STOCK CERTIFICATES TO BEARER BILL [BILL 76.]—COMMITTEE. (Hansard, 30 April 1863)

§ THE CHANCELLOR OF THE EXCHEQUER
, in moving that the House do now go into a Committee on the said Bill, said, that on a former occasion he had promised to give an explanation of this Bill, but he would not in giving it detain the House at any unusual length. The Bill, however, was one of importance, and it was regarded with great interest out of doors, and therefore it was right that he should state its object more distinctly than he had yet been enabled to do. The public debt of this country was a debt the machinery of which was somewhat peculiar; it was an admirable machinery for its own purpose, and was worked, upon the whole, with the greatest skill, fidelity, and efficiency by the Bank of England as to the great bulk of the debt, and by the Bank of Ireland as to that portion of it relating to Ireland. It was not intended by this Bill that this system should be altered; neither, again, did the Government propose by the Bill that the present arrangements of the money market should be fundamentally or extensively changed. He believed, that although this country was so adverse to centralization as a rule, the London money market was by far the most perfect and beautiful example of centralization in the whole world. The fact was this—that no man in England or Scotland who had a banker could pay £10 to his account, or could take £10 from it, without acting the next morning upon the foreign exchanges, though, of course, in an infinitesimal degree. To render the effect perceptible, instead of £10 the amount must be £100,000 or £1,000,000; but the fact was. that no addition to, or withdrawal from, the banking fund could be made in any part of the country without its being immediately represented in the London market by a fresh accession or withdrawal, and thus affecting the exchanges. It was not from want of belief in this system, or from thinking that for ordinary purposes the management of the national debt by the system of registered stock was not perfectly adequate, or even the best for its purpose that could be devised, that he made his present proposition. It was, however, perfectly consistent with what he had just stated as to the general merit and efficiency of the system of registration of the national debt, to hold 1025 that for certain purposes it was capable of being improved. In the first place, it was obvious that it did not offer the greatest possible degree of facility to a very important class of holders of stock, those who held for the purposes of commerce, with a view to borrow upon their stock in order to carry on their business and to fulfil their engagements as occasion might suggest. At present, a person who desired to perform an operation of this kind must undergo the expense of a double transfer. Suppose he had £20,000 stock which he wished to borrow on; he could not make that an available security without transferring the stock; and, if he did not execute a power of attorney, he must appear personally, attended by his broker, who, however excellent a man he might be, did not undertake that function for nothing. When the loan had fulfilled its purpose, the stock must be re-transferred to him, and at a new expense. It sometimes happened that it was desired that this double transfer should occur within the limit of a single day; but the Bank of England had adapted a rule— which he had no doubt was recommended by convenience and regard for the efficient performance of its functions—that the same stock could not be transferred twice in a single day. This Bill proposed to establish perfect freedom in borrowing upon stock— that there should be no limit or restriction whatever, but the stock represented by a certificate payable to bearer should be transferred from hand to hand with the same facility as a bank note. Of course, it would not represent a precise and uniform sum, but still up to a certain point stock was money; and if this measure should give a character of easy circulation to stock, it would be of great convenience, for the owner could use it for borrowing purposes; and by giving increased convenience and facility there would be caused a higher appreciation of the stock in the market, and thus it would improve the value of the public credit, which was no unimportant part of the scheme which he proposed. Besides the borrowers on stock for commercial purposes, they might likewise look to the country and foreign holders of stock; among whom an increased demand might reasonably be expected under the operation of this Bill. At present, under the system of registration of stock at the Bank of England the dealing in stock, so far as he could learn, was a thing almost unknown in the provincial markets—that there were no cases he would not presume to say, 1026 but they were certainly very rare, and it was the opinion of intelligent gentlemen conconducting large transactions in these markets, that the dealings in stock might be beneficially and very much extended in the country if it were not for the restrictions and the charges for employing intermediate agents in London only. In the country, gentlemen had no means of having stock conveyed to them on the spot, even though there was in the locality a branch of the Bank of England. There were wheels within wheels in this matter, and undoubtedly the Bill would affect the business of brokers and bankers. With respect to bankers and brokers, this Bill was, to some extent, a decentralizing measure; but whilst it had been received with general approval in London, he had received no remonstrance from those whose private interests might be supposed to be affected by it. The main provision of the Bill was this—it was proposed to give to the holder of stock the option of changing his registered stock into certificates to bearer, with interest payable by coupons. It was a matter for consideration as to how long the certificates should run. That question would be decided upon the best advice. At present, the opinion was, that it should not be for less than, or longer than, ten years. It must be understood that they could not transfer by those certificates fractional sums, and therefore a person having registered stock to the amount of £105 6s.8d., could not convert the £5 6s. 8d.; he could have a certificate for the round £100, and must deal with £5 6s. 8d. as he pleased. The certificates would come down as low as £50 capital, bearing a yearly interest of 30s., payable half-yearly. The benefits of the Bill lay mostly on the surface—facility of circulation, universality of holding, and the removal of restraints upon money dealings. With regard to the possible dangers and inconveniences attending the certificates, that was a matter for serious consideration. The first danger which would be presented to the minds of hon. Gentle men approaching the subject for the first time, was that of forgery. The question was, whether it was likely that forgery would be extensively, or commonly, or even rarely practised. Of course, the best means would be adopted to prevent such a contingency, but in this matter they had the guidance of experience. In respect to the coupons, the whole of the interest on railway debentures, amounting to about 1027 £100,000,000, was paid by coupons, and they were never forged. But the debentures themselves, except in certain cases in Scotland, were not transferable from hand to hand, as these certificates would be. They had also the experience of foreign countries with respect to their national debts. In France he had been assured on the highest authority, where thirty or forty millions were held on the system of certificates payable to bearer, forgery was almost, if not entirely, unknown. The six-monthly presentation of the coupons aided the security against forgery. Another difficulty which might present itself to the minds of hon. Gentlemen was the case of fraud among joint holders of these securities. There were only, in the main, two classes of joint owners—private firms and commercial incorporations. As to the first, it would be perfectly unnecessary, if not irrational, to attempt by law to secure partner against partner; that was no business of Parliament, but a matter entirely for themselves. But there was another description of proprietary, that was in the case of trustees —and the amount of trust property held in this country was enormous—a vast portion of it was invested in the public securities, and the amount was constantly increasing; and he thought it would be wrong were Parliament, in the case of trustees who had no such close individual relationship as the partners in a mercantile firm, to leave open any door for fraud. They therefore proposed, with respect to this class of proprietors, to