Blue Skies and Boiler Roomsis one of two volumes dealing with the evolution of public securities markets in Canada. This book examines the trading of stocks and bonds from its origins in the mid-nineteenth century through the Great Depression of the 1930s. Buying and selling shares was little known before Confederation, when people usually invested their scarce savings in real estate and other kinds of property. By the late 1920s, however, Canadians from all walks of life were rushing to get in on soaring stock prices, purchasing even the most speculative issues in the hopes of a quick killing....

Stocks and bonds have been traded for centuries, and great commercial cities such as London and Amsterdam developed busy stock exchanges at a very early date.¹ In Britain’s North American colonies, joint-stock banks began selling shares by the 1820s, and after mid-century, railways also became important security issuers. Governments, too, began to market bonds and debentures to finance public works schemes.² Suspicions about the joint-stock corporation as a form of business organization, which were linked to its association with monopolies, gradually evaporated as North American entrepreneurs and investors came to appreciate the advantages of limited liability.³ As the ownership of...

Between 1896 and 1913 the Canadian economy enjoyed one of the greatest booms in its history as the gross national product increased at an annual average rate of 4.2 per cent.¹ Canadians poured their savings into banks, insurance companies, and other investments at an unprecedented rate. Ian Drummond has estimated that between 1901 and 1914 public issues of corporate securities (excluding mines) totalled $572.7 million, while net purchases of new securities, both public and private, equalled $782.2 million. Since institutional buyers such as banks and trust and life insurance companies absorbed about 43 per cent of these, individual buyers took...

The discoveries of gold and silver around the turn of the century and the wave of popular interest in mining shares that resulted had a significant impact on Canada’s stock exchanges. In the depression of the early 1890s, exchange members in Toronto and Montreal were barely scraping by, surviving only through dealing in real estate, insurance, and other commodities as well as securities. By the time of the First World War the Toronto and Montreal Stock Exchanges had greatly increased trading volumes, which resulted in a sharp rise in seat prices. That very success quickly led to the appearance of...

By 1910 the Canadian economy had been booming for more than a decade. Montreal continued to enjoy its place as the country’s business and financial metropolis, while Toronto prospered from the rich gold and silver finds in northern Ontario. Hopeful migrants from home and abroad swarmed onto trains bearing them westward to the rich wheat lands of the prairies, where cities and towns, large and small, strained at their seams. Beyond the Rocky Mountains the fisheries, forests, and mines of British Columbia held out equally alluring prospects for development. Boom times, however, played right into the hands of unscrupulous share...

The First World War had an enormous impact upon securities markets in Canada. First of all, the European crisis in the summer of 1914 led the country¹s stock exchanges to close completely for several months. When they finally did reopen, they operated under special restrictions for nearly two years. Peacetime rules were reinstated in mid-1916, but a further crisis near the end of 1917 led to the reimposition of controls which were not lifted entirely until after peace had finally returned in 1919. Secondly, the financing of the war effort by the federal government required it to assume a much...

Joseph Xavier Hearst arrived in Winnipeg from the United States in 1920. He married a local woman, and together they established the Canadian Regalia Company to manufacture ceremonial garb for lodges and fraternal associations. This enterprise did not prove a success and soon went bankrupt, but its failure did not stand in the way of Hearst’s other, grander plans. He claimed to be a composer and marketer of popular songs, and in July 1921 he incorporated the Hearst Music Company as the first step towards cornering the market in the publication of sheet music, a rapidly growing business at that...

Trading on stock markets in Canada soared to unprecedented levels during the late 1920s. Not only did volume rise sharply on the well-established exchanges in Montreal and Toronto, but there were even more dramatic increases in dealings in speculative mining shares, which were conducted principally on the Standard Stock and Mining Exchange in Toronto and on the Vancouver Stock Exchange. These were palmy days for the brokerage community as people flocked to buy shares on margin in the expectation of continued rises.

As investors poured their money into stocks, pressure increased to make certain that swindles became a thing of...

