Page 15 of Murder at Somerset House (A Wrexford & Sloane Mystery #9)
“However,” he continued, “with Napoleon now safely locked away on the isle of Elba, the government will likely only need to float a small loan this year. Thus Ricardo may not need to form a syndicate of fellow stockjobbers, bankers, and other investors to finance the needed funds. So he’ll be working on other financial projects. ”
“And you wish to work with him on those new projects?” asked Cordelia.
“Given the volume of trading he handles, he’s open to accepting extra capital from personal acquaintances.
If you agree, I would like to invest some of our savings in his ventures,” replied Sheffield.
“I think it will not only give us a good return on our money but also allow me to learn more about the world of finance and how the London Stock Exchange works.”
He allowed a fraction of a pause before adding, “Ricardo is highly mathematical in his approach—”
Cordelia cut him off with a chuckle. “You need not coat your tongue with honey in order to win my approval, Kit. I’m well aware of Ricardo’s genius with numbers. In fact, I’ve already agreed to work with him in refining the mathematics he uses in his business of buying and selling on the Exchange.”
Another chuckle. “In fact, I was just about to broach the same question to you about investing in his firm.”
Sheffield added his own bark of humor. “And here I thought I was being exceedingly clever.”
Seizing the opportunity offered by the lull in the conversation, Raven cleared his throat and rapped his knuckles on the door.
“Come in, come in!” called Cordelia, on spotting him peering in from the corridor. “Forgive me. Did I forget that we had scheduled a lesson?”
“No, I—I just had some questions …” Raven hesitated.
“You are always welcome to ask me anything,” assured Cordelia.
“You and Mr. Sheffield have mentioned buying and selling securities on several occasions. I’m curious to know more about the London Stock Exchange and how it works.”
“Excellent,” said Sheffield. “Why don’t I start with a brief history of how it came into being?” He gestured for Raven to join them at the small worktable. “And then we shall get into some of the details of stock and securities trading.”
Raven leaned forward, an expectant look on his face.
“To begin with, the first stock exchange in England was the Royal Exchange, founded in 1571 by Thomas Gresham with the approval of Queen Elizabeth I. As for the London Stock Exchange, it had its roots in Jonathan’s Coffee House near the Royal Exchange,” explained Sheffield.
“A number of stockbrokers were banned from the official exchange because of their rude and rowdy behavior and began meeting there informally to trade among themselves. One of them, a fellow named John Casting, began creating broadsheets several times a week listing the prices of commodities, offerings, and exchange rates. And these informal sales continued well into the 1700s.”
“It sounds like it wasn’t for the faint of heart,” observed Cordelia.
“Indeed not,” agreed Sheffield. “It wasn’t until 1801, after a series of frauds had occurred, that the informal group required an annual membership, which turned it into a subscription room, open only to members.
They then moved to their current building on Capel Court—and that led to them being formally recognized as the London Stock Exchange. ”
Sheffield leaned back in his chair. “But despite its long history, the London Stock Exchange as we know it is in many ways quite new. It didn’t have a formal set of rules governing trading until three years ago. Before then, its activities were mostly governed by informal practices and customs.”
“Mr. Ricardo helped draft those rules,” interjected Cordelia. “Which he told me were much needed to create a more orderly and much larger market and to reduce fraud.”
“It’s also important to note that the name Stock Exchange is a bit misleading,” said Sheffield.
“Most of the securities traded there are in fact bonds issued by the British government. Because of the wars with Napoleon and all our earlier military activities, nearly ￡1 billion of British public debt is outstanding.”
“Oiy!” Raven’s eyes widened on hearing the sum.
“Other securities, such as shares of companies, constitute only a small portion of the financial market. Mr. Ricardo and most other professional investors focus mostly on government bonds,” continued Sheffield.
“It’s interesting to note that many of the securities issued in Britain are held by foreigners.
Almost half the British public debt is held by Dutch bankers. ”
“I didn’t know that,” said Cordelia.
