The questions which arise between members of the Stock Exchange themselves are far more easily settled, thanks to the autocratic power of the Committee, to which members are amenable. A member does not care to offend the Committee, even if he feels that the treatment he receives at the hands of its officials constitutes an unjust hardship. The defaulter, who has to place himself unreservedly in the hands of the Official Assignees, giving up his books and so on, may feel less amenable, especially as he has ceased to be a member of the Stock Exchange, and has little to gain by obedient acquiescence, but considerations of the possibility of readmission generally assert themselves. These considerations are naturally important, because they mean the resumption of his profession. Any refusal to deliver up books, or any placing of difficulties in the way of the Official Assignees, means the postponement of readmission, if it does not render it impossible.
A defaulter may be readmitted upon application, if the small sub-committee appointed from the Committee to consider the case finds that he is entitled to readmission. As a result of an examination of his books showing the kind of accounts he had open, and as a result of an inquiry into his conduct preceding and subsequent to his failure, they report as to whether the failure has arisen through his own speculations or through the failure of his principals, whether he has been guilty of any bad faith or breach of the rules, whether the amount involved in his engagements was in reasonable proportion to his means and resources. Even where the conduct of a defaulter has been marked by indiscretion and by the absence of reasonable caution, the defaulter may be readmitted, but the decision of the Committee as to the readmission must remain posted in the Stock Exchange for thirty days, and the notice may indicate whether he is of the class of defaulters who have been brought down by misfortunes beyond their control, or of the class whose failure is brought about by rash speculation. In any case, no defaulter can be readmitted unless he has paid his creditors at least 6s. 8d. in the pound from his own resources apart from any moneys that may be receivable from his sureties. Moreover, the Committee expects that he shall make up any deficiency at the earliest possible moment until he has paid 20s. in the pound. For this reason the Committee periodically inquires into his position, and if a readmitted member were to become very prosperous and yet refuse to pay up his creditors in full, when the time for his annual re-election came round he might find himself left outside the fold.
CHAPTER XII
PRICE LISTS AND RECORDS
Foremost amongst the publications which emanate from the Stock Exchange, and there are a good many, is, of course, "The Stock Exchange Daily Official List." Its main purpose is to supply the outside world with an official record of the prices of securities. It is compiled under the authority of the Committee and the superintendence of the Secretary of the Share and Loan Department, and published by the Trustees and Managers. The Committee is thus the editor of the List, and is responsible for the accuracy of the prices and other particulars which it collects and sets forth. The List is an imposing publication of sixteen closely printed pages, and contains the names of over four thousand securities. It is issued at about 5 o'clock each evening (about 2 o'clock on Saturdays) and gives the prices at 3.30 (1 o'clock on Saturdays). The annual subscription for the List is £4, exclusive of postage, and single copies cost sixpence each. Long before the time of publication, every day there may be seen outside the offices a motley queue of commissionaires, clerks, and office-boys waiting for the copies as they are delivered from the press.
The securities quoted in the List may be described as favoured securities, for it is the ambition of every company to obtain an official quotation for its stocks and shares. Every week there is published by the Committee a list of those securities for which quotation is sought, and another list of those in the case of which the application has been granted. The Committee is never tired of asseverating that when it grants quotation in the Official List to any security it does not thereby imply that that security is of superior status to other stocks and shares which are not so quoted; but the fact remains that official quotation does, undoubtedly, endow a security with a certain prestige. There is always some kind of market in securities quoted, and it is more easy to borrow upon them at the banks; whereas it is impossible to buy or sell many securities not quoted without long negotiation, and some of them may not be recognised by anybody except the promoters who have issued them.