By 1929 I.W.C. Solloway was one of the best-known financial men in Canada. In just three years Solloway, Mills and Company had become the country's largest brokerage, with over 1,000 employees serving up to 70,000 clients through more than thirty offices spread through every province, as well as branches in Newfoundland, Britain, and the United States linked together by more than 13,500 miles of private wire to transmit information and orders. The firm held eighteen seats on various stock exchanges dealing mainly in speculative mining and oil shares. ‘Ike’ Solloway did more than a quarter of all the trading on...

The stock-market crash of 1929 and the arrest and conviction of many of Canada’s leading mining brokers in 1930 seemed the sternest possible test that the financial community could be asked to face, but the next couple of years proved an even stiffer trial. The reputation of the brokerage fraternity had already sunk pretty low, since it was blamed for bringing about the crash by pooling, bear raiding, short selling, and bucketing. Yet with the economic depression worsening, share prices continued to slide, and in the autumn of 1931 an international economic crisis threatened to overturn the entire capitalist system...

Why was the brokerage community in Canda so severely wounded by the depression of the early 1930s? Theoretically, brokers simply executed orders to buy and sell securities. True, the serious decline in the volume of trading cut deeply into commission income and necessitated the letting go of many of the customers’ men and clerks hired to handle the volume of business before the crash. Beyond this, however, could most firms not have weathered the storm without undue hardship? In practice, of course, the situation was much more complex and difficult. First of all, there was the matter of margin business:...

Although the volume and the value of share trading declined sharply during the early 1930s, the impetus for the reform of securities markets remained strong. Investors who blamed the brokers and the exchanges for the crash of 1929 and its aftermath sought to punish the culprits and ensure that there could be no repetition. Though the Depression almost ended the flotation of new issues, the determination to impose regulation in order to prevent the reappearance of abuses did not evaporate. Doubts persisted, however, about the constitutionality of key sections of the provincial Security Frauds Prevention Acts. Because Ottawa refused to...

Securities markets in Canada enjoyed a brief revival in 1933 and 1934 as a result of a boom in mining shares. Almost at once securities regulators found themselves facing renewed challenges to their authority as fly-by-night promoters materialized just as bold and brassy as before the crash. In British Columbia, for instance, two complaints about mining promotions led to the launching of formal investigations under the provincial Security Frauds Prevention Act. The response of the promoters, however, was to go to court and try to block the release of the results of the investigations, claiming that their legal rights had...

March 20, 1937, gave the members of the Toronto Stock Exchange more to celebrate than they had had for years. Decked out in white tie and tails, they gathered for a banquet to celebrate the opening of their splendid new premises on Bay Street. The lieutenant-governor of Ontario and the president of the University of Toronto were on hand to propose the toasts. Then the main speaker of the evening, Charles R. Gay, president of the New York Stock Exchange, expatiated upon the vital role of stock exchanges in the modern economy and lauded the TSE’s new set-up as the...

Share prices and trading volume on Canada’s stock exchanges did not revive during the late 1930s. This failure stemmed partly from the conviction that another general European war was becoming increasingly likely and partly from the impact of fiscal policy. Believing that a balanced budget was the best stimulus for economic growth, Ottawa curtailed spending in 1937 to reduce the federal deficit, which had ballooned during the Depression, and in doing so it dampened recovery. After the Munich crisis in 1938 the conviction that war with Germany was unavoidable became increasingly widespread. Many investors preferred to stay on the sidelines...

Canadians like to think of themselves as cautious and conservative. Yet for all their churchgoing and insurance buying many of them have proved quite ready to take a flyer on the stock market. Beginning in the 1890s the appearance of low-priced shares in speculative mining companies offered an easy way to gamble when there were few other legal alternatives. Penny stock could be purchased on the basis of the latest rumours from the mines or simply as an outright speculation in hopes of a quick profit. If a mining property proved barren, investors could only curse their ill luck and...