The Russian Empire stock market regulation on the pages of the newspaper "Birzhevye Vedomosti": speculation and state control

Galushko Il'ya Nikolaevich Postgraduate student; Department of Historical Informatics; Lomonosov Moscow State University 27 Lomonosovsky Prospekt, building 4, Moscow, 119234, Russia i.galushko15@gmail.com Other publications by this author

The periodical press is one of the most important sources on the history of the stock market. And it's not just that we get valuable information from newspaper issues about the dynamics of stock prices, the agendas of shareholder meetings, and the balance sheets of commercial banks. Periodicals formed the information field of bidders, often setting the mood of the market. B.V. Ananyich in his fundamental work "Russia and International Capital (1897-1914) essays on the history of financial relations" studied in detail the activities of the agent of the Ministry of Finance A.G. Rafalovich, who had a separate budget to pay for the services of the French press to prepare local sentiments for the implementation of Russian government loans in the French market ^{[1, p. 75]}. The influence of periodicals on the stock market is undeniable. In this article, we would like to outline in detail how discussions about state regulation of the Russian Empire's stock market and securities speculation unfolded on the pages of one of the main stock market newspapers, Birzhevye Vedomosti, at the beginning of the 20th century. Here we join a large line of research in Russian financial history devoted to the correlation of the "speculative" and "fundamental" components in the operations of the stock market at the beginning of the 20th century. Researchers are wondering how much speculative transactions can affect the dynamics of securities quotations. There is even a separate theoretical trend that postulates the independence of markets from the actions of speculators in the long term; the so-called "efficient markets" hypothesis explains the movement of stock prices solely from the standpoint of a rigorous economic analysis of market conditions and enterprise reporting indicators. The current consensus is in favor of the fact that the influence of fundamental factors is revealed over a long period of time in the perspective of several years of exchange rate changes. Behavioral (i.e., psychological and speculative) factors manifest themselves on short-term time horizons within days, weeks, and months.

The monograph by L.I. Borodkin and A.V. Konovalova "The Russian Stock Market in the early twentieth Century: exchange rate dynamics factors" has entire sections devoted to this issue. By engaging in a discussion about efficient markets, the authors tested to what extent the exchange rate dynamics of shares of large enterprises depends on fundamental factors of economic development, such as profit. The results of research on the share prices of the Nobel Brothers Oil Production Partnership and the Putilov Plants Society turned out to be ambiguous: for the first company, there is a strong dependence of share prices on profit indicators; the situation with Putilov Plants is exactly the opposite ^{[2, p. 139]}. Researchers explain the reasons for this discrepancy by the impact of endogenous, related to stock speculation, and exogenous factors implying changes in the economic environment and the domestic and foreign policy situation ^{[2, p. 140]}. Russian Russian Revolution Studying the reaction of the stock exchange community to the events of the Russo-Japanese War and the First Russian Revolution, the authors came to the conclusion that the relationship of stock exchange sentiment and speculation behavior with external events is described as trends rather than as dependence. And although positive events caused the upward mood of the stock exchange in 82.6% of cases (according to the materials of the chronicle of "Stock News"), negative events were associated with the downward insistence of the stock exchange only in 46.5% of cases ^{[2, p. 186]}.

In the work "The structure and dynamics of the stock exchange index of pre-revolutionary Russia: stock market analysis of leading industrial companies" L.I. Borodkin and G. Perelman found that the long-term trends of the St. Petersburg Stock Exchange index coincide with the upward phase of the industrial cycle in other European countries ^[3]. According to the authors, these observations provide grounds for hypothesizing that the main factors in the rise of the St. Petersburg stock exchange index in the years following the crisis of the early 1900s were the influence of global stock markets and, possibly, speculative processes (an endogenous factor).

We would like to enter into the discussion under consideration from a slightly different position. It seems productive to try to analyze which issues from the life of the stock market were of concern to readers in principle and, accordingly, were reflected in the texts of relevant newspapers. Here, another interesting layer arises: what actions did the public expect from the state in various market contexts? What issues of stock market regulation pop up on the pages of newspapers? From the point of view of institutional analysis, it is extremely interesting to clarify the expectations of bidders from the regulatory authorities represented by the Ministry of Finance and exchange committees.

