LONDON STOCK EXCHANGE: Rahu & #7.. Jupiter & #3

[Guest guest]

Hi Iver & Group

 

The London Stock Exchange was born on March 3, 1801 between 11:00 am & 12:00 noon.

 

I've attached some information items providing historical background.

 

Once again, as with the New York Stock Exchange, the evidence of Masonic direction to the choice of time and place is unmistakeable:

 

March 3, 1801 = 3 + 3 + 1+ 8 + 0 + 1 = 16 = "07" ... London Stock Exchange

 

March 21, 1792 = 2 + 1 + 3 + 1 + 7 + 9 + 2 = 25 = "07" .. NYSE ... The formal adoption of the resolutions leading to the signing of the Buttonwood Agreement on May 17, 1792

 

February 21, 1820 = 2 + 2 + 1 + 1 + 8 + 2 = 16 = "07" ... NYSE constitutional organization (Discussed at length in a previous message to the Group)

 

March 28, 1902 = 3 + 2 + 8 + 1 + 9 + 2 = 25 = "07" ... NYSE constitution revised

 

I believe one should be mindful in undertaking mundane investigation that the numbers "03" and "07" are determinative of the Masonic choice of the auspicious moment to found these Stock Exchanges.

 

The birth of the London Stock Exchange is straightforward historic fact, relatively unproblematic. Most likely the choice of the ceremonial start in London's Threadneedle Street was scheduled to happen during the 12th hour of the day: 12 = the Jupiterian "03", which is the day number "03", which hour, of course, is between 11:00 am and 12:00 noon.

 

The New York Stock Exchange birth date is problematic: it is either March 21, 1792 or February 21, 1820. Historical argumentation cannot settle this question. Only empirical mundane astrological analysis can settle the question between the two. The Buttonwood Agreement date of May 17, 1792 is a doubtful candidate on strictly numerological terms. Furthermore, based on many other events where resolutions are adopted and on a later date signed, the adoption date has primacy in the determination of the time moment of closure. And yet on these same numerological terms there's still more: I am not unmindful of the fact that both the great New York Stock Exchange crash of 1929 and the World Trade Center attack in 2001 both events happened in a number "03" year (1+9+2+9=21=3)(2+0+0+1=3) ... and so determining a # "08" personal year for the NYSE in both of those years, (where one calculates the personal year of the date, February 21, 1820). This implication

is impossible to ignore in deciding on which of the two candidate event dates gave birth to the New York Stock Exchange.

 

I will forebear discussing the inplications of the Masonic choice of the destiny number "07". Given that this SAMVA group is dedicated to Vedic astrology I needn't dwell on how Ketu may prominently feature in all of this. I will just add to my earlier message regarding the choice of financing instrument used by the Exchanges in both cities in order to construct there home offices: the Tontine insurance policies. There are many financing variations on the Tontine structuring rationale still employed in the insurance industry. However, the Masonic variation involved the pooling of funds with a unique condition precedent for triggering the termination date, which would oblige a mandatory liquidation and distribution to the remaining investors of the investment principal. The triggering event was when there were only "seven" ("07") of the original contributors still living. THINK ABOUT THAT! Then go out to you local video store and rent Clint Eastwood's

Dirty Harry film, THE DEAD POOL. A very Masonic theme with a typically Hollywood twist.

 

Best wishes to Iver and All.

 

John

 

 

 

London Stock Exchange: March 3, 1801

 

1801

On 3 March, the business reopens under a formal membership subscription basis. On this date, the first regulated exchange comes into existence in London, and the modern Stock Exchange is born.

 

Michie, Ranald Professor of HistoryUniversity of Durham

The London Stock Exchange - A History

Print ISBN 0199242550, 2001

 

1 From Market to Exchange, 1693-1801

Ronald C. Michie

The first part of this chapter examines the early history of the London securities market, which can be traced back to the sixteenth century. The second part looks at the organization and development of this market. Within London, a definite location can be found as early as the 1690s (in the Royal Exchange and its environs), and the existence of stockbrokers can be traced to 1700. The development of the organized market is outlined up to 1801, when the institution of the London Stock Exchange formally came into existence--as the Stock Subscription Room--on 3 March 1801. This event was finally precipitated by the French Revolution of 1789, the resultant fall of the Paris Stock Exchange in 1793, and the occupation of Amsterdam (another centre of finance) in 1795.Keywords: Amsterdam, Britain, economic history, French Revolution, history, institution, London Stock Exchange, Paris Stock Exchange, securities market

 

 

 

 

 

 

Page 1

The Emergence of the London Stock Exchange as a Self-

Policing Club

EDWARD STRINGHAM

∗

estringh

Department of Economics, George Mason University, Fairfax, VA 22030

Forthcoming in Journal of Private Enterprise

, Vol.17, No.2 (Spring 2002).

