liqui- dation service, has for its object the obviating of all these disadvantages. It works as follows: Peter, Paul, Jack, Will, and Ernst are requested by the chief of the common service called central liquidation, to settle all their engagements at a rate called clearing price (cours de compensation} , fixed, let us say, at 101.50. Thanks to this service there will be no successive deliv- eries of securities to Paul, Jack, and Will. The delivery of securities will be made from Peter to Ernst exclusively, passing by Paul, Jack, and Will. The liquidation then centralizes the deliveries of secu- rities between sellers and purchasers. Moreover, it can also collect differences due from the debtors, and pay the creditors, while attending to the handling of the securities. The account of each party results as follows: Peter sold 100 shares to Paul, and delivers them to Ernst on the indications of the central liquidation, at the clear- ing price, 101.50. He is credited with 10,000 francs, selling price to Paul, and debited with 10,150 francs, "making-up " price giving a balance of 150 francs to his debit. 6 4 History and Methods of the Paris Bourse The accounts of Paul, Jack, and Will, will be as follows: Paul's account. Dr. Francs. Purchased of Peter at ioo__ 10, ooo Cleared at 101.50 10,150 20, 105 Cr. Francs. Cleared at 101.50 10, 150 Sold to Jack at 10 1 10, 100 Result: A balance in favor of Paul of 100 francs." Jack's account. Dr. Francs. Purchased of Paul atioi__ 10,100 Cleared at 101.50 10,150 20, 250 Cr. 20, 250 Francs. Cleared at 101.50 10,150 Sold to Will at 102 ib, 200 Result: A balance in favor of Jack of 100 francs. Will's account. Dr. Francs. Purchased of Jack at 102 __ 10, 200 Cleared at 101.50 10,150 20,350 Cr. 20, 350 Francs. Cleared at 101.50 10, 150 Sold to Ernst at 103 10, 300 20, 450 Result: A balance in favor of Will of 100 francs. Finally, Ernst disburses 10,150 when taking up the securities of Peter. He bought from Will at 103, owing 10,300 francs, and the clearing takes place at 101.50, totaling 10,150 francs. He, therefore, still owes 1 50 francs on the purchase price. a The two clearings at 101.50 appear in the account. As they are even in the debit and the credit, they could, they even ought, for the sake of good accounting, be taken off the account; but we let them remain, in order to show all that happens within the central liquidation office. Paul has purchased securities for a sum of 10,000 francs, which he owes; he de- livers the securities to the central liquidation and receives 10,150 francs. He is credited for it. He sold the shares at 101, for 10,100 francs. He purchases them at the central liquidation at the clearing price, and pays over 10, 150. He is debited for it. The same applies to the other accounts. National Monetary Commission Hence, the situation in the central liquidation office will appear as follows: DEBTORS. Peter, Ernst. Francs. -- 150 -- 150 CREDITORS. Francs. Paul 100 Jack ioo Will.. . ioo 300 300 With the 300 francs which Peter and Ernst pay, the central liquidation office pays Paul, Jack, and Will. The clearing price has, therefore, served the following purposes: (i) To facilitate, through the central liquida- tion, deliveries between dealers in a public market; (2) to permit this central service to fulfill the functions of collector and distributer of money. The clearing prices are also used for the "carrying- over" operations through loans to the next settlement (reports) ; they also facilitate operations of parties giving orders through different houses. On the Paris Bourse the clearing price is fixed on the settling day by the syndic of the stockbrokers (syndic des agents de change) for securities officially quoted; and by a member on duty in the Syndical Chamber of Bankers dealing in securities for future delivery, for securities in the open market. (35) In order to give the above remarks a practical import, it is necessary to follow the transactions from the standpoint of the party who gave the orders. How are orders given? How long do they remain in force? How can they be controlled by the quotation list? On what conditions are orders given in most cases? How can certain special orders in small options 66 History and Methods of the Paris Bourse be followed up ? Which are the settling days ? What ex- penses is the party who gives orders subjected to? What happens in case of default, either on the part of the party receiving orders or the party giving orders? For securities negotiated in the official market, pur- chases and sales may be effected either at the opening price or the closing price, at a fixed price or at best. Trading at the average rate, like trading for cash, is not done without previous special arrangements. But just as in the trading for cash stockbrokers oper- ate before the opening of the session at the average rate that is to say, at a rate unknown at the moment they afe dealing, but which will be determined by the quotations entered on the quotation list in exactly the same way these ministerial officeholders deal for the account, on the basis of the opening price, before it becomes known. Later, when business opens, the first price entered on the official list will determine the price they traded at. This mode of procedure is not practised in the bankers' market (Coulisse). In the Coulisse orders are given at a fixed price or at best (an mieux) . One may also indicate the moment when his order is to be executed that is to say, at the opening of the session or at the closing of the session. (36) According to agreement, orders remain in force for the day, for a week, or until the next settlement, inclusive. It is customary for stockbrokers and bankers to state in their letters of advice that orders "< revocation" (good until canceled, "g. t. c.") remain in force for the week, and must be renewed on the following Monday, for want of which they will be considered as lapsed. National Monetary Commission (37) In many cases the accepting of orders is subor- dinate to the deposit of cover (couverture) . The cover is a sum deposited by the buyer as an anticipated payment for the taking up of securities to be bought, or for the difference which may occur by a resale, or deposited by the seller to safeguard his delivery or pay the difference in case of repurchase. When it is deposited in the shape of securities ''to bearer" (au por- teur), the party giving the order must, when he deposits the securities, sign an order for the sale of same, should it be necessary. The stockbroker or banker may reserve for himself the right to demand additional cover (margin) , in case events should render the original amount insufficient, and, for want of this being furnished, the right to close out the undertaken transaction for the account. But for this purpose a distinct stipulation is necessary. Especially in purchases on option (a prime) , the interme- diary has the right to exact that an additional cover be handed to him on the day of option declaration (au jour de la reponse), for the event in which the option should be exercised and the purchase declared a fixed bargain, and that, for want of that request being met by the party giving the order, the transaction be closed out at the expiration of the time allowed him for that purpose. (38) The minimum quantity allowable for transactions for future delivery is determined by the kind of rente. Thus, for rentes 3 per cent it is 3,000 francs rentes, or one-half, say 1,500 francs; for rentes 4 per cent, 4,000 francs rentes, or one-half, etc. For other securities the minimum quantity is 25 units, shares or bonds. 68 History and Methods of the Paris Bourse (39) The purchaser for the account has the privilege of demanding delivery before maturity by tendering the money. This is what is called " faculte d'escompte" (privilege of discounting). But it should be noted that the same does not occur when the seller has paid "deport " (a premium on borrowed stock) at the last liquidation ; that is, has paid a certain sum (backwardation) freeing him from immediate delivery by putting off its maturity for a future date. (See No. 24.) (40) On the curb for rentes (coulisse des rentes) options are frequently dealt in at 10 centimes for each 3 francs rentes and at 5 centimes for each 3 francs rentes for the next day; that is to say, by risking 50 francs for each purchase of 1,500 francs 3 per cent rentes when oper- ating "dont" 10 centimes, and 25 francs for 1,500 francs rentes 3 per cent when operating "dont" 5 centimes. These operations are commonly spoken of as " dont deux sous pour demain" (option 2 centimes till to-morrow), "dont un sou pour demain" (option i centime till to- morrow) . The option declaration takes place at 2 o'clock. (41) The Official Quotation List of the Stockbrokers (la Cote officielle des agents de change) establishes only four quotations for transactions for future delivery (le terme) : The opening (le premier) , the highest (le plus haut), the lowest (le plus has), the last (le dernier); but, nevertheless, business is done at intermediate rates (a des cours intermediates) . The prices of options (les cours des primes) appear in the columns reserved for the prices of fixed bargains (cours du ferme) , and below these prices ; but their appearing in this or that column does not indicate at what moment 69 National Monetary Commission they are dealt in. The bank (curb) quotations (les cotes en banque) give the quotations for the fixed bargains in the following order: Opening, lowest, highest, last (debut, plus bas, plus haut, dernier). Dealings are also made at intermediary rates. For options two prices are published, the lowest and the highest, without indicating the time in either case. (42) In the Paris market operations for future delivery are made either for the semimonthly (h quinzaine) or the monthly settlement (a fin de mois). On the stockbrokers' market (au marche des agents de change) they deal for the semimonthly settlement, except in French rentes and in shares of the Credit Fonder (a French national mortgage loan society, see 72 of Book IV. Translator), of the Banque de France, and of the railroads, which are dealt in for the end-of-the-month settlement. Options are dealt in for semimonthly or monthly settlement, and in extreme cases for the third liquidation. For securities subject to a single monthly liquidation the maturity of options can not extend be- yond the second liquidation. Often dealings are made in options at 10 centimes per. 3 -franc rentes for the next day (say, 50 francs for i,5oo-franc rentes, the minimum of transaction), but no options at 5 centimes, as on the Coulisse. The option declaration for the morrow is effected on the day indicated at 2 p. m. In the bankers' market (au marche en banque), i. e., on the Coulisse, all transactions for future delivery (opera- tions a terme) are made for maturity at the end of the month (a Vecheance de fin de mois) . Options are dealt in for one, two, or three months. The latter case rarely 70 History and Methods of the Paris Bourse occurs. The small operations in options on the coulisse des rentes have been mentioned above. (See No. 40.) Following is the order of the fortnightly settlement (la liquidation de quinzaine) : On the 1 4th (or the i3th, if the i4th is a holiday) option declaration takes place at 1.30 p.m. The i5th (or the day following, if the i5th is a holiday) is for liquidation of operations. The next day, for making up and forwarding accounts. On the day following the debtors must settle. Two days later the creditors' accounts are paid. The end-of-the-month (ultimo) liquidation is carried on as follows: The day before the last day of the month (or two days before in case of a holiday) option declaration takes place at 1.30 p. m. The last day of the month (or, if that is a holiday, the first session of the following month) is set for liquidation, sales, purchases, and carrying-over opera- tions, or continuations (reports). The following day, for making up and forwarding accounts. The day after, for payment of debtor accounts. Two days later, for pay- ment of creditor accounts. It should be noted that, while the option declaration preceding liquidation is effected at 1.30, the declaration of options for the next day takes place at 2 p. m. How- ever, on the day of option declaration preceding liquida- tion the declaration takes place at 1.30 for all options given for that maturity, including those made the day before. On the day of liquidation some trades are made for the running account (en liquidation courante) and some for the next account (pour la liquidation prochaine) ; the rates for National Monetary Commission transactions made for the next account include the cost of carrying over. The party giving an order must there- fore specify whether his order, given on settling day, shall be executed for the running account or for the next ac- count. In the absence of precise instructions the order is executed for the running account. (43) As far as possible, parties giving orders must see that their instructions for the liquidation be received before the "jour des reports " (contango day) . "Reports " (continuations) being transacted on the last bourse day of the month, the instructions referred to must be received on that day before noon at the latest. It is better by far that they be given the day preceding. In case of deliveries of securities, they must reach the inter- mediary agent, at the latest, at the fourth session of the following month. All cases for the account, buying or selling, for which instructions (to take up or carry over purchases, to deliver or carry over sales, or to clear) are not received before the bourse opening on the morning of the "jour des reports" (contango day), may be officially extended until the next liquidation. The remarks we made as to the condition of securities to be delivered, when we spoke of operations for cash, are, of course, also applicable to operations for future deliv- ery. We shall now show what happens in case of default on the part of an intermediary or of a party giving orders. Then we shall speak of expenses occasioned by operations for future delivery. (44) In case of default of an intermediary, the syn- dical chamber of the corporation or syndicate to which he belongs immediately takes the measures rendered 72 History and Methods of the Paris Bourse necessary by the circumstances. It purchases back the securities he sold, it resells the securities he purchased, and the creditors can then enter their claims against cash assets. This is called "execution" (buying-in or selling- out). The parties having given orders, on finding them- selves thus liquidated, must file their claims. The party who gives orders, when he defaults in his engagements, may also be "executed" (execute). The