- 2 -

TABLE OF CONTENTS

Introduction 3

The Roles of Stockjobbers and Stockbrokers

A Broker's Double Duty 4

Commission and Agency 5
Broker acting as Principal 5
Duty and Function of the Jobber 5
Client's Instructions - How they are put to the Market 6

Code of Dealing - Brokers

Normal Dealing Pattern 7

Price Anomalies between Jobbers 9
Broker's order larger than normal Market size 9
Bids and Offers originated by the Market 11
Dealing by Telephone, etc. 11
Brokers in other Units 12

Code of Dealing - Jobbers

Prices in Active Stocks 12

Prices in Inactive Stocks 12
Dealings by Negotiation in Inactive Stocks 13
When Quotations are and are not bind i ng 14
Handling of large orders by Jobbers 14
General 14
I
Put-Throughs

Simul tan eo us Orders 17

General 18
Take-over situations 18

Limits and Other Conditional Bargains

Firm Limits 19
Conditional Limits 19
Indicational Limits 19
Contingent Limits 19

Discipline 20

Conclusion 20

Glossary of Terms 21 & 22

 PREFACE

Over many years, during the course of dealing between Members of The
Stock Exchange, an Etiquette of Dealing has developed which has gained
general acceptance and emphasizes the total mutual trust existing
between Brokers and Jobbers.

This Book is only an attempt to put dealing etiquette into words. It

should not be made to do more than provide a framework within which
this etiquette can be interpreted.

In early days the dealers in securities found it convenient to divide

themselves into two separate classes, Brokers and Jobbers, and to this
day the distinction between the two groups is maintained. In no
other Stock Exchange is this division to be found. It is not the
object of this book to enlarge upon the merits of the Jobbing system,
nor on the flexibi!i ty which it gives to the market in securities.
Its purpose is to record some of the special relationships that have
developed between these two classes of Members. Though many aspects
of the relations between Members are governed by the Rules and
Regulations of The Stock Exchange, there are others which are nowhere
written down, and they owe their continued strength and currency to
the fact that they combine the experience of the past and have stood
the test of time.

The chapters that fo!!ow are therefore written for those who now deal
for their firms and for those who are intending to become authorised
to deal or Members of The Stock Exchange. The Rules and Regulations,
which new Members also need to study, are written by Members for the
use of Members. In the wording of the Rules therefore, there is an
assumption that the reader wi!! have already acquired an understanding
of the accepted code of behavour which forms the framework surrounding
especially those Rules which refer to dealings between Members. This
book is intended to explain and amplify the Rules for the benefit of
those without this background knowledge.

It is therefore necessary for intending new Members to study this

book; though there is now no requirement that Candidates for
Membership will have served for a period on a Trading Floor it is
obviously in the best interests of all concerned that Members should
be conversant with dealing practices, and should themselves seek to
preserve all that is best of the principles and practices which
fo!!ow. Clerks before being admitted as Authorised or Accredited
Clerks will be required to satisfy the Council as to their knowledge
of this Code of Dealing. Unauthorised and Unaccrdi ted Clerks too
should study this book not only for the guidance it gives to their
present duties but also as a part of their training for when they
become dealers.
 - 3 -

INTRODUCTION

This book was originally prepared before the amalgamation of the Stock
Exchanges into a Single Organisation and applied only to dealings
between Members of The Stock Exchange, London. Now that there is a
single Stock Exchange it applies to dealings between all Brokers and
Jobbers of The Stock Exchange, in particular:-

"Jobber" means any Jobber Member Firm of The Stock Exchange

operating on any trading floor or elsewhere and the code
applies not only when there is personal contact on a trading
floor but also when the contact is by telephone. The
principles of dealing by telephone, telex, or other means of
communication are the same as those for dealing on a trading
floor.

"Authorised Clerk" includes for the purposes of this Code an

Accredited Clerk who is exactly the same as an Authorised
Clerk except that he is not permitted to enter the trading
floor in London nor to deal with a Jobber in London.

"Unauthorised Clerk" (Blue Button) similarly includes an

"Unaccredited Clerk".

Attention is drawn to the appointment of Market Officials and Brokers

and Jobbers are advised to consult with them in all cases of
difficulty involving matters relating to marking of bargains or
applications for the withholding of marks.

/
 - lj. -

CHAPTER I

THE ROLE OF STOCKBROKERS AND STOCKJOBBERS

Both Brokers and Jobbers are Members of The Stock Exchange and both
owe a duty to the body of which they are Members. The Broker buys or
sells stocks and shares as the agent of the public for a com mission.
The Jobber on the other hand buys and sells stocks and shares on his
own behalf from or to Brokers and not from or to members of the
public. Herein lies the cardinal distinction between the two.

It should be a part of any well regulated market system that it

provides a safeguard not only to the Client but also to his agent (his
broker), against any suspicion that business has not been done at the
best price ruling at the time. The Jobbing system provides this
safeguard by means of the custom that Broker and Jobber deal with one
another "at arm's length". It can be assumed that, in a competitive
market, the Jobbers will have knowledge of the past business and
perhaps also the potential business which the general public has
transacted or wishes to transact in each particular share. The
Jobber's pr ic e will reflect the influence of all this business, and
thus constitutes the "open market" price.

It is necessary to add that the Jobber's price, in the case of a

company which is a going concern, is for a marketable number of
shares, and reflects value put on an investment (or disinvestment) of
money. It does not reflect the special value which may attach to a
large number of shares such as would give control over the company;
nor does it reflect the value on liquidation of a company where there
is no prospect or intention of liquidating and distributing the
proceeds. It may however take account of a special value if, for
instance, a take-over bid is thought likely.

