§ MR. J. R. YORKE
, in rising to move—That an humble Address be presented to Her Majesty, praying that Her Majesty will be graciously pleased to issue a Royal Commission to inquire into the origin, objects, present constitution, customs, and usages of the London Stock Exchange, and the mode of transacting business in, and in connection with, that institution, and whether such existing rules, customs, and mode of conducting business are in accordance with the principles that should govern public policy, and, if not, to advise Her Majesty in what respect they might be beneficially altered, and how far legislation might be usefully employed for that purpose,said, the question was one of considerable perplexity and difficulty; the difficulty arising not so much from the paucity of materials, but from an embarras de richesses. If anybody chose to go into detail upon all the scandals at the time of the Loans to Foreign States Committee, the speeches might be endless. It was not, however, his intention to do more than he could help in blaming individuals. The object of his Motion was to attack the system, or, at any rate, 204 to show that the system under which the Stock Exchange was now managed was not conducive to the interests of the public; that, as was said by one of the witnesses before the Loans to Foreign States Committee, a kind of "original sin" attached more or less to all those who took part in its proceedings; and that until some radical reformation occurred there was no hope of a better state of things. As many hon. Members had told him they were utterly ignorant of the Stock Exchange, perhaps he might be allowed to give a brief sketch of its origin, objects, and present constitution. Stock-broking was not a very ancient trade. In this country it was about 200 years old. In 1728 Sir Robert Walpole passed an Act which showed the prescience of the great statesman by forbidding any subject of Her Majesty to subscribe to foreign loans without a licence under the Privy Seal. If Sir Robert Walpole could have seen what happened 150 years later, he would have been pleased at the results which ensued when his Act was allowed to fall into desuetude. Stock-broking dated from the incorporation of the Bank of England and the beginning of our Funded Debt. It was not, however, till about 40 years ago that the business assumed the gigantic proportions of today, through the invention of railways. Foreign loans and joint-stock enterprise had swollen this business still further; and two years ago the nominal value of the stocks and shares quoted on the Stock Exchange was computed in Fenn on the Funds at no less than £4,550,000,000. It was now, he believed, much larger, and the daily official list included over 1,300 classes of securities. Such was the magnitude of the interests with which "Members" of the Stock Exchange dealt by buying and selling bits of paper, representing stocks and shares, out of which their profit was made, and the public were entirely dependent upon the members of that body for the opportunites they had of buying and selling in such investments. As to the objects of the Stock Exchange, that place was, primarily, nothing more than a convenient place where brokers might meet for transacting their business. It had now not only become a market for buying and selling, but was the only centre in which the peculiar kind of securities there dealt in could be called into 205 being. The Stock Exchange stood in much the same relation to incorporated enterprize as a bank stood in towards a trader; and a broker performed double functions—first, he might be the promoter of a scheme; second, he might be the mere agent of clients who wanted to buy or sell this or that stock, already placed on the market. There were 2,045 members of the Stock Exchange, of whom three-eighths were dealers, and the remaining five-eighths brokers. Each dealer, as a rule, confined himself to a particular class of securities, standing prepared "to make a price," as it was termed, the margin between the price at which ho was prepared to sell and that at which he was prepared to buy being his profit. This margin varied upon different kinds of securities, and was greater or less, according as the market happened to be more or less unsettled. He had been informed that recently, within a few days, the margin had varied no less than 2 per cent. The settlement of all transactions was fortnightly, except Consols, which were monthly. No less that five-sixths of the whole business of the Stock Exchange were time bargains, and, therefore opposed to its legitimate business. But for the machinery of the Stock Exchange, no doubt, brokers would have to hunt for customers, and it would be more difficult to make bargains. Were it not for the competition the dealer would be able to fix his own price, and sometimes, in small transactions, it was possible that there would be collusion between the dealer and broker, and the public would be the victims. In justice to the Committee he must say their operations were directed to prevent this being done, but it was exceedingly difficult to provide against it. With regard to the constitution of the Governing Body it consisted simply of a committee of 30, annually elected by ballot, on the 20th of March, curiously enough the day on which he had the honour of addressing the House. This body had absolute power of reprimanding, suspending, and expelling any member by a majority of two-thirds in a Committee with a quorum of 12. Its powers were employed in dealing with modes of making bargains, responsibility of dealers, the treatment of bankrupt members, and so on. It might be said to be an imperium in 206 imperio, with powers stronger, perhaps, than any similar body except Tattersalls. They were governed by a code of 172 rules. The hon. Gentleman then read the opinion of the Committee on Loans to Foreign States, as to the character of the Stock Exchange Committee, in which, among other things, it was stated that any attempt to enforce rules distasteful to the majority would be vain, and that such a body was not fit for the exercise of judicial functions. In one branch of its jurisdiction the Committee appeared to have come into collision with the laws of this country. He had stated that the treatment of bankrupt members was included in the powers of the Committee. They actually appointed official assignees, who received the assets and divided them among the Stock Exchange creditors as if the Stock Exchange was a world in itself and had no connection with the outer world. In the case of a Mr. Cooke it had been suggested to divide his assets among the members of the Stock Exchange, ignoring the world outside; but Mr. Registrar Pepys decided against that course, and the Lords Justices confirmed his decision, Lord Justice James remarking that the Stock Exchange was not an Alsatia, "the Queen's laws prevail there, and reach even into the sacred precincts of Capel Court," and that the Stock Exchange creditor was to be put on an equal footing with the other creditors, and to be entitled to no other favour. That was one case in which the rules of the Stock Exchange had come into collision with public policy, and there were other cases also in which those rules might be set aside. Another objection was that, having to determine as to special settlements, the members of the Committee, jobbers and brokers themselves, had to act in a judicial capacity in matters in which their own interest was often concerned. In the case of the Confederate Loan, all transactions were made and completed between the public and the dealers, who fixed the settlements themselves. The Stock Exchange, besides being an organization for carrying on a special kind of business as suited its members, was also a joint-stock company; it was not registered, but the building belonged to the morn-hers; they subscribed and made profits, and partook of those profits as shareholders. New members were ad- 207 mitted very loosely and on much less difficult terms than on some of the provincial Exchanges—that of Liverpool, for example, where a man was required to deposit a considerable sum of money. That crippled speculation, and tended to secure a respectable class of members. But that was not the case in London. The entrance money had been £25, the annual subscription £12 10s., and three sureties of £300 each; but within a year the entrance money had been raised to £100, the subscription to £20, and sureties to £750 each. The house was haunted by adventurers—Jews, Greeks, dwellers in the Low Countries and in the Levant, and so on — while persons of bankrupt fortunes who had failed on the Turf and in business crowded about the doors and communicated with kindred spirits within. Hence it had been freely canvassed among those who felt the discredit of this state of things whether it would not be better if the Stock Exchange should be abolished, and all privileges taken from the stock broking trade. If such a misfortune should overtake them, they would have deserved it for attempting two incompatible things—to provide for the interests of the public, and try to make gambling profits for themselves. There was one objection which had been more frequently made than any other since he had taken this matter in hand. When he stated that he was going to move for a Royal Commission, a gentleman said to him— "What do you want to do? It is a private undertaking." His reply to this objection would be that by Rule 10 the business of the Committee was divided into two classes, the second of which dealt with "the investigation of claims and other matters relating to the interest of members, and of the public." As long as these persons confined themselves to their own affairs the objection he had mentioned was valid; but they admitted in their own rules that they were charged with the interests of the public, and they had special meetings for considering those interests. If, by their own showing, they had to deal with matters of public policy they could be dealt with by the Legislature in such a manner as public policy might dictate. These people had a virtual monopoly of the power of enabling us to buy and sell shares. Practically, other monopolies, such as railways and gas com- 208 panies, were subject to special regulations in the interest of the public; and the Stock Exchange being, on their own showing, in the interest of the public, ought, as a matter of public policy, to be subject to rules in the interest of the public. The maxim "Caveat Emptor" could never be equitably pleaded on behalf of monopolists. As at present constituted, the Stock Exchange was the most perfect organization for speculation, owing to the relations existing between the jobbers and the brokers. Possession on neither side was requisite, inasmuch as delivery of the stock was unnecessary, and "specific performance," as it was termed, was rarely if ever required. The whole bargain might be fictitious. The jobber bought and sold to secure to himself the turn of the market; the broker tempted the public to invest to obtain his commission. There might be collusion between the two; he imagined there often was, when the public was victimized. He might quote a single instance which had acquired notoriety—with respect to the Lisbon tramways. Even after it had been made evident, even to Mr. Albert Grant, that the scheme was impracticable, the company's broker came forward and said that