Trading Forward: the Paris Bourse in the Nineteenth Century Paul Lagneau-Ymonet, Angelo Riva

Trading Forward: The Paris Bourse in the Nineteenth Century Paul Lagneau-Ymonet, Angelo Riva

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Paul Lagneau-Ymonet, Angelo Riva. Trading Forward: The Paris Bourse in the Nineteenth Century. 2019. halshs-01984911

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Discussion Paper Series 2019 #01

Trading forward: the Paris Bourse in the nineteenth century

January 2019

Paul Lagneau-Ymonet Paris Dauphine, PSL Research University, IRISSO

Angelo Riva (corresponding author) European Business School - Paris and Paris School of Economics

This work has received funding from the European Union’s Horizon 2020 research and innovation programme under the Marie Skłodowska-Curie grant agreement No 645763.

INCAS Understanding institutional change in Asia: a comparative perspective with Europe http://incas.hypotheses.org/ ABOUT THE INCAS PROJECT

INCAS is a Marie Skłodowska-Curie Actions R.I.S.E funded project under the European Commission’s H2020 Programme.

The project INCAS aims at creating a top-level research and advanced training network on institutional change in Asia, in comparative perspective with Europe. The coordinator, Ecole des Hautes Etudes en Sciences Sociales (France), promotes this network together with Oxford University (UK), Freie Universität Berlin (Germany), and in collaboration with Waseda Uni- versity (Japan). The aim of the proposed mobility scheme is to give birth to a European consortium and network of faculties and advanced graduate students specialized in the comparative analysis of institutional change in Asia and Europe. The partners have chosen Japan as a reference point because of its com- parability with Europe as shown by previous studies, its historical influence on development and further institutional changes in Asia, and the expertise accumulated within our research team.

Analyzing current economic dynamics in Japan and later expanding this analysis to other Asian countries promises to generate insights that might be help to better understand challenges for Europe and to prepare relevant policy proposals. Our purpose is to compare the results obtained in the case of Japan and few other Asian countries (South Korea, Taiwan, China, and possibly Thailand, after having checked the data availability), not only to previous results on Europe but also to original results we will get on European countries (primarily France – which will be our reference country in Europe – and then the UK, Germany, and Italy) in mobilizing new historical data and applying our theoretical framework. INCAS DP SERIES / 2019 #01 3 January 2019 January Paul Lagneau-Ymonet Paul Angelo Riva (corresponding author) (corresponding Riva Angelo Paris Dauphine, PSL Research University, IRISSO University, Research PSL Dauphine, Paris European Business School - Paris and Paris School of Economics of School Paris and - Paris School Business European Trading forward: the Paris Bourse in the nineteenth century Bourse the in nineteenth the Paris forward: Trading E-mail: [email protected] E-mail: Acknowledgment Economics) School of Paris and School - Paris Business (European Riva Angelo author: Corresponding Financial markets; Legal origin; Nineteenth century; Traded volumes, France France volumes, Traded century; Nineteenth origin; Legal markets; Financial gambling. The 1885 legalizing act initiated a new field of law and made possible further regulatory changes changes regulatory further madeand possible law of new a field act legalizing 1885 initiated The gambling. Bourse. the Paris of the heyday for the way paved that Keywords 20th century: the traded volumes amounted to four times the French GDP. This magnitude was mainly due to due mainly was magnitude This GDP. times the French four to 20th century: amounted the traded volumes The forward transactions. on a ban despite market, forward as a trading. The had developed forward Bourse with equated previously these and legalizing operations, role in legitimizing key a played stockbrokers official Abstract of turnthe at the Paris highly was liquid Bourse predict, the theory would finance and law Contrary what to INCAS DP SERIES / 2019 #01 ------liquidity liquidity 6 Consequently, Consequently, 11 Since its creation in creation its Since 10 because of the difficulties in putting together histo together putting the difficulties in because of 8 4 At the macro level, it contributes to lower economic economic lower to contributes it level, the macro At 1

3 and historical studies on financial development, financial on studies historical and 5 we contribute to the ‘Law and Finance’ debate by documen by debate Finance’ and the ‘Law to contribute we 9 and formulated an ambitious research agenda. They calledfor agenda. research ambitious an formulated and 4 scholars have often neglected volumes often trading have scholars Among civil-law countries, France scores poorly, because of the slower adaptation of its institu its of adaptation the slower because of poorly, scores France countries, civil-law Among 7 2 Introduction

forward operations. The finalconcludes. The section operations. forward Bourse and developed actions to shape the jurisprudence. Section five focuses on the 1885 law that legalized focusesthat Section on 1885 law the five the jurisprudence. shape to actions developed Bourse and by legal uncertainties. They raised their social status, strengthened the reliability of the organization of the organization of the reliability the strengthened They raised legal uncertainties. their socialby status, Section 3 describes the legislation on forward operations and stockbrokers; it relates the pivotal role of the of role the pivotal relates it stockbrokers; and operations Section forward on 3 describes the legislation incurred to cope with the threats strategies fourthstockbrokers’ analyzes the The section jurisprudence. and stability in the specific context of the Paris Bourse and provides original estimates of traded volumes. of volumes. traded original estimates provides and Paris Bourse of the in the specific context stability and The rest of the paper is structured as follows. The next section addresses the question of financial liquidity liquidity financial of question nextThe the section addresses follows. structuredas is of the paper rest The by effectively dealing with counterparty risk and significantly costs. decreased transaction significantly and risk dealing counterparty with effectively by the 2006 level. to similar heights reached GDP of a ratio as traded volumes and supported the development of the number of listed securities. The reform alsostabilized the securities. reform listed Bourse The of the number of the development supported and 1898 reform of the Paris financial center. This reform enhanced the transparency of financial transactions transactions financial of the transparency enhanced reform This center. financial the Paris of 1898 reform of law – securities law (droit boursier) - that had been hindered by the controversies on forward opera forward on the controversies been by had hindered - that boursier) – securities (droit law law of inthe culminated that changes law passed regulatory first further securities in 1890 The allowed tions. The process was disputed and non-linear. Nevertheless, the 1885 Act made possible the creation a new a field creation Actthe made possible Nevertheless, 1885 the non-linear. and disputed was process The their full legal recognition. By seeking to organize the fair ordering of trading through social control, institutional innovations, and and innovations, institutional social through trading control, of ordering the fair organize seeking to By obtained andeventually forward operations of the legitimacy built stockbrokers the official legal strategies, rivalries with other financial intermediaries, and the dynamic power plays with judges and the government. government. and the judges with plays power dynamic and the intermediaries, financial rivalries other with needs and regulators’ expectations by analyzing the organization of the Bourse and the guild running it, its its the the guild Bourse running it, of and the organization analyzing by expectations regulators’ needs and To do so, we bring to light the formal and informal rules and the actual practices through which forward which forward rules the actual practices through informal and and the formal light to bring we do so, To these business rules of practices to and adaptation the disputed then explain We negotiated. were contracts from the legitimation to the legalization of forward operations that had long been equated with gambling. gambling. with been equated long had that operations forward of the legalization to the legitimation from tion in 1885. We also document the key role played by the official Paris stockbrokers in the process that led processthat inthe stockbrokers Paris the official by played also the role key document in 1885. We tion to forward trading, which was three times the size of GDP (counted on both sides). on (counted GDP times the three size of trading, which was forward to their legaliza until operations such on a ban despite market, 1724, the Bourse a forward been had primarily the 20th century. These volumes amounted to four times the French GDP. This magnitude was mainly due mainly was magnitude This GDP. French times the four to amounted volumes These the 20th century. the First World War. We provide original estimates of the traded volumes at the Paris Bourse at the turn of of the turn Bourse at the Paris at the traded of volumes original estimates provide We War. World the First Drawing on newly-available archival records, archival newly-available on Drawing before London to Bourse, only second the Paris of development the early a strikingting counter-example: rical series. crashes, lower the risk premium that investors demand, and hence the lower the cost of capital for issuers and the and issuers for capital of the cost the lower hence and demand, investors that the premium risk lower also is and crucial panics, manias, in the occurrence of ‘overtrading’ though Even higher the investment. is more important than listing or market capitalization for economic growth: the higher the liquidity, the the higher the liquidity, growth: economic for capitalization market or listing than important more is interactions between regulators and regulated as well as actual business practices, beyond formal rules. formal practices, beyond actual as business well as regulated and between regulators interactions literature and growth the finance to According research on the early development of stock markets in European civil-law economies, in order to document document to in order economies, civil-law in European markets stock of development the early on research suggests that legal origins do not matter’ do not legal origins that suggests Not only do critics of the ‘Law and Finance’ approach highlight its ahistorical character, they also contest its its they also contest character, ahistorical highlight its approach Finance’ and the ‘Law of critics do only Not history ‘business that concluded editors the this guest journal, special of issue a recent In argument. main tions to changing economic and business needs. business and economic changing to tions growth. Consequently, firms in civil-law countries have restricted access to external finance. This harms their harms per This restrictedto external finance. access have countries in civil-law firms Consequently, concentration. ownership reinforces and formances mon-law countries, because of their weaker legal protection of corporate shareholders and creditors. creditors. and shareholders corporate of legal their protection weaker because of countries, mon-law ‘Law and Finance’ theory considers that civil-law countries have lower financial development than com than development financial lower have countries civil-law that theory considers Finance’ and ‘Law INCAS DP SERIES / 2019 #01 - - - -

13 Fresh archival records provide more more provide records archival Fresh 16 century, forward trading exceeded the volume of of exceeded trading the volume forward century, th 5 Only 11% of the forward volumes ended with the ended actual with delivery of volumes the forward 11% of Only 17 Defaulting clients could be kicked out of the Bourse by the official bro theofficial the Bourse by of be out could kicked clients Defaulting 14 Although liquidity was already considered a crucial quality of stock markets, markets, stock crucial a of quality considered already was liquidity Although 12 at the very the at 19 beginning of century, the tension between stability and liquidity of stock markets was the subject the subject was markets stock of liquidity and between stability the tension century, 15 th Liquidity and Stability Liquidity Stability and

