Tag Archives: jobber

Episode 5. ‘Mind your eye!’ Rules and rituals in the markets

Social interactions – rules and rituals, norms and codes of practice – are the glue that holds a stock market together. This was especially so in the open outcry markets of the twentieth century. The episode looks at the strange societies of Chicago’s pits and London’s ‘Old House’. What did it feel like to cram into a trading pit or inch your way up the Exchange’s social ladder, where cockney sparrows rubbed shoulders with the old elite? A meritocracy of sorts, so long as you were a man. This episode contains some strong language.


Let’s step back to a different time. Imagine an enormous room, capped by a vast dome measuring 100 feet high and 70 feet in diameter, said to be on a par with those of the cathedrals of St Peter in Rome and St Paul in London. This was the great trading room of the London Stock Exchange, known as the Old House. A mottled marble faced its walls and pillars and the wags called it ‘Gorgonzola Hall’ after the blue cheese. There was not much furniture, just ramshackle chalkboards covered in figures. Each firm of traders – or jobbers – occupied a particular spot on the Exchange floor, where the chalkboards marked their ‘pitch’, while the brokers spent market hours in their ‘boxes’ at the edge of the floor. Business stayed in the family, and these pitches and boxes were often passed from father to son. During trading hours as many as 3000 people jostled under the dome, manning these pitches or circulating through the crowds.  The room was jammed with bodies, all male; women were not allowed even to set foot on the floor.

There were games. One etching shows young jobbers, wearing proto-hipster beards and frock coats, competing to throw a roll of ticker tape over a bar fixed high up in the dome. And there were pranks. Ehatever the weather, every self-respecting member of the Exchange would come to work with bowler hat and rolled umbrella. On a rainy day it was entertaining to unfurl a brolly, fill it with a confetti of shredded paper and roll it back up again. There were nicknames as sophisticated as the japes: one man was named the Chicken, another the Lighthouse because he was ‘always moving his head around and it reminded people of the light flashing on the top of a lighthouse’. Then there was ‘the Tortoise…he was a little bit round-shouldered, he always wore a bowler hat, brown suit, carried his umbrella and his nose would remind anybody that he was a tortoise. And he used to walk very slowly through the market.’ One short, very ugly man in the mining market was affectionately named Don’t Tread in It. When business was slow, on a Friday afternoon, songs would burst out: the jobbers would sing the Marseillaise to a supposedly French colleague and slam their desk lids – the clerks had old fashioned schoolroom desks – as cannon. A thousand male voices raised in song together, echoing under the dome: noise, camaraderie and the dreaded ‘banter’. A bygone age, a different world.[1]

And when was this? Oh, not so long ago: the Old House closed in 1966, the same year that England won the football World Cup and still very much living memory for some.

Hello, and welcome to How to Build a Stock Exchange. My name is Philip Roscoe, and I teach and research at the University of St Andrews in Scotland. I am a sociologist interested in the world of finance and I want to build a stock exchange. Why? Because, when it comes to finance, what we have just isn’t good enough. To build something – to make something better – you need to understand how it works. Sometimes that means taking it to pieces, and that’s exactly what we’ll be doing in this podcast. I’ll be asking: what makes financial markets work? What is in a price, and why does it matter? How did finance become so important? And who invented unicorns?

Let’s take stock for a moment. In the last episode I poked fun at charmless Sixtus as we explored how equity can finance all kinds of new venture. We looked at the Ponzi scheme of valuation that underpins the Silicon Valley model and more prosaic efforts nearer to home, seeking to use novel subscription methods to develop new, worthwhile and socially productive kinds of venture. That is beginning to look like a worthwhile ambition for our project of building a stock exchange, and we recognised that exchanges can come in all shapes and sizes: Sixtus’ magazine was just one end of the spectrum that stretches all the way to the global, blue-chip providers of exchange services that we know today. We recognised, though, that stock exchanges all have something in common – at least as we know them now. They are all businesses. In the second episode we explored the birth of the Chicago Board of Trade, seeing how agricultural markets and a confluence of railways, telegraphs and civic ambition led to the formation of early derivatives markets. From the beginning, these were economic entities driven by commercial concerns; it is only later, when Justice Holmes opines that speculation ‘by competent men is the self-adjustment of society to the probable’, that such matters achieve a moral mandate too. In London, as the early market coalesced from the disorganised trading in the coffee shops of Exchange Alley, the exchange took a physical form as more prominent stockjobbers purchased a space and began to charge for entry. London’s market, like that of Chicago, flourished at the intersection of commercial and political concerns. Where the Chicago Board of Trade was linked to the city’s prominence, the London exchange gathered momentum as a vehicle through which the new national debt could be bought and sold, often churned through the shareholdings of the new joint-stock companies: the Bank of England and the East India company in particular. London’s traders became the point of passage between the nation’s Exchequer, greedy for funds to fight foreign wars, and the bulging pockets of merchants looking for a reliable and safe return on their capital.

We have, in other words, begun to sketch out the material, political, and historical entanglements that go into the making of a stock exchange, and of which we must be cognisant when we seek to build our own. In this episode I will pick up a final important aspect of the function and organisation of stock exchanges: the role of the social.

——Trading pit and bell—-[2]

Exchanges, it is clear, depend upon social interactions, habits, relationships and customs. They are, or have been until very recently, filled with bodies. You remember how I described the trading pit as a human powered computer, taking the information that flowed into the exchange as buy and sell orders and turning it into prices. This computer works quite literally by the power of voice. Every bid or offer – every attempt to buy or sell – had by law to be shouted out into the pit. In the din the accompanying hand signals did most of the work. A trader buying would turn his palms to his body, while palms out signalled a sale. Fingers could denote the final unit of the price – as everybody knew the rest of the number there was no need to count it out each time.