A Broker's Double Duty

A Broker owes his main duty to the Client who instructs him. He also
has a duty to The Stock Exchange. At its simplest, his duty to his
Client is to deal for him to the best advantage. In most cases, the
Client can be expected to have further business, and consequently it
would not be to his long term advantage to have his business conducted
in such a way that Jobbers would not wish to have any more dealngs
with his Broker. That is, of co urse, an extreme example but it would
be right to describe a fair bargain as one which, in relat io n to the
number of shares and the circumstances at the time, appears equitable
to all parties. The Broker's duty to The Stock Exchange is fulfilled
by obedience to the Ru les, both in letter and spirit, and by
observance of the customs and usages of the Market. A Jobber is under
this same duty.

It may not be amiss to consider those instances, fortunately rare,

when a Broker rece ive s instructions which may conflict with his duty
to The Stock Exchange. He must not accept such instructions. A
word of explanation to the instructin g Client will surely be enough to
have alternative and acceptable instructi ons given instead . With
mutual confidence between Broker and Client, the difficulties of such
a situation can be averted.
 - 5 -

Commission and Agency

The minimum scale of Broker's commission is governed by the Rules

which forbid any reduction not authorised in the Rules. The amount
of commission charged must be stated on the contract note sent by the
Broker to his Client, together with particulars of the purchase or
sale and money involved. The Client who receives a contract note, and
does not immediately query any part of it with which he disagrees,
will be deemed to have accepted that it properly describes business
done for his account.

Though by law an agent's responsibility is limited to his conduct of

his agency, The Stock Exchange requires a greater degree of
responsibility of a Broker. In his dealings with fellow Stock
Exchange Members, he is regarded as a principal in that his Firm is
required personally to be responsible for his Client's transactions.
It would indeed be impossible otherwise, because the Jobber has no
knowledge for whom a Broker may be acting and thus cannot distinguish
between one client and another for the purpose of limiting his
commitments if the Client were thought to be a man of straw. Brokers'
dealers should be aware of their responsibility not to disclose their
Client's identity.

Broker acting as Principal

A Broker may, on occasion, act as a principal, for instance selling to

a Client shares which are the property of his firm. If he does so,
he should at the time make clear to his client that he is not acting
as an agent, and must then send a principal's contract on which he may
not charge commission. He needs to be careful to follow the correct
procedure, since failure to do so may invalidate the bargain, or at
least enable the Client to repudiate it. He must also ensure that his
acting as a principal does not result in a breach of the commission
rules. Though there may be times when a Broker may justifiably act
as a principal, he still may not usurp the function of a Jobber by
making prices.

Duty and Function of the Jobber

A Jobber on the other hand may only conduct Stock Exchange business
with fellow Members except with the consent of the Council under Rule
92 (1) and 92 (c) in the case of Arbitrage dealing and dealings in Euro
Currency Bonds. He will on occasions know, or may think he knows,
the identity of Clients who have or may have an interest in the buying
or selling of certain shares. A Jobber should, however, never use
this knowledge, whether real or imaginary, in order to make a direct
approach to the Client in question with the offer of business whether
actual or potential. Such an approach by a Jobber should always be
made through a Broker.

Inevitably there will also be occasions at which a Jobber will meet

some member of the public interested in securities and a business
discussion between them may reveal that each would be willing to do a
bargain with the other. A Jobber may not conclude such a bargain,
nor should he make a commitment intending to bind a Broker to do so.
The proper course is for the member of the public to be adv ised to
give his Broker instructions, in order that any resulting transactions
may be executed to the best advantage of the Client according to that
Broker's judgement at the t ime of rl P.rilin!:Y (R t tiP 7':\.::~) .
 - 6 -

In all stocks and shares where the volume of turnover makes it

possible, he will quote a double price - the lower of the two prices
being that at which he will buy shares and the higher, that at which
he will sell them. He will quote a double price to a Broker without
knowing whether the Broker is trying to buy or to sell, and in this
method of quoting lies a further protection of the Broker and his
Client.

In making a double price, a Jobber has undertaken both to buy and to

sell, on his own account as a principal. He may previously have
bought more shares than he wishes to hold, or equally he may have sold
shares which he has not got. His skill lies in changing his prices so
as to match his supply and his demand, and at the same time to make a
profit between his buying and selling. That therefore is his primary
aim and object - to sell what he has bought and to buy back what he
had sold "short" at a profit. In practice, because prices change
according to supply and demand, it is not possible for a Jobber when
making a market, to buy and then sell, or vice versa, and always be
certain of making a profit. In fact, losses as well as profits are
frequent, and in diff i cult market conditions losses may predominate.
Even so, it is the proud tradition of Jobbers that they continue to
deal and provide a continuous share market for the public in all but
the most exceptional circumstances. It is a prime function of a
Jobber so to adjust his price, if necessary in anticipation, so as
best to provide a balance of supply and demand.

Clients Instructions - How they are put to the Market

A Jobber relies on Brokers as his only Clients and his only means of
access to the business of the public. A Broker, as we have seen,
owes his primary duty to the continuing interests of his Client.
From this relationship there has grown up a particular degree of
mutual trust and confidence between Brokers and Jobbers each of whom
takes care so to phrase his business orders that no misunderstanding
should arise between them.