curities were residual. residual. curities were data confirm secondary sources indicating that forward operations settled through actual of the deliverysettled se through operations forward that indicating confirm secondarydata sources securities; that same year, around 80% of the spot transactions were recorded by the clearing house. These house. the clearing by recorded were transactions the spot 80% of around year, securities; same that phenomenon captured by these series. by captured phenomenon actual delivery of securities. Available archival data for 1906 gives us an insight into the magnitude of the of the magnitude into insight an us 1906 gives for data archival actual securities. delivery of Available handled by the clearing house of the Bourse, and the volumes of forward transactions settled through the settled through transactions forward of the volumes the Bourse, and of house the clearing by handled accurate estimates for the end of the century. Fig. 1 compares two series: the volumes of spot transactions transactions spot of series: two the volumes Fig. 1 compares the century. of the end for estimates accurate cash transactions by a factor of 10. In the 1830s, the ratio was 1 to 50. to 1 was thethe 1830s, ratio In 10. of factor a by transactions cash According to Banner, to According in manias, panics, and crashes throughout the century. throughout crashes and panics, in manias, large market participants, combined with the greed of the official stockbrokers to explain the role they played rolethey played the to explain stockbrokers the official the greed with of combined participants, market large mitigated this threat. This pressure from rival intermediaries, fueled by the push for a greater market depth by depth market a greater for push by the fueled intermediaries, rival from pressure This this threat. mitigated kers, but a thriving over-the-counter (OTC) market in Paris as well as six regional exchanges in thecountry exchanges regional six as well as in Paris market (OTC) a thriving over-the-counter but kers, and the bail-out of the Paris Bourse. the Paris of the bail-out and systemic risk, as exemplified in 1882 by the collapse of the Lyon Bourse (the second largest French exchange) exchange) French (the largest Lyon Bourse second of the by collapse the in 1882 exemplified as risk, systemic vency of their brokers: if they won, they cashed in; when they lost, they could refuse to pay. This amplified the amplified This they in; when if they cashed they pay. they to refuse lost, won, could their brokers: vency of debt. This ambiguity is the main reason why judicial authorities did not strictly uphold forward operations, operations, forward strictly uphold not did authorities judicial reason why main is the ambiguity This debt. thesol endanger and risk tradeno with therefore could 1885. Clients in their full legal recognition before forgoing their contribution to the development of the market, and more specifically to the issuance of public public of specifically issuance to the more and the market, of the development to theircontribution forgoing 1724, forward operations were equated with gambling. Legislators refused to recognize them, but without without them, but recognize refused to Legislators gambling. with equated were operations 1724, forward Although they were the most common instruments for trading since the foundation of the Paris Bourse in the Paris of thefoundation since trading for instruments common the most they were Although prices and the repurchase prices, with no actual the no securities. delivery with prices, of the repurchase and prices money and most of the transactions were settled by the payment of the difference between the transaction the difference of the payment settled by were the transactions of most and money bate focused on the legal status of forward operations. They were performed without deposit of securitiesand deposit without performed were They operations. forward of focused the legal status on bate frequent financial crises affected both the financing of the economy and personal wealth. In France, the de France, In andpersonal wealth. economy of the crisesaffectedbothfinancing financial the frequent of intense debate in Europe. debate intense of At the end of the 19 of the end At INCAS DP SERIES / 2019 #01 -

It indicates that that indicates It 18 century, forward-traded forward-traded century, th 6 Source: see Appendix Source: Data Source: see Appendix Source: Data (in billions of current francs) current billions of (in

Fig. 2 Traded volumes in Paris (as a ratio of French GDP, transactions counted on both sides) both on transactions counted GDP, French of (as a ratio Paris in volumes 2 Traded Fig. Fig. 1 Cleared spot transactions and settled forward transactions at the Paris Bourse, 1872-1912 Paris transactions settledtransactions the forward spot and at Cleared 1 Fig.

between 1899 and 1906, the Paris financial center traded about six times the value of French GDP, with with the GDP, French of six value times the about traded center financial 1906, the Paris between 1899 and the Paris Bourse and its OTC market over a period when the rates of taxation were constant. were taxation a period of when over the rates market OTC its Bourse and the Paris Fig. 2 depicts series obtained by the interpolation of 1906 archival data with financial transaction tax data for for tax data transaction financial with data 1906 archival of the interpolation by seriesFig. 2 depicts obtained

although they only accounted for 0.7% of the GDP in 1881. the GDP 0.7% of for accounted theyalthough only Then they followed an upward trend until the First World War. Spot transactions followed a similar trend, a similar trend, followed Spot transactions War. World First the until trend upward an followed Then they volumes in 1881 amounted to five times the French GDP. After the 1882 crash, volumes stagnated until 1887. stagnated volumes the 1882 crash, After GDP. French times the five to in 1881 amounted volumes sumption that these proportions did not vary from the 1870s to the dawn of the 20 of vary the dawn the 1870s to did not from these proportions that sumption Nevertheless, delivered forward-traded securities multiplied by four between 1877 and 1881. Under the as Under 1881. between and 1877 four by securities forward-traded multiplied delivered Nevertheless, INCAS DP SERIES / 2019 #01 . - - - - - 20 [the bet exception]’). [the bet exception]’). they expanded this unlimited liability to thelatter to liability theythis unlimited expanded , exception de jeu de exception 7 Yet the 1807 Code of Commerce only devotes 17 articles devotes the only 1807 Code Commerce of Yet 22 Risk could be the object of a contract (e.g., an insurance contract), contract), an insurance (e.g., be a contract could Risk the object of 21 . 19 ; on the other hand, the organization of trading activities relied on the official stockbro the official on activities relied trading of the organization hand, the other ; on ; on the other hand, the organization of trading activities relied on the offi cial stockbro- cial the offi on activities relied trading of the organization hand, the other Régime; on

The legal ban on forward operations forwardThe operations legal on ban

Institutional Threats to Forward Trading Forward to Threats Institutional Ancien 3.1

as private rules. private as kers, without their rules having been recognized by the government as required by law. Courts them judged law. by required as been the government their rules recognized by having without kers, by the by crucial consequences: on the one hand, judges were free to base their decisions on the prohibitions decreed the prohibitions on base free to their decisions were judges hand, the one on crucial consequences: operations, this regulation was only passed in 1890, after their legalization. The silence of the law had two hadlaw ofthe The silence legalization. passedtheir in 1890, after only was this regulation operations, trading would be regulated by pending governmental regulation. Precisely because of the issue of forwarding forwarding of the issue because of Precisely regulation. governmental pending by be regulated would trading tantly, there was no specific no was securities there rule in that the on Codementioned securities only Article trading. 90 tantly, have prevented stockbrokers from carrying out forward operations without the prior deposit of securities of deposit and the prior without operations forward carrying from out stockbrokers prevented have impor Most their clients. to credit granting them from 3 prohibited paragraph article 85, instance For cash. to them and three to the organization of stock exchanges. If strictly interpreted by judges, these rules judges, would by strictly interpreted If exchanges. stock of the organization to three them and to ize’ finance through specific rules for stockbrokers. specific for through rules finance ize’ increased government mistrust. Consequently, the draft of Commercial Code was revised, in order to ‘moral to of revised,order Code Commercial in was the draft Consequently, mistrust. government increased The 1805 financial crisis and economic downturn had caused the default of at least 10 stockbrokers and hence hence and stockbrokers 10 at least of causedthe default had downturn and economic crisis 1805 financial The given any legal protection (art. 1965, on the so-called (art. 1965, on ‘ legal protection any given tracts – and forward contracts were deemed such - were therefore equated with bets and gambling was not not was gambling bets with and equated therefore were - deemedsuch were contracts forward tractsand – but the Civil Code did not recognize uncertainty as a ‘serious cause’ for contracting. Uncertainty-based con Uncertainty-based contracting. for cause’ a ‘serious as the Civil Code uncertainty recognize but did not the decree of June 16, 1802 on exchanges. 16, 1802 on June of the decree anti-speculative views prevailed, as stated in the Law of October 12, 1795 on the police of the in Bourse the October police of and 1795 on 12, of in the Law stated as views prevailed, anti-speculative Code indicate that the lawmakers were still marked by the financial disorders of the Revolution. Therefore, Therefore, of Revolution. the disorders the financial by still marked were the lawmakers that Code indicate The Napoleonic codes did not directly address forward operations. The preliminary works to the 1804 Civil to 1804 the works preliminary The operations. forward address directly codesnot did Napoleonic The closed and forward traders could be fined, pilloried and jailed. jailed. and pilloried be could traders fined, forward closed and tract was made. During the French Revolution, manipulations were so severe that the Bourse officially so was that severe were manipulations Revolution, tract During the French made. was 2, 1786. Forward operations were deemed fictitious, and hence illegal, unless the transactions were settled were hence illegal, unless and the transactions deemed fictitious, were operations 2, 1786. Forward possess the actual to when the the delivery securities con the seller by of obliged was that months two within disorders it caused among the Parisian business community -, the ban was re-enacted by decree on October on decree by re-enacted was the ban community -, business the Parisian among caused it disorders Bourse, in the aftermath of the collapse of Law’s system. For similar reasons – restraining ‘speculation’ and and the ‘speculation’ reasons – restraining similar For system. of Law’s of collapse the Bourse, in the aftermath The ban on forward operations appeared in the decree (September 24, 1724) that had instituted the Paris Paris the had instituted 24, 1724) (September in that decree the appeared operations forward on The ban role to the judges. The Bourse’s president described this situation as a ‘Sword of Damocles’. ‘Sword as a described situation this president The theBourse’s judges. to role However, the discrepancy between the legal framework and the actual business practices attributed a pivotal a pivotal attributed practices the actual business and the discrepancy between the legal framework However, Meeting regulators’ expectations and containing competition from the OTC market explain this decision. this decision. explain market the OTC from competition containing and expectations regulators’ Meeting legal monopoly. Despite the ban on forward operations forward on the ban Despite legalmonopoly. The official brokers had unlimited liability for the completion of the transactions under their transactions they of the performed completion for the liability had unlimited brokers official The for 60% of the overall traded volumes the overall 60% of for same magnitude (four times the French GDP, counting on both sides), with the derivatives only accounting accounting only both the derivatives with sides), on counting GDP, times the French (four magnitude same times the GDP. By comparison, in 2006, the overall volumes traded at the Paris Stock Exchange were of the of were Exchange Stock theParis traded at volumes theoverall 2006, in comparison, By timestheGDP. overall volumes at the Bourse amounting to four times the GDP. The forward volumes corresponded to three to three corresponded volumes forward The times the GDP. four to the Bourse amounting at volumes overall INCAS DP SERIES / 2019 #01

, - - - - - ). 26 coulisse coulissiers . The orga . The ]’. In addition addition In ]’. office agents de change de agents , with its peer-elected peer-elected its , with Therefore, legal proceedings proceedings legal Therefore, 27 ), holders of an an of ), holders . The setting of the re- also. The Bourse setting to extend their individual and collective and their individual extend to Syndic ’ dual role (facilitating transactions and par and transactions (facilitating role ’ dual agents ) had developed an OTC-like market ( market OTC-like an developed ) had agents officiers ministériels officiers : forward operations on large issues of bonds (often (often bonds of issues large on operations : forward survived the French revolution as a contested mo a contested as revolution survived the French 8 Compagnie des Agents de Change de Agents des Compagnie coulissiers effets publics et autres susceptibles d’être cotés d’être susceptibles autres et publics effets : no more than 60 official stockbrokers would be entitled to entitled would be stockbrokers 60 official than more : no . Régime�� chaired by a president, the a president, by chaired agents de change de agents Ancien were restored as a governmental device of financial intermediation. financial device of a governmental as restored were coulissiers ”. Failure to fulfill this obligation exposed brokers to fraudulent bankrupt to fraudulent exposedbrokers fulfill to obligation this Failure ”. office articles 419, 421 and 422 equated the forward sale of public bonds without without bonds public sale of the forward 422 equated 419, 421 and articles numerus clausus numerus 23 a guild-like body: the

were exceptional, even though the latter always lost (e.g., the highly publicized 1859 the highly (e.g., publicized lost always the latter even though exceptional, were faits de charge de faits through Chambre Syndicale, Syndicale, Chambre the only persons entitled to perform financial intermediation were the were intermediation perform financial to entitled persons the only

24 coulissiers The contested monopoly of the agents de change of the agents monopoly The contested

on public bonds, while it appreciated their activity when they contributed to the success of public public of thesuccess to when their activity they contributed appreciated while bonds, it public on