The anthropologist Caitlin Zaloom records these details. She visited the Chicago pits in the final years of their operation, during the late 1990s. Zaloom notes the sheer size of some of these men, some big enough to be American football players, others with built up soles to give them extra height. Traders talked about learning to control their voices, sharp enough to carry across the pit yet not sharp enough to show panic, and coordinate their shouts with jumps and looks. ‘The body,’ she writes, ‘is a key interpretive instrument for the pit trader’. The rhythms of the pit signify rising prices or falling ones, and the ambient noise shows the depth of trade. Trading must be immediate, intuitive: ‘In training their bodies as instruments of both reception and delivery of the underlying information of market numbers, the first step is learning not to calculate.’[3] Such essential connectedness with the rhythms of the markets had always been the sine qua non of the pit trader, captured by Frank Norris’s turn-of-the-century novel, where one protagonist would

‘feel—almost at his very finger tips—how this market moved, how it strengthened, how it weakened. He knew just when to nurse it, to humor it, to let it settle, and when to crowd it, when to hustle it, when it would stand rough handling’.[4]

Of course, such primal, embodied trading demands a personality to match and Zaloom found the traders constructing for themselves hyper-masculine, profane, even debauched behaviours. She notes the ubiquity of the Sun tabloid newspaper which at the time carried topless photographs on page 3; I too can remember the traders’ myth that the gradient between the model’s nipples was a sure indicator of the direction of travel for that day’s market.

Zaloom records arguments and even physical fights, as does the sociologist Donald MacKenzie, who visited Chicago’s pits in 2000. One trader showed MacKenzie his spectacles, covered with flecks of spittle after the close of trading; another recalled that he could lift his feet off the ground and be suspended between the bodies of those pressed against him. Traders may not have been friends, but they worked together day after day, year after year, and got to know each other’s habits and tactics. ‘In the pits, social information is founded in deep knowledge of the local environment. Traders organise trading strategies with the situations and motivations of their particular competitors and compatriots in mind.’[5] (That’s Zaloom again, and as always full references are provided in the transcript on the podcast website.) Both Zaloom and MacKenzie caution us not to romanticise the pits: ruined voices and worn out bodies, financial ruin and even tragic stories of suicide, all these form the background hum to the in-your-face noise of the pit itself. Moreover, it is not clear how cleanly the human computer worked. ‘The subtle webs of reciprocity and trust needed to keep open outcry trading flowing smoothly,’ writes MacKenzie, ‘could turn into informal cartels that operated to the disadvantage of other pit traders or external customers.’ Social relationships, the very things that kept the market running, might all too easily lead it away from the longed for – though never achieved – goal of efficient market function. [6]


That was Chicago. London’s trading, though every bit as ruthless, had a more gentlemanly exterior. In Chicago those trading for speculative profit were known as scalpers. In London, they were jobbers, an occupation that had evolved alongside the exchange itself – as we saw in episode three – and whose name dates back to the seventeenth century stockjobbers of Exchange Alley, those low wretches so despised by Dr Johnson. Where the Chicago men crammed into a stepped pit and yelled orders at each other, London’s jobbers strolled across the floor of the house and chatted to their counterparts, eye to eye as they squeezed their rivals into the toughest bargains possible. Specialisation was tied, not to individual pits, but to areas on the floor which serviced different sectors. There was the Government broker, trading gilts in the smartest part of the house, or the mining market, and the now-offensively-named Kaffir market, trading the stocks of Southern Africa. Jobbers stood at pitches comprising little more than notice boards. Larger firms might carve out an established pitch by a wall or a pillar, furnishing it with makeshift shelves and even a seat; smaller firms simply had to stand among the crowds.

The boards listed the stocks traded, names engraved onto magnetic strips, an attempt to give some sense of permanence to the otherwise ramshackle stalls.  A junior trader, a blue-button, would be in charge of marking up prices in red or blue crayon, next to the opening price, lettered in black. The boards themselves might be put to strategic use, updated a little more slowly than prices moved, obscuring market action and helping jobbers take a turn.

Communications on the floor were rudimentary, to say the least. The Exchange retained a staff of top-hatted ‘waiters’ whose function was to ensure the smooth running of trading. One of the many problems was keeping track of people in this great crowd, especially the brokers who stalked the floor in search of the best price for their clients. Waiters used speaking tubes like the ones found on old ships to speak to brokers, blowing through them first of all to make a whistle that summoned someone to the other end. If a broker could not be found a number would be illuminated, and it was up to the individual to spot their number and raise their hand. A waiter would point them to the telephone room or the meeting room where they were required: telephone booths were located around the outside of the hall and had a movable floor that sunk down when the user stepped in, flicking out a marker to show that the booth was occupied. Waiters managed the circulation of bodies around the room, preserving the rules of conduct in the seeming chaos. They even conducted the dreaded hammerings, when firms that could not meet their obligations were shut down by the blow of two gavels and the partners’ assets turned over to the administrators.

Business was conducted buying and selling according to a complicated verbal etiquette set out at length in the Stock Exchange’s Code of Dealing. Here’s an example, from the sociologist Juan Pablo Pardo Guerra’s study:

‘What are XYZ?’ Answer: ‘125.8’

Broker: ‘I am limited I’m ½p out in 250’

Jobber: ‘I could deal one way’

Broker [hoping for the one which will suit him]: ‘Very well, you may open me’

Jobber: ‘Give you ½p’

Broker: ‘Sorry, I’m a buyer at 127½’ [7]

It’s unintelligible to us, but perfectly clear to the jobber. No agreement has been reached, and no deal done. Traders had to use a particular form of language to avoid being snared in an accidental bargain: one might say ‘I’m only quoting’ to make this clear, just as a lawyer might raise a point ‘without prejudice’.