effect of failure on a business man is loss of the advan- tages of dealing for the account. The same thing hap- pens if, owing to any act of his, he reduces the guarantees given to his intermediary, or, likewise, if he declares himself insolvent, and so demands his own "execution." However, the delay which a speculator makes in settling his "liquidation" account (compte de liquidation the account to be settled on liquidation days) does not, in principle, cause him the loss of the advantage of future delivery; but if on the last day of "liquidation" a specu- lator whose transactions had been carried over has not settled his account, the stockbroker has the right to liquidate his affairs. After that date the stockbroker no longer has the right to proceed to "execution," unless he has notified the giver of the order that he would carry him over only in case he was ready to settle within a given time. While the right of "execution" during the liquidation is granted to the stockbroker (agent de change) by article 69 of the decree of October 7, 1870, that right is denied to the curb broker (coulissier). But nothing prevents the banker from making an express agreement with his client to carry his stocks over only on condition 73 National Monetary Commission of immediate settlement of the "liquidation" account of previous transactions. (45) Expenses for transferring registered certificates taken up during the settling days are borne by the pur- chasers. As explained, when speaking of operations for cash, they amount to 0.75 per cent of the amount of the trade. Transactions are subject to brokerage or commission charge, a table of which follows. The present rate of brokerage of Paris stockbrokers dates from July 22, 1901 ; it was decreed by the Minister of Finance, under whose direction are the stockbrokers trading on bourses pro- vided with "parquets." The rates are as follows: French rentes Funds of foreign countries dealt in, amounts of principal or in rentes. Shares and bonds: For shares and bonds when their price is below 250 francs. For shares and bonds when their price is between 250 and 500 francs. For shares and bonds when their price is above 500 francs. Operations in "Reports" (continua- tions) in French rentes. 12.50 francs for 1,500 francs. Rente 3 per cent perpetual or amor- tisable. 25 francs for the smallest denomi- nation negotiable for future de- livery, and so on in the same pro- portion. 25 centimes for each share or bond. 50 centimes for each share or bond. One-tenth per cent of the amount of the bill. 12.50 francs for 1,500 francs of 3 per cent rente, perpetual or amor- tisable, and for 1,750 francs of rente 3^2 per cent. 74 History and Methods of the Paris Bourse On all other securities: For securities subject to bi- monthly settlement. For securities subject to month- ly settlement. I An exception made for foreign securities, the price of which is above 60 francs. For the smallest amount dealt in for future delivery on for- eign securities. For securities, the price of which is less than 200 francs. For securities worth from 200 to 400 francs. For securities worth above 400 francs. One-twentieth per cent of the amount of the bill. One-twelfth per cent of the amount of the bill. 15 centimes for the smallest denomi- nation negotiable for future de- livery, and so on in the same proportion. 25 centimes. 25 centimes per certificate. 50 centimes per certificate. One-eighth per cent (12.5 centimes per 100 francs) on the amount of the bill. The above prices apply to all certifications of signatures given by stockbrokers, even when not attached to a purchase or a sale. For securities not fully paid in, the fees given above are figured only on the net amount of the bill, after deduction of the part not yet paid in. Two transactions during the same session, one purchase and one sale, are subject to a commission, calculated only upon the item giving the larger figure. The ' ' franco, ' ' however, does not apply in the case where one transaction is for cash and the other for future delivery. On the Coulisse (marche en banque) , the usual commis- sions are as follows: For French rentes: 12.50 for each 1,500 francs of 3 per cent rentes. For the smallest amount negotiable for future delivery in foreign state securities, 25 francs. For securities the price of which is below 50 francs, 25 centimes per certificate 75 National M o n et ar y Commission For securities the price of which is between 50 and 400 francs, 50 centimes per certificate. For securities the price of which is above 400 francs, one-eighth per cent (12.5 centimes per 100 francs) of the amount of the bill. The commission is reduced by one-half for abandoned options "dont" 10 centimes (of which 10 centimes shall be forfeited) on French rentes. Continuations are subject to full commissions, and not to the special rates of commissions for continuations on the Parquet. FOURTH DIVISION. Exchange Concerning the negotiation of bills of ex- change and precious metals. (46) Article 76 gives to stockbrokers the privilege of alone negotiating bills of exchange for account of others. For a long time the stockbrokers have given up that pre- rogative, and, in fact, they do not negotiate a single bill of exchange; that branch of business is carried on, unre- stricted, by a group of special brokers, whose transactions fix the rates, the stockbrokers intervening only to give them the official trade-mark. It is proper to investigate that business: we should indicate in a few words what is the bill of exchange; and, because it is treated like a commodity, subject to the fluctuations of bids and offers, we should ascertain what useful purposes have been served by its transformation into a thing fungible to the highest degree. (47) We need not study here the exchange contract from a theoretical standpoint. It will suffice for us to say that, created for the settlement of private claims, the bill of exchange in its circulation becomes endowed with 76 History and Methods of the Paris Bourse the functions of insuring international settlements without regard to persons. Hence, there results the more or less active quest for that money, giving rise to the advance or decline in its purchase price, within limits which we shall have to determine. How does the letter of exchange, originating in private relations, turn out to be an object of trade? Let us suppose that Peter, of Paris, is indebted to Louis, of London. Is he going to settle in metallic currency or bank notes, by taking upon himself the heavy cost of freight and insurance? It is simpler to purchase a bill of exchange, drawn, for instance, by Paul, in Paris, on Lucien, in London. He will indorse it to Louis, who will collect it from Lucien, so that, simultaneously, and with- out the transmission of metallic currency, Peter will have settled with Louis, and Lucien with Paul. Let us note that in Paris both Peter and Paul will have found profit in the transaction the one by paying his debt, the other by collecting his claim without the trans- fer of metallic currency. Therefore, the seller and purchaser of bills of exchange find it advantageous to meet. It is then the business of the broker to make their offers and bids coincide. (48) The debates on offers and bids fix the quota- tions^ If Paris has made large purchases in London, and London, on the contrary, is but slightly indebted to Paris, bills of exchange on London will be high; in the opposite case, they will be freely offered, and their price will fall. But whether rising or falling, exchange rates have a limit; when rising, it is the point where the debtor would find it more profitable to insure payment in cash 77 National Monetary Commission than to buy paper at too high a price; when falling, it is the point where the creditor, rather than sell his paper at a low price, would find it advantageous to effect the col- lection in his debtor's home country; in both cases, that limit is what is called the "gold point" "export" point of metallic currency in the first case, and "import" point in the second. (49) Such are the principles which govern the rates of exchange. We leave aside considerations having refer- ence to the relations between exchange quotations and the general economic condition or the monetary condition of any given country. Having established the principles, we shall ask our- selves only one question: How can securities, which differ from one another either by the signatures bringing them into existence, or by the interval between the moment of the negotiation and the time of payment, be brought to a common trading basis; or in other words, how can the bills be measured in terms of each other, how are the exchange quotations made? What is purchased by the party who becomes possessed of a bill of exchange? He purchases the right to collect the face value of the bill, but only after a certain time. Besides, it should be noticed that the certainty of payment is subject to the solvency of the vouching signatures. Hence, these two consequences, the second of which has but a theoretical value: (i) The purchaser, in considera- tion of the discount up to the time of collection, will be entitled to an allowance on the face value; (2) two bills drawn for the same face value, and payable within the same length of time, should be quoted at two different 78 History and Methods of the Paris Bourse rates, in accordance with the rating of the signatures. We shall see that, in fact, this second consequence does not occur on the Paris market. (50) These remarks permit us to explain the exchange quotations as published by the Union des Banquiers. Below you will find the quotation list of October 17, 1908: Check payments, short paper. Three months' paper. Discount abroad. 25/8 to 25/1 1 25/io54 to 25/1354 Per cent. 254 Germany I22j^tOI23 I22^g tO 123^ 99 54 to 99 s /& 99 s /% to 99 54 Spain 446 to 45 1 444 to 449 454 Holland ... -. 207^1 to 208^ 208 to 208 54 3 Italy QQ-JA to 99f 99^4 to 100 New York 51354 to 51634 51254 to 515x4 6 Portugal _- 451 to 461 449 to 459 6 St. Petersburg 263 y& to 265 y& 262 54 to 264 54 5% Switzerland 99y to 99xs- - 99 !/% to TOO 354 Vienna IO 4i 9 s to io4ff 104^ to io4y| Discount street rates: Paris 25^ London i 7 A Brussels 2 1 A Bank of France discount 3 Interest on advances 354 Treasury bonds: One to three months I Three months to one yea r i54 The rates are fixed for sight a exchange that is to say, as if the payment was demandable immediately; but on a The quotation at sight has been in use since May i, 1907; previously, a difference was made as to whether bills were negotiated at sight or at three months. In the first instance, an allowance was made, as nowadays, to the benefit of J:he purchaser, for the time that he might have to wait; in the second case, on the contrary, the rates having been established by figuring on the delay of three months, if the time to run until maturity was less, it was the seller who got the benefit of the discount for the difference; in the first case the rate was given less discount, and in the second case the rate was given with discount. 90312 i 79 National Monetary Commission these rates the purchaser is allowed for each bill, on account of the time he has to wait, a deduction of interest for the time the bill has to run, in accordance with the rate of discount ruling in the country where the payment is to be effected; that rate is given for each place in the column on the right. One can see that the rates given swing between two extreme limits; for instance, three months' paper on lyondon is quoted between 25.10^ and 25.13^ per pound sterling. These indications do not correspond, as the rates given for bourse securities do, to rates actually traded on during the session, but to extreme limits, between which the average rate is fixed. Some authors state also that quotations vary between these limits, according to the status of the signatures; but, in fact, on the Paris market, dealings are made as if all signatures were equally good. (51) The exchange quotation list comprises two divi- sions, under two series of different rates; one devoted to "short paper," the other to "long paper." "Short paper" is paper payable within one month; ' ' long paper ' ' is paper which has more than one month to run. Given that a deduction of interest is made on the ex- change rate of every bill according to the time elapsing until its payment, it would appear that a single quotation would be sufficient, since the delay is compensated for, day by day, by a reduction in price. However, the necessity for double quotation is caused by a real duality of markets for "long paper" and for "short paper." From an economic standpoint, indeed, these two cate- gories of bills do not play the same part. The function 80 History and Methods of the Paris Bourse of the " short paper " is restricted to that of an instrument of payment; its value is, therefore, solely regulated by local conditions. When, on balance, Paris is London's debtor, paper on London is sought; if, on the contrary, London is shown to be a debtor, the rates on London will fall. In the first case the exchange is said to be unfavorable; in the second case it is called favorable. (52) Offers and bids for " long paper ' ' are influenced, not only by local conditions, but also by other causes. First of all, there are purchasers who buy paper as an investment. "The rate of interest is, therefore, their chief concern. The rise of the discount rate on one place, above the rates prevailing on the other places of the same order, will instigate a more active demand for long bills, and will tend to cause the price to rise." a Espe- cially, railroad companies often invest their idle funds in purchases of bills of exchange. Secondly, " long paper " comprises a speculative element which is missing in the " short paper "; that element is the profit which the purchaser may realize by getting his paper discounted privately at a rate lower than the offi- cial rate prevailing in the country where the payment is to be effected. That is, there will be a profit which will amount to the difference between the discount deduced by inference from the exchange rate (official discount), and the actual discount at which he will have the bill discounted privately; the profit will naturally be greater as the maturity is further removed. a See article on Exchange, by M. Aug. Arnaune", in the Dictionnaire d'Economie Politique of L6on Say. 81 National Monetary Commission Guided by the same considerations, bankers often undertake what is called the "pensioning" ("mise en pension") of " long paper." For instance, they buy ex- change on London at 2>i and then "pension" it until maturity in one of the large banks, which retains 2 per cent. They get the benefit of one-eighth, which is the difference