A word should be said about the methods of London stockbrokers in carrying stocks for their customers, because this also is quite different from the practice in New York. Here the strongest houses rarely loan stocks, unless attracted by unusual rates of interest; in London it is the common practice of even the best houses to carry-over, or as we term it, loan, a great part of the commitments entered into during the account. One reason for this is that in London customers buy their stocks outright more frequently than is done here. Scalping small profits is not practised on anything like the New York scale. Most of the stocks dealt in do not pass from hand to hand like American stocks, but must have a transfer form with the name and address of the buyer and seller attached to the certificate. There is also a government stamp-tax of ½ per cent. on the money involved, which tax must be paid by the buyer when the stock is transferred to him. When the buyer sells this stock he may not have immediate use for the proceeds, and so, instead of delivering the stock standing in his name, he instructs his broker to borrow it from account to account, thus receiving interest on his money. The tax is a heavy one—figured in American money it amounts to $50 per hundred shares at par—and the Englishman very naturally resorts to methods such as these to recoup at least a part of it.
Again, from the stockbroker’s point of view, if he buys securities on margin for a customer, he (the broker) must either carry them with the jobber or with another broker, or he will have to pay the government tax himself. Naturally he hastens to loan them, because, should the client sell the securities in the course of the next account when they would have to be delivered, the broker would lose the tax. He avoids this loss by instructing a jobber to contango or carry-over the securities until the following account day. On the other hand, if the broker is certain that his client has purchased his securities for a long pull on a margin basis, he will often pay for the stock himself, transfer it to his own name, and willingly submit to the government tax, knowing that he can recover the outlay from the handsome rate of interest charged the client.
Another vital point of difference between the London and the New York Stock Exchange lies in the nature and volume of the business done. Americans are prone to think of their foremost Exchange as one which, in the volume and extent of its transactions, compares favorably with the great Bourses of the world; they like to think of New York as the financial centre of the universe, and they paint rosy pictures of America as a great creditor nation. But they err in each of these ambitious dreams. The New York Stock Exchange, with all its magnitude, cannot compare with its London prototype; New York is by no means the financial centre of the world, and America is not a creditor, but a debtor nation.
Perhaps in time America’s relationship to England and to the rest of the world may change in these matters—certainly its increase in per capita wealth and real property is such as to justify the hope—but at present the day when we may speak of American financial supremacy seems a long way off. We have not yet forgotten, for example, the panic of 1907, and our helpless situation as revealed by our demand for gold, nor are we likely soon to forget the funds that were then promptly supplied us by London without any dangerous depletion of the Bank of England’s reserve. So smoothly, so automatically are these large affairs conducted by the Bank that the outflow of gold to New York found a prompt response in the inflow from twenty-four countries, including the Colonies. Within six weeks after the American drain began, the bank’s stock of bullion actually exceeded its original store. Small wonder that Englishmen are proud of their bank; and that London should have become the world’s centre for the investment of capital and the diffusion of credit.
The New York Stock Exchange business differs radically from that of all other great Exchanges in the one respect that its dealings are practically confined to home corporations, whereas the Bourses in Paris and Berlin, and more particularly the Stock Exchange in London, embrace in their daily lists securities representing many different countries all over the world. Here we have Canadian Pacific Railway shares, and various Mexican Railway securities, together with some issues of Japanese and German bonds, London Underground Railway bonds, and a few others. But these, with the exception of Canadians, are dealt in sparingly and with a rather nominal market. Our list of securities is composed almost entirely of home rails and industrials companies, representing, to be sure, an enormous total of capital investment and signifying the tremendous growth of a comparatively new country backed by the energies of a thrifty and enterprising people, but compared with the London Stock Exchange’s Daily Official List ours is meagre in the extreme.
The London Daily List covers sixteen pages as large as our daily newspapers, each page printed closely in small type, and containing the names, amounts, interest dates, rates of dividend, and occasional quotations of approximately 4700 different listed securities. This long list, moreover, contains the names only of the securities that have received an official settlement and an official quotation as well. There are certainly as many more securities dealt in that have not received an official quotation and hence are not permitted to appear in the List, so that the total number of different securities represented on the London Exchange in one or both of these ways probably exceeds 9000, half of them occupying a position somewhat similar to the Unlisted Department which once had a place on the New York Stock Exchange, but which is now abolished.