Jargon apart, both London and Chicago worked on the principle of the spoken deal. The entire social infrastructure served to reinforce the primacy of this bargain, epitomised in the London Stock Exchange’s motto, my word is my bond. Prices were continually in flux. Written reports flowed long behind the deals made by jobbers, spilling first onto the boards and then the settlement clerks located beneath the trading floor. Throughout the day, Exchange officers came to the pitches and collected prices, which hardened overnight into the print of the Stock Exchange’s Daily Official List and the Financial Times; by the time these printed records were made the verbal transactions of market itself had left them far behind. The slowness of any record keeping made ‘my word is my bond’ of paramount importance, for the market could only function if spoken agreements were honoured, even if the deal caused one counterparty considerable financial pain. Sanctions were informal and effective, and anyone who defaulted on a bargain would have great difficulty making another. Everyone knew one another. Like the traders in the pits, jobbers did not need to know the prospects for a company or the long-term economic forecasts for the nation. They simply needed to know who wanted to buy, and who wanted to sell. All the information was ‘on the floor,’ says one jobber, ‘eye contact, sweat, movement. You could always tell from the eyes of the junior trader whether his boss was long or short, and how badly they wanted to get out of their position’.[8]

——— Market traders——[9]

The Exchange was strangely meritocratic, with an apprentice-based career system that welcomed cockney sparrows as well as the dim-witted younger sons of the old elite. Although it preserved in microcosm the nuances of the British class system, it had an egalitarian demeanour where boys from the East End rubbed shoulders with graduates of august Oxbridge colleges: ‘I like talking to you,’ an old jobber told one young Balliol graduate, ‘‘cos you’re the only bloke in the market, wot I talk to, wot talks proper.’[10] The old Etonians drifted towards the posher firms, the gilt-edged brokers, while the lads from Hackney and Islington sought out opportunities in the less grand stretches of the market. That meritocracy did not extend to women though, and Ranald Michie, historian, records the details of the struggle to secure equality of access to the institution.[11] In 1966 – the same year that the Old House was closed – a Miss Muriel Bailey, highly commended brokers clerk, sought membership of the Exchange, in order to apply for position as partner in her firm.

One of the first women on the trading floor, 1973

To be a partner, one had to be a member, and to be a member one had to be a man. Miss Bailey, who had run her broker’s office throughout the war and in the intervening years had built a substantial client list, naturally felt that obstacles were being unnecessarily placed in her way. The Council of the Stock Exchange agreed to support her application so long as she promised not to set her profanely female foot upon the sacred mancave of the trading floor, but the membership resoundingly rejected this proposal. That was in 1967. At least the membership proved to be consistent in its bigotry, in 1969 rejecting the membership of foreigners, defined as those not born in Britain, and voting against the admittance of women again in 1971. Nor should the Exchange itself be entirely exempt from scrutiny: in 1962 it had refused to accept a listing application from automotive firm FIAT, presumably on the grounds of being too Italian.[12] Only in January 1973 did the membership consent to allowing female clerks to become members, and even then it took until the summer of that year before rules banning them from the trading floor were abandoned. Miss Bailey, by now Mrs Wood, was elected to the membership in January 1973, aged 66.

To become a member, even if you were a man, you had to serve a lengthy apprenticeship, joining as a youngster and working through clerical and junior status until eventually you became a dealer, then partner. Brian Winterflood – a central character in our story – was one such lad. Now in his eighties, he is a short, jovial man, still full of energy. He is known for his anecdotes, as well as his opinions – he is an outspoken supporter of Brexit – and is unerringly generous to the press. They treat him well in return, filling diary columns with stories about his long career. Sometimes these verge on the shameless, like Winterflood passing off a recent finger amputation as frostbite sustained on an arctic cruise. Despite his pleas, the paper reported, the ship’s doctor refused to operate and Winterflood had to be treated on terra firma. I noticed that Winterflood doesn’t eat dessert and suspect another later-life explanation. Luxury arctic cruises would be much less popular if one paid in digits as well as dollars, but it makes for good copy all the same.[13]

My lunch with Winterflood was a spontaneous affair. We were supposed to be meeting in the office, but he didn’t show up. Instead Stacey, from the front of house, appeared. But Brian had called: he couldn’t find a parking place near the office, so he was going to pick me up instead. The lads on the trading desks – gender roles are still very much alive in the city, as you see – joked about the gaffer keeping a picnic hamper in the back of his Rolls, but neither materialised.

Instead Winterflood took me to a favourite spot – a stripped down Italian restaurant in Southwark – where he could chat to the staff like an old friend, sip a blend of angostura bitters and ginger beer he called ‘Gunner’, and park his modest executive runabout on the disabled-badge space right outside. On a second meeting he recounted a recent encounter with an unknown item on a cruise ship menu – poivron. He can read most French menus, he told me, but was stumped by that – still, he didn’t believe the Philippine waiter who claimed ‘Poivron’ was a region of France. The secret ingredient turned out to be leeks. Brian Winterflood, arch-Brexiter, is a most amusing man.

Winterflood is  a legendary figure in the smaller-company market world. His career has tracked the markets’ ups and down more closely than anyone; in fact, his name is almost synonymous with small company trading. Growing up in a suburban household in Uxbridge, West London, his arrival in the City was the gift of a generous school teacher, who asked him what he intended to do for a living.

‘I said I don’t want to drive a bus – because my father was a tram driver,’ he recalls, ‘what I would like to do is to make some money.’

‘Well,’ replied the schoolmaster, ‘if you want to make money you should go to where money is made. I have a friend who is a partner in a stockbroking firm and I wonder if you would want to go up the City.’

‘Yes, I would’, replied Winterflood, without thinking more. And so one of the most influential men in the small company world began his career as a messenger at the very bottom of the heap.

‘Thank God I did start there,’ says Winterflood, ‘running round the City, getting to know the City, getting to know the people. It was magical, absolutely magical.’

Would-be jobbers like the young Winterflood served a lengthy apprenticeship, first as messengers, then ‘red buttons’ and ‘blue buttons’, each colour of badge denoting an increased level of seniority and certain powers and responsibilities. Established jobbers wore no buttons and junior employees would have to remember who was who, lest they disgraced themselves by speaking out of turn to a senior member. Blue buttons ran messages between jobbers and brokers, as well as marking up prices on the boards. They asked questions and learned from their employers who doubled as tutors and mentors, sponsoring the careers of juniors and preserving the future of the Exchange.