Abstract:

In the early stock market in London there were substantial risks of non-payment and

fraud. (Mortimer, 1801) According to Hobbesian theory, we would expect stock markets

to develop only after government has implemented rules and regulations to eliminate

these problems. The historical account, however, provides evidence that solutions to

these problems did not come from the state. This article outlines the emergence of the

London Stock Exchange, which was created by eighteenth century brokers who

transformed coffeehouses into private clubs that created and enforced rules. Rather than

relying on public regulation to enforce contracts and reduce fraud, brokers consciously

found a way to solve their dilemmas by forming a self-policing club.

∗

The author wishes to thank Peter Boettke, Bryan Caplan, Tyler Cowen, Paul Mahoney, Andrew Sellgren,

and seminar participants at George Mason University and the Association of Private Enterprise Meetings

for helpful comments. The usual disclaimer applies.

 

 

 

 

 

 

 

Page 2

1

Introduction

It is commonly held that government is needed to enforce contracts in financial

markets. According to Hobbesian theory, without external enforcement, the incentives to

cheat would prevail and welfare-enhancing trades would not take place.

1

While it is

certainly true that rules can improve contractual performance, a major option that is often

ignored is the possibility of privately generated rules. Upon examining the historical

record we can see that, by and large, rules governing financial trading developed

independently from the state. The focus of this paper is the evolution of the London Stock

Exchange.

2

Rather than having public origins, the London Stock Exchange emerged

when eighteenth-century brokers transformed coffeehouses into private clubs to form a

system of self-regulation.

Beyond merely providing buyers and sellers a location to meet, one of the most

important functions of a stock exchange is fostering an orderly atmosphere where traders

follow a common set of rules. Exchange members must constantly seek ways to attract

business and one way to improve business is by providing assurances against fraud.

3

By

cooperating and forming a club for the joint provision and consumption of rule

enforcement, stockbrokers enhance the value of their enterprise.

4

This stands against the

idea that stock exchanges would fail to organize properly without direction from the

state.

5

1

Glaeser, et al (2001), Buchanan (1975), Tullock (1972, 1974).

2

Silber (1981), Carlton (1984), Fischel and Grossman (1984), Macey and Kanda (1990), Chambers and

Carter (1990), Mahoney (1997), Banner (1998), and Macey and O'Hara (1999), analyze self-regulating

aspects of other financial exchanges. For book length histories of the London Stock Exchange see Wincott

(1946), Morgan and Thomas (1969), Jenkins (1973), and Michie (1999).

3

Banner (1998:132).

4

Buchanan (1965).

5

Frye (2000).

 

 

 

 

 

 

 

Page 3

2

There are many advantages of market regulation over government regulation.

First and foremost, when the private sector has the ability to experiment, brokers can try

different regulations to see which ones are most successful. It is choice that allows

groups of freely associating individuals to discover new ways of governing their conduct.

As Hayek wrote, “the value of freedom consists mainly in the opportunity it provides for

the growth of the undesigned, and the beneficial functioning of a free society rests largely

on the existence of such freely grown institutions.”

6

If private clubs, such as stock

exchanges, have the choice to pick their self-regulations they can attempt to discover

what ones are beneficial. This contrasts with the position that rules need to imposed from

the top down from the state. Hayek explained it well:

There is an advantage in obedience to such rules not being coerced, not only

because coercion as such is bad, but because it is, in fact, often desirable that rules

should be observed only in most instances…It is this flexibility of voluntary rules

which in the field of morals makes gradual evolution and spontaneous growth

possible, which allows further experience to lead to modifications and

improvements. Such an evolution is only possible with rules which are neither

coercive or deliberately imposed—…Unlike any deliberately imposed coercive

rules, which can be changed only discontinuously and for all at the same time,

rules of this kind allow for gradual and experimental change. The existence of

individuals and groups simultaneously observing partially different rules provide

the opportunity for selection of the more effective ones.

