Although in some cases Stock Exchange transactions are done for money and settled by immediate transfer or delivery of securities in exchange for payment, the vast majority of bargains are made for the current account and arranged at the next settlement. The Stock Exchange settlement extends over three days, and at one o'clock on the first of the three—one o'clock in theory, but earlier in practice—the old account ends, and business subsequently transacted falls into the new account. The length of an account is generally about a fortnight, a settlement occurring about the middle of each month and again at the end. But British Government securities and India stocks are not dealt with at the general fortnightly settlement; they have a special settlement of their own, the Consol settlement, occurring once a month, about the beginning.

In the course of each settlement there are three distinct operations, to each of which is devoted one of the three days. The first day is Contango or Making-up day, the second is Ticket or Name day, and the third is Settling or Pay day. For shares dealt with in the Mining Market there is an additional Contango day, on the business day preceding the commencement of the settlement in other securities, making the mining settlement actually extend over four days. If the business day should be a Saturday, then the Friday is the additional Contango day, so that the mining settlement extends over six days.

Contango day is the day on which members, who wish to postpone settlement of their bargains, carry them over to the following account. On the next day, Ticket day or Name day any member who intends taking up registered securities that he has bought during the account, has to hand to the member from whom he made the purchase a ticket bearing the amount and name of the security bought; the name, address, and description of the transferee, that is, the buying member's client, the price, and the date and the name of the member to whom the ticket is issued. This ticket is really a demand for the due delivery of the securities purchased. Now it often happens that the member to whom this ticket is handed is not in possession of the securities he has agreed to deliver, having bought them during the same account from some other member. In this case he endorses his seller's name on the ticket and passes it on. The ticket thus gets handed on from seller to seller until it ultimately reaches the member whose client actually has the securities and intends to deliver them.

This process of passing tickets is greatly facilitated by the operation of the Settlement Department or Clearing House. It is not every member of the Stock Exchange who belongs to the Clearing House, nor is it every security that enjoys the benefit of its operations. But in cases where it can be used, this is the process. On Contango day each member prepares a "clearing sheet" for each security in which he has dealt. This sheet may, of course, show many sales and many purchases, each to or from a different member, but all that the member who has prepared the sheet has to concern himself about—in so far as the securities are concerned, and it should be noted that the Clearing House only clears securities, not money—is the delivery or receipt of the difference between his sales and his purchases; the Clearing House does the rest. If, for instance, a member's sheet shows that he has bought a total of £6,000 of a certain stock, no matter in how many different bargains with different members, and has sold £5,000; then, instead of a separate ticket having to pass through his hands for each separate bargain, the Clearing House discovers from the other sheets some member who has sold £1,000 more than he has bought of the particular stock in question. The passing of the stock is then adjusted by bringing these two members together. The way in which all bargains which come within the Clearing House are cleared off can be easily grasped when it is recognised that for every bargain there are both a buyer and a seller. But the Clearing House has nothing to do with the adjustment of the different prices at which securities are bought and sold. In fact, all bargains dealt with by the Clearing House are passed through the accounts at a fixed price, the "making-up price," and the securities have to be paid for at that price. The settlement of differences has to be arranged in the accounts between member and member, and this brings us to the business of the last day of the settlement, Pay day, the real day of settlement.

On this day all differences have to be paid, and all members who have to deliver securities must be prepared to hand them over in exchange for payment, although in the case of registered securities a further period of ten days is allowed for delivery. Now it is laid down as a rule of the House that all differences must be paid by a cheque on a bank which is a member of the Bankers' Clearing House. By this rule it is secured that every member has both to pay and receive differences at the same time, and the differences which a member receives are directly pledged, as it were, for payment of those he has to give. No grace is allowed for payment of differences, and a member who is unable to meet his engagements is at once declared a defaulter. In the case of the delivery of securities, ten days' grace is allowed after the settlement, as has been mentioned. When a seller has not within the ten days delivered the securities he has sold, the purchaser can have an equal amount of the same securities bought in by an official of the Stock Exchange. This is done by open auction in the House at the lowest price at which the securities are offered. The seller who has failed to complete his bargain has, of course, to bear any expense incurred, and has to pay the difference if the buying-in price exceeds the price of the original bargain. Conversely, as we have seen, when a member who has sold stock does not receive for some reason or other a name into which to transfer it within the appointed time, he may resort to the process of selling out.

This outline of the procedure at a settlement is a general one, and applies to the bulk of Stock Exchange bargains. It has exceptions, however. For instance, securities to bearer are dealt in without any passing of tickets. But the main principles remain the same in all bargains done for the account; and it needs no further explanation to demonstrate how greatly the fixed fortnightly settlement facilitates Stock Exchange transactions. Briefly it means that all sellers of stock agree to deliver on the same day, upon which the buyers are prepared to take it up and pay for it; and that when there have been many dealings between members in the same stock, it is only the balance that has to be transferred.

Bargains in the scrip and securities of a new loan or company are consummated at what is called the "special settlement." Members of the Stock Exchange can buy and sell between themselves and outsiders to their hearts' content, but although there may be mutual arrangement for payment of money and delivery of stock, from the point of view of Stock Exchange law no payment need be made and no shares delivered until the special settlement. The Stock Exchange Committee appoints the special Settling day on the application of members interested in bringing about a completion of the bargains. Before it will fix the day, the company, the bargains in whose shares have to be settled, has to comply with certain formalities to the satisfaction of the Committee. The Committee requires certain documents showing that the company has been incorporated, on what terms the shares have been issued, how many have been issued to the public in proportion to the amount of the company's capital, and so on. It has also to be shown that the share certificates have been issued, or that they are, at least, ready for issue, for obviously it would not do to compel the delivery of and payment for share certificates which have not yet appeared.

The formalities seem simple enough, and yet there is very frequently considerable delay, giving rise to much protest, in the granting of a special settlement. In the majority of cases, this delay seems to arise from the desire of some of those connected with the company to put off the day of reckoning. They may have been buying the shares heavily in order to make the company cut an attractive figure in the public eye at its outset, and may not be over-anxious for the settlement day to arrive before they have had an opportunity of unloading the shares they have bought. At all events, the difference between the long time it takes to obtain a special settlement in the shares of some out-of-the-way mining company, and the short time it takes to obtain one in the case of some great Government loan not subjected to manipulation, is often remarkable. Generally speaking, bargains in the shares of new companies and loans are done for the special settlement, and if no special settlement is granted, these bargains are off; but the instances in which the Stock Exchange Committee refuses a special settlement are very rare indeed. When once a special settlement has been granted and taken place, bargains in the securities are settled at the ordinary Stock Exchange settlements as they occur; in fact, a special settlement is merely a first settlement.

The special settlement is a necessary preliminary to official quotation, the formalities in connection with which are explained in a subsequent chapter. As will be seen, only a small proportion of the securities in which transactions occur are officially quoted, but no official quotation is granted until after the special settlement has taken place.