Eventually, after several years of long hours and low pay, checking bargains with longhand arithmetic and slide rules, balancing the books, and learning the etiquette of the House, the lucky ones were promoted to ‘dealer’, able to trade for the first time.

The moment of appointment was a theatrical Stock Exchange ritual, the young dealer sent up from the floor to the partners’ office to be given a badge. Another East End blue button, Tommy, whose memoires were captured by historian Bernard Attard, recalls his transition to ‘authorised clerk’ with awe:

‘I was called into the partner’s room and they said, ‘How would you like to become a dealer?’ I said, ‘I don’t know’.  I was absolutely dumbfounded. Where I come from I couldn’t have anticipated anything like this. So ‘I said I’d love to, I’d love to have a try.’ So I was authorised, and I’ll never forget the first morning…’[14]

Winterflood’s first day was quite different; not for him the stately induction in the upstairs office:

‘I had a particularly nasty senior partner,’ he remembers. ‘He was a moody so-and-so and he used to gamble everyday on the horses, his life was terrible, he ran off with another woman. The day that I got authorised to go on to the floor of the Exchange, he puts his hand in his pocket…and he says, ‘All right Winterflood, now you are authorised’, and he took his hand out like that and he gave it to me, it was my badge, my authorised badge. And he said, ‘Mind your fucking eye.’

Mind your eye – an old expression meaning ‘take care’, often translated into comic dog Latin: mens tuum ego. Winterflood remembers the sudden responsibility of holding a trading book as an authorised dealer in a partnership, trading with the partners’ own money and, moreover, their unlimited liability. Partners took a keen interest in their own property and the menacing presence of the waiters’ gavels:

‘It was good looking over everybody’s shoulder when they were [trading], but when the senior partner says, ‘Mind your fucking eye’, I mean you are terrified…I remember when he came back from a bad day at the races, which was the bookie outside the Exchange, he would sit in the pitch and say, ‘What have you done?’ I would say, ‘Well not a lot Sir, but there are one or two things that you might like,’ and he goes across and looks at the page, I say ‘Have you noticed sir, so and so,’ and he said, ‘It only pays for the bad ones.’’

This process of apprenticeship served to reproduce the social structures that held the exchange together, years spent learning who was who and what was what before being allowed anywhere near the money. Eventually it was possible to buy a ‘nomination’, a seat on the Exchange, and become a member. You could then embark on your career proper, building a reputation in a particular sector or for a particular strategy: a specialist in Tanganyika concessions, a specialist in insurance, an expert in arbitrage, in contango, a bull or a bear, depending on one’s personality, skills and good fortune.

It was the process of apprenticeship, as well as the distributed structure of the London Stock Exchange’s membership, that made the institution so extraordinarily durable and yet simultaneously so conservative and resistant to change.

So that is one last thing to add to our mix of key ideas when we come to build our stock exchange. Social relationships, webs of reciprocity and trust, and bodies – up close and personal,  mostly male, I’m afraid  – are  just as much  part of the  structure and function of stock exchanges as their material architectures and political alliances. As I pointed out in the last episode, Aditya Chakrabortty identifies the alternative economic projects he has reported on as being ‘thickly neighboured’. That’s true of any exchange – even, as we shall see, those contemporary digital structures that seem to have banished bodies altogether – and will be something to which we must look if we are going to succeed. But, and as this episode has shown, stock exchanges are constitutive of community as well, forming engines through which people can be bought together in cooperative activity. Once again, we just have to choose the shape we wish that cooperation to take.


Times were hard for the London Stock Exchange during the 1960s and the depression of the early 1970s. Members held other jobs and scrabbled to make ends meet. Winterflood and his wife ran a small bric-a-brac shop named Fludds in Valance Road, at the end of Petticoat Lane. Others did worse: Winterflood recalls meeting a colleague selling carpet squares – ‘not even whole carpets, carpet squares!’ It is hard, now, to believe that finance could have been so impoverished a profession. Jobbers would talk about making their daily ‘two and six’, the cost of the train journey to work and home again.

In January 2017, just after his 80th birthday, Brian Winterflood rang the Stock Exchange bell to call time on his career. The man who ran a bric-a-brac shop to make ends meet is now a multi-millionaire, able to charter a private jet to his holiday home in Corsica or spend the winter in a Floridian holiday village where there is line dancing every evening. Winterflood Securities – Wins – the firm that he founded and sold in the early 1990s, but ran for many years after, is reported to have made £100m in 2000.[15] How did such a change in fortunes come about? How did these impoverished market-makers go from metaphorical rags to very real riches in the space of two decades? To answer those questions we must explore the extraordinary transformation in finance in the 1980s.

I’m Philip Roscoe, and you’ve been listening to How to Build a Stock Exchange. If you’ve enjoyed this episode, please share it. If you’d like to get in touch and join the conversation, you can find me on Twitter @philip_roscoe or email me on philiproscoe@outlook.com. Thank you for listening, and see you next time, when we get to grips with the decade of greed.

[1] The background detail in this chapter comes from varied sources, my own research into London’s markets, see https://research-repository.st-andrews.ac.uk/handle/10023/11688, and Ranald C. Michie, The London Stock Exchange: A History (Oxford: Oxford University Press, 2001). In 1990 Dr Bernard Attard of Leicester University conducted a series of oral history interviews with former jobbers, capturing the details of what was by then a vanished world. Transcripts and recordings can be found https://sas-space.sas.ac.uk/view/collections/lseoh.html

[2] Sound recording from ‘touchassembly’ via freesound.org, under a creative commons attribution licence https://freesound.org/people/touchassembly/sounds/146268/

[3] Caitlin Zaloom, “Ambiguous Numbers: Trading Technologies and Interpretation in Financial Markets,” American Ethnologist 30, no. 2 (2003): 264.