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As one of the main sources, we chose the newspaper Birzhevye Vedomosti (second edition), in the daily issues of which there was an exchange column, which published the official quotations of the St. Petersburg Stock Exchange, fixed at the end of the working day. The chronicler's commentary was published to this section, which described the mood of the bidders (sometimes due to events that had occurred, for example, news from the theater of military operations). Also, this section often included brief analytical reviews of the financial statements of individual enterprises. So, in issue No. 8742 dated March 27, 1905, the author of the note analyzes the results of the shareholders' meeting of the Nikolskaya Manufactory Partnership of Savva Morozov, Son and Co. and notes that gross profitability and, accordingly, profit for the year under review turned out to be lower than last year's values, which in turn reduced deductions "for the improvement and expansion of the enterprise", as well as the dividend on fixed assets. The value of this publication for our research is complemented by the fact that, in addition to the chronicler's column, other exchange-related notes can be found on the pages of Birzhevye Vedomosti: speeches by deputies of the State Duma on financial issues followed by a discussion; entertaining feuilletons; analytical articles; brief reviews of the agenda of the shareholders' meeting of individual enterprises; financial reports of commercial banks. A.V. Konovalova, in her article "Shares of oil companies at the beginning of the twentieth Century on the St. Petersburg Stock Exchange," called Birzhevye Vedomosti the most representative periodical ^{[4, p. 31]}. L.I. Borodkin and A.V. Konovalova consider the reliability of the newspaper's information to be "quite high.":

"All information placed on the pages of the publication was subsequently checked, the newspaper was fined for incorrect publications, and for a large number of violations it could be completely closed" ^{[2, p. 23]}.

An overview of the source is complicated by the fact that the archive of publishing documents of Birzhevye Vedomosti has not reached us, and therefore the activities of this publication are studied by the newspaper numbers themselves and by the memoirs of journalists.

Birzhevye Vedomosti, published by S.M. Propper, began to be published twice a week in 1880. Since 1881, Birzhevye Vedomosti was published four times a week, in 1882-1885 - four and five times a week; since 1885, the publication has become daily. Their circulation was low – about 500 pieces. The second edition of the newspaper, which appeared in 1893, was published more widely – 8 thousand copies each. The subscription price is 4 rubles. The Great Russian Encyclopedia calls this edition "cheaper and small-format" and reports that it was produced for the province. In addition to financial and economic topics, much attention was paid to the issues of zemstvo self-government. There is a version that the second Birzhevye Vedomosti was allowed to Propper by Minister Witte to combat criticism of certain government decisions in the stock exchange press ^{[5, p. 115]}. For example, S.M. Propper's study "Official sale of drinks and public Opinion" was published in the edition of Birzhevye Vedomosti, which proves the usefulness of S.Y. Witte's wine monopoly policy. It should also be mentioned that at one time S.M. Propper was suspected of blackmail: declaring those companies that refused to print his ads as uncreditable. However, as A.V. Konovalova writes, by the time the newspaper acquired significant influence (the period we are considering) She had to enjoy a certain public trust: it was no coincidence that in October 1905 the newspaper was bought by the Cadets ^[5]. However, the new newspaper under the name "Free People" lasted only a few weeks and was closed after the publication of the Manifesto of the Soviets of Workers' Deputies. Already in 1906, Propper cancelled the deal with the Cadets and re-established the newspaper under the old name. Next, we will look at how the key milestones of the institutional development of the stock market of the Russian Empire were reflected on the pages of Birzhevye Vedomosti.

