Our History

The golden years, as major transport and communication improvements bring new developments


Major improvement to transport and communication systems brought crucial developments. The railways reduced the time and cost of travel and improved reliability in transporting cotton to the Lancashire towns. The Liverpool Cotton Brokers' Association was established in 1841 and it quickly established a successful system of arbitration. The Transatlantic Telegraph Cable reduced long distance communication from weeks to minutes. Liverpool broker John Rew recognised the far-reaching implications of this development and created the hedge fund system. This led to the hugely successful Liverpool Cotton Futures Market, which doubled the business of the Liverpool Cotton Market. In 1911-12 Liverpool imported a staggering 5,230,399 bales of cotton.

15 September 1830

The first railway journey from Liverpool to Manchester is made

The railways were key to the development of the Liverpool Cotton Market. It made travelling from Liverpool to the cotton heartlands of Lancashire, especially Manchester, quicker, cheaper, more comfortable and more reliable, especially in winter, when the canals could freeze. The journey between Liverpool and Manchester took four and a half hours by coach, but by rail it took just two; the cost of transporting cotton by canal to Manchester had been as much as 20 shillings per tonne; the railways charged 11 shillings. Furthermore, the transport of cotton was catered for by the railway companies, which provided heavy tarpaulins to cover the goods and built warehouses for the cotton at the end of the line. The journey for spinners going to see their brokers and vice versa fell by over 40%. The railways were extremely successful from the start; 72,000 passengers travelled on the Liverpool to Manchester line from September to December 1830 and in the following year, the line carried 445,000 passengers and 91,000 tonnes of freight. In the year before the opening of this railway line, there were 45 cotton broking firms in Liverpool; by 1845, there were 111, testament to the importance of the railways to the expansion of the Liverpool Cotton Market.


The Bank of Liverpool is founded

This opened up new sources of credit and became the most important bank to the whole cotton market. It allowed more merchants to hold cotton in Liverpool, but it was not the merchants who gained the credit from the bank; instead, the merchant would put his cotton in his selling broker's hands, draw a bill upon the broker, who then took it to the bank where it was discounted and the broker would then present the money to the merchant. It was the cotton held by the broker that provided the security to the loan. By the end of the decade, the Bank of Liverpool was making advances on such cotton of up to 80% of its market value. It ultimately meant that merchants were able to hold on to their cotton for far longer. They did not have to sell quickly (and possibly, therefore, at a loss), but could wait until they were offered what they thought was a suitable price by a spinner, who, like the merchants, was also going through a broker.

4 July 1840

The "Britannia" sails from Liverpool to Boston

Samuel Cunard's steamer arrived in Boston just over two weeks later, which marked the start of a revolution in the transatlantic mail service, as sailings became both more frequent and quicker, so that by 1862, the service was weekly and journeys were reduced to just over eight days. These shipping steamers were faster, more frequent and more reliable than the ships carrying cotton, which could be subject to delays while they waited to fill up with cargo and could take up to 6-8 weeks to cross the ocean. This led to a new risk to the cotton importers - falling prices due to developments in the cotton belt while the cotton was still afloat. A new system of marketing was essential to prevent merchants from risking bad news turning every purchase into a loss before they even had the chance to offer the cotton for sale.

This new system became known as the "arrivals" market. As the cotton was loaded on to the ships in the US, samples were taken from each bale and offered in New York and then Liverpool for sale "to arrive, Liverpool." The owner guaranteed that the cotton would be up to sample - it could be tested by the Liverpool Arbitration system in the event of a dispute. The existence of this arbitration system was crucial to the success of the whole system - owners could make quick sales and avoid the risk of bad news spoiling their market, or to make a profit in the event of rising prices. There were advantages for many of dealing in cotton in this way; for example, those prepared to sell at small profit margins for quick turnover at minimum risk. The turnover of the Liverpool Cotton Market increased as a result of the success of the "arrivals" market. The existence of such a market would also be crucial in the later development of the "futures" market from 1866 onwards.

