Sales on the Stock Exchange.

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Ex. 132, Ex. Ch.; Merry v. Nickalls, L. R., 7 H. L. 530; vide ante, p. 25. The usage of the London Stock Exchange is to be found fully set out in those cases, and the rules then in force will be found at L. R., 4 C. P. 53, n. As, however, these rules have undergone some modifications, and are very frequently referred to, it will be useful here briefly to describe how the transactions are carried out, and to state the most important of the printed "Rules and Regulations" as adopted in the year 1883, and which are still in force. See also the evidence in Ex pte. Grant, 13 Ch. D. 667, C. A.

It must first be observed that the Stock Exchange only recognizes dealings with its own members, and consequently all members, whether dealers on their own account, called "jobbers," or brokers acting for a principal, contract with each other as principals (r. 52). Hence the term member, hereafter employed, will include both jobbers and brokers. Every calendar month is divided into two nearly equal periods, each called "the account," and it is with reference to one or other of these accounts, that all contracts for sale or purchase of stocks and shares (rr. 85, 107), other than English and India stocks, or the scrip of a new loan, or shares in a new company, are made. The three last days of each account are called the settling-days, and are known respectively as-1st. The making-up day; 2nd. The ticket or name day; 3rd. The settling or pay-day. The pay-days are fixed by the Committee of the Stock Exchange (r. 134), at about the middle and end of each month.

Taking first the case of shares transferable by deed of transfer. The buying member, to whom the shares have been sold, is at liberty by the nameday to substitute, if he is able to do so, another person as buyer, and so relieve himself from further liability on the contract, provided that to such person the seller cannot reasonably except, and that such person accept the transfer of the shares, and pay the price agreed on between the seller and the buyer; in other words, become the buyer of the shares at the price originally agreed on. Grissell v. Bristowe, L. R., 4 C. P. 36, 45. Ex. Ch. ; overruling S. C., L. R., 3 C. P. 112; and Coles v. Bristowe, L. R., 4 Ch. 3 ; overruling S. C., L. R., 6 Eq. 149; Torrington, Vt., v. Lowe, L. R., 4 C. P. 26; Maxted v. Paine, L. R., 4 Ex. 203; Ex. Ch., L. R., 6 Ex. 132; and Maxted v. Morris, 21 L. T., N. S. 535; M. T. 1869, Ex. When the seller has accepted the nominee of the original buyer, the contract with the latter, and his liability is at an end; the seller, by transferring the shares to the nominee, and so putting it out of his power to transfer the shares to the original buyer, irrevocably declares his acceptance of the nominee. S. CC. This, of course, assumes that the nominee is a person legally capable of entering into the contract with the seller; where this is not so, as where he is an infant, the original buyer remains liable. Merry v. Nickalls, L. R., 7 H. L. 530, post, p. 515.

*

This process of substituting another name, for that of the original buyer, is carried on by means of tickets, in the following manner: the buyer, B., who takes up securities deliverable by deed of transfer, on the day before the ticket-day, or before 1.30 p.m. on the ticket-day, issues a ticket with his own name, as payer of the purchase money, which ticket contains-the amount and denomination of the stock or security to be transferred, the name, address, and description of the ultimate transferee, A., in full, the price, the date, and the name of the member to whom the ticket is issued. This ticket is passed through the hands of all the intermediate sellers, C., D., E.,. .. W., in succession, each of them indorsing thereon the name of his immediate seller, D., E., F., . . . . . X., (r. 90),* till it ultimately

* R. 90 contains also these further directions, viz.—

On ticket-days the passing of tickets commences at 10 a.m., and they may be left VOL. I.

L L

reaches the member Y., who is actually to procure the transfer of the shares; the result is that Y. is brought into contact with B. Y. is then bound within ten days to deliver to B. an instrument of transfer of the shares to A. executed by Z., the ultimate seller, the person in whose name they are registered, together with the coupons or certificates showing Z.'s title to the shares, or a certificate on the transfer deed, that they have been deposited with the Secretary of the Stock Exchange, or with the Company whose shares are being transferred. B., on receiving the transfers and certificates from Y., pays him the price named on the ticket and the stamp duty on the transfer (rr. 94–98). Where B. and Y. are acting as brokers for A. and Z. respectively, the delivery of the ticket to Y., which was issued by B., establishes privity of contract between A. and Z. See judgment of Blackburn, J., in Maxted v. Paine, L. R., 6 Ex. 162; also Merry v. Nickalls, L. R., 7 H. L. 530.