3.2

coulissiers trial). The government informally favored retaliation solely in the case of durable bearish speculation by the speculation bearish durable of in casethe solely retaliation favored informally trial).government The against the against public and/or foreign). This competition enhanced the institutionalization of the Bourse through a process of process of a the through Bourse institutionalization enhanced the competition This foreign). and/or public to a complementarity. leading beneficial market, OTC the from differentiation also competed in the core activity of the of activity in the core also competed They traded unlisted securities and performed operations forbidden by of the The the rules Bourse. forbidden They operations traded unlisted securitiesand performed In parallel to the Bourse, informal intermediaries ( intermediaries theBourse, parallelinformal to In the door to their long-time rivals: the their long-time to the door guarantee to these operations: the net debts of one had to be paid by his fellows. Refusal would have opened opened Refusal have would fellows. his be by to paid had one of debts thenet these to operations: guarantee der to keep their monopoly as large as possible, prompted the prompted possible, as large as their monopoly keep der to and their collective interest in satisfying the expectations of the public authorities (market reliability), in or reliability), (market authorities the public of in satisfying the expectations their collective interest and did not recognize them. Nevertheless, the individual interest of each stockbroker in preserving his reputation in preserving reputation his each stockbroker of interest the individual them. Nevertheless, recognize did not cy (punishable by forced labor). The legal liability did not encompass forward operations insofar as the law as law the insofar operations forward encompass not did legal The liability labor). forced by cy (punishable their monopoly: the “ their monopoly: Each stockbroker was legally bound to engage his unlimited liability for the transactions carried out under under carried out the transactions for liability unlimited his engage to legally was bound Each stockbroker building, with the open outcry as price-discovery mechanism and fixed commissions as payment. commissions fixed and price-discovery the outcry as mechanism open with building, ticipating in their control): they should operate in public, in a restricted area, in the middle of the Exchange the Exchange in the middle of area, in a restricted in public, operate they should in their control): ticipating governing body, the body, governing the demonstrated rules it and enacted pre-revolutionary organize the Bourse organize to the hybrid status there was a was there status the hybrid to bonds and other securities that can be quoted [ be securities can quoted other that and bonds Article 76 of the 1807 Code of Commerce broadly defined their monopoly, to cover the trading of ‘public ‘public of the trading to cover monopoly, defined their broadly the 1807 CodeArticle 76 of Commerce of nizational features of the system of of the system of features nizational pure stockbrokers appointed by the Ministry of Finance ( the Ministry Finance by of appointed stockbrokers pure for other activities: other for restored a legal monopoly, based on that of the pre-revolutionary era, for financial intermediation, as they did intermediation, financial era, for the pre-revolutionary of based that on a legal monopoly, restored But the financial disorders of the last decade of the century were so intense that the public authorities soon authorities public the that so intense were of century decadethe of last the disorders the financial But 1791) banned guilds and unions, and proclaimed free enterprise. Consequently, brokerage was liberalized. was brokerage Consequently, free enterprise. proclaimed and unions, guilds and banned 1791) nopoly granted by the government to a guild of appointed merchants. The Le Chapelier Law (June 14-17, The Le (June Law Chapelier merchants. appointed a guild of to the government by granted nopoly The financial intermediation from the from intermediation financial The

intermediaries. judicial interpretations according to the circumstances, in particular to tame the market through its official official its through in particular the market tame to the circumstances, to according interpretations judicial law, the legal framework remained unchanged: it was pretty hostile to forward operations, with room for for room with operations, forward hostileto pretty was it unchanged: remained the legal framework law, previous deposit with forbidden betting, punishable by a custodial sentence and a heavy fine. Until 1885 the Until fine. a heavy and a custodial sentence by punishable betting, forbidden with deposit previous added in the 1810 Penal code: added in the 1810 Penal 19 stockbrokers out of business. This affair profoundly shaped the rules on financial transactions, which were which transactions, financial the on shaped rules profoundly affair This business. of out 19 stockbrokers operations on French public bonds amounted to 1,305,000 francs (about 2% of all the public debt), forcing forcing debt), all the of public 2% (about 1,305,000 francs to amounted bonds public French on operations In 1809, Reynier’s infamous bankruptcy discredited the Bourse and its intermediaries in general: his forward forward his general: in intermediaries its theBourse and bankruptcy discredited infamous Reynier’s 1809, In INCAS DP SERIES / 2019 #01 ’ - - - - (art , the This This 29 coulissiers argued that that argued coulissiers Cour de Cassation Perdonnet lost against against lost Perdonnet société en commandite en commandite société , the agent organized partnerships with with partnerships organized only sued when sued the only agents , the legality of the partnerships and and the partnerships of , the legality Agents

office 28 agents de change de agents , lasted less than two decades: incapable of containing containing of decades: two incapable than less , lasted 9 became the only unlimited liable general partner general while liable unlimited became the only agents agent 1862): each nd obtained from the government the introduction into the French Commercial Commercial the French into the introduction the government from obtained agents had operated in a suitable manner (including a discount clause in thein contract). clause discount a (including manner suitable a in operated had gained recognition of the business they performed. Moreover, individual savings gradually gradually savings individual theyMoreover, performed. the business of recognition gained

agents agents agents

The dynamics of the jurisprudence The dynamicsof the

promoted the largest possible definition of their monopoly, including all securities, on including whether traded monopoly, of their definition possible the largest promoted 3.3

forward purchases without the prior deposit of cash. The latter were deemed licit, as long as the stockbrokers stockbrokers as the as long deemed licit, were latter The cash. of deposit the prior without purchases forward between forward sales, prohibited without prior deposit of securities even if settled by their delivery, and and securities of their delivery, deposit even if settled by prior without sales,between prohibited forward the securities. The courts then introduced a further distinction, drawing on article 422 of the Penal Code, of articlethe on 422 a furtherthe securities. drawing distinction, courts introduced The then Under the July Monarchy, the jurisprudence softened. The judges maintained the prohibition of forward of prohibition the maintained judges The softened. the jurisprudence Monarchy, the July Under those the actual settled delivery by of uphold willing to more they were but delivery, without operations the plea by the banker and Member of the Parliament Casimir Périer (February 27, 1826) could modify 27, 1826) could (February it. Casimir Périer the Parliament of Member and the banker the by plea highest French Court (August 11, 1824). Neither the 1824 petition signed by prominent Parisian bankers, nor nor bankers, Parisian prominent signed the petition 1824 by 11, 1824). Neither Court (August French highest latter, it refused to uphold the forward contracts. The verdict was confirmed bythe confirmed was verdict The contracts. the forward uphold refused to it latter, Forbin-Janson, his aristocratic and rich debtor. Although the court explicitly recognized the felony of the of recognized the felony the explicitly court Although rich debtor. and aristocratic his Forbin-Janson, the Court of Appeal of Paris fixed the new jurisprudence (August 9, 1823): the (August jurisprudence new fixed the Paris of the Court Appeal of In 1823, five of them went bankrupt. In an official extraordinary hearing chaired by the Minister of Justice, Justice, of Minister by the chaired hearing official extraordinary an In bankrupt. went of them 1823, five In litical hardening of the Restauration. the Restauration. of litical hardening massive speculation on the Spanish debt, they suffered a complete jurisprudential reversal following the po following reversal jurisprudential a complete they suffered debt, the Spanish on speculation massive jurisprudence, which was quite favorable to the to favorable quite which was jurisprudence, provided the provided without the actual delivery of the securities, provided their duration was no longer than two months and and months two than longer no was their duration the actual the delivery securities, of provided without speculation had provoked, and drawing on the 1786 decree, the judges upheld forward contracts, even those contracts, forward upheld the judges the 1786 decree, on drawing and provoked, had speculation provoked a first reversal in the jurisprudence. To make the business community pay for the disorder its disorder the for pay community business make the To jurisprudence. reversal in the a first provoked regulation as a matter of ‘public order’. order’. ‘public of a matter as regulation year of that turmoil the financial but operations, forward uphold refused to justice of the 1805, courts Until turmoil could affect the support of the bourgeois for the rulers, giving them good reason to consider financial financial to consider good reason the them for rulers, giving of the bourgeois support affect the could turmoil became dependent on financial markets, if not invested in often unaffordable real-estate. Therefore, financial Therefore, real-estate. unaffordable often in invested not if markets, financial on became dependent market, the market, tions. By demonstrating their legitimism to each new ruler who badly needed to tap into the domestic capital capital the domestic neweach ruler to into their legitimism who badly needed tap to demonstrating By tions. tions of the former influenced the latter. Regime changes also catalyzed the jurisprudence of forward opera forward of jurisprudence also the catalyzed changes Regime latter. the influenced the former of tions importance. The stockbrokers adapted their practices to the judges’ expectations and the lobbying and litiga and lobbying and the expectations judges’ practicesto the their adapted stockbrokers The importance. The discrepancy between the legal framework and business practices endowed judges with a role of pivotal pivotal of role a with judges practices endowed business and discrepancy The between legalthe framework 75, modified by the law of July 2 July of by law the 75, modified partners. act limited as in thewould firm associates the other Code of a specific corporate form exclusively for their partnerships, on basedthe their partnerships, for exclusively form Codespecific a corporate of cess of legal drafting, legalthe drafting, of cess the nature of the associates’ liability were also matters of legal debate. In 1862, after a long and disputed pro disputed and a long 1862, after In legal debate. of also matters were liability the associates’ of the nature wealthy associates. Because only an individual could be holder of an an of be could holder individual Because an associates. only wealthy To extend the guarantees to clients and expand the business, the the business, expand and clients to the guarantees extend To spot or through forward operations. This exposed them to greater potential losses. potential exposed This to greater them operations. forward through or spot agents agents forward operations were only prohibited for them because of their specific legal status. On the contrary, the On contrary, the their specific them becauselegalstatus. of for prohibited only were operations forward part of the jurisdictional dispute: since the legal bans only mentioned the mentioned only the legal since bans the jurisdictionaldispute: part of market share threatened their profitability. On these occasions, the legal status of forward operations was was operations forward of On status legalthe these occasions, their profitability. threatened share market bond issues and the international strength of the financial center. thefinancial of strength theinternational and issues bond INCAS DP SERIES / 2019 #01

- - - 33 In 30 , which, agents due diligence diligence due

’ The The made Bourse 31 agents in the appreciation of of in the appreciation bona fide bona of the finance world. Reciprocally, Reciprocally, world. the finance of ’s ban was no longer applicable and and applicable longer no was ban ’s Régime homines novihomines Ancien 10 still exploit the hostile legal framework, punctually repudi punctually the hostile legal framework, still exploit

could

(under the Troplong presidency) endorsed this jurisprudence. this jurisprudence. endorsed presidency) the Troplong (under to repudiate their losses. repudiate to But, notables But, 32 Cour de Cassation exception de jeu de exception The rise of the agents’ status status of the agents’ The rise Making Forward Trading Legitimate Legitimate Trading Making Forward

first tried to make them legitimate, and thus upholdable by judges, as a precondition for legalizatheir for precondition as a judges, by upholdable and thus tried legitimate, make them to first 4.1