By the end of the 19th century, the processes of financial globalization began in the world, and this time became the period of greatest prosperity for the Russian Empire. Russia's integration into the global economic space was driven by the liberal reforms of the 1860s, the expansion of transport infrastructure, and the widespread use of the telegraph. This integration led to the fact that at the end of the 19th century. The Russian Empire is becoming a consumer of capital exported from the "old" industrial countries. France was in first place in terms of investment, and Belgium was in second place. The average annual growth rate of large-scale industry in the Russian Empire over the past 25 years before the First World War was, according to various estimates, from 3.25% to 4.7% ^{[6, p. 61]}. It is interesting that in the political discourse of the period under review, there is a certain connection between the positioning of the state in the international arena and the value of its exchange values. In one of the issues of Birzhevye Vedomosti, in the column "Budget award", there is a dialogue between Deputy A.I. Shingarev and Finance Minister V.N. Kokovtsov ^[7]. In his speech, Shingarev actively accused the government of insufficient efforts to intensify the economic growth of the Russian Empire. Shingarev builds his entire report as a consistent criticism of the minister's reporting speech, in which he spoke on various positions of the global economic success of the Russian Empire. And one of Shingarev's lines of criticism was related to the fact that in his speech, "The Minister stated with some pride that our securities had not fallen very much" in the context of the pan-European crisis. It also expresses a rather popular idea that the high cost of public funds is the key to creating an image of a prosperous country in the eyes of European politicians. First of all, this concerns the prices of government loans.

The basis of the stock market system of the Russian Empire were commercial banks: they carried out the issue preparation and sale of securities of industrial enterprises, acted as exchange intermediaries, and were themselves major owners of equity: at the beginning of the 20th century, the merger of banking and industrial capital was particularly active ^{[8, p. 155]}. Financial and industrial groups and the corresponding trade infrastructure were formed. Business networks are emerging in cities where large stock exchanges were located. The influence of commercial banks can be judged by the active discussion in the State Duma on the formation of the capital's budget and the search for funds to solve pressing administrative and economic problems. Let's turn to the column "Can the city do without a loan from banks" in the "State Duma" section, published in Birzhevye Vedomosti ^[9]. There we find a detailed report by a member of the St. Petersburg City Duma on the organization of another loan to cover the municipal expenses of St. Petersburg for the construction of a new tram line. The author expresses doubts about the need for a new issue and believes that the sale of securities on the balance sheet of the City Duma will be able to meet the financial needs of the capital. The report is accompanied by detailed statistical calculations with reference to the "report of the St. Petersburg city Public Administration for 1911." The author also suggests that 5 years ago the mayor had already requested permission to conclude a short-term bond loan of 5 million rubles, "and the old-Duma majority allowed this financial "measure" (I.G.: quotation marks in the source)". Moreover, although the unnamed bank promised to open a public subscription to this loan and allow any domestic or foreign lender to form the bond price, as a result, the entire circulation turned out to be from this bank, while it was bought at a significant discount (82.75% of the nominal price of the bond). The author of the report notes that his current statement is due to concerns that a similar situation may happen again.

Many negative phenomena associated with the bureaucratic system of the Russian Empire naturally affected the sphere of stock market management as a result of excessive state guardianship. The materials of our sources, in particular, indicate the presence of administrative barriers imposed on persons of Jewish and Polish origin. By the beginning of the 20th century, this problem was recognized by the commercial and industrial circles and was part of the socio-political discussion. The well-known progressive politician A.I. Konovalov made a report condemning this practice in the State Duma. This report was reproduced in one of the issues of Birzhevye Vedomosti ^[7]. Part of the speech was the remark that the influence of the Ministry of Internal Affairs on the sphere of joint-stock establishment is unacceptable: "The Ministry of Trade must do everything possible to fight against the protective policy of the Ministry of Internal Affairs. The voice of the Minister of Commerce should sound powerful and strong here. Under other conditions, neither personal initiative, nor energy, nor capital feel at ease. The initiative is withering in the bud, capital is not flowing in, and the country's wealth remains dead." It is important to emphasize here that the periodical press has been one of the key sources of information about current discussions in the State Duma on the development of the stock market for the professional community and securities holders.