between the rate of discount applied in the market and the " pension" rate. As to the large banks where paper is " pensioned," if they do not take it for their own account, it is because they may have reasons for por- tioning out their risks and for scattering the responsi- bility, in consideration of a trifling difference. More- over, they have the advantage of not running any risk as to exchange. The bills are not indorsed to them; they hold them on deposit and surrender them at matu- rity to the depositor, who undertakes the collection or negotiation. Thus, "short bills" and "long bills" are two distinct kinds of merchandise, answering different requirements, the prices of which vary under distinct influences ; hence the two series of quotations. (53) We shall have done with these short notices on the exchange quotations, after saying that in Paris they quote " I'incertain" that is to say, they quote in na- tional money the rate of a fixed quantity of foreign money. This is the general rule, and among foreign cities there are but London and St. Petersburg where the "certain" is quoted that is to say, where the price of a fixed sum in national money is quoted in foreign money. Except London, for which the price quoted is that of the pound sterling, and Spain, where the quotation price 82 History and Methods of the Paris Bourse of 500 pesetas is given, the Paris market quotes the price of 100 units of foreign money 100 florins for Holland, 100 marks for Germany, 100 crowns for Vienna, 100 rubles for St. Petersburg, 100 dollars for New York, and loo francs for Belgium, Switzerland, or Italy. (54) Each day the quotation list, decided upon by a committee of bankers and brokers, is transmitted to the Association of Stockbrokers (Compagnie des Agents de Change) , who publish it below the Official Quotation List. Indeed, as we stated in the beginning, the stock brokers (agents de change) have not only long ago given up their monopoly in this sphere, but do not negotiate bills of exchange even in competition with the free merchandise brokers (courtiers). The negotiations are made on the bourse for securities (bourse des valeurs), either directly between bankers or through the mediation of exchange brokers (courtiers de change). (55) How are the transactions carried out? Every day at bourse time the brokers and representa- tives of bankers gather in a hall specially reserved for them. Transactions which could not be settled in private, are brought out before the gathering (rather restricted, however), where quotations are established by auction, just as before the large crowds of the market in securities. Merchandise brokers selling paper may mention the name of their principal, or, if the latter considers it to his advantage not to disclose himself, they do not divulge his name to their purchaser until after the meeting. Here, again, a difficulty would present itself concerning the specification of the thing sold, if custom did not solve it in a general way; indeed, it may happen that such and National M on et ar y Commission such a house has always declined the acceptance, or now declines the further acceptance, of this or that signature, which it does not trust, or of which kind it has already a sufficient number on hand; but then, either the broker knows beforehand that his paper will not be taken by this or that fellow-broker who is a buyer, or, if the trade is concluded and the paper not taken, the matter is settled through a fellow-broker by means of the "passage de noms" (passing of names) . Generally, the broker deals for his own account, and then settles with his client at the average rate, taking his profit in the rate; certain houses, however, content them- selves with closing the transaction at the actual rate, reserving for themselves a brokerage, which, while not officially fixed, is nevertheless established by custom (for instance, one-half to one-fourth centime for exchange on London; one-sixteenth to one thirty-second centime for exchange on Berlin) . In his intercourse with his fellow-dealers the broker binds himself only to deliver the paper; if his principal does not deliver it, he must procure it, losing perhaps the difference in price. But he is not responsible for pay- ment at maturity, as he has not indorsed the paper. The loss falls on the principal who agreed to take the signature. Exchange business is acquainted with "short" sales. One can sell i ,000 pounds sterling at such and such a rate, deliverable in eight days; he has then eight days within which to procure the paper. Transactions for future delivery are made for rather short periods eight, fifteen History and Methods of the Paris Bourse days. Transactions are sometimes made for a longer period, but rarely for three months. Contracts are always followed by deliveries. Con- tracts to be settled by payment of differences are not customary. (56) Gold and silver are dealt in in bars i ,000 fine that is to say, absolutely free of any alloy. Gold. Prices are quoted on so much per i ,000 premium or loss, and are based on the value in money of a kilogram of gold, after deducting coinage charges, say net 3.437 francs for i kilogram. Silver. Since January 2, 1901, prices are given in francs; this means that the official quotation list ex- presses in francs and centimes the cost of the kilogram silver fine. FIFTH DIVISION. Bourses in the departments. (57) In examining the bourse system, one has chiefly almost exclusively in mind what relates to the Paris Bourse. However, the French financial market also com- prises provincial bourses, the importance of which has greatly diminished as business centered on the Paris market, but whose activity is still maintained by trans- actions in local securities. The monopolizing of business by the Paris market has given rise to recriminations, which have been taken up by the newspapers. Sundry remedies have been recom- mended for the purpose of giving a new lease of life to provincial bourses, which complain of painfully vegetat- ing. It is not this phase of the question which we have to pass upon here, we desire only to indicate in a general National Monetary Commission way some of the interior regulations by which these bourses differ from the Paris institution. (58) Provincial bourses are divided into two categories : The bourses with " parquets " (bourses a parquet), and the bourses having no ' ' parquet ' ' (bourses sans parquet) . ' ' Par- quet " means a slightly raised floor surrounded by railings and reserved for the stockbrokers, which permits the public to find them and keeps them isolated while they trade. The provincial bourses provided with a "parquet" are those of Lyon, Bordeaux, Marseille, Nantes, Toulouse, and Lille. The Nice "parquet" was done away with in 1887. According to the terms of article 14 of the decree of 1890, bourses comprising at least six offices may by decree, and after fulfilling certain formalities, be provided with a "parquet." At present Dunkirk is, in fact, the only place which has more than 6 stockbrokers and is not provided with a "parquet;" it is true that the n agents who trade there, are, at the same time, insurance brokers and ship-brokers-interpreters (courtiers interpretes et conducteurs de namres) . The differences between bourses "a parquet" and the bourses without a "parquet" are not important. First of all, in the first category, stockbrokers depend upon the Minister of Finance (decree of July 2, 1862), while in the second category they depend upon the Minis- ter of Commerce (or upon the Minister of Colonies when they carry on business in a French possession). (See ordinance of July 3, 1816, and April 6, 1834.) In the "parquet" bourses a syndical chamber must be elected each year, the number of members varies, 86 History and Methods of the Paris Bourse according to the number of members in the corporation. (Art. 17 of decree of 1890, modified by decree of June 29, 1898.) In the bourses without a "parquet," the general meet- ing of stockbrokers and the tribunal of commerce exercise the same corporate privileges which, in the "parquet bourses," are exercised by the syndical chamber (intro- duction of successors, honorary memberships, etc.). It is questionable whether the consent given by a syn- dical chamber to the nomination of an unworthy stock- broker may entail its responsibility toward wronged third parties. It is clear that the same question does not exist with regard to the general assemblies which in the bourses without "parquet" fulfill both functions. But as far as syndical chambers are concerned, the question does not seem to us to be definitely settled in the matter of responsibility. a Syndical chambers have, in addition, disciplinary powers. All syndical chambers, since the decree of 1890, have the power to impose penalties. Before that decree only the syndical chamber of Paris had that power conferred upon it by an ordinance of May 29, 1816. According to the terms of article 23 of the decree of 1890, the penalties which may be pronounced by the syn- dical chamber are disapprobation, censure, and interdic- tion to enter the Bourse for one month. It expressed ks opinion on graver penalties (suspension and revocation) . From the standpoint of discipline, the stockbrokers of bourses without a "parquet " are placed under the authority of the mixed syndical chambers, ?:Ibid., 28 Amil, 1893, Journal Officiel du 29. 230 History and Methods of the Paris Bourse work " Sur les Interventions du Tresor a la Bourse" or also Bagehot, in his book on the " Money Market." To be sure, there was a good deal of extravagance in the speculations which took place, but the criticisms drawn up against the mining companies and those who brought out their securi- ties, have likewise been singularly extravagant. Thanks to the Transvaal mines, roads and railroads have been built, cities have sprung up, profiting at one stroke from all the modern improvements in the art of construction. Indus- try has opened South Africa and preserved it for Euro- pean civilization, and, all in all, there has been an increase of wealth, of which the English and German capitalists alone seemed at the first moment to have the immediate profit. But in the course of 1894 English houses commenced some advertising in Parisian newspapers, and soon there was noticed a pretty strong stream of bourse orders toward the London market. Some bankers thought that the French market should share in the profit derived from this stream, which the London Stock Exchange seemed to have monopolized; they opened negotiations with English bankers, and discussed the terms on which the Transvaal mining securities could be introduced on the Paris market. It was mostly in the bankers' market that they were introduced. On June 30, 1894, only 3 kinds of gold- mining shares were dealt in on the market for future delivery of the bourse for securities (marche a terme de la bourse des valeurs) including the Robinson, already dealt in before, and the Randfontein. Six months later on December 31 there were 7, of which, however, i was American. 231 National M on et ar y Commission There were 12 on June 30, 1895. On December 31, 1895, 32 kinds of securities of gold mines, real estate com- panies, and colonial exploration companies were negotiated for future delivery in the Coulisse. At that same date there were dealt in for cash (au comptant) 66 kinds of gold-mining, coal, colonial exploration companies, among which, of course, should be numbered the 32 entered on the market for the account (marche a terme). In the London market these securities were counted by the hundreds and represented thousands of millions. The Coulisse was not quite alone in fostering the movement. If it operated in Transvaal mining shares, it was because the shares of these enterprises were of a nominal value of 25 francs, and the decrees of February 6, 1880, and December i, 1893, did not permit securities to be admitted on the official quotation list, if the par value of their shares was less than that authorized for the French companies by the laws of July 24, 1867, and August i , 1 893. The stockbrokers' association (compagnie des agents de change) later admitted on the official list the shares of ''Treasury" and " Robinson Banking." It had such a good opinion of the Transvaal gold mines that it led its customers into large speculations in Modder- fontein. a Through the attorneys for the offices many stockbrokers had become interested in the Nevmann syndi- cate, whose object was to place mining stocks in Paris and London. (We know that the head of the Nevmann syndicate subsidized the Jameson expedition.) Finally, a See the report of M. G. Graux on his bill having in view the creation of shares of 25 francs. Chambre des Deputes, Stance de 1896, No. 1950, in the appendices, p. 31. Hearing of the well-known M. de Verneuil, syndic of the association of stockbrokers. 232 History and Methods of the Paris Bourse on November 15, 1895, a Banque Francaise de VAfrique du Sud (French Bank of South Africa) was established, and the president was none other than the well-known M. Herbault, syndic of the Stockbrokers' Association of Paris (Syndic de la Compagnie des Agents de Change de Paris), who had resigned his office in order to become president of the new bank. At any rate, on January i, 1896, the Transvaal was invaded by a troop of volunteers under the command of Doctor Jameson. When it was ascertained that this expedition this raid, as it was called had failed and that the relations between the Governments of President Kruger and of England were much strained, a sudden depreciation took place in Transvaal securities, and the previous boom was succeeded by the gold-mines panic. If the disaster of the Union Generate had not swept away the Compagnie des Agents de Change (saved by the slowness of parliamentary procedure), the disaster of the gold mines was going to carry off the Coulisse, which through clever manipulations was to be alone held responsible before Parliament for the decline and the damages result- ing therefrom. (104) The gold-mining boom had incensed the Com- pagnie des Agents de Change. No doubt they had shared in the negotiations of mining securities, but not in the measure they would have liked. The "Bulletin de Statis- tique et de legislation comparee duMinistere des Finances" b showed that from 1893 to 1895, inclusive, of the 35,596,000 a Economists Frangais of January 27, 1900. The Nevmann syndicate was liquidated and reorganized under the name of "Association Minidre," the shares of which are quoted on the Official List March 6, 1905. & January, 1898, p. 52. 