in the interest of the Stock Exchange it must be allowed to go on, that as a settling day had been appointed, the brokers and dealers must not lose their commission, and, therefore, the swindle must proceed. Nor did these persons seem to he considered much worse than their neighbours. No doubt the Stock Exchange contained many worthy and honourable men, who felt indignant and injured by the reputation it had acquired during the last few years. He believed that five-sixths of the Stock Exchange speculation consisted of things, done by some and endorsed by others, which involved an immense amount of moral obliquity. Their circulation of false rumours—the word of an Emperor, or the rumour of a famine—to raise or depress the market, not only raised or depressed particular stocks, but the whole market hung together, and sound stocks were often depressed by rumours started to influence some stocks in which the broker was deeply interested. He would now proceed to suggest some remedies. The Stock Exchange professed to regulate speculation which was admitted to be inevitable—Did it do so? In Rules 124 209 and 125 the Stock Exchange stated on what terms they would admit the scrip of a new loan to have a special settling day. The Chairman, in his evidence before the Loans to Foreign States Committee, stated that the mere statement of the contractors formerly was taken, but that was now supplemented by a statutory declaration, without inquiries into the bona fides of the scheme, unless fraud were patent on the proceedings. "A settling day" gave a certain status to an undertaking which it had not before. The Loans to Foreign States Committee in their Report considered that these precautions were insufficient, yet they did not recommend the registration of foreign loans, considering that such a measure would rather furnish weapons for litigation than security against fraud. They required certain things to be stated, such as authority from the borrowing State, its public debt, and its revenue during the three preceding years, on what the proposed loan was to be secured, prior charges, &c. And he might add—what was, perhaps, required as much as any of these, they recommended, as a statutory declaration, the prices at which the loan was issued, and the difference between that price and what was paid to the contractor. There were good loans which were founded on the credit of large countries, such as France and America, and there were those of smaller States, which depended on the industrial enterprize the loan was to carry out. If the commission was enormous, it not only meant that the credit of the borrowing Government was bad, but that they would not receive capital enough to enable them to work the industrial enterprise they had professed to undertake with any chance of success. It was to this class that a statutory declaration was of paramount importance. The Stock Exchange professed to regulate speculation. Could it be said that it did so? He contended, in the first place, that it encouraged speculation by admitting a low class of members with small security. Secondly, many members of the Committee were jobbers or brokers, some of them interested in the enterprizes brought before them, and in many they had to decide judicially, and they were, therefore, tempted by their previous position, to shut their eyes to fraud. Thirdly, their rules and requirements before 210 granting a settlement and quotation were insufficient to insure the bona fides of a scheme. Fourthly, they did not seem to appreciate the evils of the system, and were not fertile in resources in devising remedies. Fifthly, the situation was virtually now what it was. When the Loans to Foreign States Committee reported they offered a variety of suggestions, only one of which had been carried into effect. The question was, could anything more be done? He wished to point out the extent of the evil which had followed upon the imperfect security for the bona fides of the ventures introduced upon the Stock Exchange. The total amount of unredeemed foreign debt was now £2,427,000,000, of which, a very competent person assured him, no less than one-third was held in England. The unpaid interest upon this debt was £39,750,000. The 17 principal defaulting States had an unredeemed debt of £297,000,000, of which more than one-half was held in England, and the unpaid interest upon this debt was £38,000,000. The Committee said that the principal cause of these evils, in comparison with which all others sank into insignificance, was the practice of quotation before allotment. As an example of the way in which these things were managed, he referred to the history of a loan for the Republic of Uruguay in 1874. An original loan of £3,500,000 had been placed in this country in 1871. A well-known house stipulated for an additional commission of 1½ percent on the new loan, amounting to £87,000, so as to facilitate the placing of the new loan, which was for £5,800,000. The scheme did not succeed, and through a timely warning the amount named was saved to the British public. To show the cynical indifference of the London house to the interests of the British public, he quoted a letter from its agent to the Finance Minister of Uruguay, which was read before the Representative Assembly. Mr. Scott, one of the witnesses before the Committee, said he considered the present machinery was not sufficient to detect fraud, but he contended it was not the business of the Committee of the Stock Exchange to inquire into the matter. Like the priest and the Levite, they passed by the sufferer, who waited for the coming of a good Samaritan out of the Com- 211 mission now moved for. Mr. Scott saw great evil in the system, but he could not initiate a process by which it could be remedied. The Committee of the Stock Exchange stated in a Memorandum that in 1864 they were impressed with the objectionable proceedings of directors and others, who refused to recognize bargains on shares made before allotment; but the restriction which they then imposed broke down in 1865 under the persistent determination of the public to engage in such transactions. The whole question was beset with difficulty when it was necessary to discriminate between one loan and another, and the Committee quoted the French Indemnity Loan as an apt illustration of the inefficiency and inexpediency of interference, and they deprecated legislation in this direction, as it was possible that any advantage would be more than counterbalanced by the mischief arising from interruption with the free course of business. This opinion was expressed in an eloquent passage of the Memorandum, and the indefeasibility of bargains appeared to be a kind of idol with the Stock Exchange. If that doctrine were given up, the members seemed to think that all enterprize in the way of foreign loans would be driven out of this country. He would say let them go if they required to be placed on the market with such machinations as were described before the Committee. One remedy had been suggested by Mr. Lowe, Chairman of the Loans to Foreign States Committee, which was to minimize the interval betweeen the period of advertisement and allotment, by providing that the persons issuing the prospectus should be ready to sell stock to all comers at the price they had mentioned. That might be a suggestion worthy of consideration by the proposed Commission. It was impossible to say where enterprize ended and speculation began, and, therefore, these transactions should be carried out in the light of day, and without artificial impediments calculated to mislead helpless investors. He had left the question of joint stock enterprize until the conclusion of his speech, because, upon the whole, the law had proved adequate to deal with abuses. By the 38th section of the Act of 1867, for example, it was provided that the directors should be liable for all 212 fraudulent statements made in any contract between them and the public. The Loans to Foreign States Committee suggested that the law on foreign loans should either be assimilated to the law which regulated joint-stock companies, or else that the Stock Exchange should be thrown open for purposes of official settlement and quotation to all enter-prizes alike, so that they might stand or fall without official interference. To conclude, he asked for a Commission to take up the work so well begun by the Loans to Foreign States Committee, which gave the House a volume of facts, from which hon. Members could draw their own inferences. He believed that a mixed Commission would be a better body for such an inquiry than a Committee of that House. They would import into the question the evidence of industrial, financial, and commercial authorities, who would bring a wide and special experience to bear on the subject, and save the public from being offered up as victims at the shrine of such idols as "indefeasibility of bargains, and non-interference with the free current of trade." No doubt there were many Members of that House well qualified to take part in such an investigation, but they would not give the same continuous attention to the subject as a Commission. There were hopeful signs in the Stock Exchange itself, and a great change had occurred since the Loans to Foreign States Committee had reported. The case of Mr. Sturdy last year, for example, had led to the resignation of Mr. Ingall, a member of the Committee, who had been reelected by a large majority against the candidate of Mr. de Zoete and the Stock Exchange Committee. This led to the resignation of the Chairman and the Committee en masse and the re-constitution of the Committee. He would by no means assert that the members of the London Stock Exchange were all corrupt, and that there were no honest men among them. He knew, on the contrary, that there was an honest reforming element which was willing to cooperate with any Commission that might be appointed by that House, and which was ready to give the benefit of special knowledge and experience to the investigation. If it were said that he had no policy, he would reply that this was the reason why he asked for a Commission. If he had been prepared with a policy 213 he should not have asked for a Commission; but it was because the evils of the present system were gross, open, and palpable, and because the remedy was not beyond the reach of Parliament, that he asked for a Commission. He would be glad to think, that in his humble degree he might have done something, not only towards the rehabilitation of an ancient and indispensable institution, now sadly fallen in repute, but also towards the protection of large numbers of unsuspecting persons from the snares of wicked and deceitful men. At present, the London Stock Exchange almost realized the description given by the Roman poet of the labyrinth of Crete:—Ut quondam Cretâ fertur labyrinthus in altâ Parietibus textum cæcis iter, ancipitemque Mille viis habuisse dolum, quà signa sequendi Falleret indeprensus et irremeabilis error.The Athenians paid an annual tribute of blood to the Minotaur, and we had paid an annual tribute to the Stock Exchange of ruin, tears, and broken fortunes. He trusted that if the Government should grant this Commission it would form a modern Theseus who would arise and destroy the monster of corruption that lurked in the labyrinths, and it was in that hope he moved the Resolution of which he had given Notice.