[4] Norris, p.90, quoted in Christian Borch, Kristian Bondo Hansen, and Ann-Christina Lange, “Markets, Bodies, and Rhythms: A Rhythmanalysis of Financial Markets from Open-Outcry Trading to High-Frequency Trading,” Environment and Planning D: Society and Space 33, no. 6 (2015).

[5] Donald MacKenzie, “Mechanizing the Merc: The Chicago Mercantile Exchange and the Rise of High-Frequency Trading,” Technology and culture 56, no. 3 (2015). Zaloom, “Ambiguous Numbers: Trading Technologies and Interpretation in Financial Markets,” 261.

[6] MacKenzie, “Mechanizing the Merc: The Chicago Mercantile Exchange and the Rise of High-Frequency Trading.”

[7] Juan Pablo Pardo-Guerra, “Creating Flows of Interpersonal Bits: The Automation of the London Stock Exchange, C. 1955–90,” Economy and Society 39, no. 1 (2010): 90.

[8] Eric K. Clemons and Bruce W. Weber, “London’s Big Bang: A Case Study of Information Technology, Competitive Impact, and Organizational Change,” Journal of Management Information Systems 6, no. 4 (1990): 50.

[9] From www.freesound .org under a creative commons licence. https://freesound.org/people/deleted_user_1116756/sounds/74460/

[10] From my own interview notes.

[11] Michie, The London Stock Exchange: A History, 453f.

[12] To be precise, the application was rejected on the basis that the firm’s accounts did not meet UK standards. Ibid., 477.

[13] http://www.cityam.com/226688/how-the-winterflood-founder-went-from-freemason-to-gangster [accessed April 2017]

[14] Bernard Attard, “The Jobbers of the London Stock Exchange an Oral History,” Oral History 22, no. 1 (1994): 45.

[15] Financial Times, 30 April 2017, ‘Winterflood’, by Chloe Cornish. https://www.ft.com/content/42764c22-29c6-11e7-9ec8-168383da43b7?mhq5j=e3

Episode 3. On Brexit and borrowing: the entanglements of markets and state.

From King William III’s empty coffers in the eighteenth century to David Cameron’s ‘big, open and comprehensive offer’ in the twenty-first, penniless governments have had to go cap in hand to the markets. Stock exchanges have always been on hand to help out, though not at any price, and states have assisted by settling matters of morality and legality in the expanding domain of finance. This episode unpicks the complex relationship between markets and state and wonders whether there’s anything positive for our building project.


I first noticed it in May 2010, on the sixth, to be exact.

If you are listening in the UK you might remember 6 May as the day of a general election, the day when Labour Prime Minister Gordon Brown was voted out of power. It was not a decisive defeat for Brown, nor a victory for anyone else. David Cameron, as leader of the Conservative party, looked set to form a minority government. Stock markets seesawed with anxiety, posting big losses on the morning after the election. Markets like certainty, the pundits said, so Cameron did something else.

Yes, he made Nick Clegg and the Liberal Democrat party a ‘big, open and comprehensive offer’ to share in a coalition government. The rest, as they say, is history and a very distressing one at that. Such moments matter. John Rentoul, writing in the Independent, wonders how things might have gone differently; he sketches out an alternative story where Clegg joins forces with a Labour Party revived by new leadership. ‘If Clegg had made a different choice,’ he writes, ‘we would be living in a different country now: slightly better off, with better public services, and probably still in the EU.[1] I think that’s true. But could Clegg have done so? I’m not sure. My recollection of those moments is the extraordinary prominence given to the sentiments of the financial markets. It seemed that the force driving politicians to set up this bizarre, ideologically incompatible coalition – one that would ultimately destroy the Liberal Democrats as a third party in British politics – was not a concern to properly serve the British electorate and represent its wishes but an overwhelming need to pacify the markets. This was how it was reported during the tense days that followed the election. In the Telegraph, 9 May: ‘The Conservatives and Liberal Democrats last night sought to reassure financial markets that they are close to agreeing an economic deal that would allow David Cameron to take power.’ On 10 May the Financial Times reported that “both the Conservative and Liberal Democrat leaders want to strike a deal as soon as possible to reassure both the public and the financial markets that a stable government can be formed quickly.” It seemed undignified, these leaders scurrying to shake hands to keep the market  happy. Don’t forget, this was not yet two years since the British government had been forced to throw half a billion pounds sterling at the banks to stop them collapsing and taking the infrastructure of global civilisation with them. One might have been forgiven for thinking that financial markets did not know anything about anything, let alone the crucial matters of government…

Hello, and welcome to How to Build a Stock Exchange. My name is Philip Roscoe, and I teach and research at the University of St Andrews in Scotland. I am a sociologist interested in the world of finance and I want to build a stock exchange. Why? Because, when it comes to finance, what we have just isn’t good enough. To build something – to make something better – you need to understand how it works. Sometimes that means taking it to pieces, and that’s exactly what we’ll be doing in this podcast. I’ll be asking: what makes financial markets work? What is in a price, and why does it matter? How did finance become so important? And who invented unicorns? In the last episode, I opened up one of the first key ideas for our building project: that stock exchanges are embedded in history and in the material architectures that make them work. The two are related, of course. We saw how Chicago’s great stockyards led to the birth of a market in financial abstractions, and how that market was shaped by new technology in the form of the tickertape, and by the successive buildings that housed it. But today: how did finance become so important?