233 National Monetary Commission francs yielded by the tax on bourse operations there had been collected outside of Paris 1,707,291 francs, and in Paris, through the stockbrokers 11,758,542 francs, while all other parties subject to the tax curb brokers, money changers, credit institutions, bankers had paid in 22,130,167 francs, i. e., double the amount. First the stockbrokers thought of taking the gold mines away from the Coulisse, or at least of taking advantage of an exceedingly timely offer made to them through a truly providential chance by M. Georges Graux, a deputy, with whom M. Meline associated himself. On October 26, 1895, M. Georges Graux introduced a bill tending to authorize the creation of 2 5 -franc shares in French stock compa- nies (the law permits that denomination only for companies having a capital of 200,000 francs or less) . On the day when French companies could be organized with 25-franc shares, no principle would stand in the way of admitting foreign 25-franc shares on the official list. M. Georges Graux was appointed reporter of his bill. He handed in his report on June 2 2, 1 896, and, though the gold-mine panic was in full swing at the time, the worthy reporter urged that his bill be adopted, the result of which would have caused the gold mines to be transferred to the Parquet. The stockbrokers would then be in a position to benefit by the recovery in mining stocks. The report was never brought to debate. To tell the truth, that document was of such little substance that it could not have survived the first words in an open debate. a The author , in view of the comments , which were not spared in the special organs, failed to uphold his work, a Chambre des DepiU&s, session 1 896 ; Documents Parlementaires, No. 1950. 234 History and Methods of the Paris Bourse in spite of the evident parliamentary influence, and in spite of the fact that the Honorable M. Meline had indorsed his proposition. As we have seen, the rise in gold-mining shares had awakened the envy of the stockbrokers a feeling no doubt quite justified, since commercial competition has no other incentive. The decline which followed was to be taken advantage of by their supporters in Parliament at a propitious opportunity. And that propitious oppor- tunity presented itself. The reorganization promised by the Minister, M. Peytral, had been neither studied nor prepared in the Ministry of Finance. Two worthy senators, MM. Tarieux and Boulanger, on June 29, 1897, introduced a bill relative to the exercising of the profession of stock- broker. A summary report of M. Pauliat advocated that the bill be taken up for consideration. A commission was appointed; stockbrokers and curb brokers appeared before it. The Senate was called upon to inquire into the matter. At that time a desire to drop the matter became manifest. (105) During the discussion of the budget of 1898 in the Chamber, two deputies, MM. Lacombe and Fleury- Ravarin, each introduced an amendment, worded almost identically, with the exception of the final paragraph. Later, M. Lacombe withdrew his amendment in order to associate himself unconditionally with his colleague. The provisions of the Fleury-Ravarin amendment were worded as follows: "Whoever makes it a business to take up bids and offers on bourse securities must, whenever called upon to 235 National Monetary Commission do so by the Registry Office agents, when it is a question of securities admitted on the official quotation list, ex- hibit stockbrokers' statements or give particulars of the numbers and dates of statements, as well as of the names of the stockbrokers from whom they emanate, and, when it is a question of securities not admitted on the official quotation list, personally pay the amount of the tax." This was merely returning to the scheme of M. Tirard. The Minister of Finance, the Honorable M. Georges Cochery, stated before the budget commission that he would assent to that amendment, and that the Govern- ment, represented by the Honorable M. Meline, concurred in this, in order to preserve for the Bourse the existing legislation, save for the modifying of certain petty details through decrees. This procedure would, of course, result in putting a check upon the proposition submitted to the Senate; but, said the Minister, the Stockbrokers' Associ- ation (Compagnie des Agents de Change) had brought in a complaint before the courts against the curb brokers, and it was necessary that the financial market be not disturbed by the incidents of a lawsuit such as was certain to be started. a a Should the Government have ever given in under such pressure? How can the State prevent the stockbrokers from applying to the courts, if they consider themselves wronged? This is their inalienable right- The Government had only to let them act; the interested parties would certainly have looked after their own interests, and finally the stockbrokers, when better advised, would not have persisted in their original intention. The judges would have weighed and decided according to the law and the facts; if the law had favored, and, let us say, does favor, the agents of the monopoly, facts would have been stronger than the law, and would have found them to be wrong. In their own interest the stockbrokers and the curb brokers would at last have come to an under- standing. The State had no reason to interfere. (Alfred Neymarck, Journal Le Rentier, March 17, 1898.) 236 History and Methods of the Paris Bourse The Fleury-Ravarin amendment was voted on in the Chamber and even in the Senate. (106) The Fleury-Ravarin amendment became article 14 of the law of April 13, 1898, and three decrees, dated June 29, 1898, were published in the ''Journal Officiel" of June 30, in view of the reorganization of the financial market promised by the Minister of Finance during the debate on the budget. Through the first decree, articles 17, 55, and 56 of the decree of October 7, 1890, were modified. Article 17 treats of the composition of the syndical chambers of stockbrokers. Articles 55 and 56 express the conditions under which the syndical chambers are bound to execute a trade in place of a defaulting stockbroker. Thus was the solidarity of stockbrokers established. 6 In the Chamber of Deputies the following took part in the debate: Session of March 7, 1898: MM. Lhopiteau, Fleury-Ravarin, Georges Cochery, Minister of Finance; Viviani, Gauthier de Clagny, Gabriel Dufaure, and Ribot. Session of March 8: MM. Krantz, Viviani, Georges Cochery, Minister of Finance; Gauthier de Clagny, and Fernand Cremieux. Vote: In favor of, 333; against, 136. In the Senate, on April 2, 1898, the following took part in the debate: MM. Raynal, Eugene Guerin, Gouin, Georges Cochery, Minister of Finance, and Prevet de Lamarzelle. The severance of the amendment was put aside by 142 votes against 131, and this was passed by a vote of hands. &The solidarity was established under the following circumstances: On March 8 M. Viviani caused the Chamber of Deputies to adopt two amend- ments one establishing the solidarity of the stockbrokers, the other that the books of the stockbrokers should be audited by treasury inspect- ors. The Ministry of Finance caused these two provisions to be set aside by the Senate, after which the solidarity of stockbrokers was established by the decree of June 30, 1898, as stated above. The legality of the pro- ceeding is very debatable. According to article 1202 of the Code civil, solidarity (outside of solidarity by mutual agreement) can be declared only by law. 237 National Monetary Commission The second decree increased the number of stockbrokers of the Paris Bourse to seventy, and the third decree treated of the brokerage rates, modifying those pre- viously established by the stockbrokers themselves. In general, the new rate prescribed was o.io percent, where the old one was 0.12% per cent, and the bro- kerage for the transactions in French rentes was fixed at 12.50 francs for the one-half unit of speculation, while the old rate was 20 francs. On the other hand, the private regulations of the stockbrokers of December 3, 1891, were modified. The maximum number of chief clerks was in- creased to six (it was previously four) . Provisions were made that the settlement of cash transactions in certifi- cates to bearer be effected before the fifth bourse session following the session when the operation was made. How- ever, from January 30, 1899, this delay was extended until the tenth Bourse, and the obligation for the stockbroker with unadjusted claims to "execute" (buy-in or sell-out, compel settlement by) his fellow-member in arrears was replaced by the right of recourse to the procedure of "exe- cution." Finally, on July 12, 1901, a new tariff, raising brokerage rates, was established by M. Cailloux, Minister of Finance. The minimum of 50 centimes was fixed. The brokerage fee was increased to 0.25 franc for each share or bond worth less than 250 francs and 0.50 franc for securities the prices of which range between 250 and 500 francs. The reorganization of the financial market had there- fore been "botched up" under the queerest circum- stances. They had come back to the Tirard system "See Nos. 16 and 38, Book II. Translator. 238 History and Methods of the Paris Bourse through the Fleury-Ravarin amendment, we said; but M. Tirard himself, although in favor of the stockbrokers' monopoly, had agreed that the question of organizing a public market was one of those whose solution could not be improvised and which could not be withheld from public discussion. Answering M. Nivert, M. Tirard said, on February 24, 1893: "After a vote has been taken on the bill submitted to your deliberation, I have in mind to place the consideration of this question before the Council of State, and to prepare a bill which shall have the advantage of having been thoroughly studied." Well, the question proposed in 1898 was the same as in 1893. Monopoly or freedom of brokerage, or, also, a mixed system, admitting of regulated freedom. Two senators spoke for freedom. In the meanwhile an amendment to the budget changed the mode of collecting the tax; and there you are. By means of decrees a Minister revises brokerage rates, arranges for the appoint- ment of ten stockbrokers, institutes a solidarity of doubt- ful legal standing, and calls that operation a "reorgani- zation." Legally, even the very word "reorganization" can not be used. Laws can not be modified by decrees; and, as decrees are based on laws already existing, it would be more correct to say that there was a sup- pression of the question of reorganizing the financial market, which had been proposed by two senators after the Government had failed to do so. It is hardly possi- ble to understand at present how a question which in 1893 required such an extremely exhaustive study in the eyes of M. Tirard and of all others, could be touched upon and decided in the circumstances detailed above that is to 239 National M on et ar y Commission say, under the most unwonted circumstances and the most contrary to precedent. (107) For what reasons was the bill announced by M. Peytral never submitted to consideration? For what reasons was the bill proposed by the two senators in some way withdrawn from the Senate? For what reasons did the Meline ministry in 1 898 entangle itself in that strange procedure, contrary to all precedents in legislative mat- ters? These are points which have never been cleared up, and concerning which the parties most interested seem to desire to avoid all discussion. a Some explanations of that little financial and parliamentary coup d'etat have been furnished, but the moderation necessary for the present study does not allow our reproducing them here. b The following reasons may be substituted for or added to the above : We know that in matters of political econ- omy the regime of commercial treaties was superseded by the regime of tariff maximum and minimum in 1892. A strong protectionist current had become apparent in the political spheres since 1878. M. Meline was the leader thereof. In the newspaper world some writers had made themselves the champions of international bimetallism and protectionism, especially MM. Edm. Thery and Jules Domergue. The Stockbrokers' Association (Compagnie des agents de change) expressed its fellow-feeling at an early date, and gave its support to the bimetallist and protectionist movement, either from economic convic- tion or through design, thinking that economic parties a Congres International des valeurs mobilieres de 1900 a Paris. Stance du 6 juin, 1900. Compte-Rendu (Paul Dupont, imprimeur.) & Journal I' Action of November 7 and December 12, 1903. 240 History and Methods of the Paris Bourse become political parties and that political parties have their expression, when they are successful, in executive power. The Meline ministry was, therefore, in power in 1898; it rewarded those who had supported it, while the protectionist and nationalist papers directed a virulent campaign against the Coulisse. The time had been admirably chosen. We know what painful strife had taken place in the country concerning the Dreyfus affair. In 1898 the question of knowing whether there was ground or not to review the military trial of 1894 was obscured by passions. If anyone wanted to see the trial reviewed, he was a traitor to his country, an opponent of the army, an enemy of order, a conspirator against the fair name of France abroad, and even against the credit of the State. On the other hand, if anyone else opposed the review of the trial, he was a pretorian (meaning a mer- cenary soldier) , he was a reactionist, retrograde; the shouts of "Long live the army!" "Death to the Jews!" and "Down with the priests!" were heard in the streets and at meetings. Men of the most incongruous spheres of society combined or contended with one another. It so happened that some of the curb brokers (cou- Lissiers) who brought to our market orders from Frank- fort, Berlin, Madrid, London, Vienna, and Constantinople, were foreigners. Some of them were Jews. It is easy to guess what powerful assistance the Dreyfus affair brought to the stockbrokers. The Coulisse was the victim. The nationalist and protectionist papers man- aged the campaign, reproached some of the opponents with their origin, and the Parliament resounded with the 241 National M o n et ar y Commission saddest discourses ever uttered in the glorious French rostrum. To-day one can not read the debates without expe- riencing deep astonishment at the wretchedness of the arguments that animated all this debate, which, more- over, was altogether foreign to the budget discussion. The author of the amendment, the keystone of the reorganiza- tion, M. Fleury-Ravarin, pleaded that there had been tax frauds in the open market; to-day it seems to be an established fact that there were none. b M. Gauthier de Clagny called to account the foreigners in the Coulisse. But nevertheless, they permitted the " Rente Coulisse" to stay; so that, as far as public credit alone is concerned, there are Frenchmen of ancient stock who negotiate Ottoman bank shares, Turkish rentes, and exterior Span- ish. The same speaker, concluding from the particular to the general, charged the Coulisse with the emission of a security, "La Watana, " which he called a swindle, an emission in which two curb brokers were interested. d In the Senate, M. de Lamarzelle reproached the Coulisse with having introduced the gold-mines securities, 6 but there was no question of taking away from the Coulisse the gold-mines securities in which it was dealing, and these securities will remain there. The Minister of Finance, M. Cochery, carried off the vote in the Senate by maintaining a Session of March 7, 1898; Journal Officiel of the 8th. & Cote de la Bourse et de la Banque; annee 1898, Nos. 141. 