When a member of the Stock Exchange cannot fulfil his engagements, even if his position is brought about through no fault of his own, but by the default, say, of an important client, he may command much sympathy from his fellow-members, but this sympathy must not take practical form. Sometimes he does receive aid, but if so it is attended with considerable risk both to himself and to those who aid him, for the rules of the institution are most strict on the subject. The idea is, of course, that no member who is insolvent shall be encouraged to struggle against fate, for such a struggle usually means a plunge into wild speculation, making the last state of the Lame Duck worse than the first. When a member of the Stock Exchange finds that a fellow-member, who is his debtor, cannot meet his engagements, it is his duty, far from giving him time or any other consideration, to report the fact to a member of the Committee, and with the utmost celerity inquiry is made into the truth of the statement, and the insolvent member is immediately declared a defaulter. The news of insolvency is, as a matter of fact, very frequently communicated to the Committee by the unfortunate member himself, so that it does not fall upon his creditors to perform the unpleasant task.

The process of declaring a defaulter is called "hammering," because the Stock Exchange waiter, to whom a written announcement is handed, strikes the desk of his rostrum three times with his hammer to call the attention of those present to the dread announcement which he then reads out. As a matter of fact, two waiters perform the ceremony simultaneously in different parts of the House.

The member who is thus declared a defaulter loses his membership, and for all practical purposes he becomes in the eye of the Stock Exchange a bankrupt, his Stock Exchange estate being taken over by the two functionaries called the Official Assignees. He is by no means a bankrupt, however, in the ordinary sense of the term. His creditors in the Stock Exchange never make him a bankrupt legally, preferring, of course, their own arrangements for dividing the estate. Any outside creditor might obviously make him a bankrupt in accordance with the law of the land, but as a member of the Stock Exchange is not allowed to carry on any other business, his liabilities outside the House are usually insignificant compared with those within it. On the other hand, it is possible, although very unusual, for a member to be made bankrupt by outsiders, quite apart from his Stock Exchange engagements, in which case he ceases to be a member.

When a member is declared a defaulter, all bargains which he has open with other members are immediately reversed at the price ruling at the time of the declaration of the default, which is called the "hammer-price."

Suppose the defaulter has sold £100 stock to A at 95, and the hammer-price is 93, A must sell the stock back for £93, and rank as a creditor to the estate for the difference of £2. Suppose the defaulter has also bought £100 stock from B at £95, and the hammer-price is 93, B must buy the stock back for £93, and hand over the difference of £2 to the estate. In this way all outstanding bargains are cleared out of the way, and the Official Assignees, in their administration of the estate, have merely to pay as big a dividend as they can on the differences out of the debtor's assets.

Supposing the defaulter to be a jobber, and an outsider has sold £100 stock to him, through a broker of course, at 95. As it has fallen to 93 the jobber owes the outsider a difference of £2, and that outsider should in theory rank as a creditor for the amount. He would not, of course, lose any part of his stock, which he does not deliver, but his attempt to sell the stock has been rendered ineffective; and even if he was operating as a Bear, he has to rank as a mere creditor for the profit he would have pocketed had the jobber with whom he was dealing not failed. The outsider trusted his broker rather than the jobber of whom he knew nothing, and may feel it a hardship that his order has not been executed, or that he does not receive straight away the profit which he has made. To his mind the credit of the Stock Exchange and all connected with it have sunk to a low level. For such reasons as these, especially if the client is a good one, the broker, in practice, usually deems it expedient to bear the loss himself, and to hand over the profit. Outsiders are not often allowed to suffer by reason of failures of members of the Stock Exchange.

In the case where it is a broker and not a jobber who fails, the clients stand to be affected still less by the failure. The bargains open are between the clients on the one hand and the jobbers on the other, the broker being a mere agent or intermediary. The bargains are completed in the ordinary way without the further intervention of the broker, or another broker is selected to complete them. Cases have arisen in which the client has actually tried to turn the failure of his broker to his own advantage by declaring, when prices have moved against him, that the bargain is off altogether, or by claiming that the transaction should be closed at the hammer-price, when that price happens to be in his favour. Litigation has arisen over these points and does now arise; in fact, the state of the law as regards the relationship existing between outside clients and the Stock Exchange when its members fail cannot be said to be very clearly defined. One decision has abrogated another, and it can scarcely be said that any of the many intricate questions that arise have been settled definitely enough to carry conviction to the minds of dissatisfied and litigious clients.

The questions which arise between members of the Stock Exchange themselves are far more easily settled, thanks to the autocratic power of the Committee, to which members are amenable. A member does not care to offend the Committee, even if he feels that the treatment he receives at the hands of its officials constitutes an unjust hardship. The defaulter, who has to place himself unreservedly in the hands of the Official Assignees, giving up his books and so on, may feel less amenable, especially as he has ceased to be a member of the Stock Exchange, and has little to gain by obedient acquiescence, but considerations of the possibility of readmission generally assert themselves. These considerations are naturally important, because they mean the resumption of his profession. Any refusal to deliver up books, or any placing of difficulties in the way of the Official Assignees, means the postponement of readmission, if it does not render it impossible.

A defaulter may be readmitted upon application, if the small sub-committee appointed from the Committee to consider the case finds that he is entitled to readmission. As a result of an examination of his books showing the kind of accounts he had open, and as a result of an inquiry into his conduct preceding and subsequent to his failure, they report as to whether the failure has arisen through his own speculations or through the failure of his principals, whether he has been guilty of any bad faith or breach of the rules, whether the amount involved in his engagements was in reasonable proportion to his means and resources. Even where the conduct of a defaulter has been marked by indiscretion and by the absence of reasonable caution, the defaulter may be readmitted, but the decision of the Committee as to the readmission must remain posted in the Stock Exchange for thirty days, and the notice may indicate whether he is of the class of defaulters who have been brought down by misfortunes beyond their control, or of the class whose failure is brought about by rash speculation. In any case, no defaulter can be readmitted unless he has paid his creditors at least 6s. 8d. in the pound from his own resources apart from any moneys that may be receivable from his sureties. Moreover, the Committee expects that he shall make up any deficiency at the earliest possible moment until he has paid 20s. in the pound. For this reason the Committee periodically inquires into his position, and if a readmitted member were to become very prosperous and yet refuse to pay up his creditors in full, when the time for his annual re-election came round he might find himself left outside the fold.