§ 5. On Stock-Exchange Speculations

Preliminary note. In our days stock exchanges have obtained so much power that the welfare of nearly the whole people can depend upon them. For almost all great transactions of commerce are conducted on the Exchange. Moreover, from the malice and cunning of impious men, the so-called "stock-exchange speculations" have brought very many to material ruin. Since these things are so, civil governments have for a long time attempted to enact prudent laws concerning transactions on the Exchange. Experience testifying, however, these laws are not yet sufficient to forestall all abuses. It is very useful for the confessor to know at least the principal heads of stock-exchange speculations, because otherwise, when a case occurs, he cannot judge whether the penitent committed an injustice or not.

321. Notion. The name Exchange is taken in two ways: either for a building established by public authority in which certain transactions are conducted, or for the assembly itself of merchants for conducting those transactions. This twofold acceptation is somewhat similar to the twofold acceptation of the name church, namely, for the building and for the assembly of the faithful. In the present matter we speak of the Exchange insofar as it is an assembly of certain merchants. The Exchange so understood has a sufficiently great similarity to fairs, in which a multitude of men assembles to buy and sell merchandise. Consequently, the Exchange is rightly called a "qualified market."²²⁶ Two kinds of objects are bought and sold on the Exchange, namely: 1. money or securities (shares, bonds, etc.); and 2. merchandise, e.g., grain, oil, wool, wine, etc. Hence a twofold Exchange is distinguished: the securities exchange²²⁷ and the commodities exchange.²²⁸ Now the contracts on each Exchange are principally of two kinds, namely, either for the present or for a future term. Contracts for the present²²⁹ are nothing other than sales and purchases of merchandise, bonds, shares, etc., and consequently the principles set forth above, n. 291ff., concerning sale and purchase are to be applied to them. Contracts for a future term²³⁰ are again of two kinds, namely: 1. for a term freely determined between the contracting parties, e.g., someone buys 1,000 measures of wheat to be delivered, not immediately, but after three months (the same thing holds concerning this contract as concerning a contract for the present); and 2. for a term determined by the laws of the Exchange, namely, for the last day of the month or the middle day of the month (commonly, ultimo or medio); this day is ordinarily called the day of liquidation. These contracts for a future term are aleatory contracts and are wont to be made in many ways, of which the principal ones are the following:

a) A difference contract.²³¹ For example, on March 8 Peter buys from Paul 100 shares of some mine for the price of 120,000 francs. But it is agreed between Peter and Paul that on the last day of the month, i.e., March 31, the shares are not to be delivered, but only the difference in price. Hence, if on this last day those 100 shares are worth 121,000 francs, Paul must render 1,000 francs to Peter; but if the price is only 119,000 francs, Peter must give 1,000 francs to Paul. It not rarely happens that the buyer or seller attempts to evade even the payment of this difference. He then asks that the transaction be deferred or carried over for fifteen days.²³² This extension is commonly lawful; for it is nothing other than asking for a loan with payment of the interest owed. Hence we do not explain it specially here.

b) A premium contract²³³ can be made in many ways, which it would be lengthy to enumerate.²³⁴ In general, a premium contract consists in this, that on the day before the term of liquidation or payment the buyer can withdraw from the contract entered into, provided he pays the premium previously established. For example, Peter buys from Paul 10,000 sacks of wool, which he must receive on March 31 for the price of 100,000 francs. Peter hoped that the price would be higher than 100,000 francs, but on March 30 the price is lower, nor is there hope that it will be higher on the following day; hence, to avoid greater loss, Peter withdraws from the contract entered into and pays the stipulated premium, which is, as it were, a conventional penalty.

²²⁶ Qualified market (qualifizierter Markt); cf. Staatslexikon, s.v. "Börse."

²²⁷ Securities or stock exchange (Effekten- oder Fonds-Börse, Stock-Exchange).

²²⁸ Produce or commodities exchange (Produkten- oder Waren-Börse, Produce-Exchange).

²²⁹ Called au comptant, Tagesgeschäfte, Kassageschäfte, Comptantgeschäfte, Locogeschäfte, Effektivgeschäfte, and by other very similar names.

²³⁰ Börsentermingeschäft, à terme.

²³¹ Difference transaction (Differenzgeschäft, opération à crédit).

²³² Se faire reporter à la quinzaine, Report- und Deportgeschäft, or Kost geben und Kost nehmen, Prolongation, etc.

²³³ Premium transactions (Prämiengeschäfte, marché à prime).

²³⁴ Stellgeschäft or Stellage, Nochgeschäft, Wandelgeschäft, Escompte, etc.

322. Principle. All stock-exchange transactions, even those for a future term, are lawful of themselves; accidentally, however, difference contracts are very often illicit and unjust.

The first part is proved. All stock-exchange transactions are reduced to a contract of purchase and sale or to aleatory contracts. But these contracts are lawful of themselves. Therefore stock-exchange transactions also are lawful of themselves.

The second part is proved. Difference contracts accidentally very often bring the material ruin of the contracting party, inordinately incite the accursed hunger for gold, and excite all the human passions. Therefore accidentally they are illicit. Moreover, those who contract in this manner often have recourse to the most cunning frauds,²³⁵ e.g., they spread false rumors, corrupt newspapers to give false reports, vehemently recommend enterprises which are already near ruin, create unjust monopolies,²³⁶ etc. Therefore these difference contracts accidentally are very often unjust. Hence modern laws also endeavor to impede them by establishing that they be regarded as games and consequently produce no civil action.²³⁷ Nevertheless, even today modern laws have not been able to eliminate all the abuses of difference contracts. The confessor should prudently avert his penitents from these difference contracts, because they are rarely lawful and always full of dangers of many kinds. But these contracts and other speculations on the Exchange are altogether prohibited to clerics.²³⁸ For they are entirely unbecoming to the clerical state.

²³⁵ Commonly, stock-exchange swindle (Börsenschwindel).

²³⁶ Commonly, corner, "Schwänze."

²³⁷ Cf. German Civil Code § 764; Swiss Code of Obligations art. 513.

²³⁸ Holy Office, April 15, 1885.