7

If brokers have the ability to choose they can continuously adopt new ways of self-

policing.

8

While it may be the case the regulation of a stock market is necessary there is

no reason to conclude that it must be done by the state.

6

Hayek ([c1960] 1978:61). This is further developed in Rothbard (1970).

7

Hayek ([c1960] 1978:62-63).

8

This is not to say at every given instant people will break their bargains insisting that the old rules no

longer apply; they will however have to capability of adopting new arrangements and procedures for future

contracts. Benson (1990, 1993), Stringham (1999).

 

 

 

 

 

 

 

Page 4

3

The Emergence of Stock Exchanges

Stock exchanges were not suddenly invented. No governor declared the

establishment of the London Stock Exchange; rather it evolved over time.

9

Joint stock

companies had first come into being in the sixteenth century and it was not for some time

before there were enough tradable stocks to warrant the specialized occupation of

stockbrokers.

10

At first ownership of stocks was not widespread and sales were

conducted on a small scale directly between buyers and sellers, with trades typically

consisting of one owner divesting his shares to another owner or someone else on the

restricted list of eligible buyers.

11

Liberalization of the banking sector at the end of the

seventeenth century increased the ability for companies to borrow funds, which led to an

increase in the quantity of joint stock companies from fifteen to a hundred and fifty in a

matter of six years.

12

The earliest evidence of stockbrokers in England appears in the late

seventeenth century and in 1692 the trade was important enough for the weekly

periodical Collection for Improvement of Husbandry and Trade to begin publishing stock

prices for eight companies.

13

Initially brokers dealt in stocks as a side business

but eventually people began

specializing in stockbrokerage.

14

They traded at the Royal Exchange, which housed other

merchants such as grocers, druggists, and clothiers.

15

As the number of stockbrokers

grew it became evident they were not entirely welcome at the Royal Exchange, and in

9

Smith (1929: 206), Wincott (1946:1).

10

Kindleberger (1984:196). The Amsterdam Bourse of the seventeenth century is what would considered

the first stock market (Allen and Gale, 1994:13). This paper focuses on the growth of stock trading in

London, which eventually became the more developed market.

11

Jenkins (1973:13).

12

Jenkins (1973:18).

13

Houghton (1727), Neal (1987:99).

14

Jenkins (1973:19-20) points out, “they were by no means necessarily stock-brokers. They could deal in

anything they liked—stockes, gold, haberdashy, fish, bread, carpentry, spectacles, even bows and arrows.”

 

 

 

 

 

 

 

Page 5

4

1696 the government passed an act “To Restrain the Number and the Practice of Brokers

and Stockjobbers.”

16

This act was to regulate and license brokers but they were able to

avoid it merely by leaving the Royal Exchange and setting up business elsewhere in the

city.

17

With the exception of dealings in foreign issues most brokers left the Royal

Exchange in 1698.

18

The Use of Coffeehouses

Since there was no area designated as a stock exchange, trading took place in

informal quarters, largely in the various coffeehouses between Cornhill and Lombard

streets.

19

Eighteenth century writer Thomas Mortimer wrote the “usual rendezvous of

Stock-jobbers” was “Jonathan's Coffee-house, in Exchange-Alley.”

20

The coffeehouses

accommodated various brokers, some of whom even had offices there.

21

One broker put

out the following advertisement in 1695 in Collection for Improvement of Husbandry and

Trade, “John Castaing at Johnathan’s Coffee House on Exchange, buys and sells all

Blank an Benefit Tickets; and all other Stocks and Shares.”

22

Brokers would go to the

same coffeehouses everyday to conduct their business.

23

One who had been successful in

15

Wincott (1947:7).

16

Lest it be thought that the atmosphere was completely laissez faire there were quite a few restrictions on

the market (Banner, 1998) but from a modern economics viewpoint we can tell that most all of them were

not advancing the market.

17

Reed (1975:5), Morgan and Thomas (1969:22-24).

18

Some trading took place on the streets and alleys but as of 1700 London city officials did not allow such

congregating in an effort to keep the streets clear. (Morgan and Thomas, 1969:27; Wincott, 1947:7).

19

Jenkins (1973:20), Wincott (1946:7).

20

Mortimer (1801:xvi).

21

Jenkins (1973:40).

22

Reprinted in Mirowski (1981: 564).

