Rates of commission to be charged by stockbrokers on the Paris Bourse are fixed by the decree of the Minister of Finance (July 22, 1901). These are the minimum charges, and no stockbroker is allowed to reduce them under any circumstances. He may, however, and usually does, share them with intermediates who bring him business.
If a client gives, say, an order to buy “at the average price” (cours moyen), the transaction takes place in this way: Before the opening of the session the stockbrokers and their clerks meet in a special room, where bids and offers are made “at the average price,” which is as yet undetermined; it will be decided during the session. When an offer and a bid coincide, the transaction is closed; only the price is missing. When the bell rings to announce the opening of the market, the brokers and their clerks leave the special room and proceed to the public hall around the railed enclosure (corbeille) whereupon the day’s business begins.
As orders are executed the dealer gives the price to a marker, whose entries establish the prices for the official quotation list, and, when this has been made up, those who have traded on the basis of “the average price” ascertain it by striking a mean between the high and low level. If only one price is quoted, that, of course, takes the place of the average price. If orders are given at fixed prices, or “at the market,” they are executed as elsewhere. It is important to note in this connection, that the market in Paris enjoys an intimate connection with many banks and credit institutions that act as intermediates in procuring business. Orders transmitted to the Bourse by the Bank of France in 1908, for account of its clients, amounted to 98,721, involving 500,000,000 francs capital.
While, as we have seen, stockbrokers alone have the right to deal in government and other listed securities, there are very many securities dealt in, in Paris, that have not been admitted to the Official List, either because the stockbrokers did not care to adopt them or because the securities did not fulfill the very rigorous statutory conditions. These may, however, be dealt in outside the Bourse, and the law recognizes and protects such transactions. In what I have written heretofore, I have confined myself to the operations of the parquet, meaning the stockbrokers market, and so called because of the parquet floor on which they stand; we come now to the dealings on the coulisse, or curb, named from the narrow passageway, la coulisse, in which these curb brokers congregate. This market is called “the banker’s market” (marche en banque), but for our purpose we may call these dealers curb brokers, as distinguished from the stockbrokers of the parquet.[123] The number of curb brokers is not limited; any one may become a coulissier if he is a French subject. He must have a capital of 100,000 francs in order to do business in the cash market for rentes, and of 500,000 francs for the settlement market. The curb is governed, as is the parquet, by two chambres syndicale, one for the account, and one for the cash market.
Although the French law provides that dealings in French rentes are the sole prerogative of the monopoly of stockbrokers, and fixes punishment for any intrusion into that field, the curb brokers, as a matter of fact, deal extensively and openly in rentes, and are powerful competitors of the stockbrokers. Their operations are not valid, strictly speaking, but they are tolerated by the government for the reason that the credit of the State is benefited by making the market for rentes as free and extensive as possible. This tacit recognition by the government, of the fundamental law of economics that wide and unrestricted markets are the best markets, would seem on its face to raise a point as to the wisdom of a system that perpetuates a monopoly of seventy stockbrokers. The question is not a new one; it has been agitating financial Paris for years. Monopolies of any kind are not considered beneficial in this enlightened age; monopolies that make markets and establish values and prices are peculiarly abhorrent. On this point we may quote M. Vidal, the author of a brilliant study on this subject:
“The actual financial power of the Paris stockbroker is put forward as an argument,” he says, speaking of the argument in favor of continuing the monopoly, “and it is affirmed that our financial market is the first in the world. In our opinion, even granting that this is true, which is far from having been proven, the cause is confounded with the effect. When a country, owing to its geographical location, its climate, and the character of its inhabitants, possesses numerous natural riches, and even moral riches, they co-operate in increasing its wealth; when it has the advantage of certain political and economic conditions, when it enjoys a monetary and commercial organization which promotes, instead of paralyzing, human activity in most of its manifestations, then that country is rich and deserves to be rich. And it may then happen that some organization, defective in itself, and the source of manifold vexations, is nevertheless prosperous, as much on account of certain facts of adaption as because it unavoidably lies within the reach of the rays of national wealth. It reflects that wealth.
“But the Paris Bourse does not owe its prosperity to its organization. Seventy ministerial appointees entrusted with the negotiation of one hundred and thirty billions of transferable securities are powerful personalities. They would be more powerful if they were but thirty-five. They would be more powerful if there were but twenty of them, or ten, or five, or even one, if there were in the market but one autocrat, a single arbiter of securities, centralizing bids and offers, and the king of the Bourse, just as we see in America an oil king and a steel king. In such a case the soundness of a market is more seeming than real. If that system had been applied to provisions and merchandise, infinitely more necessary for consumption than rentes or shares in companies, the market for wine, bread, and meat, appropriated by a few barons, might, perhaps, be stupendously high, but in this respect experience speaks in favor of freedom of trade only.
“It seems, therefore, necessary that public and private credit should enjoy the benefit of an organization more pliable and more in harmony with the general condition of a country’s commerce. Let us therefore beware of mistaking the appearance of force for force itself—a deception that should impress us no more than the sight of the effigies of iron-clad warriors, standing on rich trappings in a military museum. If our financial market were opened to all who have funds and understand the profession, it would be stronger still. If the market’s favorable situation were distributed among several hundred individuals, the division of risks would render the market more stable, competition would secure for our market the desired elasticity, and, if wanted, regulation under the supervision of the Minister of Finance would create a condition halfway between unlimited freedom, which, with more or less reason, scares so many people, and monopoly, which is an old outfit, in no way suiting our customs, and disturbing the harmony of our laws without rendering the services expected from it.”[124]
From the point of view of an American this would seem to be an unanswerable argument. If seventy men are constituted sole managers of a market for 130,000,000,000 francs of transferable securities, one of two things is sure to happen; either a public market will establish itself outside these seventy men, or the seventy will prevent the establishment of the public market. The first of these alternatives has occurred in the establishment of the coulisse; the second would have occurred if the stockbrokers could have accomplished it.
While the government took no hand in the matter, it was recognized that the coulisse gave to the public market a breadth and activity that did great good; as a matter of fact it benefited the stockbrokers themselves in a large way, for it enabled them to obtain from the government liberties not formerly enjoyed, but practised freely by the coulissiers, such as transactions in time bargains, dealings in foreign securities, and similar concessions. This grant of a right to do business on time, or as we term it “future delivery,” was a tremendous step forward, since it removed an obstacle in the way of large speculative markets that had long been abolished in other financial centres. It put a stop to the “welching” of speculators on the plea of the gambling act, it legalized short sales, and it established a distinct advance in economic progress. To that extent the stockbrokers are indebted to their neighbors on the curb.[125]