As in many other spheres, specialisation has become common in

Broker's offices. In consequence the Member of a firm who is in
contact with his Client may pass the resulting dealing instructions to
a specialist dealer Member of his firm, who in turn will approach the
Jobbers. This is an extra link separating a Jobber from the Client
and requires that the Broker confide in his dealer all he needs to
kn ow about the business and its extent. The latter will then be in a
position not to mislead the Jobber through his ignorance of the facts.

Accordingly, a Broker who has been dealing either directly with a

Jobber or indirectly through a Broker in another Unit must, if he
decides, for any reason, that continuing business in the security
shall be transacted either directly or on his account by another
Broker, instruct that Broker to disclose or him self disclose to any
Jobber prior to asking for a price and prior to dealing that he is
dealing on behalf of the originating Broker and that it is continuing
business.

It may be that the Jobber will impose conditions for doing a deal when
the business is for example of greater size than usual. Any such
 - 7 -

Business between Brokers and Jobbers is done verbally and is not

ordinarily subject to written confirmation. It is checked the next
day or perhaps the same evening either between offices or through a
centralised checking system.

It is perhaps remarkable that among thousands and sometimes of tens of

thousands of bargains made daily there should be an almost
imperceptible number of disputes between Brokers and Jobbers. It is
an undoubted assistance that the terminology of dealing is well
understood by both, and has a precise meaning. Some of the more
usual expressions · used by dealers and which have acquired the status
of technical terms are referred to later. The i r correct use has
proved valuable over many years.

CHAPTER II

CODE OF DEALING

A. BROKERS

1. Normal Dealing Pattern

A Broker may ask a price wit hout involving himself in any commitment
to deal. The normal phrase is: "What are XYZ?" if this question is
asked by a Broker's Unauthorised Clerk (Blue Button is the nickname),
the question of further enquiry about how dealing might be arranged
w ill not arise; the Blue Button is not allowed to deal. However, a
dealer may subsequently request a Jobber to deal at a price quoted to
a Blue Button.

By custom, neither Broker nor Jobber may make the other reveal the
extent, or "way" of his business.

Assume first that the Broker has not been given a firm order by his
Client, but has been asked to find out the price and whether it is
possible to buy a fair amount. With such instructions, the Broker
will ask one or more Jobbers who deal in that share:

"What are XYZ?" Answer: "125-8".

Broker: "I am only quoting. What is the size of the market?"

Jobber: "I will make t hat (i.e. 125-8) in 2,000".

(In this instance t he Jobber may also open, if he wishes, by making a

pr ice i n a larger amount one way).

In saying that he is only quoting, the Broker assures the Jobber tha t
he has not as yet got a n o rder to buy or sell, though he is hoping to
get one. He will proceed to ask other Jobbers i n similar terms,
w hat they are m a ki ng, a nd th en report back t o his Client .
 - 0 -

Now assume that the Broker comes into the Market with a firm order.
If he has previously checked the market as in the example given above,
he has covered that part of his task already, and will know which
Jobber's price is likely to be most suitable and will approach him
with the intention of dealing.

If, however, he has not checked the price, he will need to do so, but
he must not say: "I am only quoting". Nor does he have to say that
he has an order; he may still ask the price and size of the market
without commitment. However, a request by a Broker to a Jobber to
disclose more than the normal market price and its size implies that
the Broker either is in a position to deal or may get business. He
must not ask the Jobber to commit himself otherwise. A Broker must
not ask other Jobbers until he has returned that quotation to the
Jobber.

The Broker who asks for a "way" in an amount puts himself under an
obligation to deal with that Jobber when he disclosed the "way".

In such a case the conversation might be, after the Jobber has made
114-118 in 1,000 shares:

Broker: "Is there any way in 250?"

Jobber: "I' 11 make you 115-18".

In this case the Broker, as seller, will get a better price, or as

buyer no worse a price. In either case he has committed himself to
dealing.

If, however, the Broker has received an order limited as to price, he

may not ask for the "way" unless his instructions allow him to deal on
receiving it. If they do not the standard phrases in such a case
could be:-

Broker: "What are HIJ?"

Jobber: "115-17 1f2".

Broker: "I am limited. I'm 1/2p out in 250".

Jobber: "I could deal one way" (meaning that he could

make either 115 lf2 - 17 lf2 or 115 - 17).

Broker: (hoping for the one which will suit him):

"Very well, you may open me".

Jobber: "Give you 1f2p" (i.e . 115 1j2).

Broker: "Sorry, I'm a buyer at 117" and he may then try to

deal with another Jobber. Had the Jobber said
"Take 117p" (i.e. "I will sell you 250 at 117"), the
Broker must deal. He must not attempt to improve
still further, either with this Jobber or any other.
 - 9 -

2. Price Anomalies between Jobbers

If, in checking the price made by different Jobbers in the same share,
a Broker finds that the price bid by one Jobber is the same as that at
which another Jobber is offering the shares this is called finding
"his choice". He finds that he could deal at the same price, either
as a buyer or a seller. A Broker must inform the Jobber that he has
found his choice before he attempts to deal but the Jobber may not
refuse to deal in a marketable amount or insist on an alteration in
the price. The Broker having found his choice should not attempt to
deal in a larger amount at a wider price without disclosing to the
Jobber that he had found his choice in a marketable amount.

The Jobber may risk losing business if he frequently tries not to deal
on prices which he has made.

