It is of the very essence of the limited liability principle on which all these companies are founded that there should he a free and open market for their shares and, in Hongkong, a very large and valuable trade has sprung up in the shares of the local companies and of others connected with the East. A very large capital, estimated at many millions of dollars is employed in this trade, which is not merely local but embraces in its ranifications London and New York, Calcutta and San Francisco, Bombay, Singapore and Shanghai, and a very large number of persons are interested in the trade as investors, dealers and brokers.
It may be in the eyes of some a great misfortune that speculation in shares and in share property, as distinguished from investment, has sprung up in connection with Joint Stock enterprise but it is now almost universally recognised as a legitimate branch of business, inseparably connected with and essential to the full development of the principle of limited liability and to the continued existence and success of the great companies and corporations founded on that principle, by means of which such vast amounts of capital have been got together and such immense enterprises commenced and carried
out.
In England and in America alike this trade is as absolutely free and unfettered as is the trade in any of the recognised articles of commerce, in cotton, or sugar or pig iron, and men are free to buy and sell shares for cash or on time; and to enter into contracts for the sale of shares that they have not in hand and must go into the market to acquire.
Speculation in shares, as in cotton and sugar, and pig iron, has occasionally been pushed, in England and America and in every civilized country in the world, to extremes and great losses have been suffered and great crimes brought about; but, with the exception to be mentioned hereinafter, there has been no legislative interference with this unlimited freedom of contract and legislatures have again and again refused, while recognising an undoubted evil, to apply the remedy sought to be applied by this Ordi- nance in Hongkong alone.
No later than this present Session, the Parliament of Great Britain has refused to interfere with the absolute freedom of the trade in pig iron and in the sale of warrants therefor, by requiring the insertion in such warrants of the numbers and marks of the iron contracted for. The evils complained of were the same, the remedy proposed the sume, the objections the same. Why should the Legislative Council of Hongkong be permitted to interfere with the freedom of trade in a way condemned as un- suitable and inconvenient by the wisdom of the Imperial Parliament when dealing with a precisely similar subject? Why should the law affecting the sale of shares be one thing in Great Britain and another in Hongkong?
Your Memorialists, therefore, pray your Lordship to refuse to sanction this Ordinance on the ground that it is a departure from the law of England, and an attempt to apply in Hongkong a prin- ciple which the Parliament of Great Britain has quite recently refused to apply in England in a like case.
The one exception to which reference has been made is the Imperial Act known as "Leemann's Act" but that Act applies to Bank shares only, was passed to remedy a serious public evil; the injury to public credit and to the stability of great financial institutions through the deliberate depreciation of their stock by means of short sales.
No such evils have, in fact, arisen bere or are likely to arise, and your Memorialists further submit that Leemann's Act has fallen, in practice, into desuetude, even in England and is wholly disregarded on the London Stock Exchange.
Your Memorialists in this connection would, lastly, call your Lordship's attention to the fact that in recent years both in France and in Germany attempts were made to limit the freedom of trade in shares and stocks and to stop short-selling but that in both countries, the experiment was abandoned as unsuccessful. In England the Stock Jobbing Act of GEORGE the Second's reign, commonly known as Barnard's Act, was as regards public stocks to precisely the same purport and effect as Mr. KESWICK'S Ordinance, but it was deliberately repealed in the 23rd year of Her Majesty's reign as an undue inter- ference with the freedom of Trade, and an inconvenient restriction on the sale of Stock.
But it is urged by the supporters of this Ordinance and will, doubtless, be pressed upon your Lordship that such great evils have arisen in Hongkong from this unlimited freedom of contract and from the practice of short-selling, that it has become a public evil, that a remedy is earnestly needed and that the limitations imposed on share dealers by Mr. KESWICK's Ordinance will effectually cure the disease.
Your Petitioners most emphatically deny that there is any public evil needing a remedy, or, that, if there is any evil demanding attention (and they do not deny that rash and hazardous speculation is an evil like any other form of gambling), that it has ever risen or can rise to the magnitude of a public evil, affecting the common weal and needing legislative interference; and they further most unhesita- tingly deny that short-selling has been the cause of the existing evils as is evidenced by the fact that no shares which have been dealt in largely have been for many years below a value which would give more or slightly more than a return of 7 per cent., which is the recognised rate of interest in the Colony; and that its prevention will afford any remedy to the particular evil complained of.
Your Lordship will have noted that the supporters of Mr. KESWICK's Hill have not brought it forward or supported it on any distinctly public ground. There is no complaint, as when Leemann's Act was passed, that any great public institutions had been shaken: that public credit had been affected; that the prosperity of the Colony, as a whole, had been injured or its future threatened. The evil complained of is that many individual speculators in shares had suffered very severely. In other words that very many men had been largely speculating for the rise in shares; that their expectations had been disappointed, to their great injury and loss, and that this had resulted from the action of one or two great operators selling short.
