Industrialization led to a third wave of exchange wings


Industrialization led to a third wave of exchange launches, most notably
of the London Stock Exchange (1773) and the New York Stock Exchange
85 The establishment of these exchanges coincides with other milestones of the modern era, such as the United States Declaration of Independence (1776), the publication of Adam Smith’s famous work The Wealth of Nations (1776),86 the French Revolution (1789), and the end of the Holy Roman
Empire (1806).

82 The best account of the events is given by Cäsar Amsinck, Die ersten hamburgischen Assecuranz-Compagnien und der Actienhandel im Jahre 1720, 9 Zeitschrift des Vereins für Hamburgische Geschichte 465-94 (1894) (Ger.).
83 “Demnach E

. E. Rath mit großer Befremdung und Mißfallen vernommen, welchergestalt
einige Privati, unter dem Prätext einer Assecuranz-Compagnie, sich eigenmächtig unternommen, einen sogenannten Actien-Handel zu veranlassen und anzufangen, daraus aber
gar viele gefährliche und dem Publico sowol als Privatis höchstnachtheilige Folgen zu besorgen: Als hat E. E. Rath, seinen obhabenden obrigkeitlichen Pflichten nach, dazu nicht
stille sitzen können, sondern sich genöthiget gefunden, allsolchen Actien-Handel hiemit
gänzlich zu untersagen ....” Befehl, daß keine Privati sich unterstehen sollen, unter dem
Prätext einer Assecuranz-Compagnie, einen sogenannten Actien-Handel anzufangen of
July 19, 1720, 2 SAMMLUNG 927-28 (1764), corr. 1123 (Ger.).
84 Decret wegen der Assecuranz-Compagnie of July 26, 1720, 2 SAMMLUNG 928-29 (1764).
85 On the data, see supra note 46.
NATIONS (1776). For the important third edition, see ADAM SMITH, supra note 72.
534 Virginia Law & Business Review 7:513 (2013)
Contemporary observers perceived the era of industrialization as the
“awakening of a stronger entrepreneurial spirit”
87 and noticed the “emergence
of such manifold large industrial associations.”
88 The shares and bonds of
these “industrial associations,” now typically organized as stock corporations,
became widely traded at many exchanges. In addition to shares and bonds, a
third group of securities gained more and more attention: government bonds
to finance the public debt. It sounds all but unfamiliar to the modern investor
that warnings such as of Immanuel Kant (1724-1804) against the “inevitable
national bankruptcy” (1795) 89 remained unheard until some governments
could no longer serve their debts and investors lost considerable sums. Industrialization had a decisive influence on all three classes of securities—shares,
private bonds, and government bonds—and, thereby, the rise of modern
stock exchanges, because it was the process of industrialization that led to
projects that required more and more capital, such as the erection of railways
or large factories. All major economies were faced with the challenge to—in
Adam Smith’s famous words—erect and maintain
those publick institutions and those publick works, which, though
they may be in the highest degree advantageous to a great society,
are, however, of such a nature, that the profit could never repay the
expence to any individual or small number of individuals, and which
it, therefore, cannot be expected that any individual or small number
of individuals should erect or maintain.
Given the range and richness of economic, social, political, and legal developments, our overview of the main events and factors in the history of
commercial exchanges will from now on focus on Germany as one prime
example, and, unlike the earlier sections, it will be limited to the legal developments.

87 “Erwachen eines regern Unternehmungs-Geistes” Gutachten der vereinigten Abtheilungen des Königlichen Staatsraths für die Finanzen und für die Justiz, über den Entwurf
eines Gesetzes über Aktien-Gesellschaften, March 16, 1843, 1 GEHEIMES STAATSARCHIV
die allgemeinen Bestimmungen über die Aktien-Vereine (1838-1843), I. HA Rep. 84a,
No. 10442, sh. 223 at 77 (Ger.).
88 “Entstehen so mannigfacher großer industrieller Vereine.” Id. at 77.
89 “[D]er endlich doch unvermeidliche Staatsbankerott.” IMMANUEL KANT, ZUM EWIGEN
FRIEDEN 11 (1795) (Ger.).
90 ADAM SMITH, supra note 72, at 92-93.
7:513 (2013) Stock Exchange Law 535
1. Early Stock Exchange Law
Prussia had the greatest influence on the development of German law in
general and on stock exchange law in particular. The Prussian Official Journal
published the so-called Börsenordnungen, the rules and regulations of the Prussian exchanges, for the first time in the second quarter of the century, specifically for the exchanges in Berlin (1825), 91 Königsberg (1827), 92 Danzig
(1830),93 Elbing (1830),94 and Stettin (1832)95
96 These early stock exchange
rules affected mainly the process of trading at the exchange rather than the
exchanges’ organizational structure.
As mentioned earlier in this article, the German Allgemeines Deutsches Handelsgesetzbuch (1861) frequently referred to the Börsenpreis, the exchange price,97
although the Code brought no general rules on commercial exchanges. When
the German states introduced the Code in their respective territories, those
with commercial exchanges had to decide if it was necessary or at least advisable to complement the Code by some basic exchange rules, such as on their
establishment, approval, and supervision. Prussia chose to refrain from extensive exchange legislation, but enacted a few provisions in its introductory
98 Two provisions are worth mentioning: “The establishment of an exchange requires the approval of the Minister of Trade”
99 and “New exchange
rules and regulations need permission by the Minister of Trade.”
100 In the first
years, people thought that only those marketplaces that wanted to get recog-