do two things. First, they introduced a disability clause, by which trustees were disabled from holding these certificates to bearer, and it was made a breach of trust to do so. It would naturally suggest itself to any rational mind that there would be great objection and difficulty in a trustee holding such securities. They proposed, as a further security, that notice of this—the provision of this section as to the disability of trustees— should be printed on every certificate, so that it could hardly fail to meet the eye of any person taking the certificate into his hand. He would next touch on one or two minor points. In the Bill they proposed that the Bank should at once provide means to effect this conversion in the case of the Consols and New Three per Cents, the stock most generally dealt in; but they reserved to themselves the power of extending this provision to other descriptions of stock. The hon. Member for 1028 Greenwich (Mr. Alderman Salomons) had expressed a great desire that the provision should be extended to the Reduced Three per Cents, and he did not see how they could very well resist that request, and they would not be justified in withholding the same facilities in the case of other stock which did or might hereafter exist to any considerable amount. With regard to the probable extent of the conversion that would take place under the Bill, it was difficult to form an opinion. He was convinced that the great bulk of stock in this country and in Ireland would always continue to be held tinder the registered form—not only the trust stock which must be held in that form, but the vast proportion of miscellaneous stock; but the operation of the Bill would be very satisfactory if only a small portion, say 2 or 3 per cent, was converted. There was another point he desired to mention—namely, the nominal certificates. The House was aware that Exchequer Bills were drawn payable to blank or bearer, and any possessor of an Exchequer Bill might, if he thought fit, by inserting his name, make it secure against those who might abstract it. The Government had not thought it right to withhold the same advantage from the holders of the stock certificate to bearer. Many holders of these certificates, while desiring to avail themselves of the facilities afforded by the payment of interest on coupons, might likewise desire to prevent these instruments, if abstracted, from being paid away almost like money. It was therefore proposed to draw them so as to allow the holder to insert his own name if he thought fit. If, however, he did so, he must be prepared to part with some of the facilities which he now enjoyed. It was not possible to combine the highest degree of facility with the highest degree of security. It would therefore be necessary to require, where the certificate had been made nominal, that it should altogether part with the facilities of transfer which attached to the certificate to bearer. It would be said, "Why not permit the nominal certificate to be transferred by endorsement?" Primâ facie that was desirable, but the practical difficulties which such a system would entail were so great that the Bank would hardly be prepared to cope with them. The Bank would be responsible for the investigation of the signatures of all persons who by endorsement might have become proprietors. The House would understand, therefore, why it had been felt necessary 1029 to require, that when the certificate became nominal, it should revert, practically, to the condition of registered stock, which could not be transferred except on going through the operation of regular registry and transfer. Then came the question of the probable effect of the change on the revenue of the country. The revenue would lose in a certain way. It was quite possible, though he hoped such would not be the case, that the measure would entail additional trouble and charge on the Bank; and if that were so, the Bank would be entitled to claim at their hands additional remuneration, because they had a positive covenant with the Bank which fixed the remuneration according to the amount of the National Debt, but which proceeded all along on the supposition that the present system of registry continued. The change would entail the necessity of keeping new books, of creating a new material for the certificates; it would also entail considerable labour in preparing and issuing the certificates, and considerable changes in the payment of the dividends. Whether this would cause increased trouble, he would not venture to say. On the other hand, the Bank would have less trouble with regard to transfers, and it would be a matter for consideration and examination as to what arrangement should be made in respect of the expense of the management of the National Debt. Then there were other ways in which the Bill would have a bearing adverse to the revenue. It would tend to diminish the number of powers of attorney, and therefore deprive the revenue of some portion of the stamp duty. It was plain, also, that so far as the Bill tended to encourage the holding of stock in foreign countries, it would deprive the revenue of a certain portion of the probate duty. At present a large portion of stock held by foreigners became practically liable to the probate duty. It was also plain on the passing of this Bill, it would have a tendency to restrain the use of Exchequer Bills, as the certificates would be preferred, by those who looked to a permanent investment, to the Exchequer Bills, that were liable to vary from six months to six months. In proportion to the issue of these certificates there would be additional labour, as large sums would be broken into smaller ones, and the forms would be repeated and multiplied; and partly on the ground of expense to the public, and partly on the ground of the great advantage and saving of expense to those who became 1030 holders of the certificates, the Government thought it perfectly right to take such measures as should bear the State harmless, its creditors, it was a fair and equitable When the State improved the property of demand that it should not be placed at a positive loss by the new machinery used for effecting that purpose. On that ground the Government proposed the schedule of fees, which would be found on the last page of the Bill. The Government were empowered to fix a fee of so much per cent, limiting it to a maximum of one quarter percent, which he thought was not an unreasonable limit. The next clause in the schedule was intended to prevent unnecessary labour in the multiplication of these certificates. They authorized the Bank to make a certain very moderate charge in cases where they were taken out on a large scale for very small amounts. A man might divide £20,000 into 400 certificates, upon each of which a separate dividend would be payable half-yearly, in lieu of a single dividend on the entire sum; and they therefore thought it desirable to make a small charge on the original certificates, when the number issued exceeded in a certain proportion the amount of stock. They also gave a power to charge a fee on the conversion of a nominal certificate to a certificate to bearer, not exceeding half the fees charged on the issue of a new certificate. They could not afford to convert these nominal certificates to certificates to bearer for nothing; if they did, these conversions would be constantly made. Again, where persons who had bought certificates to bearer wished to re-convert them into registered stock, power was taken to charge, not a percentage, but a simple fee of 5s. Such were the main provisions of the Bill, and there was only one other point to which he desired to call attention. The Bill, as it stood, extended to England only; and as we were going to have the National Debt represented in a document which should have no relation to any particular place, but which was meant to circulate uniformly over the world, he owned his preference for having the certificates to bearer issued at the Bank of England alone. But a great desire had been expressed by influential persons for the issue of certificates in Ireland also; and since it had been represented to him that the certificates would be very popular in that country, he had no hesitation in saying—what he had already stated to 1031 the Members for Dublin—that he would carefully examine the working of a practical scheme for extending the Bill to Ireland; and that unless he should find himself encountered by serious difficulties, he should at a future stage propose to adapt the provisions of the measure so as to permit the issue of similar certificates in Ireland to those which, were intended for England. He should be very ready to give any further explanations that might he required in Committee.