"A seller may require payment of the difference between the price marked on the ticket, and the making-up price of the day on which the ticket is tendered; but if such making-up price be above the price of sale, he shall only be entitled to claim the difference up to the price of sale (r. 68). Members set off their transactions as much as possible between each other, and deliver tickets for the balance of the shares, and of these only they require to take delivery at the account. When the number of shares on the ticket delivered to a member is greater than he wishes to pass on to one single member, he may "split" the ticket or divide the shares between other similar tickets, which he passes on, retaining the original ticket (see r. 90). In this event the buyer shall pay for any portion of shares or stock that may be presented, provided the number be not less than ten shares, or the value less than 2001. (r. 97).

It is the duty of the seller to deliver genuine transfers and certificates (r. 88), and it is the duty of the purchaser thereupon to execute those transfers, and to procure their registration at the office of the company; the seller does not contract to obtain the consent of the directors to the transfer, at any rate until the purchaser has done all that is usual to obtain that consent. Wynne v. Price, 3 De G. & Sm. 310; Sayles v. Blane, 14 Q. B. 205, 206; Stray v. Russell, 1 E. & E. 888; 28 L. J., Q. B. 279; 1 E. & E. 916; 29 L. J., Q. B. 115, Ex. Ch.; Biederman v. Stone, L. R., 2 C. P. 504. A special action lies at the suit of the seller against the buyer on an implied indemnity, if by reason of the buyer allowing the seller's name to remain on the register of shareholders, the latter is obliged to pay subsequent calls; Walker v. Bartlett, 18 C. B. 845; 25 L. J., C. P. 263, Ex. Ch. ; and in such case the transferor may also sue the transferee for not registering the transfer of the shares to him. See judgment in Grissell v. Bristowe, L. R., 3 C. P. 112; not affected on this point by judgment of Ex. Ch. So, when the seller has adopted the nominee as the buyer, and the price has been paid by the one, and the property transferred by the other, a contract, and the relation of vendor and vendee, immediately arises between them (see judgment of Ex. Ch., in Grissell v. Bristowe, L. R., 4 C. P. 36, 51), and this brings the case within the principle of Walker v. Bartlett, supra, so that the nominee is liable to indemnify the seller for loss if the nominee do not

at the office of the seller up to 1.30 p.m. They may also be passed on the day before the ticket-day.

A member receiving a ticket from the issuer after noon on the ticket day, notes the same on the back of the ticket; the member who first receives a ticket after 1, 1.30, 2, or 2.30 p.m., shall draw a line noting such times; and each member receiv ing a ticket after 3 p.m., or at any time on any subsequent day, marks thereon the exact time at which he received it.

Sales on the Stock Exchange.

515 register the shares in his name; this is so both at common law; Davis v. Haycock, L. R., 4 Ex. 373 (where, however, the court was equally divided); Bowring v. Shepherd, L. R., 6 Q. B. 309, Ex. Ch. ; and in equity; Evans v. Wood, L. R., 5 Eq. 9; Shepherd v. Gillespie, Id., 293 ; L. R., 3 Ch. 764; Hawkins v. Maltby, L. R., 3 Ch. 188; L. R., 6 Eq. 505; L. R., 4 Ch. 200; Hodgkinson v. Kelly, L. R., 6 Eq. 496; Sheppard v. Murphy, I. R. 2 Eq. 544, fully cited L. R., 4 C. P. 33.

Until the delivery by the member X., who entered into the contract with the broker Y. of the seller Z. of the shares, of the name of a proper nominee, X. remains liable to carry out his contract. Maxted v. Paine (1st action); Merry v. Nickalls, infra. And where the contract is made "with registration guaranteed," X. is liable to indemnify Z. if the nominee do not register the transfer executed to him by Z. Cruse v. Paine, L. R., 6 Eq. 641; L. R., 4 Ch.441. The nominee must have agreed to buy the shares, and where he agreed to buy for one settling-day, and his broker, without his consent, carried over the sale to the next settling-day (as to which vide infra), the original buyer was held to remain liable to carry out his contract, and to indemnify the seller; Maxted v. Paine (1st action), L. R., 4 Ex. 81; Maxted v. Morris, 21 L. T., N. S., 535; M. T. 1869, Ex.; so, the buyer was held liable to indemnify the seller, where the former passed the name of an infant, L., as the transferee; L. being incapable of entering into a valid contract. Merry v. Nickalls, L. R., 7 Ch. 733; L. R., 7 H. L. 530. In this case a transfer had been executed by the seller to L., and objection was not taken to L. within ten days under the rule below mentioned, as neither the seller nor buyer knew of L.'s infancy. Where, however, the infant transferee sued the vendor to set aside the contract on the ground of fraud, and the vendor compromised the action by repaying the purchase-money, it was held that he was bound by this compromise, and could not afterwards sue the real purchaser. Maynard v. Eaton, L. R., 9 Ch. 414.