It is known that the end of the 1890s was a time of stock market hype. Newspapers wrote that it was no longer possible to interest the "public" with "eight-point" differences in the prices of rental securities: the thirst for fast money had accustomed society to daily changes in stock prices by tens of rubles ^[10]. The famous economist M.I. Tugan-Baranovsky, a contemporary of those events, wrote: "Huge fortunes were made by stock trading. Any citizen of St. Petersburg could easily convince himself, without the help of any tables, of the rapid development of the stock market game. It was enough to walk past the building of the St. Petersburg Stock Exchange, around which no movement was noticed in the early 90s and whose square was like a desert, and look at the endless row of carriages that now stood at the entrance of the stock exchange during the hours of stock meetings, to make sure of the change that had taken place. The passion for the stock market spread to wide circles of society; the official stock exchange could not accommodate everyone who wanted to take part in the exchange orgy, and some trendy restaurants hospitably opened their doors to stock market players for whom there was no place on the official stock exchange" ^[2]. The public's appetite was fueled by the availability of borrowed funds: credit institutions provided loans in the form of a special current account secured by securities to those who wanted to participate in the stock market game. This account is called oncol. And if commercial banks allowed cancer accounts to be opened when depositing large amounts of 1,000 rubles and issued loans in the amount of 50-75% of the exchange value of the pledged securities (that is, for 1,000 rubles. it was possible to buy 2-4 thousand rubles of securities), then it took about 150 rubles to open an account in a banking office ^[11]. Moreover, the loan amount could reach up to 90% of the value of the deposited securities (that is, to provide tenfold leverage – the opportunity to buy 1,500 rubles worth of securities on credit with 150 rubles on hand). The direct dependence of the cancer loan collateral on the exchange price of the pledged securities and the right of a bank or banking firm to sell securities pledged by customers on the open market if these securities significantly lose value and could not further ensure that the customer fulfilled its loan obligations created a situation of instability.

The popularity of stock trading in the mass consciousness may be evidenced by the fact that in one of the issues of Birzhevye Vedomosti, a story was placed in the feuilletons section about how a certain woman found a bundle of shares in a store that banker Borisov had lost. This banker was in the house of pre-trial detention on suspicion of embezzlement of these shares. It is curious that the editorial board expresses suspicion, since the shares "lost" in June were suddenly found in the store in September. The story was called "Lucky Girl" ^[12]. Presented as an anecdote, this story suggests that the general context of the "stock market game" was generally known to the newspaper reader. And the fact that a significant part of the issues of Birzhevye Vedomosti are completely devoid of a stock exchange chronicler column and consist of political and cultural chronicles can be considered confirmation that the newspaper's group of readers included people far from professional commercial and industrial activities.

In accordance with the established financial practice reflected in the charters of joint-stock companies ^[13], bondholders have always had a preferential right to receive coupon payments compared to shareholders of commercial companies. The need for an initial settlement with creditors before making depreciation and dividend payments was firmly fixed in the statutory documents. A prominent expert in the history of international financial markets, Ranald Michie, wrote that the idea of "commitment" as an indisputable need to repay debt in order to maintain the borrower's image was the most important revolution in European business culture, which determined the appearance of the financial system of Modern times ^[14]. We can see the continuation of this tradition in the Russian Empire in our material. In one of the issues of Birzhevye Vedomosti (June 14, No. 13597), we find an article "The Revival of the Sestroretsk Railway" ^[15], which contains a message from the chairman of the bankruptcy administration of the railway, the joint-stock company of which is subject to liquidation. The Chairman informs that work is currently underway to find a new owner, who is being considered by several foreign companies that have expressed their desire to participate in the purchase competition. It is noteworthy that in the very next paragraph, the chairman addresses the bondholders of the railway and informs them that two key conditions have been set for foreign companies: meeting the requirements of the bondholders and the technological reorganization of the railway.

An important feature of owning shares that give the right to receive a dividend was direct commercial participation in the life of the company. If the bondholders only provided their capital and bore only the global risks of bankruptcy of the company and, as a result, default on obligations, then the owners of shares could directly influence the fate of the company by voting at the shareholders' meeting. As a rule, issues related to the election of board members, the purchase of large real estate, the increase in fixed assets through additional issuance of shares and, of course, the payment of dividends were put to the vote. The stock exchange press was the main channel of communication between the board members and the shareholder community. In the issues of Birzhevye Vedomosti, we often find messages on the first pages (in the advertising section) about upcoming shareholder meetings of various enterprises with a planned agenda for discussion ^[16]. Also, through publications in the press, the boards of joint-stock companies brought to the attention of shareholders the results of meetings with brief voting results on key issues ^[16]. I.P. Manus, a well-known stockbroker of the early 20th century, in his critical article accused the management of Mantashev and Company of deliberately distancing the main shareholders from the management of the companies. It is noteworthy that the key point of the accusation was the lack of informing shareholders through an announcement in major metropolitan newspapers: "Do the Mantashevs, who submitted a random majority of shares (since no one from St. Petersburg would travel to Baku for the general meeting of shareholders) have the right to dispose of the dividend themselves, without even notifying the other shareholders through publication in the capital's large newspapers about the result of the exploitation of the oil business in 1901 and the action plans for 1902; and Mr. Mantashev did not even find it necessary to send the annual report for 1901 to any of the shareholders" ^[17].

