For the entirety of the 19th century, Paris had two stock exchanges. One was the official Paris Bourse, relatively well-regulated and selective in its listing of securities. The other was an unregulated market called the Coulisse. The Paris market was big enough for both exchanges and perhaps needed both of them, in contrast to the assumption that stock exchanges are natural monopolies where all business gravitates to the exchange that can provide the most liquidity. In the end, the diversity of securities, their issuers, and their traders, meant no single exchange, subject to a single set of rules and listing criteria could satisfy the needs of the entire market.
The Paris Bourse had its origins in a royal decree from 1724. It was the result of an effort to regulate the stock market after a massive speculative episode called the Mississippi Bubble, which occurred nearly simultaneously with the much more well-known South Sea Bubble in London. By decree, the right to buy and sell securities was conferred on sixty brokers appointed by the Ministry of Finance, the agents de change. These stockbrokers would function as civil servants, closely watched over by the state.
This official stock exchange would be called the Parquet. Trading took place mainly in government debt, for just one hour a day, in a room on Paris’s Rue Vivienne. Agents de change traded only on a commission basis as brokers, and not for their own accounts, as the law required. Trading activity was very limited compared to exchanges in London or Amsterdam and the Parquet could not absorb large orders.
The Parquet would close altogether during the French Revolution. In 1801, it reopened and remained under government control while possessing an official monopoly. In 1805, the agents de change formed an exclusive guild with government approval, the Compagnie des Agents de Change, or CAC.
The growing size of the bond market after large state borrowings in the 1810s led to new developments to encourage investment in securities. Pricing was made transparent as agents de change would announce their orders in an ‘open outcry’ and these orders matched to establish a clearing price in a fairly transparent setting; prices were then published. Also, a permanent fund was established in 1822 to guarantee the obligations of brokers who held cash or securities on behalf of other brokers or their clients. This fund would be enlarged to six million francs in 1852. Inspections of agents’ accounting books began in 1846. In the 19th century, the Parquet generally became more regulated and professional.
The Parquet was not the extent of the Paris securities market. An unofficial market was formed nearby at the Palais Royal. It was called the Coulisse. Membership was free; anyone could become a coulissier. The Coulisse welcomed dealers who held their own inventory of securities, as opposed to brokers alone as the Parquet had.
The banks emerging in the 19th century favored the Coulisse since they could trade freely there without an agent de change acting as an intermediary. The bank Crédit Lyonnais even hosted the coulissiers in its headquarters for years. At the beginning of the Coulisse’s 19th century history, the differentiation between the Coulisse and the Parquet came to the investors and traders served and not in the types of securities traded, since government bonds were the extent of the securities market in those days.
Trading on the Coulisse was quicker but less transparent. Coulissiers traded bilaterally rather than in a public ‘open outcry’ format and so prices were not recorded or published. However, because dealers held their own inventories of securities, trades on the Coulisse could be more speedily executed.
There was a strict legal separation between the official Paris Bourse and the Coulisse. Agents de change were prohibited from operating at the Coulisse or entering into partnerships with the coulissiers. Still, the government put up with the existence of the Coulisse because it benefited from the liquidity it provided to state bonds, at least when markets were performing favorably.
Competition and Coexistence
Technically, trading in French government bonds, called rentes, was the preserve of the official market, the Parquet. No transfer of rentes could take place without an agent as an intermediary. However, taking advantage of a legal gray area, the Coulisse did develop a bond futures market, where rentes were traded for future delivery outside of the Parquet’s monopoly. This futures market became considerably larger than the ‘spot’ market at the official Bourse. Some 95% of all trading in rentes was done in the futures market by 1894-95. Illustrating why the state tolerated the coulissiers, the Coulisse’s trading in government bond futures helped the state place its largest 19th century loans on the market.
Just as how they divided the business of trading rentes, the two exchanges were largely complementary in other ways. For example, most corporate securities, which did not meet the higher listing requirements of the Parquet, traded on the Coulisse or on provincial exchanges outside Paris. Initially, so too did foreign securities that could not be listed on the Bourse early in the 19th century. Simply put, the Parquet was not the right home for novel securities. Nor could the Parquet always handle large orders by itself. The official Bourse relied on the coulissiers to absorb orders that could not be matched on the Bourse. Recall that the Parquet’s agents de change could only act as brokers, unable to take orders themselves.