91 Börsen-Ordnung für die Korporation der Kaufmannschaft zu Berlin, May 7, 1825,
PREUßGS at 137-46 (Ger.).
92 Börsen-Ordnung für die Korporation der Kaufmannschaft zu Königsberg in Preußen,
Sept. 13, 1827, PREUßGS at 128-30 (Ger.).
93 Börsenordnung für die Korporation der Kaufmannschaft zu Danzig, Jan. 12, 1830,
PREUßGS at 10-16 (Ger.).
94 Börsenordnung für die Korporation der Kaufmannschaft zu Elbing, Apr. 24, 1830,
PREUßGS at 73-80 (Ger.).
95 Börsen-Ordnung für die Korporation der Kaufmannschaft zu Stettin, Mar. 17, 1832,
PREUßGS at 121-27 (Ger.).
96 Previously, rules on exchanges had already been published as part of the statutes of the
merchant associations (Kaufmannschaften); see, e.g., Statut für die Kaufmannschaft zu Berlin,
Mar. 2, 1820, PREUßGS at 46-59 (Ger.) 

(therein the sixth section, “Von der Handhabung
der polizeilichen Ordnung in den Versammlungen auf der Börse”, §§ 42-48).
97 E.g., ADHGB of 1861, art. 343, 353.
98 EINFÜHRUNGSGESETZ, supra note 26, at art. 3.
99 “Die Errichtung einer Börse kann nur mit Genehmigung des Handelsministers erfolgen.”
Id. at art. 3 § 1.
100 “Neue Börsenordnungen bedürfen der Genehmigung des Handelsministers” Id. at art. 3,
§ 2(1).
536 Virginia Law & Business Review 7:513 (2013)
nized as a Börse (exchange) under the law had to abide by these rules. Later,
the Prussian administration applied the provisions to all marketplaces that
carried out the functions of exchanges.
101 Among the other exchange rules on
the state level,102 there is a noteworthy Act of Hamburg (1880) that vested the
local Chamber of Commerce (Handelskammer) with the supervision of the
At the federal level, no exchange rules were enacted before the end of the
century. Contrary to what the lack of such provisions may suggest, there has
been a lively public debate that closely followed the events at the exchanges
and increasingly recognized a need for regulation. Friedrich Carl von Savigny
(1779-1861), the most celebrated German jurist of the nineteenth century,
described the trading at the exchanges as similar to “gambling” (1853).104
Gustav Schmoller (1838-1917), one of the famous “Socialists of the Chair”
(Kathedersozialisten), wrote just before the great stock market crash (1870):
Commercial ethics have reached their lowest point at the stock exchange and in the exchange transactions; here, deals are defended
that any remnant of decency condemns. Deception, news forgery,
bribery of newspapers and officials, and the like are almost deemed
permissible; the border between real and unreal transactions has become blurred and is no longer visible.
After the great crash, Eduard Lasker (1829-1884), then one of the few
prominent parliamentarians, portrayed the exchange in the Reichstag, the parliament of the German Empire, “as a school where you will be made perfectly
familiar with all such evasions of the law, as an academy for the violation of