It is the largest and most varied list of securities in the world. The price of a single copy is sixpence; it is published by the trustees and managers, under the authority of the committee. Not the least interesting feature of the List is its continued expansion in the last half-century. Up to the year 1867 one page sufficed, then four till 1889, eight till 1900, twelve till 1902, and sixteen thereafter, this expansion closely following the nominal value of the securities quoted, which were £5,480,000,000 in 1885 and £10,200,000,000 in 1909. The latter figure is about equal to the combined nominal capital value of the securities quoted on the Paris Bourse and the New York Stock Exchange. In 1907 the total number of bonds then listed on the New York Stock Exchange was 1100, and the total number of stocks 502, these together representing a total par value of $21,079,620,430. In 1912 this total amounted to 1,028 bonds and 555 stocks, with an aggregate par value of $26,243,291,803.
The London List is conveniently divided into thirty-eight different classes, among them British Funds, Corporation and County Stocks of the United Kingdom, Public Boards, Colonial and Provincial Government Securities, Indian and Colonial and Provincial Government Securities, Indian and Colonial Corporation Stocks, Foreign Corporation Stocks and Bonds, Ordinary Shares and Stocks of English Railways, Railways leased at fixed rentals, Railway Debenture Stocks and Guaranteed Stocks and Shares, together with preference shares, Indian Railways, Indian Native Raj and Zemindary loans, Railways in British possessions, American Railroad Stocks and Bonds, Securities of Foreign Railways, Banks and Discount Companies, Breweries and Distilleries, Canals and Docks, Miscellaneous Commercial and Industrial Companies, Electric Lighting and Power Companies, Financial, Land, and Investment Companies, Financial Trusts, Gas Companies, Insurance Companies, Iron, Coal, and Steel Companies, Mines, Nitrates, Shipping, Tea, Coffee and Rubber, Telegraphs and Telephones, Tramways and Omnibus, and Water Works. Of these the Commercial and Industrial Companies List is by far the largest, covering three pages.
A cursory glance over this really formidable Official List brings forcibly to mind London’s supreme position as banker, broker, and clearing house for the wide world, while it emphasizes the constantly increasing overflow of British capital into channels that make for enterprise and development even in the most remote quarters of the globe. Here we find set forth Ceylon, Fiji, Tasmania, and Cape of Good Hope debentures; Stocks of Saskatchewan, Antigua, Johannesburg and the Straits Settlements; Harbor Board Mortgages of Oamaru and Wanganui; Rangoon Sterling Loans; Municipal Stocks of Pernambuco; Budapest, St. Louis, Tokio, Lima and Aarhus; Ecuador salt bonds and bonds of the Grand Duchy of Finland; securities of the Greek Piraeus Larissa Railway, Honduras 10 per cent. loans, loans of Liberia, Persia and Siam, and certificates of the Venezuela Diplomatic Debt. There are securities of the Ionian Bank, the Natal Bank and the Bank of Abyssinia. The Terra del Fuego Development Company is represented, and likewise Amazon Telegraphs, Malacca Rubbers, Singapore Electrics, Rangoon Tramways, Montevideo Water Works, and Sao Paulo Match Factories. Soda and newspapers, theatres and sawmills, hotels and clothiers, sponges and molasses, soaps and cereals, these are some of the items that catch the eye as one glances over the List. What would be found there if all the securities admitted to the House were published in the List may be left to conjecture; and what will this eloquent array of enterprise in figures look like a century hence, if the List continues its present rate of growth?
As Great Britain is a country where there is never any difficulty about raising capital for the creation or extension of any business which offers a reasonable probability of large profits, it is natural that new countries where capital is scarce and credit scarcer should turn to London. Thus governments, municipalities, company promoters and manufacturers from all over the world are constantly making application for funds with which to supply their needs. Greek railways, Abyssinian banks, Ceylon tea and Malay rubbers hasten to register themselves at the world’s centre of capital and offer their shares to a public whose taste for all kinds of world-wide industrial and commercial ventures seems never likely to be satiated, since the really good and profitable home enterprises are seldom open to public subscription. The insiders in those bonanzas naturally keep their treasures to themselves and their friends, unless after a time the concern is turned into a limited liability company with good-will as a conspicuous asset and over-capitalization as the dominating motive; then, as elsewhere, the market is invited to assist. But that is another story.