§ SIR CHARLES RUSSELL
, in seconding the Resolution, said that, as a Member of the Committee on Loans to Foreign States, he had taken great interest in this subject. He thought the investigations of the Committee fully justified the assertions which had been made when its appointment was proposed. He would not go over the ground so well occupied by his hon. Friend, but he wished briefly to call attention to the magnitude of the losses which the British public had sustained through the objectionable undertakings into which they had been led. There were 21 defaulting States. The principal outstanding of the loans raised for these States amounted to £305,000,000 sterling, and the interest accruing thereon was about £40,000,000 sterling. It was right that there should be no exggeration on this point, and therefore he should say that the outstanding amount was taken at par price, while the real amount should stand at that at which it was issued to the public. This would make a considerable, though not so 214 large a difference as might be supposed. To this must be added the enormous losses which had accrued to the public by the establishment of bubble companies floated on—he did not say by—the Stock Exchange. The Committee were induced to make certain recommendations founded on the evidence of gentlemen connected with the Stock Exchange. Mr. De Zoete, the Chairman of the Stock Exchange, when examined before the Committee, at first stated that if the Stock Exchange Committee made a searching examination in each case they would never get through the business, and that he did not see that the Committee could operate in the direction required by the Committee on Loans to Foreign States. A little later, Mr. De Zoete, being again examined, said it would, no doubt, be incumbent upon the Committee to see if anything could be done to improve the law and practice; but that any rules in the direction of restriction would be so opposed to the principles on which public business was conducted that they would be likely to fail. Mr. Scott, the Chairman-elect of the London Stock Exchange, gave admirable evidence before the Committee on Loans to Foreign States, but when asked by the hon. and learned Member for Taunton (Sir Henry James) whether there was anything in their machinery sufficient to detect fraud, he replied—"There is nothing in our rules to enable us to do so." Mr. Lionel Cohen, another witness, spoke to the exceeding sensitiveness of the Stock Exchange as to evil practices among its members, and thought that the Committee might modify their rules to some extent. Another important member said there were many things that might be done to improve the rules which had not been sufficiently stringent or decided to check certain abuses. Another thought it absolutely necessary that something should be done, and there was reason to believe that if the Stock Exchange Committee replied with a non possums public opinion would force them to do it. It was finally recommended that the providing of a remedy for the evils in question should be left to the Stock Exchange itself. Now, had the Stock Exchange taken any steps, by the re-modelling of their rules or otherwise, to give any sensible protection to the public? The inquiry took place in 1875, 215 and surely if they had intended to provide a remedy they would have done so by this time, more especially as during the past two years their ordinary business had been materially crippled. He begged distinctly to disclaim any feeling of animosity against the Stock Exchange. He believed it was no exaggeration to say that it was not uncommon on settling day to settle from £50,000,000 to £60,000,000; and he believed as an institution it did its work more cheaply, more accurately, and more expeditiously than any other similar institution in the world. It would, therefore, be fool-hardy for his hon. Friend or himself to ask the House to take any steps which might jeopardize the true interests and upset the working arrangements of the Stock Exchange. But he did ask the House to consider whether by co-operation with the Stock Exchange something could not be devised for the protection of the public. The power of this institution for good as well as evil was enormous. On this point he might refer to an article in The Westminster Review, which stated that in 1855, during the Crimean War, when the Russian Government had entered into negotiations on the Continent for a loan, the Committee of the Stock Exchange added the following rule to their list—namely, "That they would not, after the restoration of peace, recognize any loan raised by a foreign Power when at war with Great Britain." This becoming known on the Continent, the loan at once collapsed, and the enemy was deprived of the sinews of war. Writing to the Committee of 1875, the Secretary to the Honduras Legation said that in such cases as they were dealing with the failure fell with equal force on all concerned. It was, he added, a kind of original sin which affected even the most innocent. The Committee adopted that view, and blamed certain parties—namely, the contractors—for their share in those undertakings. It was supposed that those loans were concocted on the Stock Exchange; but, as a matter of fact, they were concocted outside, and the only matter for which the Stock Exchange could be blamed was the facilities they afforded to the contractors. Now, who were those contractors? They were a body, not numerous, who, in the good old days, instead of being termed contractors, would have been called 216 swindlers. A few years ago they would not have been allowed to put their foot within the pale of respectable society, but now-a-days respectable society not only tolerated, but toadied them, and enabled them to carry on those sinister practices by which honourable men were ruined or disgraced. It was the Stock Exchange, however, which, in his opinion, was chiefly responsible for the mischievous power which those contractors were able to exercise. The Committee further blamed the public, and they blamed them for their cupidity and their stupidity. Now he confessed he had great sympathy with the public, for he was one of them himself. He might mention an instance of the ruin brought upon innocent persons by these fraudulent schemes. A letter was addressed to him as a member of the Committee on Loans to Foreign States by a respectable land agent, living in the neighbourhood of Bedford Square. The writer stated that after 22 years' hard work he had amassed between £5,000 and £6,000, which was the only provision he had for his wife and children. He had invested his savings in a certain joint-stock bank, but was unfortunately induced by a clerk in the bank to remove the whole of his securities and place them in the Honduras Loan. It was needless to say that he had lost every shilling. Now, what induced the clerk to advise that poor man to take so disastrous a step? It was the iniquitous, scandalous commission which the contractors were enabled to offer him. The enormous difference between the sum received by the borrowing State and that which the public subscribed enabled those swindlers to pay unheard-of commissions to those who had the power and the want of principle to aid them in their transactions. But there was still another body which, in his opinion, merited some blame, and that was the Press. There had been trials before the Courts which, he was sorry to say, had shown that certain public organs exercising great influence for good or evil had given to those schemes an amount of publicity which without their aid could never have been attained. After all, it might be said, what was the use of an inquiry? Was not a sufficient remedy provided by the Courts of Law? It was only adding insult to injury to tell a poor wretch who had lost his last farthing that he 217 ought to go to law with a millionaire, who would fight him, perhaps, with his own money. The costs in such cases were ruinous. A solicitor whom ho consulted some time ago told him that in a certain suit they would probably amount to £2,000, and that a decision would probably not be arrived at within less than two years. It appeared, moreover, that, in the majority of cases, no remedy even existed. According to an article in The Westminster Review, if a man obtained a bend direct from a contractor, he could, in the event of fraud being established, obtain legal redress; but if, on the other hand, he purchased his bond in the market he was helpless. The Westminster Review suggested that the holders of market bonds should be placed on the same footing as persons who had obtained their bends direct from the contractor. For himself, he thought that the whole question, involving as it did the interests alike of the Stock Exchange and the public, ought to be fairly and fully investigated. He might be told that he wished for Government interference. He wished for nothing of the kind. He believed that once the Rules of the Stock Exchange were properly remodelled and a proper understanding arrived at, the less Government interference the better. At Paris he knew it was different. When one of the swindling fraternity attempted some time ago to float a loan on the Bourse a policeman appeared on the scene, and the loan was heard of no more. Sometimes a remedy was effective without being complete. He remembered a case in point which came under his notice at Windsor. One day he saw Her Majesty's coachman strongly brushing a skye terrier the wrong way, and asked him why he did so? "Oh," said the coachman, "it's for the fleas." "But that won't kill the fleas," was his rejoinder. "No," replied the coachman, "it don't kill them, but it terrifies them amazingly." He ventured to think if this House by securing a Commission got no further than terrifying evil-doers—he referred to those outside the Stock Exchange—and putting it out of their power to continue these nefarious transactions, not a little good would have been done. He understood he was to be followed by the worthy Alderman, one of the Members for the City of London, who would deal 218 the Motion a crushing blow, because he would bring to bear on the subject his vast knowledge and experience. He believed the hon. Member was the author of a work on trafficking in railway shares—which bore the euphonious name of Smash. He had been promised the support of some hon. Members if the Motion would include such an institution as Lloyd's, which was connected with more questionable proceedings than anything which could be associated with the Stock Exchange. His answer to that was that if they could establish such a proposition he would give them his vote whenever they brought a Motion on the subject before the House. In conclusion, he hoped the House would believe that he had been actuated by the sincere desire to help right against wrong —the weak against the strong—and also, in however humble a way, by an endeavour to make monetary transactions in this country more creditable to the honour of the nation.