§ MR. HUNT
thanked the Chancellor of the Exchequer for his able and lucid statement, which was certainly much needed, if, as he believed, very few Members had read the clauses of the Bill. He agreed with the right hon. Gentleman in thinking that great advantage would be derived from the operation of the measure. The risk of forgery would, he thought, be very slight; but a considerable amount of fraud might arise in the case of joint holders, and the House could not be too careful in its precautions for the prevention of improper dealing with trust funds. Upon this point, indeed, his apprehensions were so great, that he should be glad if the Chancellor of the Exchequer would consent to refer the Bill to a Select Committee. It was true that the 4th clause provided that no trustee should apply for or hold certificates of title, unless the power was expressly given in the trust deed; but that would be only what might be termed a "hobgoblin clause," because the same clause provided that the Bank of England should not be bound to inquire whether a person applying for a certificate was or was not a trustee, nor be liable to any consequences, nor was the certificate, if granted, invalid. Breaches of trust were committed every day by investments in railway shares and other securities of that kind, and he was afraid that under the Bill, as it stood, the objects of trusts would not be sufficiently protected. In the case of a trust consisting of three or four persons only, one of them could hold the certificates to bearer, and consequently the whole power of dealing with the stock would be placed in that individual. Again, where all the joint holders but one had died, the survivor, on proving the death of the others, would he entitled under the Bill to have the certificates in his own name. The Chancellor of the Exchequer had referred to the experience of the Bank of France; but we had no means of knowing whether in France trust monies were invested in 1032 public stocks to the same extent as in this country.