144, 255, 278. c Session of March 8, 1898; Journal Officiel of March 9. & Proceedings were instituted against the issuers, which resulted in their being fully acquitted. (Police court of the Seine, eighth chamber, June 21, 1901. Le Droit, June 23, 1901.) Session of April 2, 1898; Journal Offlciel of the 5th. 242 History and Methods of the Paris Bourse that on two occasions the curb brokers had attempted to depress the prices of French rentes and Russian rentes, both of which were dealt in only on the "Parquet" by the stockbrokers. a The fact is substantially incorrect. Here are the very words uttered by M. Cochery, Minister of Finance. They were taken from the Journal Officiel of April 3, 1898, in the report of the session of April 2 : "Just now a singularly painful event was recalled to our memory. On two occasions, while in France everyone rejoiced when the journey of the Russian Emperor in France and the journey of the President of the Republic . . ." [Shouts and interruptions.] M. DE LAMARZELLE. "But this is quite correct." The MINISTER. "Gentlemen, I wonder at these protests. [Speak, speak.] I am bringing with me particulars for the information of the Senate, and with no thought in mind but the public welfare. " I say that on two occasions, at a time when events gave France more confidence in herself and in the future, at a time, consequently, when it seemed that an upward movement in the securities of 'the two allied nations was due, there occurred in the market not in the official mar- ket, but in the open market tactics calculated to cause a considerable decline." Well, the Russian rentes were dealt in on the open market neither in 1896, when the Russian Emperor visited Paris, nor in 1897, when M. Felix Faure went to St. Petersburg. They were dealt in exclusively on the offi- cial market, so that it was materially impossible for tactics to be set at work in the open market against the Russian rentes. As to the French rentes, we give below the comparative rates in the offi- cial and the open markets, according to the Official Quotation List for the former and according to the "Cote de la Bourse et de la Banque" for the latter. (a) Prices of French rentes, 3 per cent, from October 3 to October 8, at the time of the Russian Emperor's trip to Paris: October 3 Official market 101 . 80 101 60 101 65 Open market 101. 78 101 . 57 101. 80 101. 62 October 4 Bourse closed. October 5 Official market 101 . 57 101 . 55 101. 70 101. 70 Open market 101 53 October 6 Bourse closed. October 7 Official market Open market _ 101. 68 101 . 72 101. 50 101 . 50 October 8 Official market Open market 101. 68 101. 73 101 . 53 101. 53 243 National Monetary Commission However, he permits the "Coulisse des rentes" to remain in existence. The same Minister advanced as a rea- son for supporting the Fleury-Ravarin amendment, that the Stockbroker's Association had entered a complaint against the curb brokers. a Thus he desired to avoid the disturbance which might have befallen the financial market, and he fulfilled the expectations of the stock- brokers before they obtained such fulfillment by legal means. This time the matter was taken out of the court's hands, as it had been taken out of the Senate's. All is chaos and anarchy in that discussion and in those irregular proceedings. MM. Lhopiteau, Viviani, and Ribot called the Chamber's attention to that fact, & and notably M. Ribot, who, however, declared himself in favor of the stockbrokers' monopoly, M. Gouin, in the Senate, president of the commission appointed to look into the Trarieux-Boulanger proposition, vainly pro- tested. c Inconsistency in arguments ; illogicalness in solu- (&) Prices of French rentes, 3 per cent, from August 23 to 27, at the time of President Faure's trip to Russia: Official market 104. 87 104. 90 104. 82 104. 87 Open market 104. 93 104. 93 104. 83 104. 92 Official market 104. 85 104. 90 104. 82 104. 87 Open market - 104. 88 104. 93 104. 83 104. 90 Official market 104. 85 104. 92 104. 85 104. 90 104. 87 104. 93 104. 87 104. 90 Official market - 104. 84 104. 87 104. 60 104. 60 Open market 104. 90 104. 91 104. 62 104. 63 Official market 104 75 104. 77 104. 60 104. 65 Open market 104. 78 104. 78 104. 60 104. 70 a Senate, session of April 2, 1898; Journal Officiel of the 3d. & Chamber of Deputies, session of March 7, 1898; Journal Officiel of the 8th. c Senate, session of April 2, 1898; Journal Officiel of the 3d. 244 History and Methods of the Paris Bourse tions. What of it? The vote on the budget of 1898, which was to take place before the end of the year 1897, is away behind time; elections are approaching. There is need to hurry. Minds are disturbed. Once more the Dreyfus affair is in full swing. The ministry obtains what it asked for. a (108) The curb brokers resorted to libels in answering the attacks they were subjected to in the newspapers. But the discussion gained neither in broadness nor in theoretical interest. The two parties fired their griev- ances at each other, and it must be admitted that if the Stockbrokers' Association did not deserve victory, the cou- lisse party deserved defeat. Hardly had the law of 1893 permitted them to deal publicly in listed securities when the curb brokers entirely lost sight of the fact that that state of things would only nay, could only be tempo- rary. To trade, to buy, or to sell that was all that concerned them. The gold mines engrossed their atten- tion. They lacked entirely* the sense of professional a The Honorable M. Cochery, who presided at the Congrds International des valeurs mobilises (International Congress of Transferable Securities) in 1900, condescended to acknowledge to the author that the arguments brought forward in favor of the freedom of the market (in the session of June 6 of said Congress) were mostly new to him ; that it was a mat- ter of regret for him that, for some inexplicable cause, these arguments had never come to his notice; and that, if he had been aware of them, he would have hesitated in extolling the prevailing system in its totality. These words do great honor to the Minister. Moreover, the Honorable M. Cochery in his closing speech of the Congress a speech bearing the stamp of great elevation of mind made plainly known the emotion he had expe- rienced during the session devoted to the inquiry into the organization of bourses: "Relating to the market organization, the debate at one time assumed a truly passionate aspect .... but passionate in the right way the passion resulting from the wish to protect common interests." [Loud applause.] Stenographic report of the Congress, C. I. P., 308, P. Dupont, printer. 245 National M o n et ar y Commission orientation. Many looked upon their profession as some sort of tolerated condition, to cease the day it would suit the stockbrokers to have it cease. They had no idea of a natural right to be transformed into a positive right, and it was the lack of this notion that caused their reply to be so little interesting. "We represent such an amount of taxes, licenses, such a number of telegraphic messages, we employ so many clerks, "- this was the level to which the discussion rose, unless once in a while there happened an argument "ad homines" in answer to those aimed at them. The one who evoked an economic principle was called a theorist, a transcendental metaphysicist. Moreover, there was no discipline on the Coulisse. Its president, M. Alphonse Lange, who died shortly afterwards, undoubtedly should be given credit for wanting to offer energetic resistance. Personally very wealthy, he might have, like many others, said to himself that, if conquered, the defeat meant but little to his own personal interests. Yet he put up a really good fight, but he was little adapted for such discussions; moreover, no one among the curb brokers a thing unheard of seemed prepared for them. Besides, had not the announcement been given out that twenty new offices of stockbrokers were to be created ? a Many of the curb brokers intended to be candidates for these new offices. It was, therefore, necessary that the opposition of the crowd should not be too fiery, lest all of the candidates be rejected; and these, being more or less clear-sighted, stood in the way of a too energetic a The Minister of Finance confirmed that item of news in the Chamber of Deputies, March 8, 1898, Journal Officiel of the Qth. 246 History and Methods of the Paris Bourse action for the defensive or the offensive. But a group of professional men, whoever they may be, containing, in spite of its immense resources, such elements of weakness, is incontestably destined in advance to defeat. Financiers . make the great mistake of not sufficiently taking into account that moral force and professional dignity are worth more than gold. However strong may have been the cause of the Coulisse, its advocates failed in their efforts on its behalf, and it was no easy matter to champion it in Parliament, because its defenders were badly treated in certain publications. Now, if the curb brokers had to be defeated if, as a special group, they deserved the defeat they had expe- rienced was not their cause superior to, did it not go beyond, the individual members; were there not sufficient grounds to watch against the strengthening of the mo- nopoly ; was it not necessary to beware of having recourse to surreptitious means in proceeding to a reorganization of the market ; was it not necessary that the Bourse should be either free or regulated? It seems that the act of reorganization should have been prompted by considerations superior to the interests of the stockbrokers or of the curb brokers. At any rate, let us see what took place within the Coulisse on the day following the reorganization. (109) After the "reorganization," the Coulisse remained composed of the following elements: The "coulisse des rentes" (Coulisse for rentes) remained the same as before. It keeps on in a state of being tolerated. 247 National Monetary Commission The ' ( coulisse des valeurs" (Coulisse for securities) does not any longer exist in a state of being tolerated. Curb brokers deal freely, as intermediaries or otherwise, in securities not susceptible of being quoted, whether these securities be such that the stockbrokers do not care to quote, or such that they are not allowed to quote. In the latter category are found the foreign securities, in denominations of 25 francs, which the French law does not permit for French corporations. (Law of August i, 1893; decree of December i, 1893.) Under these conditions, a number of bankers who make it a practice to deal among themselves in the Paris market, established two professional syndicates, under the terms of the law of March 21, 1884, concerning syn- dicates : one for the bankers dealing for future delivery (b terme) , and the other for the bankers dealing for cash (au comptant). Of course, one may belong to the pro- fession without being connected with either of the syndi- cates. There is nothing to prevent a banker from pur- chasing certain securities from another banker, whether he belongs to a syndicate or not, but members of syndicates constitute groups only among themselves. The Coulisse is not officially known under that name. The professionals on the bourse who are not stock- brokers (agents de change) are called bankers (banquiers). The curb brokers (Coulisse members) in rentes form the "groupe des Banquiers en Rentes Francaises." The groups for other securities are formed by the members of the "Syndicat des Banquiers en valeurs au comptant" (syndicate of bankers dealing in securities for cash) , and History and Methods of the Paris Bourse of the "Syndicat des Banquiers en valeurs a terme" (syn- dicate of bankers dealing in securities for future delivery) . A special group is formed by the "Union des Banquiers" (Bankers' Union), which deals in commercial bills. The "Union des Banquiers" has always kept out of the quarrel. (no) Truly it would be judging superficially, to con- clude from the above that conditions are satisfactory. The condition of the Coulisse for rentes is necessarily precarious. To be tolerated is neither a prosperous nor a progressive condition. As to the Coulisse for securities, according to the decision of the Cour de cassation of June i, 1885, as soon as a security is admitted to the Official Quotation List, the dealings in the same become an attribute of the monopoly. In that regard, therefore, there is yet a rela- tive condition of toleration. The same applies, in a strictly legal aspect, to securities concerning which an agreement was reached in 1901 between the Stockbrokers' Associa- tion and the bankers dealing in securities for future delivery. Finally, as to foreign securities which can not be officially quoted, because their denomination is inferior to the par value of French shares, a mere reduction of the limit fixed by French lawmakers would result in rendering available for quotation on the " Parquet" the 2 5 -franc shares of foreign corporations. This change is eagerly sought by the Stockbrokers' Association. (in) As to the stockbrokers' monopoly (monopole des agents de change), it reigns supreme, as sovereign master, outside the restricted sphere in which the Coulisse oper- , 1885, p. 257. 