23

The English coffeehouses were different from most modern American coffee shops, serving bottled beer,

wines, spirits, sandwiches, biscuits, and cheese in addition to coffee. (Jenkins, 1973:41), (Morgan and

Thomas, 1969:67). Various coffeehouses provided their customers with a meeting place that appealed to

different types of people: writers and critics went to Will’s, philosophers went to the Grecian, White’s

Chocolate House attracted gamblers, and Lloyd’s Coffee House, which later became Lloyd’s of London

specialized in shipping and marine insurance. (Jenkins, 1973:41; Raynes, 1948:110).

 

 

 

 

 

 

 

Page 6

5

his dealings was described by his peers as, “the leader and oracle of Jonathan’s Coffee

House.”

24

Since this was what might be considered a more complicated market and it was

common to make bargains that were settled quarterly there were many things that could

go wrong.

25

One problem was deliberate fraud. John Houghton wrote in his periodical in

1692, “Without a doubt, if those trades were better known, 'twoud be a great advantage to

the kingdom; only I must caution beginners to be very wary, for there are many cunning

artists among them.”

26

Another problem was unintentional default. Since many weeks

could pass before trade came to completion brokers ran the risk of if their trading

counterparts not being able to pay on settlement day. Mortimer stated, “problems arise if

the person making the trade does not have the ability (cash) to settle, for in many cases a

broker and his customer had no money.”

27

The first response to this problem is we see defaulters being shunned and banned

from the Jonathan’s. If a broker did not follow through with his bargains he was labeled

a lame duck. In 1761 Thomas Mortimer’s described a lame duck as “A name given in

’Change Alley to those who refuse to fulfil their engagements…There are some at almost

every rescounter. The punishment for nonpayment is banishment from Jonathan’s but

they can still act as brokers at the offices.”

28

They did not physically punish bad brokers

but merely turned them away from the coffeehouse; being expelled from meant a

significant loss of business for a broker.

29

24

Morgan and Thomas (1969:46).

25

Mortimer (1801:47), Dickson (1967:491).

26

Houghton (1727:5).

27

Mortimer (1801:53-4).

28

Reprinted in Morgan and Thomas (1969:61).

29

Jenkins (1973:44).

 

 

 

 

 

 

 

Page 7

6

Despite being banished defaulters would later come back to the coffeehouses,

which would pose a problem for those who were unaware they were dealing with

someone with a bad track record. As a solution they decided to write the names of

defaulters on a blackboard as a warning to others not to deal with them.

30

This form of

boycott acted as form of non-coercive enforcement against those who were unreliable.

31

Forming an Exclusive Club

While shunning functioned to a degree, eventually some brokers decided that

coffeehouses open to the public left more to be desired. Brokers felt the need to become

more exclusive to avoid having to deal with, in the words of one historian, “riff-raff.”

32

During the time period different groups experimented with different settings to trade

stocks or other securities. In 1765 the Bank of England built a Rotunda where trading

took place but this did not prove to be successful. An 1824 book described the trading

there of a “less respectable description.”

33

Brokers were noisy and were generally

considered with disrepute. These settings were too chaotic to conduct business so a better

solution was needed.

34

It is not surprising that hoards of traders, including dishonest ones, would attempt

to conduct business in the same few places. With the potential gains high, cheaters could

theoretically dissipate the rest of the traders’ profits. Eventually one group of brokers

devised a strategy to eliminate some of the disarray. In 1761 Thomas Mortimer wrote,

“The gentlemen at this very period of time…have taken it into their heads that some of

30

Morgan and Thomas (1969:61).

31

Caplan and Stringham (2001) discusses boycotts as an enforcement mechanism.

32

Jenkins (1973:44).

33

Reprinted in Michie (1999:44).

34

Jenkins (1973:44), Morgan and Thomas (1969:58-59). We can imagine if such an arrangement was

successful trading might take place in establishments such as the London Stock Rotunda and the New York

Stock Rotunda.

 

 

 

 

 

 

 

Page 8

7

the fraternity are not so good as themselves…and have entered into an association to

exclude them from J-----‘s coffee-house.”

35

In 1762 one hundred and fifty brokers formed

a club and contracted with Jonathan’s Coffeehouse to use it exclusively. Each member

would pay eight pounds per year to rent out the Coffeehouse.

