Membership is not limited as in most other ex changes. In 1910, there were 5019 members and at present there are about 5200. However, this state ment requires some modification. It is obvious since there are only 20,000 shares and each member gets one and in some cases three shares, the maximum num ber of members will range about 7000.
A peculiar feature of the Exchange is the require ment that members must be re-elected yearly, the understanding being that members are elected for one year Often 150 brokers drop out at the end of a year. In addition, the committee may elect a few members each year without nomination. The founders of the Exchange devised this scheme in order to prevent the raising of objections that it was or ever will tend to be a monopoly.
6. Brokers and jobber$.—A very important fea ture of the London Stock Exchange is the distinction between brokers and jobbers. When a man becomes a member he must indicate whether he will be one or the other. The broker, that is a commission broker or retailer, is an agent for the public. He buys from and sells to the jobber, who has no relations whatever with the public. The jobber is a middleman, a trader, a dealer, a specialist and a wholesaler. The jobbers trade among themselves and with brokers, but brokers do not trade with other brokers.
It is difficult for an American to appreciate how different this system is from ours. We may com pare the jobbers to our specialists, to our odd-lot brokers and to our room traders: But the London jobber is much more than all these. He is the market itself. He makes the market. He is the only one who furnishes quotations for the inadequate ticker service. He is the only one in fact who knows much of anything about prices.
The jobbers are of all degrees of importance. Competition among them is severe. Many are merely small speculators, and it is not uncommon for dozens of them to fail every few months. On the other hand the larger jobbers are great capitalists, dealers in stocks on a gigantic scale. A single jobber has been known to handle more than 200,000 shares a day.
The jobbers in any given class or group of stocks, such as Americans, Canadians, English rails, South Africans or whatever it may be, stand in a row. A broker with a buying order to execute comes along and the jobber asks him: "What do you want to do?" It may expedite matters for the broker to say whether he wants to buy or to sell, but he is not com pelled to do so. On the other hand the jobber is ex pected to name two prices, one at which he will sell and the other at which he will buy. Then he is ob liged to buy or sell at the price named up to a cer tain amount, known as the "jobber's limit," which varies with the price of the stock, but never exceeds a few thousand dollars.
7. How jobbers operate.—If the jobber is shrewd he will guess what the broker wants to do, buy or sell, and name his prices accordingly. Or he may wheedle the broker into telling. Or the broker may beat him down by insisting: "Come closer." If the jobber names two figures, the buying price being and the selling price the broker may insist on a closer price, and the jobber may make it % and or even closer, because variations in price of sixteenths are permitted. If the broker still in sists upon a closer fraction he may go on to the next jobber. The jobber makes his profit from what is called the "jobber's turn," which is merely the profit able difference between his buying and selling price.
The great point is that having once named two prices, the jobber must live up to them and do business at those prices.
If jobbers are afraid to do business they "go to lunch all day," as during the slump in the rubber boom in 1910, or they name prices so wide that no broker can afford to buy or sell for his customers at such figures, as at the beginning of the war when jobbers' prices for Montenegrin bonds were 70-80.
To the American the London system of brokers and jobbers seems roundabout, typical of English con servatism, antagonistic to direct methods. It is like the old fashioned division of lawyers into barristers and But it is claimed that the division of functions between brokers and jobbers makes for a free market and closer prices. There are so many little 'mown foreign stocks on the London Ex change and so many more shares of small domestic companies than on the New York Exchange, that a complete system of specialists rather than the more open and general system of New York may be neces sary. W. P. Hamilton, Editor of the Wall Street Journal and a Britisher by birth and training, is quoted in the "Work of Wall Street" as saying: The London system has its advantages and its disadvan tages. In our market the jobber's turn is saved, but, in an excited and feverish market, the broker may be hours before he can trade at all. In London, he is always sure of being able to sell at some price or buy at some price—both very important conditions in a panicky market, when it often happens here that the broker. has to offer the stock down indefinitely until he finds a purchaser. In the May panic of 1901, Jersey Central was offered down here from 153 to 102 without a single transaction. The stock was sold at 102 and the next transaction was 148. This would have been impossible in London. The jobber might have made a very wide price, but the broker would have been able to sell for his customer at worst within five points of the previous quota tion.