Motion made, and Question proposed,
That an humble Address be presented to Her Majesty, praying that Her Majesty will be graciously pleased to issue a Royal Commission to inquire into the origin, objects, present constitution, customs, and usages of the London Stock Exchange, and the mode of transacting business in, and in connection with, that institution, and whether such existing rules, customs, and mode of conducting business are in accordance with the principles that should govern public policy, and, if not, to advise Her Majesty in what respect they might be beneficially altered, and how far legislation might be usefully employed for that purpose." — (Mr. Reginald Yorke.)
§ MR. ALDERMAN COTTON
said, he wished that the few words he had to say could have come from those who had much greater experience of the Stock Exchange than he had. He rose simply in the hope of preventing a too great evil being done by the starting of the proposed Royal Commission. The Mover and Seconder of that proposal had both stated that, in asking for that Royal Commission, they had no remedy to suggest. That was one of his strongest arguments against the Motion, because if they had no remedy in this time of commercial gloom and depression, he hoped they would not attempt to upset the Stock Exchange as at present constituted. With all its faults and blemishes, he held the Stock Exchange to be a necessity. They could not get on with- 219 out it. They might remodel the present Stock Exchange and have another; but a Stock Exchange was one of the necessities of the times. They wanted it for the man who simply had to invest his money as much as for the speculator. Speculation was innate in them all. They saw it in the young in their more innocent games; they found it also in manhood when they entered into the larger domains of speculation. Speculation was simply the act of one or more men to win the money of others, and the loser was generally a disappointed and an angry man. He believed that the attack made that evening on the Stock Exchange Committee arose from the fact that a very large number of men had lost large sums of money through no other fault than their own. They might have been hoaxed by the clerk of a bank or misled by a friend or by the Press, but there was no doubt that every man who entered into speculation or who purchased stock or shares did it, or ought to do it, after having well weighed the whole of the facts before him. But sometimes speculation ran riot, and, perhaps, for a space of one or two years, as during the period of limited liability, every man made money, the shares of every company which was brought out rapidly rose to a premium, and it was not until two years had passed, and the tide had turned, that men began to lose money. If he could only shut out those who had lost money through their own fault, and not from the action of the Stock Exchange, he believed he should have done something towards inducing the House not to adopt that Motion. Let him take the present constitution of the Stock Exchange, and ask whether it was possible to make a better one. There were nine managers, and below them a Committee of 30 members. Those members were annually elected, and any want of confidence in any one of them or any breach of his respectability would lead to his being expelled at the next election. The Stock Exchange comprised 2,009 members, and they employed 1,100 clerks, a large and important body of men. The Committee had passed 172 rules and regulations for the guidance of the members of the Stock Exchange and of the public generally. Those rules were printed and the book was entered at Stationers Hall and could be obtained by any one 220 who might really require it. The Stock Exchange, moreover, was open to the censorship of the Press—a very potent engine, and one quite sufficient to keep a check on any governing body; and it was also open to the Law Courts—places to which, whatever they might say or whatever Royal Commission they might have—they would always have to go for the remedy of any abuse to which they thought themselves subjected. They could not accuse the Stock Exchange of being guilty of the repudiation of a Turkish Loan, or of a Honduras Loan, or for the depreciated value of the Egyptian Debt. The constitution of the Stock Exchange was not responsible for the introduction of any company whatever; and according to their rules it was not until two-thirds of the shares had been subscribed, paid for, and taken up that the Stock Exchange allowed a company to take a place on the Share List and to be quoted to the public. It was the public alone who moved and instigated all those things; and companies which were excluded from quotation on the Stock Exchange wore left in a very unhappy position, because, as a rule, the holders of stocks or shares in companies that were not so certified for had no market for them, and if the holders died their families did not know how to dispose of the stocks or shares in those uncertificated companies. Again, the Stock Exchange was, perhaps, the only Tribunal of Commerce we had in this country. On the Continent Tribunals of Commerce were very common indeed, and we had serious agitations to introduce them here. The Stock Exchange embraced in a great degree the representation of a Tribunal of Commerce. It ruled and regulated the whole of its members, and it punished by expulsion any man who gravely offended, which, in other words, meant that the offender was barred from following any longer his business. He believed that the Committee of the Stock Exchange was exceedingly anxious to protect the public if the public would but protect itself. The public was an extremely difficult creature to manage, and he did not believe that any Royal Commission would be able to keep him in check when he was desirous of running riot. He did not know personally whether the Stock Exchange itself would object to a Royal Commission; but he 221 thought it would be exceedingly impolitic to entertain the idea for a moment, or for the House to adopt it. That was not a Party question, and he hoped it would not be a question of prejudice. He hoped that hon. Members would not vote for that Motion simply because they had lost money by an unfortunate speculation, and also that hon. Members who had made money would support him in his opposition to it. But he was afraid that if that Motion were carried it would throw a still greater gloom, not only through the United Kingdom, but over all the countries of Europe where financial and commercial depression prevailed very seriously. In conclusion, he trusted that those whose experience of the Stock Exchange was not so very limited as his had been, and who knew better than he did how honourable and upright it was as far as its constitution went, would rise and address the House on that subject.
§ SIR EDWARD WATKIN
said, he hoped the House would agree to the Motion, which, so far from spreading the gloom to which the last speaker had referred, would, he thought, inspire great confidence. What, he asked, was the Stock Exchange but a great Trades Union; and, as the House had inquired into the operation of many other Trades Unions, why should it not inquire into that one? Those who originated the many disastrous transactions which had been alluded to had appealed to the public through the Stock Exchange, and there had resulted the loss of, probably, between £200,000,000 and £300,000,000 during the last seven or eight years. Was not the effect of a striking fact like that upon the industry and commerce of the country a sufficient ground for inquiry? The institution now in question dealt with £5,000,000,000 sterling, and some of the great financial adventurers connected with it, whose names were only too well known among us, had promoted some of the greatest abominations, perhaps, which had ever been perpetrated, and which had ruined thousands of our unprotected fellow-countrymen and countrywomen whom it ought to have protected. If the character and proceedings of the Stock Exchange were so correct and so honourable as the hon. Member for the City (Mr. Alderman Cotton) asserted, what had they to fear from a Royal Commission? Surely they 222 would come out from such an investigation as silver purified by the fire and with enhanced lustre. He therefore hoped that the Government would not flinch from what he deemed to be their duty, but agree to the Motion of the hon. Gentleman opposite (Mr. Yorke).