property instead. instead. property pointed out, the French Revolution did not put money at the heart of the new social hierarchy, but private private but the new social the heart of at hierarchy, money put did not Revolution the French out, pointed financiers invested in real estate to diversify their wealth and secure their social status. As Louis As Louis Bergeron and secure wealth their socialto diversify their status. real estate in invested financiers ate their losses at the Bourse and, more generally, scorn the generally, more the Bourse and, their losses at ate soon became commonplace. discarded property ownership. On the contrary, deals of all kinds intermingling old families and new money new money and families old all deals intermingling kinds of On the contrary, ownership. property discarded merce or production. This does not imply that notables did not trade financial instruments, or that financiers financiers orthat instruments, financial trade not did notables that imply doesThis not production. or merce compared to the intergenerational rise in notability, based on land-ownership and, to a lesser extent, on com on a lesser extent, to and, based land-ownership on rise in notability, the intergenerational to compared it possible to imagine or even to achieve (although infrequently) a faster rhythm of capital accumulation, accumulation, achieve (although capital to even of or imagine to rhythm possible faster a it infrequently) French society the opportunity to defend their interests and legitimate their positions. legitimate and their interests defend to society the opportunity French The debates about speculation, and especially forward operations, gave competing dominant fractions of fractions dominant competing gave operations, especially and forward speculation, about debates The the legitimacy of serious business practices run by serious men in front of the judges. the judges. of in front serious men practices run by the serious business legitimacy of a dominant position among the Parisian business elites, developed their market organization and advocated advocated and organization their developed market elites, business the Parisian among position a dominant tion by the legislators. To reach this goal, they developed three mutually reinforcing strategies. They gained They gained strategies. reinforcing they this goal, mutually three developed reach To the legislators. by tion agents To cope with the ‘sword of Damocles’ represented by the institutional threats on forward operations, the operations, forward on threats the institutional by represented Damocles’ of the ‘sword with cope To advantage of the of advantage 1882 crash, this minority view reversed the jurisprudence: many clients were unable to pay but others took took others but pay to unable were clients many view the jurisprudence: reversed this minority 1882 crash, case turned into a scandal, some judges still equated forward selling with gambling. In the aftermath of the the aftermath In gambling. sellingwith forward still equated judges a scandal, some case into turned exclusively on compliance with the rules of the Bourse. Nonetheless, when public bonds were at stake or if the or stake at were bonds when public the rules with the Bourse. Nonetheless, of compliance on exclusively In the early days of the Third Republic, most judges abandoned the valuation of the client’s notability to focusto notability client’s of the valuation the abandoned judges most Republic, the Third of days the early In 1860 and 1868, the 1860 and should be promoted, given their contribution to the development of new industries, especially newindustries, railways. of thedevelopment to their contribution given be promoted, should of the Paris Court (1810-48), notoriously opposed to financial practices he considered speculative, by judge judge by speculative, practiceshe considered financial opposed to Court notoriously (1810-48), the Paris of activities financial Troplong, to According Bonaparte. Louis-Napoléon (1848-52), a close ally of Troplong with respect to Bourse rules. This change was also eased by the replacement of judge Séguier as first President President judge as first Séguier of replacement was alsoby Bourseeasedthe respectwith to rules. change This (social status and real-estate property) relative to the value of the transactions, and the and the transactions, of the value to relative property) real-estate and (social status from the actual delivery of securities. Evidence accepted by the judges still included the notability of the client the client of the notability still included the judges by the actual accepted securities. deliveryfrom of Evidence art. 85, § 3 of the Commercial Code. Forward operations were upholdable if deemed ‘serious’, independently independently if deemed ‘serious’, upholdable were operations Code. the Commercial art. 85, § 3 of Forward to trading were exempt from the prohibition on stockbrokers from granting credit to their clients stated in stated their clients to credit granting from stockbrokers on the prohibition from exempt were trading to developed less stringent interpretations of the current laws. For instance, payments and deliveries related related deliveries and payments instance, For laws. the current of interpretations stringent less developed After the 1848 Revolution, the courts decided that the decided courts the that 1848 Revolution, the After in 1842 resulted in stockbroker Bagieu’s criminal conviction for betting on public bonds. bonds. public on betting for criminal conviction Bagieu’s in stockbroker in 1842 resulted publicly-known real estate. This incremental change was abruptly stopped by the default of four four of by default the stopped abruptly was change incremental This estate. real publicly-known their clients’ ‘morality’ and solvency, based on their social status, lifestyle and other proxies for wealth such as as such wealth for proxies other and lifestyle based their social on status, solvency, and ‘morality’ their clients’ could prove the ‘seriousness of the transaction’. They should demonstrate their demonstrate Theyshould the transaction’. of the ‘seriousness prove could INCAS DP SERIES / 2019 #01 ------and Chambre Chambre , then ap were not part not were raison d’Etat agents or other lucrative oc lucrative other or the right to designate designate to the right agents agents Chambre Syndicale Chambre propriétaire

36 Favoring old ties was not sufficient: sufficient: ties not was old Favoring 34 had been in charge before the Revolution. theRevolution. before been had in charge ’ singular position, between the position, ’ singular agents agents 11 , and eventually appointed by the ministry of finance. Such Such the ministry finance. by of appointed eventually , and . They could build family-based strategies for the transmission the transmission for buildstrategies family-based They. could agents Compagnie did not last more than 5 years. Nonetheless, over the rest of the century, the century, of the rest over Nonetheless, 5 years. than more last did not In 1824, in the midst of the Forbin-Janson vs. Perdonnet case,the vs. Perdonnet the Forbin-Janson of 1824, in the midst In 35 agents the upper hand in the selection process, it promoted peer-monitoring and it also it and peer-monitoring promoted it the in selectionprocess, hand theupper 4 committed suicide, 12 were officially dismissed, 30 were forced to resign, and resign, to forced were 30 dismissed, officially 12 were suicide, 4 committed agents, agents, Chambre Chambre

also set the conditions for a more integrated and integrative group, composed of self-elected indi of composed group, integrative and integrated a more for also set the conditions

legitimate, well-established members of the bourgeoisie (Tab. 1). (Tab. the bourgeoisie of members well-established legitimate, of this aristocracy dominated by bankers, industrialists and crony politicians, but stockbrokers had become become had stockbrokers but politicians, crony and industrialists bankers, by this aristocracy dominated of ty to Germany, a new aristocracy of financial wealth took over the Third Republic. Most Most Republic. Third the over tookwealth financial a new aristocracy of Germany, ty to After its considerable rise under the Second Empire and its contribution to the financing of the war indemni war ofthe to financing the its contribution and rise under Empire the Second its considerable After turnover decreased while the family transmission of business increased. business of decreased while transmission the family turnover and 1859, about 25 % the 1859, about of and market dynamics, within a collective endeavor, which both supported and constrained them. Between 1818 constrained and which both supported a collective endeavor, within dynamics, market tions (social climbing into high society) into reflecting the (socialtions climbing viduals sharing a common ethos. This was made up of dispositions (obedience and reliability) and aspira and reliability) and (obedience of dispositions up made was ethos. This a common sharing viduals Chambre Chambre to bring money, connections and prestige (especially among legal professions) to the guild. In doing so, the so, doing the In guild. to legal professions) (especially among prestige and connections money, bring to added personal wealth and family credentials as recruitment criteria. Therefore, candidates were expectedwere candidates Therefore, criteria. recruitment as credentials family addedand personal wealth Yet, stockbroking long remained poorly regarded, compared to the status of of the status to compared regarded, poorly remained long stockbroking Yet, higher with standing. cupations of their business, rather than go bust trying to get rich too quickly. trying too rich quickly. bust get go to than rather their business, of lengthened the temporal horizon of the of horizon the temporal lengthened a process gave the gave process a proved by the general assembly of the of assembly thegeneral by proved their successors (decree of May 29, 1816), which would be first endorsed by the endorsed be first 29, 1816), which would May of (decree their successors 8 left for other occupations. To stabilize the group, the government granted the granted government the the group, stabilize To other occupations. for 8 left among the first 115 the first among sated bankers’ straw men and newcomers with political with connections. newcomers and men straw bankers’ sated Nicolas Mollien, Bonaparte’s main financial advisor, deliberately favored experience, whilehe also compen favored deliberately advisor, financial main Bonaparte’s Mollien, Nicolas official intermediation, a quarter of the newly appointed appointed ofthe newly quarter a intermediation, official Over the century, the stockbrokers’ status varied dramatically. In 1801, when Bonaparte decided to restore decidedrestore to when 1801, Bonaparte In varied dramatically. status the stockbrokers’ Over the century, INCAS DP SERIES / 2019 #01 in percentage (1810-1914) percentage in agents de change agents 12 Sources: Personal files; Charle (1987); Verley (2007). (1987); files; Charle Personal Sources: Tab. 1: Changing social characteristics of the Paris Paris social the characteristics of 1: Changing Tab. INCAS DP SERIES / 2019 #01

- - - - - turnover pro turnover Theypublished 37 ) was reformed in reformed was ) Chambre Syndicale Chambre agent’s and to cover the losses cover to and 40 ’ professionalism and the and professionalism ’ during the 1830 Revolution. It It the 1830 Revolution. during

agents agents should clear his clients’ accounts accounts clients’ his clear should ’ central clearing and settlement. settlement. and clearing ’ central , and designated the stockbrokers the stockbrokers designated , and Bagieu beto in 1842 detrimental

They were willing neither to give up to give neither willing were They agent liquidation générale liquidation agents ’ business. Initially, despite its large regu large its despite Initially, ’ business. Chambre agents. agents. ’s lack of due diligence in monitoring them. in monitoring diligence due of lack ’s on the other. on accounts because of messy transfers and lack lack and transfers messy because of accounts agents agents’ Chambre Chambre Chambre 13 obtained the informal authorization to publish the forward the forward publish to authorization the informal obtained close the

developed a reliable organization to cope with the threats inher the threats with cope to organization reliable a developed agents the 38 Chambre netted their residual balances, on a bilateral basis. By 1834, the procedure 1834, the procedure By basis. bilateral a on balances, their residual netted demonstrate the reliability of the Bourse and cement the cohesion between thecohesion the cement Bourse of and thereliability demonstrate 39 with discretionary resources to help distressed distressed help to discretionary resources with agents then implemented the central clearing: each clearing: the central then implemented were confident enough in their bookkeeping and in the group they constituted to they constituted in and the group in their enough bookkeeping confident were agents The fund was first used as a liquidity and bail-out facility, bail-out and used as a liquidity first was The fund . Chambre Chambre ) of May 29, 1816. The The 1816. 29, May of ) The building-up of an organization an of building-up The Chambre Syndicale Chambre to preserve their monopoly. This triggered a rationalization of trading, clearing and settlement on the and settlement clearing of trading, a rationalization This triggered preserve theirto monopoly. . Created in 1818, as a sinking fund to reimburse debts collectively contracted in the event of a crash, a crash, of in the event contracted collectively debts reimburse a sinking fund as to in 1818, . Created 4.2