249 National Monetary Commission ates. This is equitable neither from the standpoint of public justice, nor from the economic point of view, nor from that of the State's interests. The principles of public justice, belonging to the natu- ral or civil order, refer to the rights of individuals. They include personal liberty, civil equality that is to say, equality before the law, the right of assemblage, the free- dom of labor, of commerce, and of industry. Proclaimed by the Declaration of the rights of man and of the citizen (Declaration des droits de Vhomme et du citoyen), on August 26, 1789, they are to-day the foundation of French public rights, and have been mentioned either explicitly or im- plicitly in all constitutions: "Of all monopolies intrusted to ministerial officers," said M. Ducrocq "there are few which are more dis- puted or more disputable, from the standpoint of prin- ciples, than the stockbrokers' monopoly. Their office, indeed, is one of those in which the character of public office has the least share, and in which, on the contrary, the professional and even the commercial character occupies the most important place. The negotiating of bourse securities, in return for a compensation, is no more a public function than the selling of any other kind of merchandise "We can conceive of no serious reason, drawn from the interests of public credit, to maintain the market for bourse securities within the hands of a close corporation. This dealing in bourse securities is indeed the essential part of the vocation of the stockbroker; his other duties are Cours de droit administratif et de legislation jranqaise des finances T. Ill, No. 4, 215. 250 History and Methods of the Paris Bourse mere accessories. Well, there is no doubt that, in order to give to the trading in securities the moral and material safety which is indispensable for public credit, there is no necessity to turn it, contrary to its nature, into a public function. It is sufficient to regulate and to control the profession, which thus becomes reconciled, within the measure demanded by public interest, with the principle of freedom of labor and commerce. " The other duties of stockbrokers the verifying of quo- tations and the certifying of transfers are accessories of which the stockbrokers might be relieved, so as to remain invested only with their principal and essential role the role of dealers in securities. There would be no more pre- text for monopoly. A few real officials could be intrusted with the duty of certifying transfers and drawing up the quotation lists. At any rate, if, instead of proclaiming the markets absolutely free, the law were to suppress the monopoly, and to regulate the profession by the indemnity system applied to merchandise brokers by the law of July 1 8, 1866 (No. 1208) , could not then the new syndical cham- ber continue to provide for those two features, in a wide- open corporation, under requirements of legal qualifica- tions, morality, and solidarity? The fixed time and place for holding the Bourse, its publicity, the trading in a loud voice, are such sure bases of genuineness for estab- lishing the quotation list that the regulation of the pro- fession should certainly suffice to allow it to continue attending to the matter by itself. Does not the syndical chamber of the stockbrokers (chambre syndicate des agents de change) content itself with merely registering the quotations of the prices set up by the exchange and 251 National Monetary Commission metal brokers, though legally it should be prepared by the syndical chamber itself? It is therefore not neces- sary, for the verification of quotations, that there exist ' agents de change,' holders of ministerial offices. " France is about the only country whose financial mar- ket is in the hands of intermediaries who are, in fact, the owners of their offices, invested with absolute monopoly.. There are even countries where the freedom of the market is complete, as in England, where the Bourse, called the Stock Exchange, is a private institution, elective and subject to its own by-laws; in the United States, where the organization is the same; in Belgium, since the law of December 20, 1867, which proclaimed the free exercising of the functions of merchandise brokers and stockbrokers ; in most of the Swiss Cantons, excepting, however, Basle, Geneva, and Zurich, which have monopolies; and in the South American Republics (Argentine Republic, Brazil, and Paraguay) . In all other countries, the financial mar- ket system is built up on the principle we recommend, of the freedom of the profession combined with its regu- lation. Such are the legal provisions of the German Empire, Austro- Hungary, Russia, Italy, Spain, Portugal, Holland, and the Scandinavian States." MM. Lyon-Caen and Renault point out with the same clearness, that mediation in negotiating securities possesses in itself no attribute of a public function. We quote: "It should be noticed that in 1866 nobody asked that the stockbrokers' monopoly be suppressed. Sundry rea- sons have often been brought forward in favor of its being maintained. Their part is not limited to trading a Trait^ de Droit Commercial, T.1V, No. 1035. 252 History and Methods of the Paris Bourse in bourse securities ; they guarantee the identity of parties and the genuineness of signatures for the transfer of gov- ernment and other securities; they are necessarily, for a certain time, depositaries of important sums and numerous securities ; every day they verify the quotations of securities, especially government securities. Thanks to the stockbrokers ' monopoly, the Treasury enjoys perfect security as to the transfers involving its responsibility; transactions are carried out with great rapidity, and the interest of inexperienced people, who have to hand in their securities or their money, is protected. Such is the summary of the reasons given by the Government in the explanatory statement of the law of July 18, 1866. (J. Bozerian. De V Institution des Agents de Change.) These arguments advanced in favor of the monopoly held by the stockbrokers are not decisive. Mediation in nego- tiating securities has nothing in itself constituting a public function. Moreover, one could conceive that freedom was allowed in this matter, and that, without monopoly, meas- ures had been taken for the verification of quotations and for the avoidance of the worst abuses. Besides, there are many countries where there is no monopoly either for the brokerage in merchandise, insurance, and freight, or for the mediation in negotiating securities, and yet the free- dom does not appear to stir up any complaints. See, especially, the Belgian law of December 30, 1867; the regulation attached to decree of December 14, 1882, given out for the execution of the Italian commercial code of 1882; and the Hungarian code (art. 524 et seq.) The German commercial code (art. 66 et seq.) authorizes official brokers, leaving to private individuals the right to do 353 National M o n et ar y Commission brokerage as private brokers. This code reserves the right for each State to establish a monopoly for the ben- efit of official brokers (art. 84). " None of the States, however, has availed itself of this privilege, while Bavaria, Wurttemberg, and Hamburg have each abolished the monopoly there existing. In Bremen (1867) and in Hamburg (1871) the official brokers have been suppressed. "In Austria the law of April i, 1875, has sanctioned the monopoly; but the law has shown no results. The private brokers remain in fact, and operate as commission men with the brokers themselves. (V. Endeman, Handbuch des Deutschen Handelsrechts, III, pp. 135 and 137.)" (112) Leaving now the critical analysis of jurists, and passing to the examination of the question of the stock- brokers' monopoly from the economic standpoint, we can not but condemn it in the most unequivocal terms. Let us observe, however, that public justice and politi- cal economy have such affinities in many respects that, when the economic principles have passed into the do- main of law, it is impossible to distinguish between the considerations depending upon the one or the other science. Moral and political sciences, moreover, are not separated by impenetrable walls, and the divisions set up by men for the accommodation of their reasoning in no way interfere with the community of principles on which they depend. Thus we may say that the consid- erations of public justice we have just expounded serve as an introduction to those which are to follow. The modern doctrine of monopoly does not derive it any longer from a royal or state prerogative. The right 254 History and Methods of the Paris Bourse to labor belongs to all. Certain lines of work are subject to special conditions in France the practice of medicine, or the practice of pharmacy, for instance; but inquir- ing into the conditions for recruiting professional men for these practices, we see that there is no monop- oly on them. All those who meet certain conditions may be physicians or pharmacists. Monopoly exists when the State exercises certain public services, or car- ries on a certain industry, or again, when it deprives cer- tain people of the right to labor, granting it to others in consideration of a fee or gratuitously. In the first case it is a public monopoly, in the second it is a private monopoly. Well, the stockbrokers' monopoly is exer- cised by ministerial officers, not for account of the State, but for their own account. This is a private monopoly, to which all economists are strongly opposed. "Like all monopolies, but more justly than many others, the stockbrokers' monopoly is furiously attacked. It may be impossible to give decisive reasons in its favor, though in the last resort it may be acknowledged that the Bourse intermediaries should be bound to furnish personal guarantees." Thus expressed himself M. Paul Cauwes, a professor in the Law Faculty of the Paris University. M. Courcel-Seneuil expressed himself as follows: 6 "The monopoly, giving rise to exceptional profits, creates an entirely artificial property, built up at the public expense and for the benefit of the first holders, a property acquired without labor, growing without labor a Precis d* Economic Politique, T. i, p. 648. & Trait d'Economie Politiqiie, 1801, T. 2, p. 125. 90312 10 17 255 National Monetary Commissio n with the increase in population and general wealth, and having no justification." At the congress of 1887 of the Association Franfaise pour I'avancement des sciences M. Arthur Raffalovich ex- pressed himself as follows, in a lecture on the Paris Bourse: "In spite of the increasing value of transferable wealth of the transactions effected daily at the Bourse, France presents the strange phenomenon of a legislation relatively stationary, of an old-fashioned regulation, which is not in keeping with the requirements of the times * * *. The monopoly of the stockbrokers seems to me doomed to disappear; it does not exist in any of the great European markets." The Traite d' Economic Politique of M. Joseph Garnier, 6 after having expressed the view that (No. 191) "all arti- ficial monopolies in favor of individuals" are contrary to justice, detrimental to production, and have a tend- ency to assume the character of "abusive and iniqui- tous" privilege, declares that those are the vestiges of the guild system that have to be eradicated. The au- thor expressly aims at the ministerial offices of stock- brokers after having shown that in March, 1858, the "Butchers' Guild " (corporation) had been suppressed, in 1863 the "Bakers' Guild," and in 1866 the "Commercial Brokers' Guild." (Footnote under No. 196.) It would not be difficult, however, to find also a good many complaints in the literature of the time coming from those whose privileges were to be suppressed. "If the butchers and bakers were no longer constitute/! as a a Comptes Rendus de 1887, Masson, editor, p. 984. & Edition of 1889, brought up to date by M. Andr6 Liesse. 256 History and Methods of the Paris Bourse privileged corporation, everybody was to die of hunger!" "As for free brokerage, it would be even a much greater calamity. A lot of vagabonds would undertake to work as brokers, and would prostitute commerce." The legisla- ture of 1866 took no notice of these arguments, and nobody wants monopoly any longer. It was, moreover, what had already happened a century before. When, in 1776, all corporations were threatened, the six principal trades unions addressed petitions and requests, and explained that wardenships, masterships, and guilds secured for con- sumers integrity in contracts and quality in merchandise. The arguments in favor of the "agents de change" are exactly the same as those of the guilds of the seventeenth century and of the holders of privilege of 1866. The Societe d'Economie Politique in 1859" discussed the monopoly of stockbrokers. MM. Reybaud, Wolowski, Michel Chevalier, Courcelle-Seneuil, P. Coq, Courtois, Du- puit, de Parieu, and J. Gamier took part in the dis- cussion, which terminated in condemning the monopoly. In 1893 the same discussion presented itself and con- cluded in the same way. The following took part in the discussion: MM. Courtois, Brandts, and Alfred Neymarck. The latter expressed himself energetically against the monopoly of stockbrokers, and M. Gide declared "the institution as entirely undeserving of interest. " 6 In 1 898, c right before the "Reorganization," the Societe d'Economie Politique expressed itself again energetically against the monopoly of stockbrokers. Only M. Manchez upheld it; ^Journal des Economistes, April 15, 1859. b Journal des Economistes, April 15, 1893. c Journal des Economistes, June 15, 1898 257 National Monetary Commission 9 but those who spoke against it were MM. de Mont- planet, J. Siegfried, Neymarck, Emmanuel Vidal, and Frederic Passy. The latter, who closed the debate, expressed the opinion that the monopoly, when held up as the means of guaranteeing the genuineness of quota- tions, carried in itself the denial of such genuineness. The Paris Chamber of Commerce expressed an opinion unfavorable to the stockbrokers' monopoly, and the Tribunal de commerce de la Seine, when asked for advice concerning the expediency of creating new offices in completing the "reorganization" scheme, declared itself against the measure. 6 So we see, it is not alone the economists who are opposed to the monopoly, but also the business men, who every day struggle with realities. It has often been claimed that the stockbrokers', mo- nopoly was necessary for the welfare of the national credit. But facts singularly deny that assertion. Why was it necessary in 1898, that, simultaneously with the upholding of the usefulness of bolstering up the stock- brokers' privilege by the Honorable M. Cochery, he should undertake to tolerate the existence of the Coulisse, plac- ing it, in fact, under the exclusive supervision of the Stockbrokers' Association (Compagnie des Agents de Change) ? No argument could be more flatly contradicted. Moreover, how could the "agents de change" support the country's rentes? It should be borne in mind that in the countries whose rentes enjoy the best reputation among the investing public in London, Berlin, and New York, there are no ministerial officers for the negotiation a May 14, 1898, Cote de la Bourse et de la Banque of May 17. & May 25, 1898, Cote de la Bourse et de la Banque of May 26. 