§ MR. E. STANHOPE
said, he did not think that the evils of the Stock Exchange and its rules could have been put more moderately before the House than they had been put by his hon. Friend who introduced this Motion; but he should like to point out to the House that there was another aspect of the Stock Exchange of which the Loans to Foreign States Committee had experience, and that was the good business that was being done by the Stock Exchange. The amount of good business done on the Stock Exchange was out of all proportion to those smaller affairs with regard to which its conduct had been criticized. The hon. and gallant Member for Westminster (Sir Charles Russell) seemed to have introduced several matters which went a great deal beyond the scope of the proposed inquiry. He had dealt very little with the objections to the Stock Exchange, although he had dwelt on certain great evils which he said existed in regard to the dealings of contractors and others outside the Stock Exchange. The allegations with respect to those dealings outside were no doubt perfectly true; but, at the same time, he (Mr. Stanhope) thought that to comprise them in a Motion relating to the Stock Exchange was going rather farther than might have been expected. He (Mr. Stanhope) thought the evils of the rules of the Stock Exchange were abundantly clear. His hon. Friend (Mr. Yorke) said they were clear. Why, then, did he want further inquiry into that matter? He might have said, no doubt, there were certain fields not inquired into—as, for instance, the joint stock companies; but he expressly excluded those, and limited his speech to the case of foreign loans. Two years ago the House thought fit to inquire into that. The Loans to Foreign States Committee, of which he (Mr. Stanhope) was a Member, sat for the greater part of the Session. They examined several members, indeed all the most important members of the Stock Exchange, and a great many other witnesses on the subject, and they tried to 223 find a remedy for dealing with the evils of the Stock Exchange; but what was the result? They found that there had existed in the public mind a sort of idea that an insertion of shares and stocks in the official list of the Stock Exchange gave a sort of certificate of them, that the public believed there had been an investigation by the Stock Exchange before they allowed a quotation of shares and stocks; but evidence given before the Committee abundantly showed that the public were altogether mistaken on those points. The Committee, moreover, discovered what was the main function of the Stock Exchange, and that function as described by themselves was to facilitate business; and he was bound to say that he believed there was no country in the world in which legitimate business was transacted with such facility, and such certainty and convenience to all parties, as upon the London Stock Exchange. Then it was found that the Stock Exchange had admitted amongst its rules some which were apparently framed for the protection of the public, but which, so far from having that effect, only served to mislead investors. He thought that, above all, the great lesson of the inquiry by the Committee was this —that the public could not rely upon the rules of the Stock Exchange or of any public body, but must rely solely upon themselves. He was quite certain that if a Royal Commission were appointed they would have a good deal of interesting evidence and a good deal of evidence which would be painful to read; but whether they would have anything new or anything which might assist them in the least in this matter was a question, he thought, which the House must seriously consider. If they were to begin with an inquiry into the Stock Exchange, where were they to stop? Was what was called "rigging the market" confined to the Stock Exchange? Was there no rigging of the market in the corn trade, the sugar trade, and the cotton trade? Was there not "gambling" elsewhere than on the Stock Exchange? He thought if they were going to make out a case with respect to gambling there might be some reason for inquiring whether or not Lloyd's should not come under the consideration of a Commission or a Committee. The remedies for the evils of which they were speaking were very carefully considered by the 224 Loans to Foreign States Committee, who said, in their Report, that there was no doubt that the Stock Exchange, between its own members, administered substantial justice, and such a body could scarcely be interfered with by Parliament without losing some of that freedom and that spirit of self-government which was the life and soul of such institutions. Legislation upon these subjects might be justified on more than one ground; but his hon. Friends attempted to justify it upon one ground only, and that was of affording protection to the public. Now, had they thought whether that proposition was not liable to the objection he had already urged against making the public rely upon rules of the Stock Exchange and not upon themselves? And, besides, how was the thing to be done? Was the Commission to frame rules to be substituted for those of the Stock Exchange? and if they were, how wore those rules to be enforced? Was the Stock Exchange to be loft to apply them or not as it saw fit, or was their enforcement to be entrusted, as had been suggested, to some public authority? The former course would be ineffectual; the latter would lead to constant appeals to the Government; and there would be no satisfactory result. Something had been said about diminishing the responsibility of the officials. For his own part, he thought there was a great deal to be said for the argument that the Stock Exchange had tried to do too much of what it could not do. It had tried to exercise supervision over those financial schemes to which reference had been made, and it had signally failed; and he appealed to the House whether it was going to force upon the Stock Exchange the adoption of a course which had already failed, and which, whatever might be its advantages in other respects, was very likely to tend to the diminution of the responsibility of the Stock Exchange. Before the House adopted such a proposal as that involved in the Resolution, a much stronger case ought to be made out in its favour. It seemed to him that the Mover and Seconder of the Motion had not urged anything new on the subject. They had based their arguments wholly on the Report of the Loans to Foreign States Committee, and had shown no reason whatever for further inquiry. If we were to achieve reforms in these matters we must after all rely 225 mainly upon public opinion; and if full light were thrown upon these operations no institution, however powerful or independent, could stand against its force, or its resistance would serve only to intensify and direct it. It therefore was necessary that the supporters of this Motion, in proposing to stir in a matter which in that House certainly could not be settled, before they brought into action machinery which certainly would desire to find something for itself to do, and before they interfered with this institution, should show there was some prospect that the ulterior object which they themselves had not ventured to indicate would be accompanied by corresponding advantages and benefits to the public.
§ SIR HENRY JAMES
said, that when he recollected the good work which his hon. and learned Friend (Mr. Stanhope) did on the Loans to Foreign States Committee, he felt there might be some truth in what he hinted at—that the work of the Committee should be continued; but he much feared that was not the case. He hoped the House would allow him to state very briefly what part of that good work yet remained to be accomplished. He did not wish to refer in great detail to the work which that Committee effected. It did that which he always believed would be the end and result of its labours: it exposed and made manifest to the public the great evils which existed, and those evils, his hon. and learned Friend admitted, still existed. But what were the evils with which the Committee had to deal and disclose? It had been proved that great frauds had been committed upon the public, that those frauds were not manufactured by the Stock Exchange, but that the Stock Exchange was the machinery by which they were carried into effect. When, therefore, it was alleged that the hon. and gallant Member for Westminster (Sir Charles Russell) had gone outside the subject to-night in referring to the acts of the contractors, because they were not members of the Stock Exchange, it was forgotten that had the Stock Exchange not been in existence, the work of the contractors would have been useless and without fruit. It was simply because the Stock Exchange, who pretended to be the only protectors in such matters of the public interest, had neglected their duty, and thereby 226 in a manner become parties to the fraud that had been committed, that the contractors were enabled to reap the harvest, and obtain the benefits resulting from those frauds. And how had it become possible for those frauds to be carried into effect? Their perpetration had been rendered possible in consequence of members of the Stock Exchange, who received thousands of pounds in return for their assistance, giving a certificate as to the respectability and the bona fides of the scheme, without making the least inquiry into the solvency of these impecunious countries, who, in fact, never received the sums borrowed, the greater part of which went into the pockets of the contractors. It was by means of that certificate alone that the contractors were enabled to defraud the public. But what more did the members of the Stock Exchange do to further these frauds? Having given that essential certificate, they proceeded to appoint a "settling day" for these loans, and then they received orders from the contractors to make pretended sales and purchases of the scrip, so as to lead the public to believe that it was at a premium of from 22 to 3 per cent. Thus it was that the public, believing that the Stock Exchange was a respectable body, and that they would not permit any improper dealings, purchased the scrip in their innocence, and became victims of these frauds. The hon. and learned Member, therefore, would admit that under the present system great evils existed, which he by nature would be the first to condemn. In the face of these admitted facts, was it to be said that it was impossible for that House even to search for a remedy for such evils? Had everything been done to prevent them? Was his hon. and learned Friend confident enough in his own labours to say that the public were now protected, because he, as a Member of the Loans to Foreign States Committee, helped to expose these transactions? Had they not better try to prevent the recurrence of similar proceedings? It might be said that they should leave the matter to the Stock Exchange; but for how long was it to be left to the Stock Exchange? They had had two years in which to devise a remedy for these evils, and, with the exception of the correction of a grammatical error in one of their rules, he was told that their rules under which 227 these frauds were concocted and perpetrated were exactly the same as they were in March, 1875. During the whole of that time, therefore, the Stock