If, however, in checking the price of a share, a Broker finds that the
share is offered by one Jobber at a price which is lower than that bid
for the same share by another Jobber he may not deal without the
permission of the Jobber whose price suits him better (this is called
"dealing on a backwardation"). When asking permission, a usual
phrase would be" "That gives me a back, do you want to deal?" In
this case, a Jobber is enti tl ted to say that he will not deal on a
backwardation, and may adjust his price as far as choice; or he may
still wish to maintain the price he has made, in which case the
Broker can deal on a backwardation.

In both these cases, where a Broker finds either his cho ice or a
backwardat ion, he is obliged to inform the Jobber of this fact before
dealing. These are the only cases in which he may disclose the
quotating of one Jobber to another.
I
3. Broker's order larger than normal Market size

If a Broker has an order, in which his Client has given him some
discretion as to price, and which is larger than the normal market
amount in which the Jobber will make a price in that share, the
Broker must use his judgement in select i ng the method of dealing best
suited to his Client's interests. He will take into consideration
the most favourable price made to him by any particular Jobber, as
well as the number of shares in which he may expect to deal at that
price. He will thus choose the Jobber with whom he considers it to
be most likely that his order can be completed.

The Broker may decide to ask the Jobber for a propos! t10n in his
entire order, and on receiving it he may decide to deal out right, or,
with the Jobber's agreement, after referring to his client.
Alternatively, he may decide to start his order at an acceptable price
in the number of shares in which the Jobber is first prepared to deal.
Thereupon he has established a price and for the rema i nder of his
order he must choose between the following courses:-

(a) he may leave a firm limit in the Market, or

(b) he may indicate the price at which he would wish to
do further business, or
(c) he may ask for a proposition in the balance of his
order
(d) he may try elsewhere
 - 10 -

After he has left a limit or received a proposition in the whole or

part of his order, as he has already established a price, he may not
deal at a better price elsewhere, nor may he deal further at a worse
price without offering the revised terms to the Jobber with whom he
first dealt.

When a Broker deals in a part of his order with a Jobber, i3,nd agrees
to leave him the balance, he must not endeavour to deal in this
balance elsewhere and should refrain from disturbing the market by
repeated enquiries unless he has received the offer (or bid) back from
the Jobber concerned of the stock left with him at a price agreed
between them.

Where a Broker has been dealing directly with a Jobber in another Unit
and the Jobber has indicated that he is only prepared to deal with
that Broker in a limited number of shares, or has qualified the price
at which he is prepared to deal, the Broker must when instructing a
Broker in that Unit to transact continuing business on his behalf,
inform that Broker of the name of the Jobber with whom he had
previously dealt. It is the responsibility both ot the originating
Broker and the Broker or "new" Broker in the Unit acting on his behalf
to ensure that the Jobber with whom they have been dealing is made
aware that they are going to try other Jobbers. The Broker acting on
his behalf must disclose to the Jobber prior to asking the price and
prior to dealing, the name of the Broker he is dealing for and that it
is continuing business.

Similarly, as long as he retains a firm propos1t10n made by one

Jobber, the Broker is precluded from dealing or trying to deal with
another Jobber.

When a Broker has dealt with a Jobber "in his lot" and immediately
afterwards receives another order in the same stock he should approach
the Jobber with whom he has already dealt before trying to deal
elsewhere. Similarly, if the Broker is offered the stock by another
Jobber or Client he must not accept such an offer without the consent
of the first Jobber, to whom both he and his original Client are
committed.

A Broker receiving two or more orders from different Clients should

attempt to get their agreement to co-ordinate such orders in the
interests of an order ly market. A Broker should not use several
d ealers simultaneously, each to execute parts of a single order with
several Jobbers except in the special case of the initial dealings in
a new issue.

When a Jobber has been unable to complete the balance of an order on

which a time limit has been agreed, the Broker may be compelled
either to raise his buying price (or lower his selling price) so that
his business may be completed. In this case, he must approach the
Jobber with whom the order was left in the first place, and offer him
the first opportunity of completing the deal at the revised price.

If that Jobber will not take on further business, and the Broker is
obliged to try the other Jobbers in that share, then the Broker
should endeavour to deal with each Jobber at a fair price,
commensurate with the number of shares in which each is prepared to
 - 11 -

Broker must, if this is the case, disclose this information but need
not be obliged to furnish details. The Bro ker should bear in mind
that in his bargain with the first Jobber he has established a price.
If a Broker wishes to deal with another Jobber i n more than a
marketable amount the Broker must inform the Jobber that he has
already dealt but is not required to g i ve details. It is emphasized
that a Jobber means not only a Jobber in London but also a Jobber in
the Country.

When a situation arises, similar to thqse described above, the Jobber,

in fairness to the Broker must not "touch the Market" without the
Broker's permission. This means that the Jobber may only deal with
his competitors to undo all or part of the order if approached by a
competitor, and must not attempt to initiate a deal with his
competitors. If he were to do so (without permission) the market
would be spoiled for the Broker should the selected Jobber be unable
to complete the order and the Broker be forced to try other Jobbers i n
the share.

lj.. Bids and Offers originated by the Market

A bid or an offer made by a Jobber to a Bro ker is gi ven in confidence

to the Broker for his use for t he purpose of doing business with the
Jobber and s hould be returned to the Jobber if no business can be
done. Similarly whe n a Bro ker offers (or bids for) stock from the
market, or from one Client to other Clients, those who receive the
offer (or bid) should regard it as confidential to themselves in order
that the business should not be spoiled by undue disclosure. A
Broker may receive and accept a firm bid or a firm offer from a Jobber
concerning a definite number of shares at a certain price in order
that he may take out such a proposition to a Client immediately.
Once a Broker has taken a firm proposition he must not check his price
elsewhere, so long as he is retaining the original proposition.
Before he may ask the price of another Jobber he must release the
first Jobber from his f i rm commitment.

