Anglo-American Securities Regulation: Cultural and Political Roots, 1690-1860

by Stuart Banner

This book examines the regulation of the earliest securities markets in England and the United States, from their origins in the 1690s through the 1850s. Professor Banner argues that during the reign of Queen Anne a complex and moderately effective body of regulatory control was already extant, reflecting widespread Anglo-American attitudes toward securities speculation. He uses traditional legal materials as well as a broad range of nonlegal sources to show that securities regulation has a much longer ancestry than is often supposed.

340 pages, Paperback

First published September 10, 1998

Reviews

[Frank Stein · Rating 4 out of 5]

The main revelation from this book is that there is nothing new under the sun. From the birth of the English stock market in the 1680s, people complained about how stock-trading diverted both money and people from more productive pursuits, how insiders profited off false rumors and manipulated the market, how "calls" and "puts" (then known as "refuses") could be used to trick the public, and so forth. The remedies were similar too. There were attempts to ban such "time bargains" as calls and puts (in place in England from 1697 to 1708), to ban "naked" short sales (in place from the 1732 Barnard's Act to 1860, along with a required register of all sales) and to charge transactions' tax on each sale (not implemented at the time.)

The defenses of stock trading were also similar, if less sophisticated, versions of the modern day ones. Blackstone noted that the rate-of-return demanded by an investor providing cash depended on "two circumstances; the inconvenience of parting with it for the present, and the hazard of losing it entirely." When some tried to slow trading in stocks, one pamphleteer noted that "Why are people contented with 3 per cent in the Funds, when they can make 4 per cent on Land security, but because they can change their Property without difficulty, and at small expense," an early explanation of the liquidity premium.

In fact, the debates and policies are so similar to the modern ones around stock trading that the book's regular invocation of them can get a little tedious. The truly interesting parts are where the book shows the divergence from today. There was much debate in early America about usury, but they took the English decision of Roberts v. Tremayne (1618) that if there was a risk of losing the principle, high interest was acceptable. Early American courts also had to explain whether shares in corporations that mainly held real property were themselves real or personal property (Connecticut was the only state court that decided, in 1818 that they were real, but the legislature promptly overrode them.) Many early laws and corporate charters had rules that made it hard to transfer stock, either by demanding permission by the company itself or by requiring doing it before a company clerk, which courts in general overrode because they understood the benefits of liquidity for stock shares.

This book is a detailed and thoughtful investigation of early securities regulation, and should indeed be a starting place for anybody looking at the long history of the subject. Even if it drags at times, it will remind the reader how perennial the debates around the subject are, and how similar they have remained.