You’ll have to forgive me. I’ve got Brexit on my mind. As I sit writing this, it is eight days, seven hours, 40 minutes and 14 seconds to Brexit. In the time it took to type that, it’s dropped to 39 minutes. (Between writing and recording, we seemed to have gained a fortnight). In the first episode of this podcast I argued that financial markets should bear their share of responsibility for populist politics and Brexit. I suggested that markets have been used as a mechanism for squeezing labour to give to capital, through shoddy employment practices and an exclusive focus on the claims of shareholders. But these newspaper commentaries – Cameron and Clegg rushing to placate the angry market – suggest a much more direct link. It came down to money, of course. After the financial crisis, Britain was broke: the only source of money was international borrowing accessed through the bond market. Playing to the market was like sucking up to the bank manager to avoid having your house repossessed. Just as old school bank managers were trained to look out for flashy clothes and extravagant spouses as an indicator of financial intemperance and thus poor credit quality, so the British government was forced to promise a financial parsimony that manifested itself in austerity.[2]

Financial markets shaped the run up to that election, the crucial days afterwards, and a long slog through a cruel and wrongheaded economic policy that has taken us to the brink of political self-annihilation.

I found that countdown timer, in case you are wondering, on a trade-the-markets website – even in adversity there’s opportunity. At least, for some of us.

—– Timer noise[3]

It would seem reasonable to ask, then: how did financial markets get so important? That’s what I’ll be looking at today, and is a second key theme of this podcast – the relationship between markets and states.

We saw last week how the Chicago Board of Trade grew out of agricultural wealth as a political project among the city’s elite. While we might think of stock exchanges as dislocated and global, the truth is quite the reverse. As the statues in the Board of Trade’s old trading room suggested, the interests of politics, state and commerce have always been intertwined in the stock exchange. Take London, for example.

London’s market is much older than that of Chicago. The journalist and historian Elizabeth Hennessy suggests that in January 1698 one John Castaing began publishing a list of commodity and foreign exchange prices, from what he quaintly described as his ‘office at Jonathan’s Coffee House.’[4] Not so different from those techno-start-ups grandly headquartered in the local Starbucks, I suppose.

Jonathan’s Coffee House was located on the city’s Exchange Alley. Garraway’s was another such in the same street. Exchange Alley was a dangerous place, full of pickpockets and unscrupulous brokers as well as honest ones. One took one’s money, and possibly more, in one’s hands when venturing into London’s fledgling stock-market. Stock market traders had been settling themselves in these spaces after spilling out of the Royal Exchange, the City’s new commodities market. They may have been more thrown out than spilled out: they were numerous, noisy and disruptive, and trading in stocks did not have the cache of trade in the more visible commodities of the Exchange. Someone who traded stocks purely for speculation became known as a jobber (a title that lasted until October 1986!), snarkily described by Dr Johnson as “a low wretch who makes money by buying and selling in the funds.” So how did it become respectable?

A great deal happened in a short space of time. According to Ranald Michie, the definitive expert on the history of the London Stock Exchange, there was at the end of the seventeenth century a massive increase in the popularity of tradable stocks. ‘Before 1689,’ he writes, ‘there were only around 15 major joint‐stock companies in Britain, with a capital of £0.9m., and their activities were focused on overseas trade, as with the Hudson’s Bay Company or the Royal African Company. In contrast, by 1695 the number had risen to around 150 with a capital of £4.3m.’ (As always, full references for the sources quoted are in the transcript on the podcast webpage). Twenty five years later, during the boom that became known as the South Sea Bubble, a further 190 entities were proposed, hoping to raise £220 million from overexcited shareholders. That’s a five-fold increase in capital over as many years, and an expected two-hundred and twenty fold increase over three decades.

A joint-stock company, by the way, is simply what we would call a corporation, a legal entity with shares that can be traded independently of the firm. Among the earliest was the now-notorious East India Company, set up by Queen Elizabeth I’s Royal Charter on New Year’s Eve of the year 1600. As Michie points out, the financial structure of these firms suited risky endeavours in overseas trade or finance rather than steady investment at home, and the stocks remained specialist investments. There were legal problems, too. Financial assets were still construed as a kind of debt and therefore understood as ‘choses in action’, a legal category attached to the person of the debtor and not easily transferable; the sociologists Bruce Carruthers and Arthur Stinchcombe, who have written on the topic, identify a John Bull, who traded 13 times between 1672 and 1679 as the most active trader in Royal Africa Company stock.[5] Dutch merchants had found ways round these obstacles already, however, and when a Dutch king, William of Orange, ascended to the English throne in 1689 laws and practices swiftly changed. The absorption of Lex Mercatoria, or medieval merchant law, into English law accompanied by specific regulatory changes – Carruthers and Stinchcombe cite the 1704 Promissory Note Act – made financial contracts freely tradable. Brokers and jobbers began to use standardised contracts, making the business of trading more straightforward. But the problem remained that few would actually want to buy these securities: they were too illiquid, exotic, too risky.

That changed in 1693 when the government launched its national debt, a permanent but transferable, relatively safe, interest-bearing security. Until this time, government debt had been short-term, borrowed when the need arose and paid off when it fell due; it took the form of lottery tickets and annuities, none of which could easily circulate on a market. This new kind of debt allowed the English government to finance its ongoing series of wars in Europe and the colonies and led to a massive expansion in the amount of securities available to trade. Some of the biggest joint-stock corporations, notably the Bank of England – formed in 1694 – the East India Company, and the South Sea Company, started to recycle this debt through their own shareholdings. The corporations lent their entire paid-up capital to the government – huge sums at the time. That capital came from shareholders, so you can think of money going through the corporations like a pipe – from private shareholders into the firm and out the other side to the government, with interest payments flowing back the other way. Where the government stock remained relatively illiquid, the shares of the corporations could now be easily traded in Exchange Alley. Volume grew. To give an idea of the expansion in trade, 1720 – the height of the stock market boom – saw 22,000 transactions. Compare that to Mr John Bull and his 13 trades, just 50 years earlier. Investors understood that these stocks were effectively government backed, making them a much safer bet. New financial organisations such as insurance companies and banks, which needed to generate returns on capital held but at the same time remain able to draw on it, started to buy and sell the stocks, as did merchants holding cash between adventures. According to Michie, tradable securities made possible a secondary market in rights to payment abroad. One such right might be created, for example if a British owner sold the stock overseas to a foreign investor, and the right could be sold in Britain to a merchant needing to make a payment in that same country. These bills of exchange thereby formed the basis of a growing global monetary system and which was in return inextricably linked to the activities of the market traders. The joint-stock companies had formed an essential conduit between the needy Exchequer and the fat purses of the English merchant classes. The national debt was born, and the London’s market emerged as an essential adjunct to government policy, a sort of primitive money laundering device for the bellicose national government throughout the eighteenth century. Markets and states have been inextricably linked since the beginning.

