INVESTORS AND THE STOCK EXCHANGE.
SECOND ARTICLE.
In a former article we endeavoured to explain the modus operandi of Stock Exchange transactions; and our object now is to make a few remarks upon the rights and duties of investors and members of the Stock Exchange respectively. As formerly explained, when any business is transacted on the Stock Exchange, the broker always renders to his client a contract containing the particulars of the transaction, which is understood to be carried through in accordance with the rules and regulations of the Stock Exchange. These rules have been compiled with the strictest regard to the rights and duties of both parties, and are altered from time to time as circumstances may require. They are in complete accordance with the law of the land; and when any question has arisen in regard to Stock Exchange affairs, the courts of law have invariably allowed that those rules have been framed on the most equitable principles.
When a contract has been rendered, broker and client are equally bound to fulfil their part of it: the broker, in the case of a purchase, to deliver to, his client an authentic certificate of the stock, and in the case of a sale, to pay for the stock on delivery of a properly executed transfer; the client to pay the consideration-money, &c., when the stock is purchased for him, and to deliver the transfer duly executed, with the certificate, when the stock is sold. Many investors, while looking very sharply after their rights, entirely lose sight of their duties, and altogether forget that there must be two parties to every contract. When a man sells stock, he is entitled to a cheque for the proceeds the moment he hands the executed transfer to his broker, and no sooner; and when stock is purchased, the broker is entitled to receive the purchase-money when he delivers the transfer to his client for signature, and no sooner. Many persons, however, imagine that if they send their broker a cheque for stock bought a day or two after the account-day, it will be time enough, being ignorant of the fact that the latter is obliged by the rules to pay for the stock when it is delivered to him, either on the account-day or any subsequent day. Those living at a distance from London should therefore be careful to let the money be in the hands of their broker on the morning of the account-day at the very latest; or if they object to pay for stock before receiving it, should instruct a banker in the City to pay for the stock, or proportionately for any part, on delivery, so that the broker may not be out of the money. Of course, brokers are not supposed to have unlimited balances at their bankers, and it is frequently a real hardship for them to be obliged to find the money as best they can. The Stock Exchange rules admit of no delay whatever, and must be acted up to by the members, without any regard to the negligence or inattention of the investor.
When stock payable to bearer is not delivered to the buying-broker on the account-day, he has the power, on the following day, of ordering it to be purchased, or ‘bought in’ as it is called, in the market for immediate delivery, and any loss consequent upon the buying-in must be paid by the seller. In the case of registered stocks, however, ten days after the account-day are allowed for delivery. This is only reasonable, as a deed of transfer frequently requires the signature of several sellers, or the seller may reside at a distance, and thus delay cannot be avoided. On the expiry of the time named, the broker can ‘buy in,’ as in the case of stock to bearer. If the buyer of stock to bearer does not receive the stock from his broker within a day or two after the account-day, or registered stock within about ten days after the account-day, he has a perfect right to know the reason of the delay, and failing any proper excuse, should give instructions to ‘buy in,’ as explained above.
The Committee of the Stock Exchange have always done everything in their power to insure the strict fulfilment of all bargains entered into by the members; and if any investor feels aggrieved or thinks he has been unfairly dealt with, a letter addressed to the Committee will at once bring the culprit to book. Accounts are settled fortnightly, about the middle and end of each month; and every member of the House prepares, or ought to prepare, a balance-sheet, showing exactly how he stands on these occasions. If a member finds that he is unable to meet his engagements, he should at once notify the fact to the Committee, when he will instantly be declared a defaulter. This disagreeable duty is performed by an official of the Stock Exchange, who, after three knocks with a hammer, which resound through the House, intimates that ‘Mr —— begs to inform the House that he is unable to comply with his bargains.’ If, as frequently happens, the defaulter has issued cheques on the account-day which have been returned by his banker, the formula is: ‘Mr —— has not complied with his bargains.’ After such declaration, the defaulting member is precluded from any further dealings with his fellow-members, and his affairs are placed in the hands of the official assignee, who proceeds to wind up the estate and distribute whatever dividend it will realise. The sound of the dreaded ‘hammer’ produces universal stillness and apprehension, and where a few seconds before was heard the hum of many voices and the sound of hurrying feet, now every ear is on the alert to hear the name of the proscribed member. As soon as the name is announced, it is posted up in a conspicuous part of the House, exposed to the gaze and subject to the derogatory remarks of the members for the rest of the day. As may well be imagined, the fact of having been ‘hammered,’ whatever a man’s future life may be, casts a dark shadow which cannot be got rid of; and investors may be quite certain that the members of the Stock Exchange will strain every nerve to avoid the disgrace. The rules of the House are, however, inexorable, and the fatal hammer must sound if engagements are not strictly and promptly met. In no trade, business, or profession does the punishment follow so quickly upon the offence, and it would be well if all commercial and financial default were as promptly declared to the world.
As will be seen from what we have said, the rights and duties of investors and members are clearly defined, and both parties have a right to expect them to be carried out with punctuality. Promptitude is praiseworthy under all circumstances, but on the Stock Exchange it is essential for the sake both of members and investors. No slovenliness or easy slipshod habits of doing business should be permitted on either side; and investors, while insisting on their rights, should bear in mind that their contracts with their brokers ought to be carried out with exactitude on their part, to enable the latter to fulfil their duties towards their fellow-members.
One other point we would urge investors to bear in mind, and that is, that stockbrokers are not prophets. Many investors, especially ladies, think the reverse. We have frequently heard very hard words indeed used towards brokers who have been unfortunate enough to advise a purchase which has turned out badly; but a moment’s thought must demonstrate the folly of such expressions of feeling. If a broker knows positively what course the market is to take in any particular stock, he has only to buy or sell it to the amount required for producing the profit he desires. Many investors, however, when smarting under losses, are apt to rush to conclusions which reflection proves to be utterly unjust. It is true that stockbrokers ought to be better acquainted with stocks and everything pertaining thereto than the large majority of investors; but it is absurd to suppose that their views should never be wrong. Let investors be satisfied with a reasonable rate of interest, never buy stock without the advice of a stockbroker, never buy what they cannot pay for, or sell what they are not prepared to deliver, and we are certain there would be fewer sleepless pillows and more money in the coffers.
Speculation, we fear, is inherent in the human constitution, and all that we can say on the subject is not likely to put a stop to it. It is natural to the human animal to desire to make money without working for it, and no doubt such a state of affairs will exist to the end. But experience teaches. We once heard an old man, who had been a large speculator in his early days, say that if he had put his money into consols when he first began to save, and continued doing so, instead of running after high rates of interest, he would have been a very much richer man in his old age. In the furious race for riches, we feel certain that the steady investor has the best of it; and the man who is not even able to do more than make both ends meet is infinitely happier than he who spends restless days and sleepless nights in the pursuit of that sudden wealth, which he, in all probability, goes down to his grave without acquiring.