101 The administrative practice is summarized in the decision 34 PRVERWGE [Prussian Supreme Administrative Court] Nov. 26, 1898 (III B 44/98), 315-27 (Ger.).
102 For an overview, see Begründung zum Entwurf eines Börsengesetzes (explanatory notes)
[Exchange Act] Dec. 3, 1895, REICHSTAGS-DRUCKSACHE 14/1895-96 at 14, 18-20 (supp.
vol. at 11, 13-14) (Ger.).
103 § 17 Gesetz betreffend die Handelskammer und die Versammlung Eines Ehrbaren
Kaufmanns [G], Jan. 23, 1880 [HambGS] at 26, 29 (Ger.).
104 “Dieser, dem Glücksspiel ähnliche, Handel.” 2 FRIEDRICH CARL VON SAVIGNY, DAS
105 “An der Börse und in den Börsengeschäften ist die kaufmännische Moral am laxesten
geworden; Geschäfte werden hier vertheidigt, die ein Rest von Anstandsgefühl verurtheilt.
Täuschungen, Fälschungen von Nachrichten, Bestechungen von Zeitungen und Beamten
und Aehnliches gelten beinahe als erlaubt; die Grenze der reellen und unreellen Geschäfte
hat sich bis auf vollständige Unkenntlichkeit verwischt.” GUSTAV SCHMOLLER, ZUR GESCHICHTE DER DEUTSCHEN KLEINGEWERBE IM 19. JAHRHUNDERT 676 (1870) (Ger.).
7:513 (2013) Stock Exchange Law 537
the laws” (1873).
106 The stenographic reports note at this occasion “great
amusement” (“große Heiterkeit”) and “again amusement” (“erneute
The prominent criticism of the “exchange swindle” (Börsenschwindel) notwithstanding, it required a longer learning process before the stock exchange
law’s genuine contribution to the prevention of further scandals became
widely recognized. Even at the time of the second stock corporation law reform,

 the Zweite Aktienrechtsnovelle (1884),108 the decisive milestone in the history of the German stock corporation (Aktiengesellschaft), the fathers of the
reform still refrained from regulating exchanges: “The draft . . . tries . . . to
avoid putting shackles on the exchanges, as far as their distortions can be
reconciled with public morals. . . .”109 One of the infamous consequences of
this approach was that the reform abstained from establishing a prospectus
requirement; 110 admittedly, bad experiences with such documents helped
justify this decision: “A number of criminal investigations from the past crisis
have even failed in determining the authors and publishers of the prospectuses on the basis of which investors were solicited to subscribe to or take delivery of the shares.”
111 Only fifteen years later, when the legislators adopted the
Commercial Code (Handelsgesetzbuch), still in force today (1897),112 the attitude
had already changed: “Undoubtedly it is desirable to counter, as far as possible, the abuses that still exist. But the approaches that are worth consideration

106 “[A]ls eine Schule, in der man in alle derartigen Umgehungen des Gesetzes auf das Beste
eingeführt wird, als eine Akademie für die Uebertretungen der Gesetze” Lasker, REICHSTAGS-PLENARPROTOKOLL [Parliamentary record], Apr. 4, 1873 at 221 (Ger.).
107 Id.
108 Gesetz, betreffend die Kommanditgesellschaften auf Aktien und die Aktiengesellschaften
[G], July 18, 1884, RGBL. at 123-70; for an index of the sources, see Fleckner, Gesetzgebung, supra note 10, at 999, 1049-53.
109 “Der Entwurf . . . sucht . . . zu vermeiden, dem Börsenverkehr, soweit dessen Manipulationen sich mit der öffentlichen Moral vereinbaren lassen, Fesseln anzulegen . . .”
Besondere Begründung zum Entwurf eines Gesetzes, betreffend die
Kommanditgesellschaften auf Aktien und die Aktiengesellschaften (explanatory notes)
[Stock Corporation Reform Act] March 7, 1884, REICHSTAGS-DRUCKSACHE 21/1884,
supp. vol., at 316, 345 (Ger.). Also noteworthy are a few passages in the general report; see
Allgemeine Begründung (general report) [Stock Corporation Reform Act], id. at 215, 236,
241, 281, 315 (Ger.).
110 See id. at 215, 267.
111 “Eine Reihe von strafgerichtlichen Untersuchungen aus der verflossenen Krisis hat nicht
einmal die Verfasser und Veröffentlicher der Prospekte, auf Grund deren zur Zeichnung
oder Abnahme der Aktien aufgefordert wurde, ermitteln können.” Id. at 215, 260.
112 HANDELSGESETZBUCH [HGB] [Commercial Code], 

May 10, 1897, RGBL. 219-436 (Ger.);
for an index of the sources, see Fleckner, Gesetzgebung, supra note 10, at 999, 1054-56.
538 Virginia Law & Business Review 7:513 (2013)
are to a lesser degree those of corporate law than those of exchange law.”
After this brief survey, it becomes apparent that before the end of the
nineteenth century, Germany had hardly any exchange regulation that would
constitute stock exchange law in a technical sense. It would obscure the picture of the past, though, to stop at this point because many of the later Exchange Act’s goals were pursued through other regulatory strategies. To the
modern observer, those strategies do not look unfamiliar, but resemble
measures that would today be qualified as provisions of securities or corporate law. A functional analysis of the stock exchange law’s evolution would
miss an important part of the picture if it ignored these regulatory approaches. The following sections give a brief overview.

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