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2 April 1841

The Liverpool Cotton Brokers' Association is founded

The regular meetings of the brokers on Friday mornings to collect information for publishing in their circulars evolved into a permanent organisation. Ninety firms joined, a figure that would expand over the years. In February 1842, George Holt was elected President, James Wrigley Vice-President and Studley Martin the Secretary. Initially, there was no fee for members; that would come in 1845, when apprentices paid 5 guineas and all others 20. The strength of Liverpool's organisation in turn contributed to its success vis-a-vis the cotton dealers in Manchester and Lancashire. The production of comprehensive information on the cotton market was sent to the spinners inland, who could then make better-informed decisions to purchase as a result. The Liverpool brokers also developed a hugely successful system of arbitration to settle disputes between buyers and sellers, quickly and simply, without the need of expensive and time-consuming legal redress. Buyer and seller would nominate a broker to represent them and if the two brokers could not agree, a third would be selected to arbitrate. It is a system which survives in essence today.

Another key to the success of the Liverpool brokers was the ease with which cotton could be bought in the Liverpool market by the spinners. Whereas purchases from dealers potentially involved the spinner in seeing several such dealers and inspecting the goods at the warehouses before finding the cotton he wanted at the right price, the brokers in Liverpool was in a position to buy from all the cotton stored in Liverpool. The spinner need only deal with one person - his broker. The process was made even easier by the development of selling cotton on sample, which enabled the broker to have as many as 150 samples available for when the spinner came to examine them before deciding which to buy.

The First Members of the Liverpool Cotton Brokers' Association: Barber, William Kershaw, William Barnsley, Godfrey & Son Law, George Barton, Miles & Bigland Lea & Waddington Bateson, Richard & Sons Littledale, T&H & Co Bateson & Horsfall Marriott, John & Co Blackburn, Samuel & Co Martin, Studley Blackburn, TB Mason, Robert Bourne, Paton & Co Molyneux, Taylor & Co Bourne, Timothy & Bourne Musgrove, Edgar Bower, William & Son Musgrove, Robert & Sons Buchanan, Daniel & Son Needham, Samuel Buchanan & Browne Oughterson, Arthur & Co Bulley, Samuel Peers, John & Sons Bulley, William, Junr Peers, William & Son Campbell, Colin & Son Percival & Parton Cooke, Isaac & Sons Preistley, Griffiths & Cox Corrie & Co Rawlins Brothers Duksworths & Marsden Reyner, Nathaniel Eason & Barry Reynolds & Gibson Eccles, Edward Richards, Silas Henry Ewart, Myers & Co Ridgway, Joseph Farrer, William Robinson, Joseph & Son Franceys & Comer Rushton & Johnson Garth, Samuel Salisbury, Turner & Earle Gill & Syers Shakespeare, Isaac Gladstone & Sarjeantson Shand, Higson & Hughes Haigh, Thomas & Co Seddon, James Haywood & McViccar Sleddon, Thomas Hodgson & Ryley Smith, John B Hodgkinson, JA Smith, James Houlbrooke Hollinshead, Tetley & Co Slatter, Robert Hollins, Francis Stevenson, Hew Holt, George & Co Stock, James & Son Howell, James Swainson, Anthony Huson, William Tattersall & Claire Hyde, RE Taylor, John Hyde, Thomas Unsworth, Giles Gorton Jee Brothers & Latham Walker & Belcher Jones, Mann & Foster Waterhouse, N & Sons Joseph, E Montfiore Webster, Horatio John Joynson, Samuel & Thomas Whitaker, Carter & Co Joynson, Thomas Willis, John Junr. Irlam & Thompson Wolstenholme, WL Kearsley, E&T Worthingham & Cunningham Kearsley, John & Son Wrigley, John & Sons

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6 January 1854

The Great Snowball Fight at Exchange Flags breaks out

Eyewitness accounts vary as to how it all started. Some said that cotton and share brokers, traditionally bitter rivals, dared each other to a bout of snowball warfare; others insisted that a member of each side had entered into single combat, which quickly spread to a general conflagration involving over 300 combatants. Whatever the cause, the conflict was intense and almost martial in its execution; troops were organised so that some concentrated solely on making the snowball ammunition, which others would then use to engage the enemy. Snowballs flew in all directions, hats were knocked off, trodden on and generally destroyed and men were repeatedly felled, mostly from the deadly combination of a well-aimed snowball and the slippery ground underfoot. As contemporary poet John Pedler observed:

“Hats flew away, By the force of the ball, From heads that were grey, Or with no hair at all”.