Raven, who had been following the explanation intently, cleared his throat. “After hearing all this, I have a big question. Can mathematics really be used to make sure one always makes money trading stocks and securities?”
“It’s not quite that simple,” answered Cordelia.
“There are a myriad of factors which affect the value of a security or how a given transaction will fare. However, Mr. Ricardo believes that by using mathematics in a variety of ways to model these factors, he can substantially increase his likelihood of making winning investments. And even if mathematics only gives him a slight edge in choosing what to sell and what to buy, that can amount to a great deal of profit if it is done consistently in large volumes over a long period of time.”
Raven’s face scrunched in thought.
“Here’s just one example,” offered Sheffield.
“Almost every year he forms a syndicate with other investors to buy bonds from the government when it makes its annual effort to raise funds needed for the military or other major endeavors. The syndicate, or syndicates, which win the bid take the securities and resell them to a large group of other investors—”
“That is how individual investors have access to buying them,” explained Cordelia.
Sheffield nodded. “The syndicates aim to resell these securities at a higher price than they paid for them. But the securities bought from the government are a complicated package of different types of bonds. Estimating what the public will be willing to pay for them requires a great deal of market savvy and analysis. And the fact that the syndicates can pay for the securities in a variety of installments creates even more variables—but I’ll leave all that for another time. ”
“Adding to the complexities of the calculations,” added Cordelia, “is the fact that if full payment is made for the securities before a specified date, the government offers an astronomical discount on what the syndicate has to pay for the bonds.”
Sheffield nodded. “As we said, it’s complicated.”
“Mr. Ricardo has been seen as especially talented in his ability to quickly formulate sound and ultimately successful bids for government bonds,” continued Cordelia.
“He has also been praised for not playing some of the unscrupulous games that other syndicates play to increase their profits at the expense of the public.”
She thought for a moment. “If you are interested in all this, I think your mathematical skills would be a great help to me in working with Mr. Ricardo. Would you like to serve as my assistant on the project?”
Raven’s eyes widened. “Really?”
“Absolutely.” Cordelia saw Sheffield waggle his brows and quickly added, “Though, of course, we must confirm that Wrex and Charlotte have no objection.”
Raven’s face fell. “They’re in a pucker because of the dratted gunshot. I fear they’re planning to clip our wings and try to lock us away in a gilded cage.” His chin came up. “I won’t have it.”
“Of course they’re concerned with your safety, lad,” said Sheffield. “We all are. But that said, I doubt they have any intention of—”
“Demanding that we behave like dull-witted little aristocratic prigs?”
“Good Lord.” Cordelia appeared utterly shocked at the idea but then began to laugh. “Oh, come, not even in your wildest nightmares can you believe that’s a possibility.”
Raven allowed a grudging grin. “I suppose not. But they have been very strict about not allowing us to be part of the current investigation.”
“I think that’s because none of us are at all certain of what we should be investigating,” said Sheffield. “The murder at Somerset House and the attack on you Weasels are both incidents fraught with questions and possible complications. But whether they are related is impossible to say right now.”
“Even more reason to let us Weasels help.” Raven looked at Sheffield. “I am quite certain that the villains in the warehouse were handling stocks and letters of credit and talking of bond issues—”
“As does every legitimate businessman,” countered Sheffield. “Let us see whether Wrex’s chemical bath coaxes any clues from the burned scraps before we seek to make any connection between the two incidents.”
“Very well,” conceded Raven. “But … but it seems to me that if the Stock Exchange is such an important and powerful force in the financial world, it can be used for Evil as well as for Good.”
Sheffield gave a sardonic grunt. “As can most things that we mortals create. Nonetheless, you’re right.”
“So, that’s what got me thinking that perhaps the men I saw in the warehouse were involved in some havey-cavey scheme,” pressed Raven.
“As I said, let’s not jump to conclusions,” responded Sheffield. “For now it’s best to wait and see.”