ordonnance in case of defaults in case of vided the the fund was perpetuated 4 years later. Individual contributions proportionate to each to proportionate contributions Individual later. the perpetuated4 years fund was agents Last but not least, the common fund soon became the organizational centerpiece to cope with defaults and and defaults with cope to centerpiece fund soon became the organizational the common least, not Last but risk, counterparty subsequent tions were not gambling. not were tions ers. After 1848, the clearing and settlement of the Bourse helped to convince the judges that forward opera forward that judges the of to convince the helped Bourse and settlement clearing 1848, the After ers. A decade later, the decadeA later, vis-à-vis the oth position netted his established them only each of 1843 on, from clearing: multilateral adopt agreed to combine the calendar of its monthly operations with the with operations monthly its of thecalendar combine to agreed to counter a proposition to renew and enforce the ban on forward operations; in 1836, the Banque de France de France in 1836, the Banque operations; forward on the ban enforce and renew to a proposition counter to was reliable enough to be quoted in example by the Member of Parliament and former stockbroker Baillot Baillot stockbroker former and Parliament of the Member by in example be to quoted enough reliable was and then at a fixed date, all a fixed date, then at and of controls. The The controls. of 1808, after the Banque de France threatened to threatened France de the Banque 1808, after delivery of securities. Monthly bilateral and decentralized clearing ( decentralizedclearing and bilateral securities. deliveryof Monthly seriousness of their operations. From 1808 onward, the process always gave clients the possibility of actual of the possibility clients gave always the process 1808 onward, From their operations. of seriousness the clients and its regularity was one of the best ways to demonstrate the demonstrate to the best ways of one was regularity its and theclients To ensure reliability, transparency was not enough: clearing and settlement were crucial. The latter reassured reassured crucial. latter The were settlement and clearing enough: not was transparency reliability, ensure To prices on the official list, previously devoted exclusively to spot prices. to spot exclusively devoted previously list, the official on prices to the business community at large, at community the business to conferred more transparency. In 1844, building on the growing support of the bankers and the ministry and the bankers of of support the growing on 1844, building In transparency. more conferred stockbroker of the criminalthe conviction had considered who finance, a daily list of forward prices, even though the legal status of these transactions had not changed, and hence hence and changed, not had these transactions of the even though legal status prices, forward of list a daily They standardized the types of orders, the clauses attached and the back-office procedures. and the back-office attached clauses the orders, of typesthe standardized They the close of the previous session. Then, the agents performed an open-outcry continuous auction around a pit. pit. a around auction open-outcrycontinuous an performed agents Then, the session. the previous the close of For each security, the first forward price of the day was established by comparing all the orders received since since received orders all the by comparing established was of day pricethe forward the first each security, For one hand, and close monitoring of the brokers by the by the brokers of close monitoring and hand, one agents agents In making such an example, the ministry signaled that stability was not optional; it was the only way for the for way the only was it optional; not the was ministry stability signaled that example, an such making In was the punishment for the brokers’ defaults and the and defaults the brokers’ for the punishment was who should form the new governing body. The new jurisprudence of the Perdonnet vs. Forbin Janson case Janson Forbin vs. Perdonnet of the jurisprudence new The body. the newgoverning form who should crisis, six brokers defaulted. The ministry of Finance revoked the revoked ministry The of Finance defaulted. crisis, six brokers profit opportunities nor to hand the control of their business over to the group: in the aftermath ofthe 1823 aftermath in the to the group: over business of their control the hand to nor opportunities profit latory and disciplinary powers, it had difficulty in monitoring the monitoring difficulty in had it disciplinary powers, and latory ent to stockbroking and to demonstrate the seriousness of the of the seriousness demonstrate to and stockbroking to ent large regulatory powers and full arbitration and disciplinary powers over the stockbrokers with the decree the decree with the stockbrokers over disciplinary powers and full and arbitration powers regulatory large ( The government of the Restauration, in need of a huge issue of public bonds, granted the granted bonds, public of issue huge a of need in of Restauration, the government The INCAS DP SERIES / 2019 #01 - - - and Chambre Chambre agents had to rule to had

were ‘invited’ (an (an ‘invited’ were Sirs, it is of the utmost utmost the is of it Sirs, agents as arbitrator. By these means, these By means, arbitrator. as and their clients, by imposing its its imposing by their clients, and Chambre Because of its position and its constant constant its and position Becauseits of agents 42 ”. to see a wise and enlightened jurisprudence being being jurisprudence enlightened a wise see to and against his clients. Starting in 1820, the measure the in 1820, measure Starting clients. his against tried to align the jurisprudence, its internal rules and internal its tried align to the jurisprudence, agent 14 to select their clients and give them credit according to to according them credit give and select to their clients in 1833, ‘ on the Bourse’s transactions. The wealth of the wealth The transactions. the Bourse’s on agents Chambre Syndic 41 . started the regular biannual control of brokers’ standardized account standardized brokers’ of control biannual started the regular not always willing to support the monetary and regulatory burdens, the burdens, regulatory the monetary and support willing to always not century, the century, th , argued the , argued agents, , since it could be detrimental to their individual interests, but as they as learned but interests, be their individual could to detrimental it , since the Chambre Syndicale always took the greatest care that judges only judges that care greatest the took always Syndicale Chambre the centralized the litigation opposing the opposing the litigation centralized took care of the orderly functioning of the market by punishing stockbrokers who did stockbrokers punishing by the market of functioning the orderly of care took agents developed these kinds of interventions. They were a powerful means of legitimation, espe of legitimation, means a powerful were They interventions. these developed of kinds Chambre Syndicale Chambre Chambre Chambre Compagnie des Agents de change de Agents des Compagnie . After 1823, “ . After Chambre Chambre also put pressure on recalcitrant recalcitrant on pressure also put The making of the jurisprudence of the The making

actual business practices, incrementally adjusting each one to fit the others. ‘ others. the fit to each one adjusting practices, incrementally actual business agents

could gain and maintain the support of the new regime and benefit from the judges’ benevolence. The benevolence. judges’ the benefit from and the new regime of the support maintain and gain could 4.3

Chambre agents’

their notability and wealth (following the judges’ expectations). expectations). the judges’ (following wealth and their notability the understatement) to settle their disputes either bilaterally or with the with or bilaterally either settle their disputes understatement) to better position than its members to appreciate their chances of winning cases. If not, not, cases. winning If of their chances appreciate to members its than position better exchanges with legal scholars, lawyers, judges and policy-makers, the governing body of the body guild in a was of policy-makers, the governing and judges lawyers, legal with scholars, exchanges on indisputably clear-cut cases in favor of the official stockbrokers official the of favor in cases clear-cut indisputably on for the for reversals. Most importantly, it only brought before the courts those cases that were favorable to and winnable winnable and to favorable the those courts were cases that before brought only it importantly, Most reversals. through the Forbin-Janson scandal, such selection could also protect the group from bad publicity and harsh harsh and bad publicity from the group selection also could scandal, such protect the Forbin-Janson through was opposed by most most opposed by was formal authorization for any legal action taken by an an legal action taken by any for authorization formal To this end, the this end, To formed on all the topics related to our profession, in order to replace, as far as possible, the rules promised to us to promised rules the as possible, as far replace, to order in profession, our to related topics the all on formed Code’ Commercial the 90 of Article by importance for the Compagnie’ the Over the first decades of 19 Over decadesthe the first

was passed and the internal rules of the Bourse subsequently reformed. rules the Bourse the of subsequently internal passedwas and the 1890s: after the 1885 legalization, the securities law promised by article 90 of the 1807 Commercial of 1807 articlethe Code 90 by Commercial promised the securities 1885 legalization, law the the 1890s: after for the more volatile securities to reduce counterparty risk, this setting remained stable until the beginning of the beginning of until stable remained this risk, setting counterparty securities reduce to volatile the more for cially in time of crisis. Despite some adjustments, like the introduction of bi-monthly settlement and delivery and settlement bi-monthly of the introduction like adjustments, some crisis. Despite cially in time of Despite fierce debate among among debate fierce Despite Syndicale Chambre not abide by the trading rules. the trading by abide not ary body, the ary body, respect the rules of the Bourse. This was a way to avoid lawsuits that could be lost in the courts. As a disciplin in courts. could be lost the that lawsuits avoid to respect the rules the a way Bourse. was This of systematically gave satisfaction to the clients against brokers when the disputed operations did not exactly did not operations when the disputed brokers against the clients to satisfaction gave systematically were deemed dangerous. As an arbitrator acting as a commercial court for exchange contracts, the contracts, exchange for court acting a commercial as arbitrator an As deemed dangerous. were ing. It also carried out one-off controls when the forward positions of a broker observed around the pit pit observedthe around broker of a forward positions when the controls one-off also carried out It ing. In the 1830s, the In crises. their families as well as their borrowing capacity could be mobilized through the fund, as happened in many in many happened as the fund, through be could mobilized capacity their borrowing as well as their families guarantee of the of guarantee common fund acted not only as a central counterparty, but also as the cornerstone of the voluntary collective the voluntary of also the cornerstone as but counterparty, a central as only fund acted not common agents agents the heavy losses brokers suffered were settled without losses for their clients; by absorbing huge losses, huge the absorbing by clients; their for losses settled without were suffered lossesthe brokers heavy political crisis. Again in 1848, the revolution provoked a deep financial crash; thanks to the common funds, funds, to common the thanks crash; a deep financial provoked in 1848, the revolution political crisis. Again was indeed a powerful instrument, especially as a means to obtain political support in times of financial and and financial times in of political support obtain to especially a means indeed as was a powerful instrument, INCAS DP SERIES / 2019 #01 ------to and with agents Chambre Chambre agents agents agents from regula from frequently paid paid frequently In parallel, the parallel, In 46 ’. privately settled most privately archived all the docu archived , and judges of the Paris the Paris of judges , and Compagnie Chambre Chambre To sell securities and obtain sell securities obtain and To Last but not least, least, not Last but agents

48 43 Chambre Chambre Chambre 49 status rose due to its recruitment policy, policy, recruitment its to due rose status agents’ the report matches our views and desires so well that it it that so well desires views and our matches report the ‘

15 The 1866 crisis also illustrates the power gained by to guildthe gained the power 1866 crisis The also illustrates 44 . declared that declared creditors and debtors. debtors. and creditors

agents ’ Obtaining a four-month moratorium, the moratorium, a four-month Obtaining Syndic 47 when suing clients refusing to pay for their failed forward operations. The The operations. their failed forward for pay to refusing clients when suing ’. were in distress, 5 had been forced to sell their businesses, mainly because of because of mainly sell to their businesses, been 5 had forced in distress, were agents agents agents could count on being advised and defended by leading lawyers, paid by the common the common by paid lawyers, leading by defended being advised and on count could could also count on the brokers’ individual (family) connections and their ascending their ascending and connections (family) individual the brokers’ on also could count coulissiers The Minister for Finance and banker Achille Fould protected the protected Fould Achille and banker Finance for Minister The agents to the “most prestigious positions in the courts of the capital”. in the of courts positions prestigious the “most to 45

with insolvent insolvent with

also tried, as far as possible, to keep the legal disputes within the jurisdiction of the capital. the capital. the jurisdiction of within the legal keep disputes to also possible, as tried, far as The Legalization of Forward The Operations of Legalization showed a kindness and zeal in rejecting demands for declarations of bankruptcy, which could have made made have could which bankruptcy, of declarations for demands rejecting in zeal and a kindness showed

Chambre

Chambre Syndicale Chambre 5.