§ THE CHANCELLOR OF THE EXCHEQUER
explained, that he had referred to the experience of the Bank of France with respect to forgery, not with respect to fraud.

§ MR. HUNT
wished to put another case. If a man took out stock certificates, he might dispose of them on his death bed. He did not suppose that legacy duty would apply to such a case; and he thought that was a point to be guarded against. When the Bill was being considered in Committee, great care must be taken to guard against frauds as regarded trust funds.

§ MR. MALINS
expressed his unqualified approbation of the Bill, which, in his opinion, would not give rise to those dangers which his hon. Friend, who had just addressed the House, seemed to apprehend. He would suggest whether the Chancellor of the Exchequer might not effect another improvement in regard to stock. He thought that a great deal of trouble and annoyance with respect to dividends might be saved, if the same rule were adopted at the Bank of England with regard to dividend warrants that was in practice with the railway companies—namely, that they should by sent by post to the persons entitled to them. At present a man could only receive his dividends by applying personally at the Bank for them, or by giving a power of attorney; whereas if a man held railway stuck, his bankers could receive the dividends for him. He thought the right hon. Gentleman, in concert with his hon. Friend the Member for Bridport (Mr. K. D. Hodgson), the Governor of the Bank of England, might adopt a system by which the person entitled to dividends at the Bank might, on putting his name down in a book at that establishment, have his warrants sent to him.

§ MR. KIRKMAN D. HODGSON
said, that the Bank of England had been in communication with the Bank of France, and they had been assured that the amount of frauds in France, to which the hon. Member for Northamptonshire (Mr. Hunt) had referred, was so small as to be scarcely appreciable. He thought it clear that there would be no greater chance of frauds by trustees after this Bill passed than there was at the present moment. With regard to the suggestion of his hon. and learned Friend the Member for Wallingford (Mr. Malins), there were many indirect modes of getting what he wanted. He could assure his hon. and learned Friend, that if 1033 he opened an account at the Bank of England, they would be happy to receive from him a power of attorney, and to do his business. In his opinion, the Bill was calculated to do good by facilitating dealings in the public stocks of the country. At the present time there was in the minds of many persons a great objection to holding stock, because there was no positive representative of its value which they could keep in their own hands. They were informed that there was something in the books of the Bank which entitled them to money; but under this Bill they would he able to keep in their own possession an actual title to that money. He thought this would be a great inducement to foreigners to invest in the English funds There were now upwards of £18,000,000 invested in the funds of our National Debt by foreigners resident abroad, and there could be very little doubt that the amount would be largely increased when the system which the Bill would establish became known in other countries. The Bill would also be an inducement to persons of small capital in distant parts of England and in Ireland to invest in the public funds. In this way the measure would have the effect of increasing the interest of the population in the welfare of the country, for nothing was a greater inducement to persons to feel a strong interest in the prosperity of a country than the fact that they had property invested in its funds.

§ MR. HUNT
said, that the Bill provided that trustees who were guilty of breach of trust should be "punishable accordingly." He wished to know what was intended to be the effect of these words.

§ THE CHANCELLOR OF THE EXCHEQUER
said, that trustees were liable to make good whatever breaches of trust they might he guilty of. In certain cases also a breach of trust was punishable by indictment as a criminal offence, and it was to that class of cases the words alluded to by the hon. Member applied.