36

By transforming

Jonathan’s into a private club they would be able to exclude nonmembers and expel those

who were unruly. Historians refer to the founders of the club as the ‘more substantial’

37

and the ‘better sort’

38

of brokers. If only reputable brokers were allowed in the club there

would be a lot less potential for bad dealings.

Unfortunately for the new venture an ejected broker brought suit against the

newly formed club and the government interfered with their plans by declaring that

Jonathan’s Coffeehouse did not have the right to exclude outsiders.

39

This put a damper

on using coffeehouses as a private exchanges so as an alternative strategy in 1773 brokers

organized to purchase a building for their own. This new building was known as New

Jonathan’s and was open to anyone so long as they paid the daily admission fee, which

covered expenses such as rent.

40

In 1773 the Gentlemen’s Magazine reported, “New

Jonathan’s came to the resolution that instead of its being called New Jonathan’s, it

should be called The Stock Exchange, which is to be wrote over the door.”

41

Although it

was known as the Stock Exchange it must be noted that it is different from modern

notions of a Stock Exchange. In 1801 Thomas Mortimer stated, “Brokers assemble at a

35

Reprinted in Smith (1929:215).

36

Morgan and Thomas (1969:68).

37

Morgan and Thomas (1969:68).

38

Jenkins (1973:45).

39

Morgan and Thomas (1969:68), Jenkins (1973:45).

40

Wincott (1946:9).

41

Reprinted in Jenkins (1973:45)

 

 

 

 

 

 

 

Page 9

8

very large coffeehouse, called the Stock-Exchange.”

42

This coffeehouse/stock exchange

had no formal membership and was run by two committees, one representing the

coffeehouse owners and another representing the customers.

43

Still there was no formal membership and anyone could enter upon paying the

daily entrance fee. The fee might have been enough to keep out some vagrants but after a

few years it became evident that it did not suffice. The price of admission was low

enough that untrustworthy brokers were still present causing problems for both investors

and brokers.

44

Brokers wanted to have an even more exclusive club and in 1801 they

decided to require that entrants be d members.

45

They posted the following:

The Proprietors of the Stock Exchange, at the solicitation of a very considerable

number of the Gentlemen frequenting it, and with the unanimous concurrence of

the Committee appointed for General Purposes, who were requested to assist them

in forming such regulations as may be deemed necessary, have resolved

unanimously, that after 27 February next this House shall finally be shut as a

Stock Exchange, and opened as a Subscription Room on Tuesday 3 March at ten

guineas per Annum ending 1 March in each succeeding year. All person desirous

of becoming rs are requested to signify the same in writing to E.

Whitfor, Secretary to the joint committees on or before 31 inst. In order to their

being balloted for by the said committees.

46

Brokers were required to follow a set of rules in order to be a member of the

Subscription Room. They stated in 1801 that it “being desirous that the Stock

Subscription Room should acquire and preserve the most respectable character and

considering that for such purpose it is indisputably necessary to prevent the practice of

every disorderly action” they would levy fines on rule breakers “to be paid to the

Secretary of the Committee for general Purposes and by them applied to charitable

42

Mortimer (1801:150).

43

Morgan and Thomas (1969:68), Jenkins (1973:45).

44

Wincott (1946:13).

45

Morgan and Thomas (1969:68).

 

 

 

 

 

 

 

Page 10

9

uses.”

47

This new enforcement mechanism would inhibit misconduct by keeping club

members under control.

As with all new ventures there were some wrinkles in this new Stock Subscription

Room and it would take some reorganization before problems were ironed it. Many of the

frequenters did not want to see the changes and were generally uncooperative. One

member was fined but refused to pay contending that he should not have to go along with

the new rules.

48

In the following months the Stock Subscription Room disintegrated,

leaving those who desired a stricter more exclusive club with no choice but to go off and

start a new exchange. With much preparations and an offer to old exchange brokers to

become members, they raised funds by issuing four hundred shares at

ç

HDFK

R

I

ZKLFK

each person could own up to four shares, and constructed the new building over the next

year.

49

Challenges and Competition

The new Stock Exchange at Capel Court could now enact rules that had been

unanimously agreed upon by it members but not surprisingly the excluded brokers were

unhappy with their position.

50

In 1810 some petitioned the government to undermine the

Stock Exchange by forcing it open to the public. The proposed bill stated:

There is at this time no open Public Market for the sale and purchase of the Public

Stocks, Funds, Government and other securities; and that they place wherein the

chief part of this business hath been hitherto and is now transacted, is a private

room from which the public is excluded; and it would be of great convenience and

46

Reprinted in Michie (1999, p.35).