the stockbrokers and their monopoly of hindering the growth of the market. of the growth hindering of their monopoly and the stockbrokers refuse the execution of all the forward orders that professional clients transmitted. Once again, they accused again, Once transmitted. clients professional that orders all the of forward therefuse execution pers fueled the bullish market and attracted many lay people. It became ever more difficult forthe difficult became more ever It people. lay many attracted and pers fueled market the bullish considered the Union Générale as a vehicle of political revenge. The competition was fierce, bribed newspa fierce, was competition The political revenge. of Généralea vehicle as theUnion considered istic arguments. This social group was particularly frustrated by the empowerment of the Third Republic and Republic of Third the by empowerment the was particularly frustrated This social group arguments. istic deposits, it successfully targeted ultramontane and Catholic conservatives through anti-Semitic and national and anti-Semitic through conservatives Catholic and ultramontane targeted successfully it deposits, became a systemic financial institution with a network of interlocking banks. of interlocking network a with institution financial became a systemic lessly competed with the main financial institutions in France, especially the house of Rothschild, and quickly quickly and of Rothschild, especially house France, the in institutions financial the main with competed lessly indemnity to Germany and later to fund infrastructures), supported by the development of banks draining banks draining of the development by fund infrastructures), supported to later and Germany to indemnity fear Lyon, in 1878 in founded Générale, Union The the country. throughout from money their customers’ The 1882 crash ravaged the French stock exchanges, after a decade of numerous large issues (to pay the war paythe (to issues large numerous of a decade after exchanges, stock French the ravaged 1882 crash The people question their impartiality their question people the disputes of courts ‘ courts imperial prosecutor hampered the cases brought to the courts against insolvent insolvent the against courts to the cases brought hampered imperial prosecutor could not have been better for us if the most enlightened of our legal advisors had drafted it drafted had advisors legal our of enlightened most the us if for better been have not could from their legal recognition. The The their legal recognition. from emphasized the liquidity provided by forward operations and the stabilization of the Bourse that would come come would the Bourseof that the stabilization and operations forward by provided theliquidity emphasized tory backlash by setting up a commission, chaired by the governor of the Banque de France. This commission commission This de France. the Banque of the governor by chaired a commission, up setting tory backlash by faithless clients. faithless prevent legal actions. 7 legal actions. prevent firms the judges’ bias in favor of the bias in favor judges’ firms the analysis of 150 decisions indexed by legal scholar Edouard Badon-Pascal between 1857 and 1877 clearly con clearly 1877 between 1857 and Badon-Pascal Edouard legal scholar by indexed 150 decisions of analysis those obtained by the by those obtained The effectiveness of this tactic can be appreciated by comparing the decisions obtained bythe obtained the decisions comparing by appreciated of this tacticcan be effectiveness The the collective prestige. judges rubbed shoulders professionally and socially. As the As socially. and professionally rubbed shoulders judges were appointed were social visits to judges. Moreover, after the Revolution of July 1830, former legal counsels of of the legal counsels former 1830, July of Revolution the after Moreover, social judges. to visits familiar with stock-exchange transactions and more easily lobbied. Members of the of Members easily lobbied. more and transactions stock-exchange with familiar Provincial courts and judges were generally less favorable to brokers, as in 1882. In Paris, judges were more more were judges Paris, in 1882. In as brokers, to favorable less generally were judges and courts Provincial The or privately settled. privately or and politicians. This cumulative knowledge and experience helped to support cases, whether brought to court to court brought cases, whether support to experienceand helped knowledge This cumulative politicians. and ments related to financial law and jurisprudence, as well as the notes and files exchanged with lawyers, judges judges lawyers, with exchanged and files notes as well the as jurisprudence, and law financial to related ments fund as long their cases were of common interest for the group. Moreover, the Moreover, the group. for interest common of theircases were long fund as In exchange, the exchange, In INCAS DP SERIES / 2019 #01

- - - - - agents and the Paris the Paris and , which published , which published The Minister of Justice Justice of Minister The 53 Voltaire Compagnie

immediately appointed him appointed immediately Le Moreau, their colleague Lecomte, their Lecomte, colleague Moreau, ’ jurisdictions: the monopoly of the of the monopoly ’ jurisdictions: Chambre to sue 151 clients to demonstrate their demonstrate to 151 clients sue to yndic reimbursed their debts by thebeginning by their debts reimbursed coulissiers agents agents

’ and ’ and 51 16 contracted an 80 million franc loan from the Banque de the Banque from loan franc 80 million an contracted agents He insisted on the ‘serious elements of appreciation’ and and appreciation’ of elements the ‘serious on insisted He shoulders. shoulders. 57 raised 60 million francs among their partners and relatives, relatives, their partners and among francs raised million 60 authorized the authorized In June, the government transmitted the extra-parliamentary the extra-parliamentary transmitted the government June, In were represented by S by represented were 55 total losses. total agents’ ’ to transactions in which the counterparties had formally agreed agreed formally had in which the counterparties transactions ’ to It recommended the legalization of all forward contracts and sug and contracts all forward of the legalization recommended It Chambre Chambre agents 56 agents’ Chambre Chambre the Investors of all kinds were unable or unwilling to pay; 14 out of 60 of pay; to 14 out unwilling or unable all were kinds of Investors

50 agents de change de agents exception de jeu de exception In 1882, In overcame the liquidity crisis, met their obligations and no clients suffered any losses any suffered clients no and their obligations crisis, met the liquidity overcame , Girod, who was at that time director of the Comptoir d’Escompte, a prominent French French a prominent d’Escompte, the Comptoir of time director that who at was , Girod, also clarified in the same year year the also in clarified the same agents. agents.

agent It also paid good money to a syndicate of newspapers, including including newspapers, of a syndicate also to good paid money It

Compagnie The Chamber of Commerce immediately endorsed Naquet’s proposal. Naquet’s endorsed immediately of Commerce The Chamber 54 52

reimbursed by November 1882, while the November by reimbursed fund could not absorb such a sum but the but a sum such absorb not fund could became insolvent. The losses amounted 140 million francs (0.6% of French GDP in 1881). The common common The in 1881). GDP French of (0.6% 140 million francs amounted losses The became insolvent. most severe crash ever in Paris. ever crash severe most In January 1882, after frauds and market manipulations, the Union Générale went bankrupt, triggering the bankrupt, went Générale Union the manipulations, market and frauds after 1882, January In further discussion and eventually published in the Official Journal on April 8, 1885. Drawing on this law, the law, on this April 8, 1885. Drawing on Journal in the Official published eventually further and discussion Cour de Cassation signature piece of legislation: the 1884 reintroduction of divorce. Nonetheless, the law was adopted without without adopted was the law Nonetheless, divorce. of thereintroduction 1884 legislation: of piece signature come, and Naquet abandoned the subject. He resigned from Parliament to become a senator and fight for his his for fight and a senator become to Parliament from resigned He the subject. abandoned Naquet and come, endorsed the suggestion made by the commission. The topic then lost momentum: the crash had been over had been crash the momentum: lost then topic The the commission. by made the suggestion endorsed less enough to risk their money. Parliament voted for Naquet’s proposal; the Senate, more conservative, only only conservative, more the Senate, proposal; Naquet’s for voted Parliament their risk money. to enough less ‘profound calculations’ required by forward operations, but argued against any protection for laypeople reck laypeople for protection any against argued but operations, forward by required calculations’ ‘profound Pierre-Joseph Proudhon’s analysis of speculation. of analysis Proudhon’s Pierre-Joseph comparative law, an informed description of the professional practices and emerging economics, including including economics, emerging and practices the professional of description informed an law, comparative In Parliament, Naquet defended his proposal of complete legalization of forward operations, drawing on on drawing operations, forward of legalization complete of proposal his defended Naquet Parliament, In in advance not to deliver the underlying securities or commodities, a contract impossible at the Bourse. at impossible a contract securities commodities, the or underlying deliver to not in advance gested only restricting the ‘ restricting only gested Lyon-Caen, the commission’s rapporteur. the commission’s Lyon-Caen, commission’s report to Parliament, with an explanatory memorandum by well-known jurist and law professor professor law and jurist well-known by memorandum explanatory an with Parliament, to report commission’s Naquet’s op-eds, to influence public opinion. public influence to op-eds, Naquet’s bank. The lawyer and senator Bozerian chaired the commission and and the commission the chaired Bozerian and senator bank.lawyer The counsel. as and a former a former and Among its 17 members, the 17 members, its Among into the legislation relating to the companies and the trading of securities’ (decree of February 14, 1882). 14, February of (decree securities’ of the trading and the companies to relating the legislation into Gustave Humbert set up an extra-parliamentary commission ‘to examine the modifications to be introduced to be introduced the modifications examine ‘to commission extra-parliamentary an set up Humbert Gustave contracts. A few days after the crash, the Member of Parliament Alfred Naquet proposed the full legalization of forward forward of proposed the full legalization Naquet Alfred Parliament of Member the crash, the after days A few ties of forward contracts exclusively on the on exclusively contracts forward ties of the jurisprudence was not a sufficient threat for faithless clients. It was no longer possible to leave the liabili to leave possible longer no was It clients. faithless for threat a sufficient not was the jurisprudence hand, the legal status of forward operations was for many investors an incentive to trade without risk, since since risk, trade without to incentive an investors many for was operations forward of the legal status hand, clear that forward trading was crucial for liquidity and thus for the development of the market; on the other the other on the market; of the development for thus and liquidity crucial was trading for forward that clear the opportunity to push decisively for the legal recognition of forward operations. On the one hand, it was was it hand, On theone operations. forward of the legal recognition for decisively push to the opportunity Chamber of Commerce, together with legal professionals, economists and politicians in tune with financiers, financiers, with in tune politicians and economists legal with professionals, together Commerce, of Chamber for 117 million francs, i.e., 84% of the 84% of i.e., francs, 117 million for offering the moment, a critical constituted aftermath its and of 1882 crash The in an uncoordinated reaction to the collapse of the stock market. Judges made null and void forward contracts contracts forward void and null made Judges market. the stock of the collapse to reaction uncoordinated in an bad faith. But judges, particularly in regional courts, often ruled against the prevailing tolerant jurisprudence, jurisprudence, tolerant prevailing the ruledagainst often courts, particularly in regional judges, But bad faith. due to defaulting defaulting to due theless, the theless, of February; of the eight others, five were insolvent mainly because of Union Générale-related debts. None debts. Générale-related Union of because mainly insolvent were five February; others, of the eight of France on behalf of the guild, reimbursed in a few weeks. Six Six weeks. a few in the reimbursed guild, behalfof on France INCAS DP SERIES / 2019 #01 - - - In 58 ’). agents de de agents agreed not to to not agreed droit boursierdroit a priori century. These volumes volumes These century. st ’ private arrangement was was arrangement ’ private to trade the others. However, However, trade theto others.

agents the right

monopoly in 1898. Again in 1898, the in 1898. Again monopoly . agents’ gained ’, even when parties had ’, century, the Paris Bourse was a very liquid market, Bourse a very was market, the Paris liquid century, th coulissiers coulissiers 17 exception de jeu de exception ’ of the Paris Bourse possible. Bourse possible. the Paris ’ of ’ revised rulebook. In other words, the ’ revised words, rulebook. other In 59 agents Belle Époque Belle century, the Bourse had been primarily a forward market, despite a ban on these op on a ban despite market, the Bourse been a forward had primarily century, th eventually ruled against the ‘ ruled against eventually Conclusion Conclusion sought to organize the fair ordering of trading through social control, institutional innovations, and and innovations, institutional social through trading control, of ordering the fair organize to sought