The nominee must, in any case, at least, in which there is any existing liability on the shares to be transferred, be a person open to no reasonable objection, and, by the usage of the Stock Exchange, the seller has ten days from the account day during which he may object to him. If an objection be made, it is referred to the Committee of the Stock Exchange, and admitted or overruled by them, according to the merits of the case, and, if admitted, the member P., who entered into the contract, is bound to find another nominee free from objection, or to perform the contract himself. Maxted v. Paine, L. R., 4 Ex. 203, 220, per Kelly, C.B.; Merry v. Nickalls, L. R., 7 H. L. 539, 540. This usage does not appear in the printed Stock Exchange rules, but there seems no ground for the doubt expressed by Blackburn, J., (see L. R., 6 Ex. 179), as to its existence. The seller is not bound to accept the name of a foreigner resident abroad. Goldschmidt v. Jones, 22

L. T., N. S. 220, M. R.; Allen v. Graves, L. R., 5. Q. B. 478. Nor that of an infant, vide supra.

Where a member who has agreed to buy or sell shares, does not desire to take up or deliver them at the account for which they were bought, the contract is frequently "carried over or" continued" to the next account; this is arranged on the making-up day, and on the morning of the settlingday all unsettled bargains are brought down, and temporarily adjusted at the making-up price of the ticket-day, except bargains in stocks and shares, subject to arrangement by the settlement department of the Stock Exchange, which are adjusted at the making-up price of the making-up day (vide infra, r. 105). The "difference" payable on such adjustment is paid on that, and each subsequent settling-day, until the closing of the transaction. On the making-up day and on the ticket-day, the Clerk of the Stock Exchange, at noon, fixes the making-up prices, by taking the then actual prices (r. 104).

In other words, the shares are re-sold to the vendor, at the making-up price, and bought back from him at the same price, the difference between that price and the contract price, being paid on the settling-day of that account. If this continuation be arranged for the accommodation of the buyer, as is usually the case on a "bull" account, he pays the seller "contango "+; if for the accommodation of the seller, as is usually the case on a "bear" account, he pays the buyer "backwardation." + The contango or backwardation is paid on the settling-day of the next account. The carrying over is often affected by means of similar contracts of sale and re-purchase made for this purpose with a person other than the original vendor.

"

When the member buying shares does not carry out his contract, and the shares have not been carried over as above mentioned, they may be sold out against him. The seller not receiving a ticket in due course on the ticket-day may, within a limited time, sell out the securities, and charge the loss on the member, who was in default (rr. 99, 100); where the ticket has been passed, the seller having transferred the stock, has a right to demand payment from the member who passed him the ticket; so, also, where the seller has applied to the issuer of the ticket and failed to obtain payment, or has received a cheque which has been dishonoured (r. 67). Where a selling member does not deliver the shares he has agreed to sell, they may within a limited time be bought in against him by the issuer of the ticket (rr. 101, 102).§ Buying-in or selling-out is effected publicly by the officers of the

A person who buys shares on speculation for the mere purpose of re-sale on a rise is called a "bull," as he tosses up the market. So, one who sells shares he has not got, and therefore seeks to lower the price that he may purchase them at a profit, and so fulfil his contract by delivery, is called a "bear," as he hugs down the market.

It thus appears that "contango is a sum paid for the loan of money, and "backwardation" for the loan of stock, and the rate of continuation, therefore, depends on the relative scarcity of money and stock in the market. Occasionally the rate is "even," i.e., neither contango nor backwardation is payable.

R. 99. "The deliverer of shares or stock, who shall not receive a ticket by 2.30 p.m. on the ticket-day, may sell out such securities up to 3 p.m. If a ticket shall not have been regularly issued before noon, the issuer thereof shall be responsible for any loss occasioned by such selling-out. Should, however, a ticket have been regularly put into circulation, the holder thereof, at 2 p.m., shall be responsible for any selling-out on the ticket-day. If the selling-out take place on the next day, the holder of the ticket at 3 p.m. on the ticket-day shall be liable; unless such ticket was in the settlement department" of the Stock Exchange" at 3 p.m., in which case the holder of such ticket at 4 p.m. shall be liable. In case of selling-out on any subsequent day, the holder of the ticket at 3 p.m. on the previous day, or at 1 o'clock on Saturdays, shall be liable unless he can prove undue delay in passing the ticket. Should the deliverer allow two clear days to elapse, without availing himself of his right to sell out, his buyer shall be released from all loss, in cases where the ticket has not been passed in consequence of the public declaration of any member as a defaulter. If a seller does not deliver shares or stock within 13 clear days, the intermediate buyer from whom he received the ticket shall be released, and the issuer thereof shall alone remain responsible for the payment of the purchase money."

