In the course of administering this code of honour the duties of the Committee become exceedingly varied. It holds an ordinary meeting every Monday, but special meetings may be called at an hour's notice, only seven members out of the thirty being required to form a quorum in the ordinary way. Its fiat may go forth censuring, suspending, or expelling a member—expulsion, of course, meaning the loss of his profession, practically the end of his career, and probably ruin. Or its fiat may go forth in mild protest against smoking in the House a few minutes before the regulation time, or, as the temptations of the 5th of November approach, appealing to members to desist from firework displays in the House. With the Committee, of course, rest the admission and re-election of members. It decides whether the House shall be closed on any day except the usual holidays—there is always the excuse of structural alterations, and, as everyone knows, building operations can be carried on much more readily on a fine summer Saturday than during the dark frosts of winter. It decides all disputes between members; arbitration amongst the members themselves is encouraged, but they frequently refer to the Committee as a last resort. From its decision there is no appeal. To have recourse to the law courts without the permission of the Committee—which is, of course, granted in special cases—probably means the loss of membership by the member, who at the very outset undertakes to submit absolutely to the Committee and its rules. The Committee may summon any member before it and demand information; its power is inquisitorial. It fixes the days of settlement of the various transactions which take place in the market, and it decides what stocks or shares shall or shall not be quoted in the Official Price List, which emanates daily from the Stock Exchange under the Committee's superintendence. The principal officers of the Stock Exchange responsible to the Committee are its Secretary, the Secretary of the Share and Loan Department, the Official Assignee, the Deputy Official Assignee, the Manager of the Settlement Department, and the Manager of the Buying-In and Selling-Out Department. The nature of their duties will become clear as we proceed.
Thus it will be seen the Stock Exchange is governed under a system of dual control—that of the Managers representing the proprietors on the one hand, and that of the Committee representing the members on the other. It is the system of a proprietary club. In its efforts for the good order and government of the House, the Committee has no funds that it can expend. It may make representation to the Managers, but it can do no more; although there is every sign that the Managers are always reasonably willing to accede to these representations. At the time of the imposition upon unauthorised clerks of those badges of which mention has been made, there was much delay in issuing them, and the story went round that whilst the Committee had declared their necessity, the Managers refused to advance the money to provide them. That was probably merely a playful little suggestion, but it serves as an illustration of the drawbacks of dual control. This dual control is, however, gradually becoming abolished under the operation of the rule which compels every new member to hold one or more shares in the Stock Exchange.
CHAPTER V
BROKERS AND JOBBERS
In the preceding chapters the Stock Exchange has been considered as an institution complete in itself, rather than as an important element in the world's business. We have obtained some idea of its constitution as it affects its proprietors and members rather than as it affects the outside public. The market-place and its frequenters are there, but we have not yet seen them at work, as we shall now proceed to do.
The members of the Stock Exchange are divided into two sections: the jobbers who are ever ready to buy from or sell to the public the wares in which they deal, and the brokers ever ready to act as agents for the public in their transactions with these jobbers. These brokers and jobbers—there are twice as many jobbers as brokers—are equal in all respects as members of the Stock Exchange; they pay the same fees and subscriptions, and they are governed by the same code of rules, although, of course, some of these rules are specially applicable to the one class and some to the other. At the outset a member of the Stock Exchange has to declare whether he proposes to act as a broker or a jobber. He may not act as both, or what would practically amount to the same thing, no partnership may exist between a broker and a jobber.
The system, the advantages of which are often called in question, is peculiar to the London Stock Exchange. It does not exist in New York, or in Paris, or in the other principal business centres of the world. It is obvious, however, that it acts as something of a check in the interest of the public unversed in the methods of the market. Were an outside buyer or seller to deal direct with a market professional, he would be entirely at his mercy, whereas by employing another market professional to deal for him he brings into play the principle of diamond cut diamond. It is quite easy to bid on one's own behalf in an auction room, but it is usually found more profitable to pay a commission to someone who knows the ropes; and the intricacies of auction buying are not to be compared with those of transactions in stocks and shares. That, of course, is not the only advantage of employing a broker as agent to deal with a jobber who is a merchant. The wares of the Stock Exchange are numerous and varied; more than four thousand separate securities are quoted in the Official Price List of the market, and the number of stocks and shares dealt in which are not quoted in this list is legion. One might wander about the Stock Exchange all day, and frequent hundreds of brokers' offices which surround it, without being able to find a seller of the certain stock one wants to buy, or a buyer of the certain stock one wants to sell. In the existence of the jobbers there is organisation. They stand in their own markets waiting either to buy or sell the few special securities in which they are always prepared to deal. In cases where there is intimate connection between a company and a jobber whom it employs to retail its securities, that jobber is called "the shop" in such securities. Jobbers are often called dealers; the broker, of course, deals in a sense, and so does the outside investor or speculator, but the term dealer is frequently used, to the confusion of the uninitiated, in the limited sense of being synonymous with the term jobber.
By making a speciality of a limited number of securities, the jobber is able to keep his finger on the pulse of the market, and to gauge accurately at any moment its supply and demand. He must do this in his own interest, for he must ever be ready to buy and sell at the demand of the broker whom the public sends to him. This is compulsory under the law of competition, for, of course although the jobber confines his attention to comparatively few stocks, he has no monopoly; there are other jobbers in the same market anxious to secure the orders which the brokers bring in. The jobber obtains his supply generally by purchase in the market, always endeavouring to charge a slightly higher price for it than that at which he has bought it or thinks he can buy it.
Thus he is to all intents and purposes a merchant, while the broker is an agent and an agent only, the agent of the outside public. The outsider buys from or sells to the jobber through the medium of the broker. The broker, except in special cases, may not do business direct with his client, although the rule is sometimes honoured in the breach; it is the custom of many a broker to inform the client of the name of the jobber from whom he has bought the stock, and it is within the right of the client even to examine the jobber's book to see that the transaction has been properly carried through. There are, however, special circumstances in which it is to the interest of both broker and client that they should deal with each other direct. For instance, if a broker, as not infrequently happens in the case of an active security, simultaneously receives an order to sell certain stock for one client and to buy it for another, it would obviously mean delay and expense, to the detriment of both clients, if the broker had to go into the market to sell the stock and to go into the market again to buy it. It is better for all concerned that the business should be carried out as a cross-transaction, even if in the process the broker receives a commission from both clients, as he would if he went into the market. He is allowed to arrange the cross-transaction, with the important provisions that he must distinctly inform the clients of the circumstances of the case and that he must not take commission from both parties.
The distinction between jobber and broker was for years a source of discussion often acrimonious in the Stock Exchange, and the long-suffering Committee was frequently called upon to decide delicate points arising out of the matter. The jobbers charged the brokers with acting as jobbers, and thus competing with them in their business. You have bought your mining shares, they said, not from us, but from a big mining house outside the Stock Exchange. The brokers countercharged the jobbers with acting as brokers, and thus competing with them in their business. You receive orders direct, they said, from certain provincial brokers who are not members of the Stock Exchange, whose business ought to come to us. But the grounds for these recriminations have now been removed by rules more clearly defining and separating the functions of jobber and broker respectively. The jobber is strictly forbidden to receive orders direct from the public or provincial brokers, and the broker must not receive a commission from more than one party on one transaction, and he must not execute an order with any non-member unless he can thereby deal to greater advantage than with a member.