The distinction between a ‘wild’ Coulisse and an ‘orderly but sleepy’ Parquet would gradually diminish. The Coulisse adopted a more formal structure after many coulissiers were bankrupted by the crisis of 1847-48. Both exchanges eventually competed in hosting trading in foreign bonds. Agents at the Parquet and coulissiers at the Coulisse competed for the orders of banks by offering rebates on their fees. The Coulisse had an illicit advantage in allowing trading of foreign bonds without payment of a tax required of bonds issued in France. Still, both exchanges succeeded in attracting foreign bond issuers to the Paris market in the late 19th and early 20th century.
Since the very start of the 19th century, the Parquet and the Coulisse were complementary markets, both serving the needs of investors and issuers of securities. However, whereas the Parquet was the official market, the Coulisse remained in a legal limbo. Reforms gradually changed this.
The ability of the agents de change to form limited liability partnerships with outsiders came in 1862. The list of securities traded at the Parquet grew when, in 1843, the official exchange listed new securities in industry and trade. The breadth of trading at the Parquet continued to grow in the 19th century and trading volumes grew as well. Also in the 19th century, some of the legal advantages of the official exchange were removed. The legal ambiguity of forward contracts was closed with official recognition in 1885 and, that same year, the law recognized the Coulisse as a legal trading venue for unlisted securities.
However, the French government continued to favor the Parquet. It imposed a tax on trading in 1893 that disproportionately affected the Coulisse. Then, a crash in mining stocks caused such mayhem at the Coulisse that the government decided to restore the Parquet’s monopoly in trading certain securities. The Coulisse responded by becoming more organized. It began to operate more transparently. The exchange published prices and introduced membership and listing criteria.
In 1898, while the coulissiers were required to thereafter route orders for listed securities though the Parquet, the Coulisse did in return receive greater official recognition as the principal market for both foreign securities and new corporate ones. The reforms also forced improvements in the operation of the Parquet. The number of agents de change expanded from sixty to seventy in 1898 to handle growing business at the Bourse, which was physically enlarged. Maximum commissions were also reduced.
The competition, cooperation, and legal evolution of the market allowed for tremendous growth in French finance. The market cap of stocks and bonds listed in Paris in 1906 stood at three times French GDP. Trading volumes on the Paris securities market reached a ratio to French GDP in the early 20th century similar to levels from a century later. The market was the most liquid it had ever been. Most of this activity took place in the futures market. Indeed, derivative contracts’ share of total Paris trading volumes were higher in 1906 than in 2006.
The reforms of 1898 inaugurated a period of greater cooperation between the two exchanges while the Paris market was in its heyday. Paris came to be the largest market for government bonds globally by 1914. It was truly a premier global financial center; in this period, 72% of capital raised in Paris went abroad. As for the Parquet and the Coulisse, there were by now serious discussions to merge the two exchanges. However, this project was interrupted by the First World War.
Change and Combination
After the First World War, various governments in Europe came to prioritize domestic investment over investment abroad. To this end, various taxes and regulations introduced after the war lessened the role of Paris as an international financial center. The Coulisse survived, replacing foreign securities with French ones in new industries like cinema, photography, and automobiles. By 1929, the Coulisse had 334 listed French companies as compared to 139 in 1921.
The years after the Second World War saw heightened state interest in tightly controlling the securities market, as was the case after the First World War. This entailed centralization. The result was that the Coulisse merged with the Parquet to form a single unified Paris Bourse in 1961 and the provincial exchanges outside Paris soon disappeared.
Though the Coulisse had formed as a circumvention of the law, legal recognition of the Coulisse was an eventual admission of its usefulness. Legal recognition also made the Coulisse look more like the official Parquet with time. Simultaneously, the increasing breadth of listed securities and larger scale made the Parquet look progressively more like a modern exchange.
Despite this convergence, why did an independent Coulisse last so long? Simply put, no single set of rules could accommodate all issuers and traders of securities. Some required certain conditions, less restrictive, and some required other conditions, more selective and protective of investors’ interests. Even today, no monolith like the New York Stock Exchange or Euronext Paris handles trading in all securities. Even today, there are broker-oriented exchanges, not unlike the Parquet, and dealer-oriented over-the-counter markets, not unlike the Coulisse. Plus ça change.
More from the Tontine Coffee-House
1. Hautcoeur, Pierre-Cyrille, and Angelo Riva. “The Paris Financial Market in the Nineteenth Century: Complementarities and Competition in Microstructures.” The Economic History Review, vol. 65, no. 4, 2011, pp. 1326–1353.
2. Lagneau-Ymonet, Paul, and Angelo Riva. “Trading Forward: The Paris Bourse in the Nineteenth Century.” Business History, vol. 60, no. 2, 2017, pp. 257–280.
3. Michel, Ranald C. The Global Securities Market A History. Oxford University Press, 2006.