258 History and Methods of the Paris Bourse of securities. Moreover, the stockbrokers in France can not undertake bourse operations for their own account, according to article 85 of the Code de Commerce. But one can uphold the price of a merchandise or a security only by buying it and by meeting repeated and persistent offers by bids of equal force, able to counterbalance them and force the short sellers to cover. We have seen before that, on the contrary, the French national credit was built up on the freedom of transactions. Some imagine that to be admitted to the official quota- tion list is a guarantee to the public of the intrinsic value of the enterprise the securities of which are quoted. This is erroneous. Public savings derive no benefit of increased safety from the stockbrokers' monopoly. This is no reproach to monopoly. It essentially could not be otherwise. Below we cite the opinion on that subject given in 1875 by the Syndic of the stockbrokers, Moreau, at the General Assembly of his colleagues. 05 "It is to be much regretted that our duties are so little understood by the public, that some of our pro- ceedings are charged with a function they do not possess, and which they never did possess. Often some people wrongfully imagine that the admission of a security on the official quotation list, is a kind of indorsement given that security, a testimonial in its favor, an introduction by the syndical chamber. ' ' Nothing is further from the truth. "The quotation list is simply the verification of the prices at which a security has been dealt in. Whenever a a Semaine Financidre of February 7, 1875, p. 137. 259 National Monetary Commission certain number of capitalists choose to effect a sufficiently large number of transactions in any given enterprise, whether good or bad, it is for them, and not for us, that the delicate task of price-fixing is reserved; and, if it is done within the conditions exacted by the revenue laws, and allowing sufficient competition and publicity, we can not refuse to serve them, since we are in possession of a monopoly, and we are bound to execute orders." Existing theory is in unanimous agreement with this opinion. "It should be noticed," said Mollot, a "that, although the Syndical Chamber is intrusted by law with the duty of verifying quotations of securities, it can not guarantee their value. It is not called upon to inquire into their merit, whether as to their form or as to the solvency of the debtors. The value of the securities may vary ad infinitum, without ever making the Chamber responsible for it. It is for those who operate to investigate the nature and soundness of enterprises. They buy at their own risk." In his Dictionnaire de Droit Commercial* M. Ruben de Couder expresses himself as follows: "The Syndical Chamber does not guarantee the value of the securities the quotations of which it verifies. It is for those who operate to satisfy themselves as to their soundness." In the "Dictionnaire universel de la Bourse et de la Banque" c we read: "It is not correct to imagine that a Bourses de Commerce, No. 479. b Under ''Agents de change." c Uncompleted work published under the management of M. J. Boze"rian under "Admission a la cote" (Comite des Publications scientifiques et indus- trielles, 5, cite Palgalle). 260 History and Methods of the Paris Bourse admission of a security to the quotation list is some sort of sanction given to that security, like a testimonial in its favor, a reference of the Syndical Chamber." M. Buchere limits the responsibility concerning the admission to the quotation list, to the case when securities have not been regularly issued. This is common law; this is not the principle of a special responsibility per- taining to the stockbrokers. No matter whether one is the issuer of the stock, or only aider and abettor, he incurs the same responsibility. M. Abel Valdmann is explicit on that point: "The statement of all the qualifications as to form, making a security fit to be quoted officially, does not involve in fact, has no connection with the statement of its merchantable qualifications; that is to say, of those relating to the intrinsic value of the security." 6 And later the same author adds: "There has never been found, and there never will be found, a court that will countenance the absurdity, that the admission to the quotation list guarantees to the buyer that he is making a good investment. Well might we ask what guaranty the syndical chambers would then give to the seller, who is likewise one of the contracting parties in every trade, and quite as interested as the purchaser." To be sure, no foreign security can be admitted on the quotation list without the positive permission of the Min- ister of Finance, but this in no wise renders the Minister liable. a Traite des valeurs mobilieres, No. 1108. 6 La profession d' Agent de Change, No. 313. c No. 329. 261 National Monetary Commissio n Since 1837 the Chambre Syndicate des agents de change has asked the Minister of Finance to undertake to give an opinion in last resort on the admissions of new securities to the quotation list. The Minister, M. Lacave-I/aplagne, declined all responsibility, acknowledging, nevertheless, that the responsibility should not fall upon the Syndical Chamber. Never since has any minister accepted such responsibility. By the way, the right the Minister of Finance has to forbid a foreign security from being ad- mitted to the quotation list is independent of the question of monopoly, and that right may be maintained whatever be the regime of the financial market. The actual financial power of the Paris stockbrokers is put forward as an argument, and it is affirmed that our financial market is the first in the world. In our opin- ion, even granting that this is true, which is far from having been proven, the cause is confounded with the effect. When a country, owing to its geographical loca- tion, its climate, and the character of its inhabitants, pos- sesses numerous natural riches, and even moral riches, they cooperate in increasing its wealth; when it has the advantage of certain political and economic conditions, when it enjoys a monetary and commercial organization which promotes, instead of paralyzing, human activity in most of its manifestations, then that country is rich and deserves to be rich. And it may then happen that some organization, defective in itself, and the source of manifold vexations, is nevertheless prosperous, as much on account of certain facts of adaptation as because it a Dictionnaire universel de Bourse et de Banque, under "Admission b, la Cote. 1 ' 262 History and Methods of the Paris Bourse unavoidably lies within the reach of the rays of national wealth. It reflects that wealth. But the Paris Bourse does not owe its prosperity to its organization. Seventy ministerial appointees intrusted with the negotiation of 1 30 billions of transferable securities are powerful personali- ties. They would be more powerful if they were but 35. They would be more powerful if there were but 20 of them, or 10 or 5, or even i if there were in the market but i autocrat, a single arbiter of securities, centralizing bids and offers, and the king of the Bourse, just as we see in America an oil king and a steel king. . In such a case the soundness of a market is more seeming than real. If that system had been applied to provisions and merchan- dise, infinitely more necessary for consumption than rentes or shares in companies, the market for wine, bread, and meat, appropriated by a few barons, might, perhaps, be stupendously high, but in this respect experi- ence speaks in favor of freedom of trade only. It seems therefore necessary that public and private credit should enjoy the benefit of an organization more pliable and more in harmony with the general condition of a country's commerce. Let us therefore beware of mistaking the appearance of force for force itself a deception that should impress us no more than the sight of the effigies of iron-clad warriors, standing on rich trappings in a mili- tary museum. If our financial market were opened to all who have funds and understand the profession, it would be stronger still. If the market's favorable situa- tion were distributed among several hundred individ- uals, the division of risks would render the market more stable, competition would secure for our market the 263 National Monetary Commission desired elasticity, and, if wanted, regulation under the supervision of the Minister of Finance would create a condition half way between unlimited freedom, which, with more or less reason, scares so many people, and monopoly, which is an old outfit, in no way suiting our customs, and disturbing the harmony of our laws without rendering the services expected from it. As another argument in favor of a monopolized market the joint liability of the brokers is pleaded. It is indis- putable that when the public is told: "The agents de change are conjointly liable," it receives a pledge on which it rests its faith, and yet it is certain that the joint liability of the stockbrokers is perhaps the most detestable of all measures passed in 1898. It must be admitted that M. Cochery, the Minister of Finance, energetically contested the measure of the stock- brokers' joint liability. He called attention to the fact that the result would be to weaken in the stockbroker the care for his personal responsibility. Then, yielding to the objections of some deputies, who disliked to strengthen the monopoly without some redeem- ing features, M. Cochery inserted in his decree of June 29 a provision establishing the joint liability of stockbrokers, in a way not incontestably legal, for again it ,m,ay seem strange that a decree is made to do the service of a law. M. Cochery was apparently correct as far as the stock- broker in normal times is concerned; but events have demonstrated the defects of joint liability in times of finan- cial panics; in such times it causes a real suspension of the market. (February, 1904.) 264 History and Methods of the Paris Bourse We find, then, two defects of the joint liability when we examine its effects upon the stockbroker. But is the joint liability useful so far as the public is concerned? This is another side of the question of joint liability. The customers of stockbrokers are divided into three categories: Givers of cash orders, speculators, and invest- ors in continuations (reporteurs) . Those giving orders for cash have no use for the stock- brokers' joint liability. The transaction for cash in- cludes, so to speak, no serious risk for the customer. In- deed, in giving an order, he deposits a small cover. A few days later he is informed that the securities are at his disposal, or that he may bring the securities sold. He calls, settles, and leaves either with the cash or with the securities. However, not all operations have that imme- diately interchangeable character. But, as a matter of fact, the risk, independently of the joint liability, is re- duced to a minimum. Should that minimum be yet too high, it would not be difficult in a proper system of bourse organization to endeavor to prefer certain creditors, without having to resort to such an empirical means as brokers' joint liability. Let us pafss to the speculators. The most interesting are those who purchase for future delivery to take up securities, or who sell for future delivery to deliver. But the settlement of these transactions is made at liquida- tion ; that is, the moment when the settlement for cash is effected, money against securities, securities against cash, within a very short time. We can refer these operations to transactions for cash. 265 National Monetary Commission Now, all these transactions for cash or for future deliv- ery which we have considered thus far are ordinary com- mercial transactions, such as are customary for wheat, oil, iron, wool, and other merchandise. These, conse- quently, the lawmaker protects neither through monop- oly nor through joint liability. We are thus able to say that it is not in pursuance of reasons applying to commerce in general that the stockbrokers' joint liability was established. It is in view of conditions peculiar to the profession. Each stockbroker has a considerable following of customers trading for future delivery, who settle their transactions by paying the differences. It is even that class of customers which is most prized ; it is the most profitable class. It is for their benefit and for the benefit of "contangoers" (reporteurs) that the joint liability was established. Speculators speculate either for a rise (sont places d la hausse), in which case they are buyers, or for a fall (sont d la baisse), in which case they sell short (sont vendeurs d decouvert) . The joint liability is therefore a measure which aims to make the stockbrokers liable for the defaults of one or more of them in times of panics; that is to say, when there is a general decline in the value of securities. Who are the creditors of the stockbrokers at such times? Not the bulls (speculateurs d la hausse; they are the debtors of the stockbrokers. It is the bears (specula- teurs d la baisse) who are the creditors. They are the ones who have the benefit of the joint liability. Can anything more illogical be imagined? The main effect of the joint liability is to protect the speculator for a fall, 266 History and Methods of the Paris Bourse whom the lawmaker of the year III punished with im- prisonment, forfeiture of property, and exposure to pub- lic view with a sign on his breast bearing the inscription "agioteur" (stockjobber); against whom, until recently, article 422 of the Code penal was directed, and against whom there still exists to-day the " faculte d'escompte" (right of purchaser to demand his stock at any time by ten- dering the money) . This is a striking instance of aberra- tion in the authors of the law of 1898, which again demon- strates that when the lawmaker starts from false premises, he is bound to be unceasingly tossed about and to fall into all sorts of follies, intended in his mind to justify him, but which succeed only in causing his errors and nonsense to blaze out with greater force. If we examine the usefulness of the joint liability for continuations (reports), we reach conclusions just as much disappointing from an economic standpoint. Peter is buyer for the 1 5th instant of securities worth 100,000 francs. Paul is seller of these same securities. Then comes the fifteenth. Paul brings his securities, but Peter has not the funds; this does not concern Paul; he has sold; he delivers. At that moment enters the "con- tangoer" (reporteur) Jack, we will say with 100,000 francs. He takes up the securities and resells them to Peter for the next settlement. All this takes place at the stockbrokers', and Peter, Paul, and Jack do not meet. Now, Jack's transaction is very simple. He takes up securities which he resells at once