Exchange had done nothing to prevent a recurrence of the proceedings which everyone agreed in censuring and condemning. It was, therefore, absolutely necessary that this House should take some step in the matter. It might be urged against this proposal that the Stock Exchange was a voluntary body, and that therefore the House had no right to inquire into its rules. He would be disposed to give full effect to the argument that there should not be too much paternal legislation, too much prying into the free relations and communities of the country; but he would like to ask his hon. Friend who used the argument—that because there were greater evils they ought not to redress this one—whether the Stock Exchange did not stand in a different position to that of any other community that could be mentioned? The Stock Exchange was undoubtedly a market, but it was a market to which the public were bound to go. If a man were left an executor under a will, and had to sell £50,000 in Consols in order to wind up the estate, he was compelled to go to the Stock Exchange in order to realize the property, and there he was not allowed to go himself; he was compelled to go there through one of their community. Nay, more, if he went, as he was compelled to go, upon that compulsory market, he was not allowed to do as he liked. An agent was forced upon him, and the note of the contract he was making informed him that he had to deal according to the rules and usages of the Stock Exchange, which were upheld and enforced by the law of the country, however unreasonable they might be. Their rules, therefore, must be treated as forming a part of the law of the land which it was the duty of the House to examine into. If, as they were told, they were to stay their hands because worse evils remained behind, the function of Parliament ceased, and they failed to perform their duty. Those who told them that these evils should be allowed to continue as they now existed should bear the burden of showing that nothing possible could be done to remedy them. In saying that this inquiry should take place he did not do it in a spirit of antagonism to the 228 members of the Stock Exchange. Many of them were highly respectable, and they would be the principal witnesses, for they abhorred the proceedings that were taking place there from day to day, and looked with distrust on the wealth made by men who traded upon the credulity of the public. They would be the first to tell the Commission—" You are armed by the vote of the House of Commons with greater powers than we of the Stock Exchange possess; you are backed by public opinion; we tell you the remedy; we tell you that by enforcing regulations, such as submitting to the Board of Trade rules" —as he believed Lloyd's rules were submitted— "or by an act of incorporation, which will bring this trading community under the power of the law—then, these things being done, we shall have rules which will protect the public," and when these better rules so created, might be so enforced, then let the public know, not as his hon. and learned Friend had said, that they must look to these rules, but that they would have rules which were good plus the present inquiry. But why they should prefer rules which they admitted were bad—why they should submit themselves to them without making an effort to effect some change, he must say he did not think had been answered by any Member of that House. There was a good deal more that he could say upon this subject, but he would refrain from uttering it upon the present occasion. He hoped the debate would be continued in the same moderate way as it had been treated by the hon. and learned Gentleman who spoke from the Treasury Bench. They were all actuated by a common object—to endeavour to do some good to that public which, if not protected by the Stock Exchange, at least ought to be protected by Parliament. He could assure hon. Members that he was influenced in his views on this subject, not from having been made a victim of these frauds, but from information he had obtained in the course of his professional career, which had convinced him that great and crying evils arising out of the proceedings which had been referred to existed. In conclusion, he begged to assure the House that if this matter went to a division, he should give a most confident vote in favour of this proposal.
§ MR. J. G. HUBBARD
said, that while the hon. and learned Member who 229 had just addressed the House had spoken at large upon what he deemed to be evils which called for remedy, he had not mentioned one single rule of the Stock Exchange which operated in a manner calculated to work mischief or injury to the public. The hon. and learned Member had fallen into the error of supposing that the same person might, under the rules of the Stock Exchange, act as jobber as well as broker, and might, by combining the functions, defraud the public. As matter of fact, one of the rules of the Stock Exchange was directed expressly against the exercise of these dual functions by the same person, and therefore the evil which was suggested could have no existence. There could be no doubt that the evidence taken by the Loans to Foreign States Committee disclosed a vast amount of corrupt dealing in reference to foreign stocks; but the corruption was due to the promoters and introducers of such loans, and not to the Exchange on which the stocks were bought and sold. The Stock Exchange was a market perfectly innocuous. Objections had been made to time bargains as illegitimate transactions; but he ventured to express the opinion that great operations in dealing with the funds would be impossible if such bargains were rendered illegal. He was glad his hon. Friend (Mr. Yorke), in speaking of speculation, did not join in the common cry against it, as a thing all evil. It was nothing in the world but foresight. He trusted that the Motion would not be acceded to, because he felt satisfied it would do no good. He trusted that the Government, having regard to the immense importance to this country of maintaining the public funds in high estimation, would do nothing to impair the usefulness of a body that had so long been identified with those funds in England. He ventured to say that no case had been made out against the Stock Exchange sufficient to justify an inquiry. Such a procedure would only prove injurious to the character of men who were doing an essential service to the State. In times of difficulty, when the Government had to make loans, where did they find greater supporters of the public interest than on the Stock Exchange? That body was composed, not only of brokers, but of men of opulence and high character, who were quite 230 ready in times of difficulty to come to the aid of the Chancellor of the Exchequer, and he believed that the maintenance of the Stock Exchange in its present independent position was one of the greatest securities for the public credit. He looked with alarm on the inquiry demanded.
§ MR. NORWOOD
tendered his thanks to the hon. and learned Member for Taunton (Sir Henry James) for the able speech he had made, with every word of which he agreed. He (Mr. Norwood) supported the Motion for inquiry on the ground that the Stock Exchange was a close body— a gigantic trade's union—from which the public were absolutely excluded, and the members of which certainly conducted their business in a manner which was open to just and serious reprehension. He entirely agreed with the general opinion advanced by the Secretary to the Board of Trade, as to the danger which attended State interference with the conduct of trading transactions, and he had himself endeavoured, without success, to enforce this doctrine upon the House on more than one occasion; but he was surprised to hear the representative of the Board of Trade, which had interfered with so many interests, object to an inquiry of the kind the House was now asked to sanction. The Government had passed Acts of Parliament dealing very stringently with merchant shipping, with railways, with gas and water companies, and other commercial undertakings, and had a Bill now before the House which would interfere materially with the practice at Lloyd's. All these things could be inquired into, and yet they could not inquire into the traffic in stock shares because it was said to do so would be to interfere with the due course of trade. The argument of non-interference with commercial details was one which the Board of Trade certainly were not in a position to assert with any consistency.
§ MR. BENTINCK
remarked that while the most important considerations in connection with the question had not been touched upon at all, the strongest arguments in favour of inquiry had fallen from hon. Members who spoke in opposition to the Motion. He admitted that the Stock Exchange was necessary as a place for conducting business; but he contended that that was no reason for 231 Parliament sanctioning, by want of action on the part of successive Governments, the practice of wholesale gambling, which was the proper designation to give to the present practices of the Stock Exchange. The House was bound to draw a distinction between business and gambling, and ho held that the practices to which reference had been made by his hon. Friend (Mr. Yorke) constituted the most mischievous form of gambling known upon the earth. Investors, it was said, ought to be responsible for the consequences of their own acts; but if it was true—and it had been shown to be—that they had not the benefit of fair play, a strong case had been made out for Government interference. No doubt Government interference would throw a gloom over the minds of many persons; but it would do so in the same way as a great capture of banditti in Calabria would throw a gloom over the banditti of Sicily. That would hardly be a cause for casting gloom over the public at large. Another argument used in opposition to the Motion was that if the Committee were appointed a great deal of distressing evidence would be adduced; but was not that a reason for an inquiry? Did it not imply that there ought to be an investigation, and was it not the duty of the House of Commons to find a remedy for any wrong which might be discovered? His hon. and learned Friend the Secretary to the Board of Trade (Mr. Stanhope) said that the fault lay with the class known as promoters; but was it not a fact that a fictitious value was too often given to loans and shares by the Stock Exchange? In that House they never called things by their right names. The practices on the Stock Exchange were called speculation; but in the case of time bargains it was simply gambling in its worst and most mischievous form. In the Preamble of Sir John Barnard's Act, to which reference had been made, and which Act made time bargains a felony, such gambling was styled a wicked and destructive practice. It had not since lost that character, and he could not see on what ground the House and the Government could sanction it. He asserted without hesitation that, so far as the public were concerned, it would be better to allow public gambling houses to be opened again, and put a stop to the speculations on the 232 Stock Exchange. He would ask the House, in the name of morality and good government, to exert themselves and put a stop to this description of gambling.