—– Crowd trading sound[6]

Carruthers and Stinchcombe have shown that liquidity – the basic precondition of a functioning market – is a considerable organisational achievement. It depends, they argue, on the existence of three mechanisms: continuous trade of some kind, the presence of market-makers who are willing to maintain prices in whatever is being traded, and the presence of legally specific, standardised commodities. We have seen the last of these three conditions met: the creation of securities, the trade in which was both legal and desirable. And, as we have seen, with bureaucratic obstacles out of the way, merchants began to gather in Exchange Alley. These jobbers were the first ‘market-makers’, merchants who took risks in buying and selling stock in return for profits and in doing so made it possible for those who wish to trade on an occasional basis to do so. Traders came from all over Britain and even from Holland to set up in the market. It wasn’t just Dr Johnson who disliked them. Michie makes clear that contemporaries simply could not understand a market that traded continuously in these abstractions. He quotes an anonymous diatribe from 1716:

‘the vermin called stockjobbers, who prey upon, destroy, and discourage all Industry and honest gain, for no sooner is any Trading Company erected, or any villainous project to cheat the public set up, but immediately it is divided into shares, and then traded for in Exchange Alley, before it is known whether the project has any intrinsic value in it, or no…’[7]

The 1697 Act to limit their numbers had not achieved much, so Parliament tried again. The Barnard Act – promoted by Sir John Barnard and passed in 1734 aimed to ‘prevent the infamous practice of stock jobbing’. Though the act was almost entirely ineffective it did have the consequence of rendering “time bargains” as illegal. Classed as gambling debts, they were now unenforceable through the courts and this meant that the traders themselves had to develop a code of self-protection.

A first attempt at shutting out undesirables came in the form of a subscription-based club that, in 1761, took over Jonathan’s Coffee House as their sole place of business and excluded non-members. One such non-member successfully pleaded in court that he had been unfairly shut out of the market, and the clique was broken open. In 1773 another group of brokers opened a building on Threadneedle Street on more legally favourable terms. Michie notes that ‘admission to this building was on payment of 6d. per day, so that all could participate if they wished… a broker attended six days a week all year the cost would be £7.80 per annum, which was remarkably similar to the £8 which was to be paid to Jonathan’s. Clearly,’ he writes, ‘that offer had made a group of the wealthier stockbrokers realize that they could personally profit by setting up an establishment for the use of their fellow intermediaries and then charging them a fee for its use’. Ironically, the same circumstances that had made the Threadneedle Street site available challenged its dominance: the Bank of England, which expanded hugely throughout the century due to its role in managing the government debt, was developing its own buildings and buying up land around the site, partly to control the risk of fire. At the centre of this development was the Bank’s Rotunda, which rapidly became a popular venue for the trading of stock. According to historian Anne Murphy the market took over and disrupted the bank’s space, filling it not just with jobbers but also pickpockets, street sellers, and prostitutes. Would-be customers were enjoined to walk into the melee and call out ‘lustily’ what they want, and they will immediately be surrounded by brokers.[8]


It was the war with France at the end of the  18th-century that finally  secured  London’s dominance as a financial centre, both through the damage done to European bourses and the enormous demand for money on the part of the British government. So if we’re wondering why Messrs Cameron and Clegg could be seen whispering about what the market demanded like schoolboys hiding from the playground bully, we can see at least that this is nothing new. The stock exchange evolved as an instrument to support government, but on its own terms – like the useful sidekick in a drama who end up pulling all the levers. As the London example shows, however, some contemporaries found these new trading practices hard to swallow. That hasn’t changed, and the relationship between markets and states is also a struggle over the accepted norms of market practice. From Aristotle onwards, thinkers have tried to distinguish between legitimate trade in things we need and the pursuit of profit for its own sake. We see this in characterizations of jobbers as wretches, vermin and villains, and in the Barnard Act’s attempt to ban ‘time bargains’. Eventually that can only be settled by rule of law – although as the experience of London’s lawmakers shows, attempts to stand simultaneously in the way of economic and social pressure will be futile. It is always complicated.

You will recall from the last episode how the concentration of agricultural power and communication networks on Chicago led to the formation of the Board of Trade, and then rapidly to the advent of ‘to arrive’ contracts, trading in financial abstractions of agricultural commodities and in doing so offering farmers the chance to protect themselves against changes in the price and the weather. As in London, where jobbers had been trading in time – those bills of exchange – since the seventeenth century, the market depended on a class of professional speculators. Trade in financial abstractions exploded at the end of the nineteenth century. Jonathan Levy, the University of Chicago historian who has chronicled the legal wrangling over derivatives trading, states that 8.5 billion bushels of wheat were sold at the New York exchange between 1885 and 1889. During the same four years, the city consumed only 162 million. Levy shows how derivatives trading only became morally – and legally – acceptable after a long dispute – a culture war over the soul of the market.