Another interesting example is found in the discussion of the "Law on Bonds", the documentation of which is kept in the archival fund of the Moscow Stock Exchange Committee ^[18]. This set of documents allows us to trace the specifics of financial practice at the beginning of the 20th century in relation to debt securities, as the fund contains not only the draft law from the Ministry of Finance, but also detailed comments from the commission of the exchange committee. We assume that analyzing such a discussion is a productive way to learn about the specifics of exchange practice, which highlights the dialogue between market professionals and representatives of the regulatory authority. Thus, the committee's commission warns that the draft law sets too short a three-month deadline for not holding a meeting of bondholders, after which you can apply to the district court. The commission's review indicates that this may cause premature alarm in the money market in relation to the company, which may cause the exchange value of the debt securities on the stock market to fall ^[18]. Another important point for us concerns the requirement for board members to provide any information requested by authorized representatives from the meeting of bondholders. The Commission expresses doubts that the current wording will not entail the use of this information "for personal purposes" ^[18], which could potentially harm the company.

In the text of the practical guide "Stock speculation. Theory and practice" by A.A. Vasiliev we find another interesting remark, which the author raises to the rank of a well-known pattern of financial markets: the fall in stock prices, as a rule, is faster and lasts for a shorter period than the upward movement ^[19]. This pattern has also been described in detail in modern academic and applied literature on investment portfolio management theory. A.A. Vasiliev provides the following explanation: "There is always a company of people on the stock exchange who are interested in increasing, just as there is a company that directs its activities to decrease. Such companies consist of large banks that have entered into an agreement, and capitalists who lead the market. It should be noted that the upward tactics almost always develop slowly, while the downward ones, on the contrary, develop quickly. This reverse nature of upward and downward movements is explained in the very essence of the matter: all solid values tend to increase, since the more an enterprise has justified the hopes placed on it, the more natural the growth of its funds. But the justification of hopes requires time and real evidence, sometimes either unclear or deliberately obscured. On the contrary, completely accidental circumstances are enough to cause a rapid decline in the value of a very reputable enterprise: a water break in a mine, a disaster in an underground railroad, a large fire, a major strike – these are the moments that speculation uses to instantly reduce, i.e. justify the deals it has concluded" ^{[19, p. 73]}. In the context of our research, it is important to note that information about all the events that can be used by bidders to implement their strategy was published mainly on the pages of periodicals. That is why the press was considered one of the most powerful tools for managing market sentiment. For example, the rapid increase in the share prices of Baku Oil from 415 to 510 rubles in the period from early August to mid-September 1905 was associated with the news of the conclusion of the Portsmouth Peace Treaty. Here is a comment from the stock exchange chronicler "Birzhevye Vedomosti":

"August 16. "In view of the situation regarding the outcome of the peace talks that has not yet been clarified and under the influence of the decline in our values in Western markets, the general mood was rather weak at the beginning of the exchange..."

August 17th. "Under the influence of the conclusion of peace, the exchange for dividend securities was held in a very firm and lively mood. In a sharp increase at high speeds" ^{[2, p. 107]}

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In the presented article, the forms of displaying stock market life on the pages of the newspaper "Birzhevye Vedomosti" in the early 20th century were considered in detail. To summarize the results of the study briefly, it can be said unequivocally that in fact, the average bidder perceived the process of stock trading mainly through the prism of periodicals. Shareholders were informed about the results of the meetings through newspapers; the stock exchange chronicler briefly recounted the results of the trading day; reports to the State Duma on stock market regulation were published in the relevant columns. By studying the financial history at the micro level of individual stock market agents, we must strive to reliably restore the information field in which the bidders were. And as our analysis has shown, in any such study it is impossible to do without referring to the materials of the periodical press.