A Broker may decline to accept a firm proposition put to him by a

Jobber in order to leave himself free to check the price elsewhere.
If, however, he elects to continue to check the price of the share, he
takes the risk of a price change, should he decide to go back to a
Jobber who has already made him a price. The Jobber is only
committed to his pr ice so long as the Broker remains on his pitch
unless bot h agree to bind themselves by the terms of a firm
proposition.

5. Dealing by Telephone, Etc.

When dealing by telephone, telex, or other means of communication, a

dealer should give clear l y both the name of his F i rm and his own name.

The t ermination o f a call is equivalent t o leaving a Jobber's pitch

on a trading floor and the Jobber may not be compelled to deal later
on a price made d ur ing a terminated call, although he may be prepared
t o do so.
 - 12 -

6. Brokers in other Units

Broker to Broker dealings are not allowed, except in exceptional

circumstances as laid down in Rule 87a. It follows therefore that
dealings between Brokers in different Units are not permitted unless
the transaction has been exposed in a market of one of those Brokers
in the manner usually followed in that market. If a Broker receives
an order from a client and is unable to deal in his own Unit he must
either deal with a Jobber in another Unit or give the order to a
Broker in another Unit to be transacted in the manner permitted in
that Market. In the event that no Jobber is willing to deal
reasonably and all normal procedures have been exhausted the Broker
shall clear a possible put-through with a Jobber in his own market,
before inviting the Broker in the other Unit, to contact one of his
own clients in order to create a matching order.

Until this procedure has been followed the Broker in the other Unit
is prohibited from completing the transaction by contacting one of
his clients in order to create a matching order.

B. JOBBERS

1 • Prices in Active Stocks

A price made by a Jobber is a quotation made on request. Unless he

qualifies his price as to quantity, a Jobber must be prepared to deal
in a reasonable number of shares. What constitutes a "reasonable
number" in any particular case can only be judged by experience and
may vary between different shares and with changing circumstances.

A Jobber may indicate his wish to deal larger one way than the other
but may not reveal which way this is until he is invited to do so by a
Broker.

If the price made by a Jobber in a particular share is not made in the

number normally to be expected, then the Jobber should give some
indication of this by using phrases such as "small" or "not too many".
Thus, if the market in a share is temporarily narrower than normal,
perhaps before a dividend or other company announcement, then the
Jobber will usually volunteer the indication by saying "116-19 in
500", where the Broker would normally expect to find a dealing price
in one or two thousand.

2. Prices in lnacti ve Stocks

When a dealing price is not readily made in a share by the Jobbers in

that market, there may still be a quotation. It will fall into one
of the following categor ies:-

(a) As a basis for negotiation

(b) As a nominal basis
(c) As a "Buyers only" market
(d) As a "Sellers only" market
 - 11 -

Broker must, if this is the case, disclose this information but need
not be obliged to furnish details. The Broker should bear in mind
that in his bargain with the first Jobber he has established a price.
If a Broker wishes to deal with another Jobber in more than a
marketable amount the Broker must inform the Jobber that he has
already dealt but is not required to give details. It is emphasized
that a Jobber means not only a Jobber in London but also a Jobber in
the Country.

When a situation arises, similar to those described above, the Jobber,

in fairness to the Broker must not "touch the Market" without the
Broker's permission. This means that the Jobber may only deal with
his competitors to undo all or part of the order if approached by a
competitor, and must not attempt to initiate a deal with his
competitors. If he were to do so (without permission) the market
would be spoiled for the Broker should the selected Jobber be unable
to complete the order and the Broker be forced to try other Jobbers in
the share.

IJ.. Bids and Offers originated by the Market

A bid or an offer made by a Jobber to a Broker is given in confidence

to the Broker for his use for the purpose of doing business with the
Jobber and should be returned to the Jobber if no business can be
done. Similarly when a Broker offers (or bids for) stock from the
market, or from one Client to other Clients, those who receive the
offer (or bid) should regard it as confidential to themselves in order
that the business should not be spoiled by undue disclosure. A
Broker may receive and accept a firm bid or a firm offer from a Jobber
concerning a definite number of shares at a certain price in order
that he may take out such a proposition to a Client immediately.
Once a Broker has taken a firm proposition he must not check his price
elsewhere, so long as he is retaining the original proposition.
Before he may ask the price of another Jobber he must release the
first Jobber from his firm commitment.

A Broker may decline to accept a firm proposition put to him by a

Jobber in order to leave himself free to check the price elsewhere.
If, however, he elects to continue to check the price of the share, he
takes the risk of a price change, should he decide to go back to a
Jobber who has already made him a price. The Jobber is only
committed to his price so long as the Broker remains on his pitch
unless both agree to bind themselves by the terms of a firm
proposition.

5. Dealing by Telephone, Etc.

When dealing by telephone, telex, or other means of communication, a

dealer should give clearly both the name of his Firm and his own name.

The termination of a call is equivalent to leaving a Jobber's pitch

on a trading floor and the Jobber may not be compelled to deal later
on a price made during a terminated call, although he may be prepared
to do so.
 - 14 -

larger number of shares, may, at his discretion, refuse to be "opened"

in such an amount, and the challenge is broken off. S h o u 1 d the
Broker agree to the amount, the Jobber will say "Buy" or "Sell".
Either a bargain results, or if Broker and Jobber are the same way, no
business is done. Neither side must disclose the position of the
other, and the Broker must not leave the order in the market except
with the Jobber who is making an actual proposition.