47

Reprinted in Morgan and Thomas (1969:69). It is interesting to note that the fines were donated to

charity rather than used a means of enriching those levying the fines. For an account of the rise of criminal

law as a means of enriching the government see Benson (1990, 1994).

48

Morgan and Thomas (1969:69). Interestingly one David Ricardo was a member at this time but he

eventually resigned. (Jenkins, 1973:51).

49

Morgan and Thomas (1969:70), Reed (1975:23).

50

Around this time the Bank of England considered building a new public exchange it decided against it.

(Morgan and Thomas, 1969:71).

 

 

 

 

 

 

 

Page 11

10

advantage to His Majesty’s subjects if a public open market were established in a

suitable situation for the purchase and sale of the said Stocks, Funds and

Securities.

51

If the government interfered with this private arrangement the untrustworthy brokers

could have achieved forced access into the new location.

Fortunately for the Exchange the government did not demand public access as it

had in the case with Jonathan’s Coffee House. A member in declared that the 1810 bill

was, “under the specious pretext of creating an open Stock Market within the City of

London,” but that it truly was, “to shelter convicted defaulters and afford new facilities to

the criminal designs of notorious and unprincipled gamblers.” With its establishment the

Stock Exchange would be “open to honourable men and closed shut for ever to notorious

cheats.”

52

The London Stock Exchange was now able to enact and enforce rules internal

to its members; anyone who was not a member was barred from the premises.

53

The fact that membership is costly and exchanges can expel brokers has led some

to call this exclusivity an example of cartel behavior.

54

Could it be that such cooperation

between brokers was simply a form of collusion?

55

While the ability to enforce rules does

allow brokers to punish non-cooperators, it does not enable them to enforce any rule they

wish. As Mahoney points out:

An exchange's attempts to charge a monopoly price for its members' services will

harm only the members if the exchange faces sufficient competition from other

markets. Other exchanges will capture trading volume by offering lower

transaction costs and investors will be no worse off by virtue of a foolish attempt

to charge a monopoly price in a competitive market. If stock markets face

51

Reprinted in Morgan and Thomas (1969:72).

52

Reprinted in Morgan and Thomas (1969:72).

53

Johnstone (1814:9).

54

Demsetz (1969:19-22), Welles (1975).

55

Cowen (1992) and Cowen and Sutter (1999) claim that cooperation between competitors is a recipe for

collusion.

 

 

 

 

 

 

 

Page 12

11

sufficient competition, then, restrictive rules will survive only to the extent they

are efficient.

56

Rules that enhance the value of the product, such as assurances against fraud, will be self-

enforcing, and as long as there are no legal barriers to entry, rules that are collusive will

break down.

57

If Exchange rules were simply collusive, customers would gladly seek

brokers who did not follow the rules and charged less for the same service. This

competition would make the cartel dissolve. On the other hand, if the rules were actually

providing assurances against fraud, there would be little incentive for customers to

actively seek out brokers who did not abide by Exchange rules.

58

At the time, the London Stock Exchange members faced competition from a

number of sources making the market quite contestable. Those who wished to operate

outside of the Stock Exchange’s rules could conduct business at private offices, the Royal

Exchange, the Bank of England, other regional exchanges, or in foreign exchanges such

as the Amsterdam Bourse.

59

This competition kept a check on the Stock Exchange from

enacting rules that are highly inefficient. In some cases rules were too onerous but were

struck down because of the threat of losing business to nonmembers.

60

These outsiders

were considered an “annoyance,” which is hardly surprising since they were in direct

competition. To attract business the London Stock Exchange advertised in the press

56

Mahoney (1997:1477). Mahoney (1997:1482) adds, “Restrictive exchange rules may appear more benign

when viewed as a means of preventing free riding and appropriation by non-members.”

57

Telser (1980), Caplan and Stringham (2001). Collusive rules will face pressure both from outside

competition and from within the exchange. As Mahoney (1997:1491) writes, “The fact that different

exchange members have different preferences regarding restrictive rules reduces the danger of a stable

brokers' cartel.”

58

This is not to say that customers would only use brokers who were members of the Exchange. Brokers

who established enough trusting relationships would be in less need of Exchange rules and bargain hunters

who were willing to take their chances with a bucket shop could do so.