§ THE CHANCELLOR OF THE EXCHEQUER
said, he would not detain the House at any length, but he wished to say a few words with regard to the position in which they stood. He gathered that there was a very strong feeling—and, he was bound to admit, a not unnatural feeling—in favour of inquiry into the subject. And there was a feeling—which was very prevalent in that House whenever an inquiry was asked for—that inquiry could do no harm. At the same time, he must express his own opinion, both upon the nature of the Motion and upon the arguments adduced in support of it; and he wished especially to refer to the speech of the hon. and learned Member (Sir Henry James), who had spoken since his hon. and learned Friend (Mr. Stanhope) addressed the House. When an inquiry of this kind was moved for, the House ought to ask itself not only the question whether the inquiry could do no harm, or would be interesting or not, but also whether it was likely to do good. In the arguments which had been adduced that evening he had observed that very strong premisses had been laid down, and in very eloquent language, which were altogether undeniable in themselves, and the gravity of which they recognized, but that those premisses had not been brought to support the conclusion which was aimed at. The hon. and learned Gentleman (Sir Henry James) began by stating that, although the frauds of which they were all sensible, and which were a scandal to the country, were not committed by the Stock Exchange, but by persons outside of it, still it was through the machinery of the Stock Exchange that the frauds were committed. Well, it might be so; but it was not the only class of machinery through which frauds were committed. It might be said, for instance, that the Press was the machinery through which many frauds were committed, because prospectuses were issued, money articles written, and various other means were taken through the Press, for the purpose of committing frauds. It was necessary to consider how far the machinery complained of was responsible for the frauds that were committed by 233 means of it. We would not do away with useful machinery merely because it might be misused. Now, what was it that hon. Gentlemen who supported this Motion were seeking to obtain? They proposed an inquiry into the origin, customs, and so forth, of the Stock Exchange. Well, that was a matter of interest. We knew a good deal about it already. We had learnt a good deal about the mode of conducting business in connection with that institution from the proceedings of the Loans to Foreign States Committee. Indeed, he thought we already knew, or could easily learn, all that need be known on that subject. There were the rules of the Stock Exchange, and the knowledge of them and of the other facts that had come to light seemed to him to make a Royal Commission unnecessary. Then as to the question whether those rules were in accordance with the principles which ought to govern public policy, and whether legislation might be usefully employed with reference to them, this would mean a very serious kind of inquiry. If, instead of sending out a mere roving Commission, they could in any way indicate the direction in which a remedy was to be looked for, he granted that the labours of the Commission might have some useful purpose. But he had observed that not only the Mover and Seconder, but even the hon. and learned Gentleman opposite (Sir Henry James) had altogether abstained from indicating the direction in which it was desirable to look for a remedy; and therefore he held that no answer whatever had been given to the doubts which had been so well expressed by the Secretary of the Board of Trade as to whether it was possible to find a remedy which would not do more harm than good. As to an inquiry, that was one thing; but as to the adoption of a remedy, it would require the most careful consideration on the part of Parliament whether any remedy which could be suggested would not do more harm than good. The evil which was alleged he understood to be this:—The Stock Exchange professed to be, and was, a very useful institution for the transaction of sound business; and, in order to keep business sound, its members laid down elaborate rules, which were obviously and avowedly framed not for the purpose of promoting fraud, but for the purpose of preventing 234 fraud. It turned out upon inquiry that those rules had, somehow or other, proved ineffectual to prevent a great many frauds, and that mischief had been done by the very excellence of the intention, or avowed intention, of the members of the Stock Exchange in framing the rules in question. People had confidence in those rules, and not unnaturally thought that if an undertaking which was brought forward satisfied the requirements of those whose object was to prevent fraud, it might fairly be regarded as possessing a legitimate and safe character. In this manner unwary persons were induced by their confidence in the Stock Exchange to look less carefully into the speculations which were set before them than under other circumstances they would do. Now, it was, of course, very sad that people should be misled by a misplaced trust in the Stock Exchange; and one would be glad in any possible way to prevent it. His hon. and learned Friend (Mr. Stanhope) had said, and said truly, that the principal remedy must be in the greater caution of individuals, and in the publicity that was given to the errors into which the Stock Exchange had fallen, and the misuse that had been made of it; and it was undesirable that Parliament should do anything which might lead people to trust less to their own investigations and more to the rules of the Stock Exchange. If a remedy were attempted in the direction of interference from without, either on the part of Parliament or of some other public authority, with the view of making these rules better, the effect would certainly be to lead people to have more confidence in them than ever. Under present circumstances a man might be warned by the disasters of the last few years; but if Parliament said to him—" We have now set all right; we have inquired into this matter by means of a Royal Commission and devised rules and given a controlling power to the Board of Trade or some other body"—they would simply be increasing the very confidence which had hitherto caused so much evil. In this way, unless they could effectually provide against fraud, they would do more harm than good. Of this, at all events, he was quite sure—that if they adopted the principle of making the rules of the Stock Exchange subject to a public Department, they would find themselves 235 obliged by a similar process of reasoning to do the same thing with regard to other institutions. It was said there were fraudulent persons who made a bad use of the Stock Exchange; but to that it might be answered that there were fraudulent persons everywhere, and could they be dealt with by any rules? He thought not. Difficulties might be put in their way in one direction, but they would be sure to find some other way. All that could be done was to have as good a machinery as possible and a stringent law for those who deliberately made a fraudulent use of it. Another point to be considered was, the rules themselves might perhaps be defective, and even bad. The hon. and learned Gentleman (Sir Henry James) touched a very strong point when he said that the Courts of Law had recognized the rules of the Stock Exchange in certain cases.
§ SIR HENRY JAMES
explained that in all contract cases it was part of the agreement that the contract was subject to the rules of the Stock Exchange, and in these cases the rules were enforced by the Court.
§ THE CHANCELLOR OF THE EXCHEQUER
understood from that that the rules were acknowledged whether they were good or bad. However, those rules were known, and if they were good they could remain, but if bad or mischievous, Parliament might legislate to correct them. He did not mean that they should deal with the rules as rules of the Stock Exchange, but that they might lay down principles which would prevent and make illegal those things which were found to be bad in the rules of the Stock Exchange. He believed that was the only effectual way in which they could deal with the matter. If there was any given practice which was mischievous and which was sanctioned by the rules of the Stock Exchange, and, being so sanctioned, was admitted to be valid by the Courts of Law, let Parliament legislate in such a way as to make that practice illegal, and that would be much better, he thought, than attempting to exercise a managing control over the rules. While ho had thought it right in support of the observations of the Secretary of the Board of Trade to state these reasons for doubting whether any good could come of the proposed inquiry, and in particular to put in his caveat with 236 regard to any legislation which might be desired after the investigation, he must admit that there seemed to be a very strong wish for an inquiry, and he saw no very great reason for resisting it. Therefore, so far as he was concerned, he was not prepared to vote against the Motion. At the same time, he did not believe any good would come of it, and he did believe it would be exceedingly necessary to be very careful indeed as to the mode in which Parliament dealt with the results of the inquiry.