at a slight profit. He makes a temporary investment and, as a result, keeps the securities as long as he is not repaid. He is well insured against risk. 267 National Monetary Commission Capitalists, "contangoers," "takers-in," are, therefore, useful, but may we be pardoned for our license of speech they are, of all workers, the workers that work the least. They make temporary investments and remain "covered". Well, when we see common commercial contracts resting on trust; when we see thousands upon thousands of tons of merchandise delivered, and the seller merely holding three months' acceptances; when every kind of labor means risks ; when every bold capitalist runs all sorts of dangers, the law favors the most timid and the best secured of capitalists. This is not only a violation of justice, it is also a bad economic measure. Therefore, from an economic standpoint, the stock- brokers' joint liability is not in itself a beneficial measure. It is useful only to the stockbrokers intrenched behind this apparent advantage. It intends to fortify a mo- nopoly in public opinion, but, in so doing, it helps to preserve an institution resting on an obvious error of the lawmaker, by a process which is unnatural, useless nay, even dangerous. Moreover, if it is necessary that the stockbrokers be jointly liable, is the joint liability conditioned on mo- nopoly? Is it not possible to conceive of a system of broader association, regulated, as said before/in a proper measure, and propped by the establishing of special guar- anty funds through obligatory contributions from those exercising the profession? Public safety, then, does not make the monopoly an absolute requirement. (113) Is the monopoly of the stockbrokers an advan- tage for the State? The State faces a financial cor- 268 History and Methods of the Paris Bourse poration, whose power it has itself created, and of which it can rid itself only by indemnifying it. But the longer we wait, the more will increase the value of negotiable securities, and the more must the seats of the agents de change rise in value. In 1800 there were only six kinds of securities mentioned on the official quotation list. There were eight in 1807. In 1823 a royal ordinance (of November 21) authorized the quoting of foreign securities. The monopoly was by that much increased in value. The great industrial move- ment resulting from railroad building found its financial expression in the creation of numerous certificates "to bearer." The value of the monopoly was by that much increased again. In 1867, on July 24, the French law proclaimed the freedom of the limited-liability company in shares. Shares, bonds, and parts start at once mul- tiplying ad infinitum. The monopoly is thereby once more increased by that much. In 1885 a law on transactions for future delivery is promulgated, which recognizes as legal the very transactions the inter- diction of which seems to have necessitated the insti- tution of the agents de change. In 1893 the corporation law becomes still more liberal. Thus, gradually, as the economic movement manifests itself, and the lawmaker enacts measures of more liberal scope, the monopoly ipso facto is found to expand the field of its privilege, taking advantage of the economic movement of an entire country and of the lawmakers' liberalism stand- ing by, a passive onlooker of that movement, and watch- ing the value of its offices climbing up, as a result of a progress in which it takes no part. 269 National Monetary Commission And it was under these conditions that, in 1898, they proceeded to a reorganization which strengthened the stockbrokers' monopoly. No doubt, in 1898, ten new offices were created. But the ten titularies had to indem- nify their new colleagues, and the total market value of all the offices remained the same, keeping its tendency to rise, a as much from the fact of the expansion of the securities, as from the weakening of the Coulisse. No doubt, in 1898, brokerage rates were lowered, but they were slightly raised again in 1901, and a lively press campaign was started in latter times to demand their restoration. & Let us proceed to the last events. (114) On July 22, 1901, the Compagnie des agents de change of Paris entered into a treaty with the curb brokers, according to the terms of which the latter may obtain the stockbrokers' statements of their own transac- tions (bordereaux d' agents de change) in consideration of 20 per cent of the brokerage, when these transactions bear on Turkish or Servian securities and relate to operations balancing each other. a The first office sold was valued at 30,000 francs; about 1830 they rose to 850,000 francs. After the July 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 reached again in 1857 2,400,000 francs. They de- clined to 1,400,000 francs after the war, and were unable to rise for some time after the failure of the Union Generate. (V. Courtois, Operations de Bourse, 13 6d., p. 239.) The value of each of the offices on the day following the Reorganiza- tion of the financial market was placed at 1,600,000 francs, representing for the 60 offices 96,000,000 francs. The ten new titularies each paid 1,372,000 francs to their combined colleagues, that is to say, 13,720,000 francs, so that the 70 offices were worth 96,000,000 francs as a grand total. &Semame financiere du "Temps," September and October, 1908. 270 History and Methods of the Paris Bourse In order to fully understand that clause, let us imagine a banker, Peter, receiving the order from a client, Jack, to buy Turkish rente, and another banker, Paul, receiving an order from another client, Louis, to sell. Peter and Paul, bankers, meet on the Bourse and deal together. They visit together a stockbroker, and ask him for a sale and purchase statement in the name of one of the two. Together they will take all the necessary measures, in order that each may show his client by means of the said statement that the operation was legally carried out. In that respect it will be rather interesting to cite an important notice published on the subject by the "Annales de Droit Commercial," managed by M. Thaller, professor at the law school of the Paris University : a " People living at a somewhat remote distance from the Bourse have still in mind the conditions under which the Paris market was reorganized in 1898. They fancy that now the parquet des agents de change (the stockbrok- ers' parquet) strictly enforces the privilege established for listed securities by article 76 of the Code de commerce; it has even been said that the coulisse de la rente (the rente coulisse) has been spared. But it now happens that a compromise of wider scope, entered into with the syn- dicate of bankers dealing in securities for future delivery, causes the public no longer to understand anything of the system of transactions and of the tutelage the law exer- cises over it. "The safeguard which the personal mediation of the stockbroker was to give to the execution of bourse orders, a August, 1901, p. 225. 18 ' 271 National Monetary Commission is transformed into some kind of tithe, which he collects on transactions concluded without him. The name 'remisiers' is given to those who make contracts by themselves, with the* only proviso that they shall daily have their trades recorded on the pad of an ' agent,' who, in return for a percentage of the brokerage, will hand them an official contract. And the members of the Parquet have lent themselves to this playing of the part of a machine. In order that the stockbroker shall run no risk, it was stip- ulated that the transactions countersigned by him should be booked at once to balance one another that is to say, the transactions reported on the pad as purchases should immediately be counterbalanced by recording a sale to the same customer, the same curb broker, at the same price. 6 "So far it has been naively believed: (i) That the transactions by application were subjected to regulation limits, such as the verification of whether there had been more advantageous bids or offers (decree, October 7, 1890, art. 43) ; (2) that a transaction by application that had been immediately carried out had no validity; (3) that the stockbroker held an indirect means of restricting prices, because it was in his power to determine the amount of cover to be exacted, and that wherever his agency does not require him to exact cover, he ceases to be in a posi- tion to repress the market's outbursts. It was taken for granted that all the bourse regulations were dependent upon public order. But it rather seems that they were at the mercy of a contract entered into by two corpora- tions anxious to treat each other gently." a See Le Marche Financier du "Journal des Dtbats," February 17. 272 History and Methods of the Paris Bourse However, it is necessary to remark that this agreement was forced upon the stockbrokers. The Waldeck- Rousseau Ministry was then in power and was deeply shocked at the way the financial market had been reorganized. The economic principles of M. Caillaux, the Minister of Finance, did not seem to him of a nature to admit that a broad market should be based on a monopolized organization, which is necessarily narrow. In 1898 M. Waldeck- Rousseau had become counsel for the Coulisse after the death of M. Clauzel de Coussergues; but the eminent statesman, the Advocate- Prime Minister, was too high- minded and conscientious to let his client's affairs interfere with his government position. Moreover, any legislative modification with a view to reorganize the financial market, in the manner of the reorganization of 1893, would have been a very serious proceeding, a meaningless formula characteristic of his predecessor, who had been his friend * * * before the "Dreyfus Affair," and in opposition to whose policy the new ministry was called "the Ministry of Republican Defense." The members of the Coulisse were aware of their lawyer's high-mindedness ; they had the good sense to understand it, and they abstained from asking the least favor of him; but Waldeck-Rousseau, better than anyone else, knew the extent of the injustice done in 1898. The stockbrokers knew it also, and when M. Caillaux, Min- ister of Finance, exacted that they enter into an arrange- ment with the curb brokers, they obeyed, being thor- oughly convinced that to resist would be of serious con- sequence, and that the monopoly would not be worth a rap the day a Minister made up his mind to make an end of it. 273 National Monetary Commission Moreover, the stockbrokers are no theorists ; not to any greater extent than the curb brokers are. One does not feel embarrassed by considerations of public justice when one is benefited by a privilege in becoming party to a business. On the other hand, if one enjoys a monopoly, he defends it to the best of his ability. If the Govern- ment requires that the monopolist give in, he must give in in order to hold on to whatever he can save. And this is why the stockbrokers, when urged to enter into an arrangement with the curb brokers, came to terms, yielding, however, as little as possible. (115) In short, the French financial market was able to fulfill its mission only by taking the liberties which the law refused to grant to it. The official market of the stockbrokers, spurred on by the competition of the curb brokers since the beginning of the nineteenth century, has been transacting dealings for future delivery. The laws gave in. They allowed the stockbrokers to do that which was forbidden to them. They allowed them to have sleeping partners (bailleurs de fonds) . They allowed them to deal in foreign securities. At the present time the stockbrokers are legally unable to close a deal with their clients, to have representatives in a market other than the one with which they are con- nected. These interdictions are the very corollary of their condition. They are ministerial officers, appointed to transact business in one market. To expand their means of action can not be thought of. But are the curb brokers permitted to undertake what is forbidden to the stockbrokers? 274 History and Methods of the Paris Bourse On securities not listed by the stockbrokers yes. On securities listed by the stockbrokers no. If the curb brokers were to operate in officially listed securities, they would encroach on the stockbrokers' mo- nopoly, and would be liable to administrative fines for want of being able to enter the name of a stockbroker on the register prescribed for the payment of taxes on bourse transactions; also to prosecutions in police courts, and to see, besides, their clients plead the transactions null and void. The coulisse for rentes (coulisse de la rente) is tolerated. The Registry Department enters no complaint against its members, because the stockbrokers provide the curb brokers in rentes (coulissiers a la rente) with special docu- ments, valid only as regards the internal revenue not valid so far as the clients are concerned. And the clients may plead against the curb brokers nullity of the trans- actions made for their account. Credit companies and bankers may purchase or sell listed securities over the counter. But they can not apply purchases to sales. In such a case this would be acting as intermediaries, and would fall under the ban of the law of 28 Ventose, year IX, which punishes unwarrant- able interference with the functions of the stockbrokers (immixtion dans les fonctions des agents de change) . Besides, there exists a judicial tendency, whereby a sale over the counter, even if carried out as a commercial transaction free from any act of mediation, might be considered as a case of unwarrantable interference with the functions of the stockbrokers. 275 National Monetary Commission In this way dealings in securities are subject to gro- tesque and incongruous legal regulations. A reorganization of the financial market appears neces- sary. That of 1898 was not a reorganization. Its prin- cipal aim was to prevent the passage of the measure which was then paramount in everybody's mind, and which was to be founded on freedom, without excluding regulation. The freedom of the market that is to say, free access for everyone to the exercise of the profession of broker in securities, freedom modified by a system of regulation in the exercise of the profession certainly would offer a desirable compromise between the system of monopoly and the system of absolute freedom. But the French Government does not seem inclined to study the question seriously: first, because the stock- brokers would have to be indemnified; and secondly, because the stockbrokers themselves are desirous of hold- ing on to their present monopoly. As time passes, the securities, continually on the increase, tend to increase their profits. 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