4. When Quotations are and are not binding

A Price made by a Jobber which is then quoted by a Broker to his

Client is subject to alteration in the interval between quotation and
dealing unless both the Broker and Jobber have made a specific
arrangement.

Any such arrangement must be clearly defined as to terms and durat ion
and is then binding on the Jobber, irrespective of other bargains in
the same share, which he might conclude before the Broker comes back
to him, as the Broker is bound to do under any specific arrangement
made.

A Jobber who has made a price is not bound to remain "on" to a Broker
who says, loosely, "I am on the phone".

5. Handling of large orders by Jobbers

When a Jobber has dealt in part of a large order with a Broker and had
been left the balance of this order, he may decide to satisfy all his
Limits in this particular share which become possible of execution
because of this order. He should next initiate business with other
Brokers by suggesting to them a bid or offer. He should only then
attempt should he so wish to undo part or all of his bargain with the
other Jobbers in the share having first obtained the consent of the
Broker.

Having received a large order in the circumstances described above,

and in the absence of any specific agreement to the contrary, a Jobber
is bound to pass on to the Broker all the shares bought (or sold)
against this firm order apart from any shares he may need to make good
any uneven position on his book which results from the original
transaction. His duty, in this conection, ends only when subsequent
sellers are lower than the Broker's selling limit, or, in the case of
buying orders, are higher. Since it i s incumbent upon both sides to
protect each other's interests, the Jobber should advise the Broker
of a change in the market price. The complement of these two
paragraphs will be found under the heading "Brokers".

6. General

(a) A Jobber's Unaut horised Clerk is not permitted tc

make a price.

(b) A Jobbing Firm must register the securities in which

they will deal and in respect of such securities
undertake to be actively offering to buy or sell an
amount of Stock, Bonds, Share or Units of Stock at a
price named, binding as to any part thereof that may
be a marketable quantity.
 - 15 -

Before he takes up dealing in a share in which he has

not hitherto kept a book, a Jobber should, as a
matter of courtesy, advise other Jobbers who already
deal in this share.

In the absence of special circumstances, a Jobber

should not take up dealing in a share in which .he has
not previously kept a book unless he intends to
continue dealing commercially in the share.

(c) When a Jobbing Firm have decided to cease dealing in

any security (whether permanently or not) they shall
forthwith inform the Council by letter containing
particulars of the security and the reasons for such
decision. Such firm or their successors in business
shall not resume dealing in such security without
first giving the Council notice in writing so to do.

C. PUT-THROUGHS

Note.

The attention of Brokers is drawn to the different procedures and

conditions applicable to put-through business set out in the following
paragraphs.

1. "Put- Throughs" are matching orders, opposite in way, and in a

similar though not necessarily identical number of the same share . A
Broker, in concluding such bargains, puts the shares through the books
of one or more Jobbers at the same two prices, agreed beforehand and
acceptable to all participants. The Rules require such bargains to be
marked.

Except in a case where a particular Jobber has made possible the doing
of one side of the business by making a firm Bid or Offer for the
entire, or major part of the shares in question, a Broker may decide,
in conjunction with one Jobber, whether or not to divide large
put-through business among all the Jobbers running a Book in the
shares concerned. A normal division of this business would bear
relation to the propostion of risk business ordinarily transacted by
the Broker with such Jobbers.

It is recognised that the settlement risk inherent in the deal lies

with the Jobber or Jobbers who actually deals with the Broker
concerned and thereby accepts the liability of a Principal for both
sides of the transaction. When by arrangements, one Jobber agrees to
put through his Book the entire order (both purchase and sale), and
agrees to pass to other Jobbers cheques representing proportions of
the profit, although strictly the risk lies with the Jobber who
actually books the whole put-through, in accepting a share of the
profit the participating Jobbers are at risk and thus in all cases
before dong so they should be enti tl ted to ask the Broker doing the
business the prices of the put-through but not the extent of the
order.

2. Rule 90(1) ( a) provides that:

 - 16 -

"When a Broker receives an order to buy or sell listed

securities or those in which dealings are permitted under
Rule 163(1) (e) and wishes to create a matching order, he
must, before attempting to create such matching order,
consult with a Jobber who is a registered Dealer in the
security and agree with him dealing prices which must be such
as are believed to be fair to both Principals, at whicb time
the Jobber shall have the right to declare what portion of
the Broker's business he will take at the eventual dealing
price provided he does not thereby prevent the execution by
the Broker of the order of the Principal who initiated the
business".

No attempt, therefore, must be made by a Broker to create a Matching

Order without first consulting a Jobber.

Assume that a Broker has an order from a client to sell a line of

shares (the principle is the same when the initiating order is to buy
a line of shares). When the Broker finds from the Market the best
bid for the shares and if this is not suitable to the Client either as
to price or size the Broker may then attempt to create a matching
order. Before attemtping to make the matching order the Broker must
go back to the Jobber of his choice, i.e. the Jobber who made the most
competitive bid both as to price and size, and arrange with him the
correct prices at which the shares will be put through the market.
At this stage the Jobber must declare how many shares he will take
"firm" and the Broker must only offer the balance of shares resulting
from the Jobber's firm bid. The Jobber may only insist on being
supplied with sufficient shares to satisfy firm limits or to cover his
book and by mutual consent to take additional shares. The Jobber may
only execute these limits or sell the addi tiona! shares when the
original Broker's business has been com.pleted. This right of the
Jobber to take part of the shares is always subject to the proviso in
Rule 90( 1) (a) that he does not hereby prevent the execution by the
Broker of the order of the client who initiated the business. In
other words, if the selling order ls 100,000 shares and the Jobber has
firm limits for 10,000 shares and would like to take 15,000 shares,
to level his book, then the Broker will advise the prospective buying
clients that he has 75,000 out of a total of 100,00 shares to place.
The figure of 75,000 shares will be reduced if the Broker agrees to
the Jobber taking additional shares.

