Legal Definitions - stockjobber

A stockjobber was a historical term used primarily on the London Stock Exchange before its deregulation in 1986 (known as the "Big Bang"). A stockjobber was a type of market maker who bought and sold shares from and to stockbrokers, rather than directly from or to the public. Their primary function was to maintain an orderly market by holding an inventory of various stocks and quoting "bid" (buy) and "ask" (sell) prices to brokers. They profited from the small difference, or "spread," between these bid and ask prices.

This specialized role ensured liquidity in the market, as brokers could always find a stockjobber willing to trade a particular share. Following the "Big Bang," the distinction between stockbrokers and stockjobbers largely disappeared, with integrated financial firms taking on both roles as modern market makers.

• Example 1: Executing a Client's Order

  Imagine it's 1975, and a client wants to sell 500 shares of a particular British company. Their stockbroker, unable to find another client immediately willing to buy those exact shares, would approach a stockjobber specializing in that company's stock. The stockjobber would quote a price at which they were willing to buy the shares, taking them into their own inventory. This illustrates how the stockjobber provided immediate liquidity, allowing the broker to complete the client's transaction without delay.

• Example 2: Managing Market Inventory

  A stockjobber in the early 1980s might specialize in mining company shares. If they anticipated a rise in commodity prices, they might strategically increase their inventory of shares in mining companies, hoping to sell them to brokers at a higher price later. Conversely, if they expected a downturn, they would reduce their holdings. This demonstrates the stockjobber's role in actively managing their stock inventory to facilitate trading and profit from market movements, always standing ready to quote prices to brokers.

• Example 3: The Impact of Deregulation

  Prior to 1986, a large institutional investor wanting to buy a significant block of shares would instruct their stockbroker, who would then negotiate with one or more stockjobbers to acquire the shares. After the "Big Bang," the same institutional investor could go directly to a single large financial institution that now combined the roles of both broker and market maker. This change effectively eliminated the distinct function of the stockjobber, as integrated firms could now deal directly with clients and manage their own trading books.