R. 100. "When shares or stock are sold out, if a ticket be not given within half an hour after the time of sale, the transfer may be made into the name of the buyer." SR. 101. "If shares or stock are not delivered within 10 days, the issuer of the ticket may buy in the same, against the seller, at or after noon on the 11th day after the date of the ticket, or on any subsequent day. One hour's public notice of such buying-in must be posted in the Stock Exchange, and the purchase must be made or. attempted within half an hour after the expiration of the time fixed. The name into which the shares or stock are to be transferred must be stated in the order to buy in. The loss occasioned by such buying-in shall be borne by the ultimate seller, unless he can prove that there has been undue delay in the passing of the ticket on the part of

Sales on the Stock Exchange.

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Stock Exchange, who will trace the transaction to the responsible party, and claim the difference thereon (r. 70).

In the case of bargains in securities passing to bearer without deed of transfer, the transactions are carried on in a similar manner, with some modifications arising from the difference in the method of transfer. The tickets are passed on the ticket-day between 10 and 3 o'clock, without any price thereon, and the accounts made up therewith are settled at the makingup price of the day; the tickets must be of certain amounts specified in the rules, and may not be split, except in the settlement department of the Stock Exchange; smaller amounts are settled without tickets (r. 112). The making-up price is settled (r. 116), and on settling days unsettled bargains are temporarily adjusted at prices to be fixed by the Clerk of the house at 2.30 p.m., and the differences are to be paid in the usual manner (r. 117), vide ante, p. 515. These securities, if not taken up by 2.30 p.m. (12.30 p.m. on Saturdays) on the day for which they are sold, may be sold out by the seller, and the buyer charged with the loss (r. 111); so, if not delivered by 2.30 p.m. (12.30 p.m. on Saturdays), they may, within a limited time, be bought in by the buyer, and the seller charged with the loss (rr. 114, 115). Buyers are to pay for such portions of securities as may be delivered within the prescribed time (r. 112.)

In the case of English and India Funds there is only one account in each month, for which all bargains not otherwise specified are made (r. 75). This account, however, relates chiefly to the speculative dealing in stock; bonâ fide sales and purchases are made for any specified days at other times. The making-up price is fixed by the Clerk of the Stock Exchange by taking the average price between certain hours on the three days of the account (r. 84. If the member selling stock does not receive a transfer-ticket before 1.30 p.m. (12.45 p.m. on Saturdays) on the day upon which it was contracted to deliver the stock, he may sell out the same, and claim of the person who at 1.30 p.m. held the ticket any loss hereby occasioned (r. 78). Stock bought for a specified day, and not then delivered, may be bought in on the following day at 11 a.m., and the member causing the default shall pay any loss, and also 2s. 6d. per cent. for the non-delivery of the stock (r. 79). Bank transfer receipts for stock (which are evidence that the stock has been transferred in the bank books), bought for a specified day, must be delivered before 3.45 p.m., or 1.30 p.m. on Saturdays (r. 80).

66

Bargains in the scrip of a new loan, or the shares of a new company, are contingent on the appointment of a special settling-day" (r. 126). Where

the appointment of such settling-day has been obtained by the fraud of persons not parties to the bargain, the bargain is good. Ex pte. Ward, 20 Ch. D. 356, C. A.

A member of the Stock Exchange unable to fulfil his engagements is publicly declared a defaulter (r. 144), and he then ceases to be a member (r. 145). In every case of failure the official assignee (who is a member appointed by the Stock Exchange Committee under r. 168) "shall publicly fix the prices current in the market immediately before the declaration, at

any member, who shall in that case be liable. Shares or stock thus bought in and not delivered by 1 o'clock on the following day, or by noon on Saturdays, may be repurchased for immediate delivery without further notice, and any loss shall be paid by the member causing such re-purchase.'

R. 102. "The issuer of a ticket, who shall allow 13 clear days from the date of his ticket, to elapse without buying in, or attempting to buy in shares or stock, shall release his seller from all liability, in respect of the non-delivery of the securities, unless he shall have waived his right to buy in at the request, or with the consent of his seller; and the holder of the ticket shall alone remain responsible to such issuer for the delivery of the securities."