The regulation of the Brussels stock exchange around 1865-75
Frans Buelens, Helma De Smedt & Hans Willems University of Antwerp (BELGIUM)
Stock exchange of Brussels
1914 : one of the more important stock exchanges Huge amount of listings Highly attractive [nearly tax freedom; nearly no restrictive regulations] Fully participated in the First era of globalization
1.The most severe regulation ever
1720-1724: Bubble Act in France & Britain 1801: Napoleonic stock exchange system
From regulation to deregulation: London, Paris, Brussels … [Exception: Russia] Characteristics
Under supreme authority (King, Tsar..) Limitations on new joint stock companies Limitations on new emissions Limitations on new stock exchange listings Limited number of Brokers Brokers having an «official» position High nominal value of shares (1000 BEF) No officially allowed forward market ! «Bourse de commerce» <> stocks & bonds Example: Price list of 1839: the importance of trade in commodities
Example: BROKERS
Semi-government agents Monopoly [NO BANKS ALLOWED] High transaction fees Exams, oath, guarantees (2000-10000 francs) Personal responsibility No associations, no trading for their own sake Only one category of broker activities Motivation of such extreme regulation
Long term memory of the events of 1720 Preventing speculation and fraud Favoring state bonds (NAPOLEON) No huge capital needs from companies Distrust of the « société anonyme » … Experience of Paralysed mixed banks But … Law and practice is not the same
« Marrons » (no official appointment) Official brokers did not respect the rules (forming associations, trading for their own sake = « lippage »)
Lloyd Bruxellois : more successful than the official stock exchanges Banks : « over the counter » trading
No fraud or abuses ?
Severe governmental control is not the same as an era of no fraud or abuses
Illustration: Langrand Dumonceau
2. Towards deregulation
1855 Commission for reforming corporate law & the stock exchange
1865 Reform of the interest rate system 1867 Reform of the stock exchange system 1873 Reform of corporate law
1867 : « Big Bang » for the stock exchange
Job of broker becomes free No monopoly for brokers anymore No exams, no oath, no guarantees … Right to establish stock exchanges Freedom for companies to be quoted …
1873: « Big Bang » for companies
1873: Reforming company law No Royal Decree needed anymore Freedom for increasing capital [freedom to decide upon new emissions of bonds & stocks]
BUT.. Companies have to publish information Nearly tax freedom continues (2%)
Reasons behind (1)
Increasing capital needs: e.g. railroads Changing investors preferences: FROM real estate & government bonds TOWARDS stocks (increasing attractiveness of stocks) (higher returns) From a «bourse de commerce» to a «stock exchange»
From a «bourse de commerce» to a «stock exchange» 1839
First IPO Brussels 1824
Reasons behind (2)
General modernisation and adaptation to the evolution of capitalism: e.g. : 1850 Foundation National Bank Globalisation: FDI’s and exports paid by stocks/bonds Commercial Treaty with France (1861) Role of political parties (liberal party)
Reasons behind (3)
Big difference between law and practice Competition from the «Lloyd Bruxellois » Competition from « marrons » Foreign stock exchanges were changing too Competing with other stock exchanges
Number of companies quoted (1850-1900)
700
600
500
400
300
200
100
0
1850 1853 1856 1859 1862 1865 1868 1871 1874 1877 1880 1883 1886 1889 1892 1895 1898 An era of freedom 1867-1935
Tremendous Growth in joint stock companies Tremendous expansion of new IPO’s 1867-1919: A « fiscal paradise » in an international environment of increasing taxation Growth in the number of brokers Growth of the forward market Growth in FDI [e.g FDI’s in Russia …] Gradual lowering of the nominal value
Towards a renewed regulation of the stock exchange (1935)
Complete freedom increases the possibility for fraud & abuses Multiple voting right
Crisis of the 1930s & Mixed Banks disaster