While it’s impossible to do justice to the subtleties of Levy’s study, a broad brush picture is still illuminating – and my thanks also go to Andrea Lagna of Loughborough University for suggesting this trajectory.[9]

At root, the dispute came down to a few core principles. The first was the question of gambling. Traders – known as scalpers – had developed a technique called ‘setting off’, allowing them to settle a deal at any point before the agreed delivery date; they did so, of course, when the price moved in their favour. Setting off was just another step in an evolution of contracts that had begun with abandoning physical exchange and instead swapping ‘elevator receipts’, tickets representing grain in one of the city’s many silos, or elevators. Soon enough the traders abandoned all pretence of a physical commodity. This begged the question of what they were trading: the winds of Minnesota, rather than its wheat, according to one grain handler. Court cases pursuing settlement hinged on just this point – a transaction could only be legitimate if there was a genuine intention to transfer the goods. Speculation for its own sake was too close to gambling, and the courts sought to distinguish between those who had a legitimate interest in risk management and those who simply sought to make money from trade. But this wasn’t just a moral issue. It was also a dispute between those involved in the growing and shipping of physical commodities, and the pit traders. It was about the very nature of work. According to the farmers, the ability to set prices for crops grown on the land was a right ‘as old as civilisation’, a right of which they were now being cheated. They sought to contrast the toil of cultivation and the heft of their products with the ephemeral, speculative abstractions that circulated in the pit. Theirs was a labour, while the work of the pit was a game of chance. The speculators responded by stressing the mental efforts involved in their work, and emphasising its role as a responsible risk-management practice. Here they echoed the promoters of life assurance in the United States who had faced similar moral objections to wagers on time, life and death.[10] The traders also offered a more pragmatic defence: the genie was out of its box, and the abstractions could not be un-thought. If the pits were closed by American legislators these ghosts of commodities would simply circulate elsewhere. The futures market had forever uncoupled the productive and financial circuits of the economy. ‘In the pits,’ writes Levy, ‘speculative trade in incorporeal things stood newly naked before the wider public’.[11]

—— Ticker sound[12]

Ironically, it was the public’s involvement that led to an eventual settlement of the dispute. The growth in futures trading had been accompanied by the rise of so-called ‘bucket shops’, betting establishments where the public could trade on the fluctuations in commodity prices. Like the brokers rooms, the bucket shops were also connected to the market by ticker machines, but no orders were fed back to the pits, and the public betted against the proprietor’s book on the outcome of market moves. The shops also catered to small farmers seeking to insure themselves against changes in prices or failures in the weather and whose orders would have been far too small for the scalpers to take seriously. I’ll come back to the bucket shops in a later episode. What matters here is a court action taken by CC Christie – a bucket shop magnate – against the Board of Trade, which was seeking to close down its upstart competitor. The shops had been so successful that they were draining business from LaSalle Street, and the board cut a deal with Western Union Telegraph Co to prohibit the distribution of prices. Christie sued, and in 1905 the case arrived in front of Justice Holmes of the Supreme Court. Holmes’ decision went against the shops. He held that they were sites for speculation, while the pit traders were legitimate dealers and ‘setting off’ constituted a legal delivery. Moreover, he said, this kind of speculation, ‘by competent men is the self-adjustment of society to the probable’. At a stroke, derivative trading had become not only legitimate but desirable in the eyes of the law, and Holmes had articulated a new role for the markets – managing risk – that becomes increasingly important as the twentieth century draws to a close. That’s for another episode.

Where does that leave us? The clock ticking down to Brexit, and at least a portion of the blame going back to a few fateful days a decade ago, when politicians trembled before the mighty financial markets. Would they have acted otherwise without this need to placate the bully, to oil up to the bank manager? I can’t say. But what we can see is that stock exchanges and states have since the very beginning enjoyed a queasy co-existence, one with the money, the other with the laws. And we can also see what there isn’t: no guiding hand, no purposive action, just the summing up of endless squabbles, power plays and battles for mutual advantage. That’s not a very optimistic thought for our building project, I have to say.

But let’s press on. Next week we’ll be back to the present day, and thinking about some of the things that a stock exchange could be doing, if we don’t agree with justice Holmes: what are they actually for?

I’m Philip Roscoe, and you’ve been listening to How to Build a Stock Exchange. If you’ve enjoyed this episode, please share it. If you’d like to get in touch and join the conversation, you can find me on Twitter @philip_roscoe or email me on philiproscoe@outlook.com. Thank you for listening, and see you next time.


[1] https://www.independent.co.uk/news/long_reads/nick-clegg-coalition-lib-dems-2010-labour-gordon-brown-conservative-david-cameron-a8586046.html

[2] For the lending criteria of old school bankers, see Ingrid Jeacle and Eamonn Walsh, “From Moral Evaluation to Rationalization: Accounting and the Shifting Technologies of Credit,” Accounting, Organizations and Society 27 (2002).

[3] Sound recording from ‘Ancorapazzo’ via freesound.org, under an creative commons attribution licence from https://freesound.org/people/ancorapazzo/sounds/181630/

[4] Elizabeth Hennessy, Coffee House to Cyber Market: 200 Years of the London Stock Exchange (London: Ebury Press, 2001).

[5] BG Carruthers and AL Stinchcombe, “The Social Structure of Liquidity: Flexibility, Markets and States,” Theory and Society 28 (1999).

[6] Sound recording from ‘touchassembly’ via freesound.org, under a creative commons attribution licence https://freesound.org/people/touchassembly/sounds/146267/

[7] Ranald C. Michie, The London Stock Exchange: A History (Oxford: Oxford University Press, 2001), 23.

[8] Anne Murphy, “Building trust in the financial market”, Critical Finance Studies, University of Leicester, June 2017.

[9] Jonathan Ira Levy, “Contemplating Delivery: Futures Trading and the Problem of Commodity Exchange in the United States, 1875–1905,” The American Historical Review 111, no. 2 (2006).

[10] Viviana A. Zelizer, The Social Meaning of Money (New York: Harper Collins, 1994).

[11] Levy, “Contemplating Delivery: Futures Trading and the Problem of Commodity Exchange in the United States, 1875–1905,” 316.

[12] Sound recording from ‘Timbre’ via freesound.org, under a non-commercial creative commons licence https://freesound.org/people/Timbre/sounds/148893/