The degree of certainty with which the Jobber will be able to

determine the exact price at which the business should be capable of
execution may vary. If the Jobber is prepared to bid for the entire
amount, no price lower than his bid price would be equitable. It may,
however, be possible for the business to be done at a higher price.
Alternatively, the Jobber may not wish to bid for the entire amount
and will suggest an equitable basis for putting some or all of the
shares through. The Broker may be able to find buyers on the
suggested basis, in which case the shares can be put through.

If, however, the Broker falls to find buyers at the suggested price,
he must then consult again with the Jobber before committing himself
to dealing at a pr ice below the previously agreed basis. The Jobber
may then agree to a new basis suggested by the Broker and allow a
- - - ~ •L-- . . -1-. ~~ +h~ ~,., ;c arl 1-<=>,.mc .::~nrl m.::~v n.rtrticioate himself on these
 - 17 -

If a Broker has suggested a revised basis for a put-through to one

Jobber and that Jobber has indicated that
because it is not fair to both Principals,
(a), or for any other reason, the Broker
Jobber with a put-through proposition on
elsewhere.
it is unsatisfactory either
as required by Rule 90(1)
may not approach another
the terms already refused

It is the responsibility of the Jobber in whom the Broker has confided

to maintain the price he is making in the shares which the Broker is
trying to place unless other business or changed circumstances force
him to alter it. In such a case the Jobber should advise the Broker
of any new situation as soon as it arises and the Broker should
inform the intending participants of the put-through.

3. Rule 90(1) (b) provides that:

"When a Broker and at least two Jobbers (or the only Jobber
registered as dealing in the security) agree after
consultation that either the order is of such size or the
terms of the order are such that a put-through is unrealistic
the Broker may then complete the business between
Non-Members. When the Broker has first consulted with a
Jobber in a Unit which is not the principal market in the
security concerned, the Broker must, before executing the
bargain with a Non-member, consult with a Jobber(s) in the
principal market who is registered as a Dealer in that
Security. As provided in Clause (1) (a) above the price
must be believed to be fair and the Jobber or Jobbers shall
have the right to participate under the same conditions set
out in Clause (1) (a)."

The Broker must:

(i) Mark the bargain without delay on the special Marking

Slip provided for the purpose (Appendix 43a) which is
to be signed by two Jobbers or the only Jobber as the
case may be. Marks in securities in which dealings
are permitted under rule 163 ( 1) (e) will be recorded
on special boards provided for the purpose;

(ii) State on each Contract Note that the bargain has been
done between Non-Members;

(iii) In all cases be prepared to justify his actions to

the Council if called upon to do so.

4. Simultaneous Orders

The second clause of Rule 90 reads as follows:

"When a Broker receives an order to buy and at the same time

another order to sell (or vice versa) the same security, and
these orders originate either from one Client or from Clients
who are associated with each other, as members of the same
family, or as associated Companies and provided that he has
informed the Jobber that the business is to be effected under
this Rule he may execute the two orders simultaneously on
 - 18 -

business as permitted in Clauses ( 1) (a) and ( 1) (b) of this

Rule. The put-through prices agreed upon must be such as at
the time of dealing are believed to be fair to both
Principals and reasonable in relation to the middle market
price".

The purpose of this clause is to enable two members of the same family
to deal between one another on a price established in the opeh market,
and these circumstances preclude the normal right of the Jobber to
nominate what proportion of the business he wishes to take for
himself, as this would spoil the business. Clearly when a father
wishes to transfer shares to his son, or when one subsidiary company
wishes to transfer shares to another in the same group, they would
only be prepared to use the market mechanism so long as it enabled the
entire shareholding to be transferred.

It is incumbent upon Brokers to make sure that these are the

conditions of their order when aplying this clause of the Rule and at
the time of arranging wi th a Jobber the terms for such a "put-through"
Brokers must i nform the Jobber that the business is being effected
under Rule 90(2) instead of the first clause, and they may be required
to justify their actions under Rule 90(/t) and must mark under 90(3).

5. General

The following conditions apply in all cases of dea l s under Rule 90:

90 (3) "All bargains under Clauses ( 1) (a) and ( 2) must be

marked by the Broker and will be recorded unless
withheld by the authority of a Market Official, the
Chairman, a Deputy Chairman, or two Members of the
/ Council, or two Members of a Unit Committee who have
been nominated by the Chairman".

90 (It) "Members transacting business under this Rule must be

prepared to justify their transactions to the Council
if called upon to do so".

90 ( 5) A Broker may not put business through another Broker.

6. Take-over situations

In any case where a cash bid is public knowledge, as i n a take-over

situat ion, it is undesirable for business to be directed to one
particular Broker to the detriment of others.

There f ore, care shoul d be ta ken that a selling client should be able
to deal under the same cond i tions and on the same t erms whether the
dea ls th roug h the Broker acting on behalf of the buyer or any other
Broker.