Before a security can obtain quotation in the Official List, it has to possess certain characteristics, and its sponsors have to conform to certain formalities. The idea of quotation is not to enable those interested in the loan or company to sell the securities; quotation is for the benefit of the public; indeed, before quotation is granted, at least two-thirds of the securities issued must have been allotted to the public as distinct from vendors and others. The formalities to be observed resemble in many respects those imposed in the case of the granting of a special settlement. The loan or company has to be of sufficient magnitude and importance. Such documents as the prospectus, which must have been publicly advertised, the articles of association, which are the rules of the company, the allotment book, showing the extent to which the securities have been publicly issued, the banker's pass-book, certified copies of contracts and concessions, have all to be deposited. It has to be stated that the certificates or bonds are ready for delivery, and that the purchase of the properties has been completed. These are roughly the requirements, and a broker has to be appointed in connection with the loan or company authorised and ready to give full information in answer to the inquiries of the Committee.
It will be noted that in considering applications for quotation in its Official List the Committee attaches importance to the production of a publicly issued prospectus. This is natural, for the prospectus is, as it were, the written guarantee of those offering the securities for sale to those who subscribe money for them. In spite of the requirement, however, the number of new companies floated without the issue of a prospectus is far greater now than it was before the Companies Act of 1900 was passed. Under the old law, the regulations as to the information which a prospectus should impart were far less stringent than they are at present, and company promoters, who then had no objection to issuing prospectuses, seem anxious to avoid their issue now. The directors of a certain class of company find it inconvenient to bind themselves down in writing to statements sufficiently attractive to induce subscriptions, and yet sufficiently true to stand investigation should questions subsequently arise. Thus even at the risk of sacrificing the possibility of quotation in the Official List, they prefer to issue no prospectus at all. Some of them in its place publish a statement which is described as being not a prospectus, and as being issued for public information only, not to invite subscriptions. Such a statement, of course, may contain all that is in favour of the company of whose shares it is sought to dispose, and yet need not contain particulars as to contracts and the like, which the law requires in a prospectus, and with which it is essential the subscriber should be acquainted.
When such a statement is issued, care is taken by the promoters that the shares are easily obtainable in the market, although the statement dare not invite subscriptions for them, for by so doing it would convert itself into a prospectus. Simultaneously with the publication of the statement, a process known as "making a market" goes on in the Stock Exchange. The promoter, who holds all the shares, arranges with a jobber to sell them. He probably gives the jobber a call on the shares at a certain price, and anything which the jobber can obtain for them over that is his profit. Then the promoter instructs some brokers to buy the shares and others to sell them, and in this way he produces a semblance of activity. It can easily be arranged that the price shall rise rapidly enough to attract attention. The buying may cost the promoter a good deal, but if a public demand is thus created, it is merely a case of the sprat to catch the whale. The public demand is not created, of course, through the honest brokers, who have no difficulty in seeing through the game, but with the aid of financial and other newspapers of a certain class. The character of these papers is notorious, but there seem to be always some among the public ready to be misled, and in this way the process of making a market sometimes succeeds even in these days of awakened intelligence in Stock Exchange affairs. It would succeed less if it were not the fact that some straightforward and successful companies exist to-day which have never issued a prospectus, and which in some form or other have made a market in their shares. It is conceivable, of course, that a market may be made naturally without the underhand expenditure of the promoter. But the manner in which the public has been fleeced over and over again by the process of market-making has led to much of the unpopularity with which the Stock Exchange has to contend. It is a glaring blot on an institution otherwise excellently managed, and it is not too much to hope that the Committee will at some time or other give the subject its attention.
That the Committee is aware of the importance of the issue of a prospectus, which places the shares of a company without the process of market-making, is shown by its requiring the production of the document before the securities can be quoted in the Official List. When they are so quoted, the list gives not only the latest price of the stocks or shares, but provides an adequate description of the security, states the total amount of the authorised issue, the amount which has actually been issued, the rate of the last interest or dividend payment, and the date when those payments are due. It also gives the nominal amount or the amount paid up on the stock or share, and by comparing this with the market price it can at once be seen whether the security stands at a premium, or at a discount, or at par. Ten-pound shares quoted at 13-1/2-14-1/2 are at 4 premium, 14 being the middle price between the selling price and the buying price, both given. One-pound shares quoted at 13/16-15/16 are at 1/8 discount; when the market quotation is exactly equal to the denomination of the share, the price is at par.