Key Takeaways
- Jobbers acted as market makers on the London Stock Exchange.
- They traded shares speculatively without direct client contact.
- Role ended after 1986 Big Bang deregulation.
- Profited from bid-ask spreads, not long-term ownership.
What is Jobber?
A jobber was a specialized market maker on the London Stock Exchange (LSE) who acted as an intermediary between stockbrokers by buying and selling shares speculatively without dealing directly with clients. This role existed primarily before the 1986 "Big Bang" deregulation, which eliminated the separation of broking and jobbing activities.
Jobbers maintained liquidity by holding inventories of shares and quoting continuous buy and sell prices, a function similar to modern market makers. Unlike brokers, jobbers did not represent clients but traded for their own accounts within a regulated market structure that ensured orderly trading.
Key Characteristics
Jobbers had distinct features that differentiated them from brokers and other market participants:
- Market Making: They provided continuous bid and ask prices, enabling smooth transactions for stockbrokers.
- Speculative Trading: Jobbers traded shares for their own profit, without holding stocks long-term or analyzing fundamentals.
- Intermediary Role: They operated exclusively with brokers, never interacting directly with the public.
- Specialization: Jobbers often focused on specific classes of securities, enhancing market efficiency.
- Historical Context: Their prominence lasted from the 1690s until the financial reforms of the 1980s, when changes in market structure phased them out.
- Market Structure Impact: The jobber system contributed to a form of oligopoly in market making, concentrating liquidity provision among few firms.
How It Works
Jobbers operated by maintaining an inventory of shares to meet demand from stockbrokers buying or selling on behalf of clients. They quoted prices at which they were willing to buy (bid) or sell (ask), profiting from the spread between these prices.
This two-tier system separated client representation (brokers) from market making (jobbers), ensuring liquidity without brokers assuming market risk. After the Big Bang deregulation, these roles merged, and computerized trading replaced traditional jobbing practices.
Examples and Use Cases
Although jobbers no longer exist, understanding their function helps contextualize modern market making and liquidity provision.
- Historical Firms: Leading jobber firms like Wedd Durlacher were absorbed by banks post-1986, influencing current market structures.
- Stockbrokers and Market Makers: Today’s brokers often operate with integrated market-making desks, a legacy of the jobber system.
- Large-Cap Stocks: Investors in large-cap stocks benefit indirectly from the liquidity systems that evolved from jobber practices.
- Airlines: Companies like Delta rely on liquid markets for their equity, supported by modern equivalents of jobbers.
Important Considerations
While jobbers enhanced liquidity historically, their speculative nature sometimes attracted criticism for market manipulation and lack of transparency. Investors today should be aware that liquidity providers operate under stricter regulations and often use advanced technology.
Markets with illiquid securities may suffer from reduced trading efficiency without robust market-making functions. Understanding the jobber legacy highlights the importance of liquidity and market structure in your investment decisions.
Final Words
Stockjobbers played a crucial role in providing liquidity and smooth trading on the London Stock Exchange until their functions were merged into modern market-making firms after 1986. To understand historical trading dynamics or market structure evolution, consider comparing jobber activities with current market maker roles.
Frequently Asked Questions
A jobber was a specialized market maker on the London Stock Exchange who acted as an intermediary between stockbrokers. They bought and sold shares speculatively but did not deal directly with clients, providing liquidity by maintaining an inventory of shares.
Jobbers traded shares for their own accounts and acted as market makers by quoting buy and sell prices, while stockbrokers represented clients and executed trades on their behalf. Brokers could not make markets, meaning every trade had to pass through a jobber.
Before 1986, jobbers ensured continuous trading on the London Stock Exchange by buying shares from brokers selling for clients and selling shares to brokers buying for clients. They profited from the difference between buying and selling prices without holding stocks long-term.
The 1986 'Big Bang' deregulation removed the legal separation between brokers and jobbers, allowing firms to combine both roles. This, along with computerized trading, made the traditional jobber role obsolete and led to their absorption into larger financial institutions.
Yes, historically, jobbers were sometimes criticized for unethical practices like market manipulation and profiting without genuine interest in the assets. Writers in the 18th century, such as Daniel Defoe, accused them of rigging prices and engaging in secretive dealings.
Yes, jobbers functioned similarly to today's market makers by providing liquidity and quoting buy and sell prices. However, the key difference is that modern market makers often operate within unified firms that also act as brokers, unlike the separate roles jobbers held.
Stockjobbing began in the 1690s during England's Financial Revolution, growing with the rise of joint-stock companies and government debt trading. It became formalized with the founding of the London Stock Exchange in 1801 and remained central to its operations until the 20th century.
After the Big Bang deregulation, major jobber firms like Wedd Durlacher were acquired by banks and financial institutions. For example, Wedd Durlacher became part of UBS, as the traditional jobber role was integrated into larger financial entities.
