Moreover the Commission exonerated the Stock Exchange from the charge that it encouraged gambling. It found that the members with whom the purchases and sales of stocks and shares were effected were, in the majority of cases, entirely unable at the time of executing the orders to distinguish between those which were made speculatively and those which were connected with investment. The Commissioners did not think it practicable to render gambling business any more illegal than it already was. Those who indulged in it in the Stock Exchange, the Commission found, were mainly the younger and more necessitous members, and it suggested that the Committee should hold a restraining hand over them, meting out severe punishment where extravagant speculation had been indulged in or encouraged by a member. Closely connected with this subject was a recommendation as to the readmission of defaulters. It appeared that during the decade preceding the Commission's inquiry, 265 members had been in default, 116 had applied for readmission, and 105 had obtained it. The Commission expressed the opinion that such a proportion of readmissions was excessive, and that the rule of the Stock Exchange should be against the readmission of a defaulter except in very special circumstances, unless his default had been brought about by the conduct of others, and not through his own fault. It was also recommended that when a member was declared a defaulter, the fact should be communicated to the outside world, and this is now the invariable custom, a notice being sent to the Press for publication.

In a half-hearted kind of way the Commission also recommended that the outside world should be admitted to the Stock Exchange, but this recommendation has never been carried out. The Commissioners declared that the public was able to rely upon reasonable speed and certainty in the transaction of business, and that there was as small a difference between the buying and the selling price of a security as could be obtained in any other market; yet they thought that if it were possible it would be desirable that the House should be open to the public, not because it would give a client any real control over the deal which his broker was carrying out for him, but because it might remove certain jealousy and suspicion which was created in some minds by the privacy of the House. Even in putting forth the suggestion thus mildly, the Commission admitted that the building was hardly adequate to the accommodation of its members, and that business might be impeded if strangers were admitted.

The question of the commission charged to the public by the brokers was brought before the Commissioners, but they refused to report in favour of an official fixed tariff, or against sharing commissions with runners, or against the practice of taking a double commission on certain transactions; but they expressed the opinion that where the commission was so divided, or a double commission was so earned, the client should be informed of the fact. As has been shown, this question of double commissions is closely connected with the question of the distinction between the broker and the jobber, and this distinction met with entire approval in the Commissioners' report.

On the vexed question of dealings in shares before allotment, the Commission gave the Stock Exchange Committee the credit of having done all that could be expected to cope with it. The Commission attributed the scandals which had arisen, however, to the system under which the Committee first permitted such dealing to take place, and then, when unfair advantage was taken of the permission, refused to enforce the completion of the deals by fixing the special settlement. The Commission had been informed by the representatives of the Stock Exchange that although the Committee would persist in enforcing the fulfilment of bargains in shares before allotment, as debts of honour, even although such bargains were declared by the law of the land illegal, yet, if they were so declared, the rules of the Stock Exchange would be made to conform to the new law. Accordingly the Commission recommended legislation prohibiting dealings before allotment under sufficient penalties—a recommendation which it has hitherto been found impracticable to adopt.

The question of quotation in the Stock Exchange Official List came in for a good deal of attention at the hands of the Commission. It was not satisfied with the investigation which the Committee made before giving securities a place in the list. It was not that the investigation lacked thoroughness; on the contrary, the Commission seemed to find that the investigation went too far, with the result that inclusion in the Official List gave the security in the mind of the public a stamp of soundness, stability, and genuineness to which it was not entitled. The Commission was of opinion that the investigation should be only into mere formalities, and that it should be made abundantly clear to the public that admission to the list meant nothing more than that the loan or company had complied with these formalities—that its appearance in the list had nothing to do with its desirability from the point of view of the investor. The Commission admitted that the somewhat fuller investigation which the Committee made was of use, and had in many instances been the means of detecting fraud; but it held the view that whilst it was the duty of the Committee to find whether the security was fit to be quoted in the list and placed in the market, it was not its duty to give it the stamp of being a desirable investment. The Commission went so far as to suggest that if any inquiry into the stability and soundness of a stock were deemed necessary for the public protection, such inquiry ought to be undertaken by some public functionary and enforced by law. The Commission also made some recommendations of minor importance as to the manner in which the prices were quoted in the Official List, but its suggestion that a public functionary might be appointed to determine what securities were fit for public transactions was one of the boldest in its report.

Finally the Commission recommended that the Stock Exchange should be incorporated! This was quite revolutionary in its boldness, and it was a distinct recommendation, not a mere suggestion. The Stock Exchange, the Commission thought, should be incorporated by Royal Charter, in order to give permanence to the admittedly excellent rules by which the body was governed. At any election, the Commissioners held, the Committee might be reorganised by the whim of a majority of members, and its existing rules, as well as any further reforms that might be wrought, might be repealed. The Incorporated Stock Exchange, it proposed, should remain governed as it then was, but subject to the provision that no alteration in the rules and regulations should become operative until approved by the President of the Board of Trade or some other competent public authority. At the same time, this outside interference, it was recommended, should be exercised with a sparing hand. Any attempt to reduce the rules to the limits of the ordinary law of the land would, in the opinion of the Commission, be detrimental. The Commission seemed of opinion that the Stock Exchange would welcome incorporation, but it proposed, apparently as a kind of sop, that if it accepted the recommendation it might well be granted a monopoly of stockbroking—in other words, it proposed that if the Stock Exchange were incorporated it should have the exclusive right of licensing people to act as stockbrokers, which, of course, would do away with the outside broker altogether. In any case the Commission seemed to deem it very important that all stockbrokers should be licensed. They used to be so licensed in the City of London by the Corporation, but by degrees the control of the Corporation was broken down. In the event of the Stock Exchange refusing incorporation, the Commission recommended that some public functionary—it seemed fond of public functionaries—should be appointed to exercise authority and discretion in granting and withdrawing stockbrokers' licences, both to members of the Stock Exchange and to others.

This report of the Commission was by no means unanimously approved by the dozen Commissioners, of whom four signed it with stated reservations. One principal point of objection was the proposal to legislate against dealings before allotment, which it was contended would stop a vast amount of legitimate business because a few exceptional cases of abuse had arisen. Another principal objection was to the proposal to appoint a public functionary to supervise quotations in the Official List, it being contended that no functionary would be equal to the task of saying what were sound securities, and that the Stock Exchange Committee made no attempt so to do in granting a quotation. Another objection was to the proposal that the Stock Exchange should be incorporated, it being contended that the Stock Exchange had flourished, and had performed its functions as a voluntary association in a manner which had commanded the entire confidence of the public. It will be observed that the reservations rather than the report itself have prevailed.

CHAPTER XIV
A SKETCH HISTORY

Having seen what the Stock Exchange is, the work it does, and how it does it, and having considered the criticism and commentary of the Royal Commission on these points, we may with interest take a glance over the history of the Stock Exchange. For one thing, a brief sketch will indicate how the great institution has been evolved.