ing of the market made the ‘ made the market of ing securities. The reform also stabilized the Bourse by effectively dealing with counterparty risk and significantly and significantly risk counterparty with dealing by effectively alsostabilized the securities. reform Bourse The on actualthe function its consequences and of securities law development This decreased costs. transaction enhanced the transparency of financial transactions and supported the development of the number of listed of listed number of the development the supported and transactions financial of the transparency enhanced for further regulatory changes that culminated in the 1898 reform of the Paris financial center. This reform reform This center. financial the Paris of in the 1898 reform culminated that further changes regulatory for The 1885 act paved the way for the 1890 securities law and thus opened a new field of law. This in turn allowed turnThis in allowed law. ofopened new a field and thus 1890 the securitiesfor law way the 1885 actThe paved sacrifice liquidity. sacrifice liquidity. of brokers. Without legalizing forward transactions, the only way to stabilize the market would have been to have would the market stabilize to way the only transactions, forward legalizing Without brokers. of less, the 1882 crisis showed the limits of market regulation centered exclusively on supervising the behavior supervising on the behavior exclusively centered regulation market of the limits the 1882 crisis showed less, Jurisprudence appears to have been adaptive enough to support the development of the market. Nonethe themarket. of the development support to enough been adaptive have to appears Jurisprudence legal strategies. change on forward operations, the liabilities linked to their contested monopoly and the jurisprudence, the the jurisprudence, and monopoly their contested linked to the liabilities operations, forward on stockbrokers played a key role in legitimizing and eventually legalizing these operations. Because the ban of these legalizing operations. eventually and in legitimizing role a key played stockbrokers erations until their legalization in 1885. Through private contracting and collective actions, the official Paris official the actions, collective and contracting private Through 1885. in theirlegalization until erations Throughout 19 the Throughout were mainly due to forward trading, which was three times as large as French GDP. Taken together, the Paris the Paris together, Taken GDP. French as large times as three trading, which was forward to due mainly were six times the GDP. than traded more market theBourse OTC and the French GDP, a ratio similar to the Paris Stock Exchange at the turn of the 21 of theturn at Exchange Stock the Paris to similar ratio a GDP, theFrench contrary to the expectations of ‘law and finance’ literature. Overall traded volumes amounted to four times four to amounted Overall volumes traded literature. finance’ and ‘law of the expectations to contrary This paper documents the fact that at the turn of 20 turnthe at the factthe documents This that paper the French financial markets in 1898. markets financial the French given legal force. This institutional setting allowed for further regulatory changes, crowned by the reforms of reforms by the crowned changes, regulatory furtherfor allowed setting institutional This legal force. given two years later, it approved the approved it later, years two 1890, the government passed the decree on securities trading announced in the 1807 Commercial Code in the 1807 Commercial securities passed on and the decree announced trading 1890, the government to their clients. It paved the way for a new stream of financial regulation: securitiesregulation: law (‘ financial of a new stream for the way paved It their clients. to The 1885 law definitely reallocated the risk inherent to forward operations, shifting it from the stockbrokers fromstockbrokers the it shifting forward operations, to reallocated therisk inherent definitely 1885 law The deliver anything, a type of transaction frequent among among frequent type transaction a of anything, deliver Cour de Cassation this dispute would only be settled by the fiscal upholding of the be the fiscalupholding settled only by would this dispute former would be limited to listed securities, listed to while be limited the would former INCAS DP SERIES / 2019 #01 , , - ie . Paris: Paris: . . Paris : . Paris : 28, no. 28, no. , 1882. e Journal of comparative comparative of Journal . Cambridge: Cambridge Cambridge . Cambridge: . Paris: Marchal, Billard et et Billard Marchal, . Paris: Early Conceptions of Property of Conceptions Early Journal of Banking & Finance diss., Paris School of Economics, 2002. Economics, School of Paris diss., . 3rd Edition. Paris: Chevalier-Marescq et C Chevalier-Marescq Paris: Edition. . 3rd Master Master , Paris: imprimerie Balitout, Questroy et C Questroy Balitout, imprimerie , Paris: 18 Mémoire de la Chambre Syndicale des agents de change présenté présenté change de agents des Syndicale Chambre la de Mémoire . Paris: PUF, 1960. PUF, . Paris: Études légales au point de vue légal et financier point légales au Études . Paris: Gallimard, 1978. Gallimard, . Paris: . Paris: typographie Hennuyer, 1879. Hennuyer, typographie . Paris: . Paris: Fayard, 1987. Fayard, . Paris: Marchés à terme. Pétition adressée au Sénat pour rendre obligatoires les marchés à terme marchés les obligatoires rendre pour Sénat au adressée Pétition à terme. 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Weber, M. Weber, Paris Bourse”. of the and the Bailout N., “Theof 1882 Crash White, E. Vincens, E. Vincens, Verley, P. “Les opérateurs du marché financier”. In financier”. marché du opérateurs “Les P. Verley, Verley, P. “ P. Verley, Stanziani, A. Stanziani, Schneiberg, M., and T. Bartley. “Organizations, Regulation, and Economic Behavior: Regulatory Dynamics and Economic and Regulation, “Organizations, Bartley. T. Schneiberg,and M., Rousseau, P. L., and R. Sylla. “Financial systems, economic growth, and globalization”, In In globalization”, and growth, economic systems, R. L., and “Financial Sylla. P. Rousseau, Rousseau, P. L. “Historical perspectives on financial development and economic growth.” Working Paper 9333. 9333. Paper Working growth.” and economic development financial perspectives on L. “Historical P. Rousseau, Riva, A., and E. White. “Danger on the Exchange: Counterparty Risk on the Paris Stock Exchange in the XIX Exchange Stock the Paris on Risk Counterparty the Exchange: on “Danger E. White. A., and Riva, Riva, A. “Microstructures et risque de contrepartie: les bourses de Milan et de Gênes à l’épreuve de la crise de et de Gênes à l’épreuve les bourses de Milan et risque de contrepartie: A. “Microstructures Riva, Riva, A. “Les bourses italiennes à l’époque giolittienne (1894-1913): une analyse institutionnaliste de leur institutionnaliste analyse (1894-1913): une giolittienne à l’époque bourses italiennes A. “Les Riva, Riva, A. “Compétition entre places financières: les bourses de Milan et de Gênes à l’époque giolittienne, 1894-1913.” 1894-1913.” giolittienne, l’époque et de Milan à Gênes de les bourses financières: places entre A. “Compétition Riva, Regnaud de Saint-Jean d’Angély, M. d’Angély, de Saint-Jean Regnaud

Le Roi & Videcocq, 1834. Le & Videcocq, Roi de la Sorbonne, 2007. de la Sorbonne, quantitatifs des acteurs et des instruments à la Bourse de Paris de Bourse à la instruments des et acteurs des quantitatifs Centuries

Forms from the 19th to 21st Century”. Century”. the 19th 21st to from Forms perspective perspective 2003.

National Bureau of Economic Research, 2002. Research, Economic of Bureau National Century.” Century.”

1907.” organisation”.

PhD diss., Université d’Orléans, 2005. d’Orléans, Université diss., PhD Paris, Demonville Imprimeur-Libraire, 1807. Imprimeur-Libraire, Demonville Paris, INCAS DP SERIES / 2019 #01 - - - - Bulle Because the of 63 , whose members regularly regularly whose, members , presented to the end-of-the-year the end-of-the-year to , presented 60 Chambre Syndicale Chambre . They measure transactions counted on one side. side. one on counted transactions . Theymeasure Chambre Syndicale Chambre 22 are the base of our estimates and come from a survey the from by come and estimates the our base of are 61 , the amounts paid by the operators of both the Bourse and the OTC both the the Bourse OTC of and the operators by paid , the amounts trading activity was not equally distributed among brokers. among equally distributed not was activity trading 62 Compagnie des Agents de Change de Agents des Compagnie ’ accounts, we can assume that the Ministry selected 12 representative brokers to avoid avoid to brokers the Ministry that selected assume 12 representative can we ’ accounts, agents Data Appendix Data

assumptions, these estimates give a good idea of the magnitude of the traded volumes. the traded of volumes. a good the magnitude give idea of these estimates assumptions, the forward traded volumes over the period 1898-1907. Despite the potential bias of the 1906 data and the and the 1906 data of bias the potential the period over 1898-1907. Despite traded volumes the forward By keeping constant the proportion between forward and spot transactions registered in 1906, we estimate estimate in 1906, we registered transactions spot and between forward the proportion constant keeping By constant. Thanks to this interpolation we obtain the estimates of the total volumes traded on both markets. on markets. tradedboth volumes total of the estimates the obtain we to interpolation this Thanks constant. the 1906 data allow for an interpolation with the FTT data over a period where the rates of the tax are kept kept the tax are of a period the FTT with the rates where over data interpolation an for allow the 1906 data ing to the types of operations (repo vs. others) and securities (French public bonds vs. others). Nevertheless, Nevertheless, vs. others). bonds public securities and (French vs. others) (repo the types operations to ing of market in Paris. It is hard to use the tax revenues to estimate traded volumes because tax rates varied accord because tax rates traded volumes estimate to use the tax to revenues hard is It in Paris. market tin de Statistique et Législation Comparées etLégislation de Statistique tin potential bias in the estimates, as far as possible. possible. as far as in the estimates, bias potential in the published, 1907 it until up each month and FTT, an introduced government 1893, the French In checked the close relationships between the Ministry of Finance and the and between the Ministry Finance of closerelationships to control price-competition, control to on both sides. Moreover, the 1906 data are sensitive to the choice of the 12 brokers. Despite the mechanisms the mechanisms Despite the 12 brokers. of the choice to sensitive are the 1906 data both sides. Moreover, on traded in 1906, split into the different types of operations. As a consequence, traded volumes are counted counted are volumes traded As a consequence, operations. of types the different into traded in 1906, split transactions and multiplied by 70 (the total number of stockbrokers at that time) to obtain the total volumes volumes the total obtain time) to that at stockbrokers of number 70 (the total by multiplied and transactions analyzed for January, of broker B for February and so forth). The Ministry then summed up the registered Ministryregistered so The up forth). the and February summed then B for broker of January, for analyzed counting books of each broker were analyzed for a month in 1906 (the accounting books of broker A were were A broker books of (the in 1906 accounting a month for analyzed were each broker books of counting conducted a detailed survey of the accounting books of 12 stockbrokers at the beginning of 1907. The ac 1907. The the beginning of at 12 stockbrokers books of a detailed survey the accounting conducted of Ministry of Finance to assess the effects of the FTT in view of a reform of its rates. The Ministry of Finance MinistryThe of Finance its rates. of of FTTthe the effects assess reform to Ministryof a in view Finance of cial tax data (FTT). transaction archival 1906 Data from Fig. 2 are obtained by the interpolation of detailed archival data for 1906 with data on the finan on data with 1906 for data detailed archival of the interpolation by obtained Fig. are 2 from Data Data from Fig. 1 come from the annual reports of the of reports theannual from Fig. 1 come from Data the of General Assembly Paris School of Economics (for these series, credits: Angelo Riva). these Angelo series, (for credits: Economics School of Paris Data plotted on Fig. 1 and Fig. 2 come from the DFIH (Data for Financial History) database, based at the based database, at History) Financial for (Data the DFIH from Fig. 2 come Fig. 1 and on plotted Data INCAS DP SERIES / 2019 #01 ; ; Riva and and ; Riva ; Boboeuf,; The London La crise la de Rules of Exchange. of Rules Virtue, fortune and faith and fortune Virtue, Badon-Pascal Badon-Pascal Traité théorique et pratique des et pratique théorique Traité Neal and Davis, “The evolution of “The Davis, and evolution Neal and Stanziani, Stanziani, and

; ; De Goede, “The Paris financial market” financial Paris “The Buchère, Buchère, Études légale; Études La Bourse La Recueil complet des travaux préparatoires travaux des complet Recueil , 614. ; Weber, ; Weber, ; Fenet, Fenet, ; 23 ; Hautcœur and Riva, Riva, and ; Hautcœur Des marchés à terme. à terme. marchés Des , 106. ). Levine, “Law, finance, and economic growth.” and economic finance, Levine, “Law, . Traité des valeurs mobilières; valeurs des Traité La spéculation boursière face au droit au face boursière La spéculation Déloison, Déloison, ; Histoire de laHistoire Bourse ; Badon-Pascal, 1877, ; Badon-Pascal, . ; Hissung-Convert ; Hissung-Convert “The diversion of order flow” order of “The diversion Manias, Panics, and Crashes and Panics, Manias, De l’Organisation des marchés financiers marchés des De l’Organisation Défense de l’agiotage Défense de Exposition raisonnée de la législation commerciale de la législation raisonnée Exposition Anglo-American Securities Regulation Securities Anglo-American La législation civile, commerciale et criminelle et commerciale civile, La législation Levine, “Finance and growth: theory evidence”. growth: and and Levine, “Finance ; and Lagneau-Ymonet and Riva, “Les opérations à terme à la Bourse à terme de Paris”. opérations “Les Riva, and Lagneau-Ymonet ; and Banner, Banner, Endnotes Levine, “The legal environment, banks”; and and banks”; Levine, “The legal environment,