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Your Memorialists beg leave to refer your Lordship on this point to the Memorandum annexed to Mr. KESWICK's draft Bill when forwarded to your Lordship in Mr. FLEMING's despatch of the 2nd September, 1890. This Memorandum was drawn up by the then Acting Attorney General, Mr. ACKROYD, a gentleman who speaks with knowledge and experience. It states the case in favour of the Legislation proposed as strongly and clearly as it has been stated anywhere. The whole case of the supporters of the Bill is summed up there. Many speeches have been made in support of the Bill; very many anonymous letters have appeared in the public papers on the same side, but no other case has been made for the Ordinance than that put by Mr. ACKROYD:-That there has been excessive gambling in shares in Hongkong in 1889, in 1890, and in the early part of this year. That many have been ruined; not merely professional gamblers but the many young men who have been induced on fair promises to buy shares for future dates. That this gambling has led in some cases to crime and has caused much individual misery."
Your Memorialists admit all this, bat point again to the fact that there is no allegation of any direct public evil as in the days of the Stock Jobbings Acts, or at the date of the passing of Leemann's Act, and they crave your Lordship's very earnest attention to the fact that, alike in Mr. ACKROYD'S memorandum, in the speeches and letters in support of the Bill, as well as in the letters and addresses in opposition to it, it appears that the Bill is deliberately aimed, not at short-selling, as a common practice asserted to be indulged in by many to their ruin, but against short-selling as practised by one or two individual operators who, as Mr. ACKROYD plainly puts it, by their short sales rule the market, depreciate all stocks and ruin, as is alleged, the operators for a rise.
Your Memorialists while admitting that there has been during the last few years very great gambling in shares, very heavy losses, much individual misery and suffering and while acknow- ledging that it would be desirable, if it were possible, to check and control the spirit of speculation that periodically rides rampant over all modern forms of investment, most respectfully submit for your Lordship's consideration that short-selling, to prevent which alone Mr. KESWICK's Bill has been introduced and passed, has not in any marked degree brought about the existing state of affairs in the Colony, and that its prohibition will not in the least check the gambling spirit, diminish speculation in the future, or render it less injurious in a crisis. They further submit that while not materially interfering to prevent gambling or to diminish the evils consequem upon it, the prohibitions contained in Mr. KESWICK's Ordinance will seriously interfere with all legitimate business in shares and stocks, and will so hamper business as seriously to diminish its volume, lower the prices of shares generally and in a degree diminish the actual value of the very large and valuabic share property that forms se important an element in the general prosperity of the Colony.
In the first place, the Colony has recently passed or is still passing, through a very severe com- mercial crisis arising mainly from general causes financial and otherwise, arising in England and America, and only in part from local events. The severe fluctuations in exchanges have caused heavy losses. Extensive speculations in exchange have brought more than one house to the ground, Among the causes locally arising and locally operating there has been the absolutely failure of many planting, mining and trading companies formed here in 1888, and consequent loss of the monies invested. This has crippled many. Other companies floated at the same period have not yet proved a success from a dividend paying point of view, and much money is hopelessly locked up there. As stated by Sir GEORGE W. DES Voux in his despatch to your Lordship of the 31st October, 1889, No. 334, thirty. five companies with a paid-up capital of over 9 millions of dollars were formed in Hongkong in 1888- 1889. These account for many heavy losses and for much of the individual distress that exists arising from local causes. The failure complete or partial of these companies has directly affected hundreds of men and has reacted in all directions in lowering the prices of all other stocks, in diminishing credit and in producing the crisis, now erroneously attributed wholly and entirely to short-selling.
There have been, it is true, heavy speculative losses in shares and the recent considerable fall in the value of some stocks is erroneously attributed by Mr. KESWICK solely to short-selling. Your Petitioners humbly submit that the real reason is the natural reaction following on a market unduly inflated by excessive speculation, and intensified by a real fall in the value of many stocks owing to losses, etc.
Your Memorialists unhesitatingly assert that short-selling has not brought about any of the recent crises in the local share market; that the mischief is done not by the professional gamblers and speculators but by the foolish men who without money or means or with insufficient resources speculate for the rise, buying shares that they are unable to take up and pay for, that they can only handle, under any possible combination of circumstances, by the aid of Banks and other financial institutions.
An Ordinance forbidding men to enter into contracts for the purchase of shares that they had no means of paying for and no reasonable expectation of being able to take up when the time came might be effective to check the gambling spirit that prevails from time to time, but no Ordinance however strictly enforced or however effective that only stops short-selling will ever prevent wealthy men from operating for a full or impecunious men from buying for a rise and suffering severely in character and in pocket when they are overborne by the weight of money or of intelligence in the opposite camp.
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