§ MR. LOWE
pointed out that the Loans to Foreign States Committee, to which the right hon. Gentleman had referred, had not made any direct inquiry into this subject, having merely picked up information on it by the way, while dealing with special matters entrusted to it. He also wished to remark —and perhaps it would give some relief to the mind of the right hon. Gentleman —that even if they knew what they wanted to do in this matter, nothing would be more difficult than to do it, because the Stock Exchange was a voluntary institution; it was a Club; and the way in which it worked was that it turned a man out of it and destroyed his subsistence if he took advantage of an Act of Parliament or did anything which was distasteful to the Stock Exchange Committee. The difficulty would be to act in such a manner as that they should not be checkmated. Parliament had endeavoured to interfere on former occasions; but the Stock Exchange said that if anyone availed himself of the Act he would be turned out of the institution. Therefore, the subject required more consideration than the right hon. Gentleman seemed willing to admit. Then, with regard to the Stock Exchange, what lie found fault with was, not that it was a place where people gambled—which he was afraid could not be avoided—but that it had lent facilities for some of the worst things being done that had taken place in recent years. It had been carefully described in the Report of the Committee how people brought out loans which really remained in the hands of the persons issuing them instead of their being allotted. All that kind of work had been thoroughly well known to the Stock Exchange, and yet the Stock Exchange had been in the habit of allowing and receiving certificates and acting 237 upon them, so as to give settling days and quotations, when they must have perfectly well known that the matter was got up in this fictitious manner, and that the certificates were false. They had gone still further, for they had, in the case of one of the four loans which the Committee had investigated, distinctly broken their own rules in order to launch one of the most disreputable concerns that had ever been launched. The rules of the Stock Exchange expressly required that the certificate should state the amount allotted to the public, and Mr. De Zoete, Chairman of the Committee of the Stock Exchange, admitted that the words "disposed of" did not convey the impression of having been allotted to the public in any ordinary way, but evidently implied the existence of a private contract; and yet the Stock Exchange gave a settling day for that loan, and thus lent themselves, in violation of their own rules and regulations, to that loan by which so many people were ruined. The point was not that people gambled on the Stock Exchange; it was that the Stock Exchange, having rules, did not act upon them in many cases, and that in others they wilfully abstained from inquiry, where they well knew if they had inquired they would have found that a syndicate had been organized, and that the whole thing was a deception and a fraud upon the public. It was not that people had lost their money foolishly, not that they had been deluded—for that would happen as long as human nature remained the same—but it was in order that we should not have a body receiving certificates and acting upon them, and who, knowing them to be false, and knowing that the loan had not been allotted, yet proceeded to give it all the vogue it could, just as if it had been allotted, that inquiry was needed. That was the subject into which they wanted inquiry, and no doubt two ways would be suggested. Some would say that they should increase precautions and require all sorts of evidence that the thing had been properly done. Others would advocate a contrary course, and deprive the Stock Exchange of the power of refusing settling days and quotations, so that everything might proceed entirely on its own merits, and the Stock Exchange be relieved from their judicial 238 duty of giving vogue to new loans, which was not very well discharged. When they had settled which of these two courses they would adopt, there would remain the question by what means they would be able to enforce it upon the Stock Exchange. He thought these were subjects extremely well worthy of investigation by a Royal Commission. It was not merely what they might like to be done, but when they had settled what should be done they would have to consider how it was to be done without interfering with that free action of the Stock Exchange which he should be anxious to preserve. In his opinion, a case had been made out for an inquiry of that kind. He did not think it would be a useless inquiry, and he had a very strong opinion as to the course which ought to be adopted. He believed, as he had already intimated, that the inquiry need not be instituted in any spirit of hostility to the Stock Exchange, for there were many people in the Stock Exchange who would assist the Commission in every way. In the former inquiry Mr. Scott had given evidence which reflected the greatest credit upon himself. The problem was a difficult and complicated one, because they had a voluntary society with powers which really amounted to legislative powers; and how to preserve that voluntary nature of the society, and at the same time to provide for the supremacy of legislation over it, and to keep it in proper check, was a problem well worthy of the most enlightened tribunal that could be had. He did not despair of a solution of it, but it was a very difficult problem, because the House must not suppose that they had merely to command and the Stock Exchange would obey. He felt sure that if the matter was carefully and candidly gone into, with the assistance of the men who would be willing to give their help, very great good would come of it, and that the Chancellor of the Exchequer would not repent of having yielded to the wish of the House in this matter.
§ MR. GOSCHEN
said, he could scarcely refrain from saying a word on this question, because his views were not on what might be called the popular side. Although it was patent to everybody how strongly the current of feeling ran on the matter, he would like to offer a few 239 remarks on it, the more so because it appeared to him that the House of Commons was making a round of the various professions and trades in the country. The Chancellor of the Exchequer said he did not see that the inquiry would do any harm. Well, it did this harm—it established another precedent that Parliament, without any conviction that it would do good, and with a conviction on the part of the Government that it was highly problematical whether any good would be done, might, merely because the current of feeling ran so high, order an inquiry to take place. Two years ago the ship owners could scarcely raise their voice in that House, because feeling ran so strongly against their trade. Next they were to have the Underwriters—there was to be inquiry and legislation connected with underwriting; and now it was the stockbrokers and the Stock Exchange generally; so that Parliament was beginning to act on what he might call a new principle—that was, in order to prevent some patent abuses the ordinary current of business was to be interfered with, searching inquiries were to take place, and Commissions and Committees were to establish themselves as a sort of correctional police. They must consider how those inquiries bore on the whole trade of the country. They must guard against the idea that because of abuses in one particular department of trade Parliament was to make itself responsible for the mode in which business was in future to be conducted. The Chancellor of the Exchequer admitted to the full his doubts of any good arising from the inquiry, and there was certainly one point in which it would do harm, because it would create an impression in the public mind that Parliament might, by its action, be able to put down speculation and gambling, or to carry out the legitimate objects which hon. Members who supported the Resolution wished to attain. But had France, he would ask, been able to stop them? Was it not the fact that, although the French had legislated on the subject and laid down rules for their Stock Exchange, gambling had reached to an extent there to which it had never attained in this country? For his own part, he desired to express his conviction, quite irrespective of whether there were or were not questionable practices 240 resorted to on the Stock Exchange, that it was undesirable to encourage in the public mind the notion that the Legislature could protect them. Any attempt to do that must, he believed, fail; and he regretted the Government should, as in the case of the Loans to Foreign States Committee, have yielded to a proposal which they at first opposed. He wished they had earlier in the evening made up their minds to resist the Motion thoroughly, and so have avoided placing the House and the public in the position of knowing they were to have an inquiry from which they were at the same time warned no good results were to be expected. There would be no division, and, therefore, the opinion of the House could not be tested; but the fact remained that, contrary to their own convictions, the Government would undertake this Commission. If it were once appointed, he felt confident that the members of the Stock Exchange would feel it their duty to co-operate with it in order to produce a good result. Although some expressions had fallen from hon. Members that evening calculated to give pain, yet he trusted that, on the whole, the members of the Stock Exchange would see that the argument had been that they were not the offenders, but the machinery through which the offenders were able to operate, and they would notice with satisfaction that the Mover and Seconder of the Resolution in their speeches endeavoured to avoid irritating topics, and to preserve a tone of moderation. They would see—and that was the upshot of the whole debate—that the hon. and gallant Member for Westminster (Sir Charles Russell) let the cat out of the bag. "The coachman rubbed the terrier the wrong way in order to terrify the fleas." This Commission was to be appointed as a correctional police to terrify the evil-doers, and so far he trusted it might succeed in its object; but he thought it an evil precedent to add to those which had gone before, and one which must give rise in this country and in others to the idea that all great trades and professions in this country were in such a state that Parliamentary inquiry and Royal Commissions were necessary.
Resolution agreed to; to be presented by Privy Councillors.