La Porta, Lopes-de-Silanes, and Shleifer, “The Economic Consequences of Legal Origins”; Demirgüç-Kunt and and Demirgüç-Kunt of Legal Origins”; “TheConsequences Economic Shleifer, and Lopes-de-Silanes, LaPorta,

; Courtois, Courtois, ;

17. See Data Appendix for details. for 17. See Appendix Data 15. 16. Vincens, 14. Riva and White, “Danger on the Exchange”; and White, “Theof 1882”. Crash White, and the Exchange”; on “Danger White, and 14. Riva 13. Locré, Locré, 13. 12. Neymarck, 12. Neymarck, 11. Lagneau-Ymonet and Riva, Riva, and 11. Lagneau-Ymonet 10. We present estimates of traded volumes counted on both sides to ease the comparison with Anglo-Saxon Anglo-Saxon with ease both sides to the comparison on counted traded volumes of estimates present 10. We 9. Lagneau-Ymonet, Riva and Rezaee, “Nouvelles des archives. Aux sources de l’histoire sociale”; and Lagneau- and sociale”; de l’histoire sources Aux des archives. Rezaee, “Nouvelles and Riva 9. Lagneau-Ymonet, 8. See for instance Rajan and Zingales, “The great reversals”. Zingales, “The and Rajan great instance 8. See for 7. Kindleberger, 7. Kindleberger, 6. Navin and Sears, “The Rise of a Market”; Rousseau, “Historical perspectives on financial development and on financial development perspectives “Historical Rousseau, Sears, “TheMarket”; and of a Rise 6. Navin 5. Levine and Zervos, “Stock Markets, Banks, and Economic Growth”; Beck and Levine, “Stock markets, banks, and banks, and markets, Beck Levine, “Stock and Growth”; Economic Banks, and Markets, 5. Levine Zervos, and “Stock 4. Musacchio and Turner, “Does the law and finance hypothesis pass the test of history?” test 536. hypothesis the pass finance and “Does the law Turner, and 4. Musacchio 2. doesorigin legalmatter?” why finance: and Levine, “Law and 3. Beck, Demirgüç-Kunt 1. 9.

bourse opérations Marchés à terme. Pétition adressée Pétition à terme. Marchés

stock exchange: A history exchange: stock Davis, Neal and White “Deflation, the financial crises of the 1890s”; Riva, “Les bourses italiennes à l’époque giolittienne”; l’époque giolittienne”; italiennes à bourses “LesRiva, of the 1890s”; crises financial the “Deflation, White and Neal Davis, Michie, et de contrepartie”; risque “Microstructures Riva, financières”; places entre “Compétition Riva,

capitalisation boursière en France”. boursière capitalisation White, “Danger on the Exchange”; Hautcœur, Rezaee and Riva, “How to regulate a financial market”; and Bozio, “La and Bozio, market”; financial a regulate to “How Riva, Rezaee and Hautcœur, the Exchange”; on “Danger White,

(Jacquillat and Gresse, Gresse, and (Jacquillat In contrast, the exchange of securities between two investors gives rise to a single operation on order-driven markets markets order-driven on rise operation a single gives to securities of between investors two the exchange contrast, In B client the buying of the broker with A transacts directly the selling client of Bourse, the broker since the Paris like the broker of the selling client A transacts with a market-maker/specialist, as does the broker of the buying client B. B. client the buying of does as the broker a market-maker/specialist, transacts A with the selling client of the broker price-driven markets. On these markets, the exchange of securities between two parties gives rise to two operations: securities of operations: betweenpartiesrise two two to gives the exchange theseOn markets, markets. price-driven Ymonet and Riva, “Nouvelles des archives. Aux sources de l’histoire boursière”. de l’histoire sources Aux archives. des “Nouvelles Riva, and Ymonet

economic growth”; Rousseau and Sylla, “Financial systems, economic growth”; and and growth”; economic systems, “Financial Sylla, and Rousseau growth”; economic performance and the structure growth”; and and growth”;

Beck and Levine “Stock markets, banks, and growth”. banks, and markets, Beck Levineand “Stock Maksimovic, “Institutions, financial markets”; Demirgüç-Kunt and Maksimovic, “Law, finance and firm growth”; and growth”; and firm finance “Law, Maksimovic, and Demirgüç-Kunt markets”; financial “Institutions, Maksimovic, INCAS DP SERIES / 2019 #01 . to take full control of of take full to control La Bourse dans le roman. le dans La Bourse Chambre Histoire desHistoire classes ouvrières and Levasseur, Levasseur, and 271 and 353. 271 and

; Mémoire de la Chambre Syndicale. Chambre la de Mémoire , 165-208. . ; Verley, “Les opérateurs du marché financier”; Verley, “Les Verley, financier”; marché du opérateurs “Les ; Verley, 24 , 539-540. . Code de commerce , une ‘sociologie-fiction’ de la confiance”; and Reffait, and Reffait, de la confiance”; ‘sociologie-fiction’ , une ” allows the buyer to transform the forward operation into a cash operation by calling for calling for by operation a cash into operation the forward transform to the buyer ” allows “The Paris financial market” financial Paris “The “The Paris financial market”. financial Paris “The La France malade du corporatisme La France Ferragus La spéculation boursière face au droit, au face boursière La spéculation demanded a backdated letter of resignations that allowed the allowed that resignations of letter a backdated demanded La bourgeoisie parisienne. La bourgeoisie syndic Les capitalistes en France. capitalistes Les Les élites de la République Les élites La législation civile, commerciale et criminelle et commerciale civile, La législation Recueil complet des travaux des complet Recueil clause d’escompte

41. CAC, AG, 16/12/1833. AG, 41. CAC, 39. Riva and White, “Danger on the Exchange”. on “Danger White, and 39. Riva 40. Often, the 38. Chambre Syndicale des Agents de Change de Paris, de Paris, de Change des Agents Syndicale 38. Chambre 37. Among others, fast transmission of security transfer notifications to clients, asking the clients to sign up the to sign clients the asking clients, to notifications security of transfer transmission fast others, 37. Among 35. Daumard, 35. Daumard, Riva, and 36. Hautcœur 34. AN, box F12 973. 34. AN, box 33. Bergeron, 33. Bergeron, 31. Charle, 31. Charle, “ 32. Lagneau-Ymonet, 30. Hissung-Convert, 30. Hissung-Convert, 29. The “ 29. The 28. Hautcœur, Rezaee, and Riva, “How to regulate a financial market”. a financial regulate to “How Riva, Rezaee, and 28. Hautcœur, 26. Bien, “Property in Office under the Oldunder Regime”. the in Office “Property 26. Bien, Riva, and 27. Hautcœur 25. Kaplan and Minard, Minard, and 25. Kaplan 24. Fenet, 24. Fenet, 22. Regnaud de Saint-Jean d’Angély, d’Angély, de Saint-Jean 22. Regnaud F12 973. 23. AN, box 21. Locré, 21. Locré, 20. CAC, MAG, 15/12/1852. MAG, 20. CAC, 18. See Appendix. Data 2006. Factbook, the Euronext-Paris from data on calculations 19. Authors’

the broker’s firm. the broker’s settlement accounts, asking the clients for written confirmation of the orders, following of on the the rulesthe following Bourse orders, of the confirmation written for the clients asking accounts, settlement procedures. the buy-in securities in delivery on or cash and their default about clients to notices formal

sociétés d’agents de change”, 128; and Lagneau-Ymonet, “Entre le marché et l’État, les agents de change”. les agents et l’État, le marché “Entre Lagneau-Ymonet, 128; and de change”, sociétés d’agents the application of the clause. of the application INCAS DP SERIES / 2019 #01

; and and ; ’. In other other In ’. exception de jeu de exception Société d’Economie Politique Société d’Economie . Of the 150 decisions listed, 65 listed, . Of the 150 decisions “The Paris financial market” financial Paris “The agents profited from 30 of the 49 decisions rejecting the of decisions 49 the 30 from profited Le krach de l’Union générale. l’Union de Le krach agents ’, one third relate to official stockbrokers, who thus losethus who stockbrokers, official to relate third one ’, ; Hautcœur and Riva, Riva, and Hautcœur ; 25 biased in favor of the of biased in favor The archives do not mention that Badon-Pascal ever worked for the for worked ever Badon-Pascal that mention not do archives The a priori . exception de jeu de exception , 191 Histoire de laHistoire Bourse Histoire de laHistoire Bourse. La spéculation boursière face. boursière La spéculation Des marchés à terme marchés Des , the judges refused to uphold forward contracts 66 times because of the ‘ 66 times because of contracts forward uphold refused to , the judges . His publications and affiliation to the free-trade and anti-monopolist anti-monopolist and free-trade tothe affiliation and publications . His ’. coulissiers

59. Lagneau-Ymonet, and Riva, Riva, and Lagneau-Ymonet, 59. 58. Hissung-Convert, 58. Hissung-Convert, 57. ACD, parliamentary documents, Annex 1196, July 20, 1882; Lagneau-Ymonet and Riva, “Quand Pierre-Joseph Pierre-Joseph “Quand Riva, and 1882; Lagneau-Ymonet 20, July 1196, Annex documents, parliamentary ACD, 57. 55. CAC, CS, 15/6/1882 and 12/2/1883. CS, 15/6/1882 and 55. CAC, 5, 1882. 911, June Annex documents, parliamentary 56. ACD, 54. CAC, CS, 13/05/1882. 54. CAC, 53. ACCP, III - 4.11 [12]. 53. ACCP, 51. CAC, AG 29/3/1882 and 18/12/1882. and 29/3/1882 AG 51. CAC, 1882. year 52. AP, 50. Le Bris, “Les krachs boursiers en France”; and Bouvier, Bouvier, and France”; en boursiers krachs 50. Le “Les Bris, 49. CAC, AG, 18/12/1882. AG, 49. CAC, 47. CAC, AG, 26/12/1866. AG, 47. CAC, “Theof 1882”. Crash 48. White, 46. CAC, AG, 26/12/1866. AG, 46. CAC, 45. CAC, AG, 26/12/1866. AG, 45. CAC, 44. Badon-Pascal, 44. Badon-Pascal, 42. CAC, AG, 22/4/1834. AG, 42. CAC, 22/4/1834. AG, 43. CAC, 63. Verley, “Les opérateurs du marché financier”. marché du opérateurs “Les 63. Verley, 61. CAEF, box B.64.877. box 61. CAEF, Riva, and 62. Lagneau-Ymonet 60. Hautcœur and Riva, “The Data for Financial History”. History”. Financial “The Riva, for and Data 60. Hautcœur

exception de jeu de exception Proudhon découvre”; Le Van-Lemesle, “La promotion de l’économie politique”. politique”. de l’économie “La promotion Le Van-Lemesle, découvre”; Proudhon ‘ half as often as the other intermediaries. In the same way, the way, In the same other intermediaries. as the often halfas involving involving the ‘ admitting the decisions 101 of words, relate to official stockbrokers. They won against their debtor customers in 30 cases. On the other hand, of the 85 cases hand, in 30 other cases. On the customers debtor their against won They stockbrokers. official to relate Chambre Syndicale Chambre cases selection not his was of that us convinced Hautcoeur, Rezaee and Riva, “How to regulate a financial market”. a financial regulate to “How Rezaee Riva, and Hautcoeur,