D. LIMITS AND OTHER CONDITIONAL BARGAINS

1. It is essential for the benefit of all Investors, Brokers and

J o bbers that strict attention be paid to all Limits.
 - 19 -

Those orders whose execution is subject to conditions are described as

Limits. The Conditions may be imposed by the Broker at (or some
times without) the express wish of the Client, and may refer to the
price alone, or the price in conjunction with the number of shares to
be dealt in, or the terms of delivery. Limits are consequently
orders not capable of immediate execution.

2. There are four main types of Limit:

(a) Firm Limits

A Broker may decide to leave a sale or purchase Limit at a fixed price

with one selected Jobber until that order is either completed or
cancelled. The Limit will be understood as be ing in force until the
close of the House, which at present coincides with the close of the
Dealing Day at 3.30 p.m. unless a longer or shorter period is clearly
specified. The Broker must inform the Jobber accordingly, and leave
him i n no doubt. In the event of the stock being bid for by another
Jobber whilst the Jobber is retaining the Limit, the Jobber is then
obliged either to deal with the Broker i n a reasonable part of the
Limit or else to release him. The Jobbers, having accepted the
Broker's firm Limit must do his utmost to complete all or at least
part of the Broker's order.

(b) Conditional Limits

A Broker wit h a firm order may decide to inform more than one Jobber
that he has business at a price at which i t is not possible to deal at
once. It is essential, in this case, for the Broker to inform the
Jobbers concerned di rectly he has completed the order elsewhere
(unless specifically asked not to do so by the Jobber with whom he
dealt) or has been advised that the order is cancelled.

(c) Indicational Limits

A Broker may indicate to a Jobber or Jobbers that he might have

business in a particular share at a certain bid or offered price.
Here again, the Broker should inform the market if he has completed
his business or if his client now has no i nterest in the share.

The Jobber takes on hi mself the full risk if he deals against purely
Indicational Limits wi t hout fi rst ascertaining th eir current validity.

(d) Contingent Limits

A Broker may receive an order to buy or sell provided he takes i nto

account ot her governing factors, conditions or contingencies, which
are a part of the order. A Contingent Limit frequently imposed upon
t he dealer is i n t he f orm of an order to sell , or buy, at a pr ice,
conditional on another share being offered, or bid at another price.
Th e most common examp l e is "switch" or exchange orders i n Gilt-edged.
The price factors ma y be arbitrarily set by the Client. They ma y be
stat istically related as t o yield, etc., or regulated by reference to
t he expenses i nvolved, or, by technical considerations such as the
de li very of the s har e s to be bought or sold. A Broker must al wa ys
i nform a Jobber w henever a bu y ing or selling Limit is contingent.
 - 20 -

It will complicate his task as well as that of the Jobbers if the

order links two shares which are dealt in by different markets. It
is, however, possible for one Jobber to leave a firm propositon, while
the Broker attempts to deal in the contingent part of the order with
another Jobber. Flexibility such as this is possible with the Jobbing
system, but not equally so in any other form of market.

E. DISCIPLINE

All Braking and Jobbing Firms must be prepared to justify to the

Council their actions or those of their Dealers, if they fail to
observe, in letter or in spirit, any of the aforementioned practices.

F. CONCLUSION

Those who have read this book and who have also studied particularly
the Dealing Rules of The Stock Exchange will not fail to appreciate
the obligations assumed by those who transact Stock Exchange business.
These obligations are undertaken first and foremost by Members and
their clerks authorised to deal on their behalf for their Clients.
These same Clients, however, can hope for a continuance of the freedom
and virility of the market only if they too are prepared to accept the
principles which govern the conduct of business as explained in this
short book.
 - 21 -

GLOSSARY OF TERMS

Actual (price):

One on which the Jobber is willing to deal either as buyer or

seller.

Bargain:

A purchase or sale effected between Broker and Jobber (with

no inference that one side has done better than the other).

Bid (price):

The price at which a Jobber will buy stock or shares.

Buyers only:

A Jobber adding these words after his price means that he can
buy stock or shares but not sell.

Call option:

The right to buy stock or shares as a result of an option

(q.v.).

Close price:

Where the spread between the bid and offered prices is

narrow.

Marketable amount:

The amount of stock or shares in which a Jobber would be

expected to deal at his price. This amount varies widely
with circumstances and between active and inactive
securities, and Brokers learn by experience to assess the
probable amount in each instance.

"More one way":

An indication that bigger business can be done either for

buyers or sellers.

Nominal (price):

One on which the Jobber is not willing to deal either as

buyer or seller.

Offered (price):

The price at which a Jobber ·will sell stock or shares.

One way:

Either the bid or offer, but not both is actual

 - 22 -

Option:

The right acquired on payment to deal in stocks or shares by

a fixed date in the future on the basis of the present price
(irrespective of . the price in the future).

Put and Call Option:

The right either to buy or sell stock or shares as a result

of an option.

Put Option"

The right to sell stock or shares as a result of an option.

Put-through:

The sale of stock or shares to a Jobber by a Broker followed

by the immediate repurchase of the stock or shares by that
same Broker.

Sellers only:

A Jobber adding these words after his price means that he can
sell stock or shares but not buy.

Size of Market:

The amount in which a Jobber is making his (actual) price.

Small Market:

A phrase used to indicate that a Jobber's price is made in

less stock or shares than normal.

"The Touch":

The closest price quoted between Jobbers, taking the best bid
of one and the cheapest offer of another.

To open:

To state whether an order is to buy or sell. Also, to cause

another to open.

"Way":

A closer price one way.

Wide price:

Where the spread between the bid and offered prices is wide.

CSDE/ASP
5.6.1984.