59

Mortimer (1801:76), Kregel (1995: 468), Morgan and Thomas (1969:140), Michie (1985:61-82), Neal

(1987), Stringham (2001).

60

Morgan and Thomas (1969:140).

 

 

 

 

 

 

 

Page 13

12

publicizing that nonmembers were not “under the control of the Committee,”

61

serving as

an indication that members of the London Stock Exchange were more dependable.

For many years the London Stock Exchange had no formal constitution and it was

not until 1812 when they issued their first rulebook.

62

The need to attract business not

legal rules made the exchange act in a judicious manner.

63

It was in the interest of the

exchange to have a good reputation otherwise it would lose business. In 1877 even the

government declared that the Stock Exchange’s rules, “had been salutary to the interests

of the public” and that the Exchange acted “uprightly, honestly, and with a desire to do

justice.” It concluded saying that their private rules were “capable of affording relief and

exercising restraint far more prompt and often satisfactory than any within the read of the

courts of law.”

64

The club has an incentive to make sure the exchange is operating

properly so will enact and enforce rules as efficiently as they know how. A disinterested

court or regulator on the other hand would have little incentive and even less knowledge

to be able to enforce the rules of a stock exchange.

65

Conclusion

Although there may good reason to worry that in a complicated stock market

there are greater chances of fraud, it seems clear that there was no missing market in this

realm. Rather than relying on public regulation to enforce contracts, brokers consciously

found a way to solve this dilemma by creating and enforcing a system of private rules.

Since it was their goal to promote trade, the interest of the members was aligned with the

61

Reprinted in Morgan and Thomas (1969:141).

62

Mirowski (1981:573), Morgan and Thomas (1969:74).

63

Boot et al. (1993:1178) write, “Since a discretionary guarantee of a highly reputed guarantor can be more

valuable than an enforceable guarantee of a less reputable guarantor, prices of discretionary guarantees

need not be less than those for enforceable guarantees.” On the importance of incentives rather than legal

rules see Hasnas (1995a, 1995b) Klein (1997).

64

Reprinted in Wincott (1946:27).

 

 

 

 

 

 

 

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13

interest of its customers. It was their ability to experiment and their need to attract

business that allowed for the discovery of better ways of organizing and self-regulating.

Under laissez faire, firms and clubs, such the London Stock Exchange, can choose

to organize in any way they wish, and those that find successful ways of operating will

flourish.

66

Since the London Stock Exchange did not have a legal monopoly it needed to

make sure that its existence was beneficial. Dennis Carlton writes, “It is useful to view

exchanges as competing (or potentially competing) with each other. As in other markets,

competition is a substitute for regulation. The more competition there is, the more likely

it is that exchanges themselves will promulgate rules and regulations that benefit and

protect consumers in much the same ways as competition in other markets protects

consumers.”

67

When exchanges are free to organize without government regulation it

allows for the discovery process of the market to operate. In their quest for more profits

brokers will have the incentive to discover better ways of self-policing. The evolution of

the London Stock Exchange provides evidence that beneficial regulations can be created

through the market.

65

Stringham (1999).

66

Other stock exchanges such as those in America evolved with quite different structures. (Michie, 1986).

67

Carlton (1984,259).

 

 

 

 

 

 

 

Page 15

14

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John TWB <jtwbjakarta wrote:

 

Hi Iver

 

RE: LSE (not the school)

 

I'll refer to my files and comment shortly.

 

RE: CORRIGENDUM on NYSE: Time moment on Feb 21, 1820 should have read "at about 12:00/1:00 pm" ....(Sorry, must be Mercury at work) .......John

 

del iver <deliver1900 wrote:

 

hi John

thanx

 

Q: any thoughts on London Stock Exchanges ?

 

thanx in advanze

IverJohn TWB <jtwbjakarta wrote:

 

 

(I wish to thank Ted Gormick, Canadian, student of

 

 

Meet the all-new My – Try it today!

 

 

ALL-NEW Messenger - all new features - even more fun!

Win a castle for NYE with your mates and Messenger

[Guest guest]

John

wow, what a champ !

you broke the record yet again !

many thanx.

Iver

John TWB <jtwbjakarta wrote:

 

Hi Iver & Group

 

The London Stock Exchange was born on March 3, 1801 between 11:00 am & 12:00 noon.