Into the melee stepped Captain Grieg, Liverpool’s Chief Constable, who took a dim view of the general carnage. A mob of spectators had gathered to watch the fun, a number of windows in the Exchange had been smashed and a serious debate in the nearby council chamber had been briefly interrupted by a stray snowball. The good captain brought with him a posse of over a dozen of Liverpool’s finest, with predictable results. Affronted by being treated in what they regarded as a menacing manner on their own private ground over what was essentially good-natured sport,

“the combatants outside pelted him and his men in pitiless fashion, and, when the police seemed to be contemplating the use of their sticks, pelted them with renewed vigour”.

So reported the Liverpool Mercury; our contemporary balladeer put it succinctly:

“But, alas! 'twas no go, And the Captain soon found The bullets of snow From his cranium bound”.

The police managed to regroup and, in the face of the jeers, hootings and catcalling of the crowd, took into custody a number of the ringleaders, prominent brokers all, who were by this time “now whitened like ghosts”. Upon being released after having their names and addresses taken, the convicts returned to the scene of the crime, where they were cheered enthusiastically by their accomplices; and battle was joined, fiercer than ever.

Perhaps unwisely, Captain Grieg returned to the Exchange newsroom, home to the brokers when they weren’t snowballing each other. He attempted to explain his actions, but he “was instantly met with hootings, cries of ‘out with him’, and other marks of disapprobation.” The brokers would not listen to a word; instead, a number of them escorted him from the room, handling him rather roughly as they did so. Having seen off the Chief Constable, the brokers continued their epic battle until well after 4 o’clock, almost two hours after they had started.

As our poet remarked, neither the cotton nor the share brokers “could boast of a victory gain’d”. We leave to him to point out the real victors:

“But, remember, when brokers each other well batter, The snowballs prove friends to the innocent hatter.”

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12 April 1861

The American Civil War breaks out

The drastic reduction of exports from the Southern States in the USA led to the Lancashire Cotton Famine and an increase in market speculation, with the revival of the "arrivals" market. The rapid rise in cotton prices - from just over seven pence in 1861 to just over 31 pence by July 1864 - encouraged further speculation and rumours of peace saw the price plummet just three months later to 22 pence. By the time peace was declared, it had fallen to 14 pence. Fortunes had been made and lost with remarkable rapidity - over 100 Liverpool cotton firms and two banks went out of business. One far-reaching effect of the Civil War was that Lancashire could not supply India with anything like the same amount of cloth before the outbreak of the war. This cloth famine encouraged the Indian mills to increase production, marking India out as the first serious competitor to Lancashire.

16 January 1863

A Committee is appointed to draw up a Constitution

The result was the first edition of "The Constitution, Laws And Usages of the Liverpool Cotton Brokers' Association." The rules were few and could be issued on a single sheet to be hung up in members' offices. Unfortunately, they have not survived intact, and the oldest constitution in the archive dates from 1871.

15 April 1865

Abraham Lincoln is assassinated

Reaction to this terrible event, which happened only 6 days after hostilities ceased in the American Civil War, was noted in the Minutes of the Liverpool Cotton Brokers' Association by the following exchange of letters:

Liverpool 28 April 1865 Thomas H Dudley Esq American Consul Liverpool Sir,

At the usual weekly meeting of the Cotton Brokers' Association of this Town held this morning the appalling assassination of the late President of the United States, and the atrocious attempt on the lives of Mr Secretary Seward and his son were the theme of unanimous execration and abhorrence. I have been requested to convey to you, as the Representative of the United States at this Port, the expression of deep sympathy & condolence of this Association in common with the country at large at a calamity so awful & which has impressed on our Body with the strongest feelings of profound regret & indignation as well as of commiseration for a people with whom we are so closely allied in the bonds of good will as well as the daily business of our lives.

I trust, Sir, you will favorably receive this imperfect assurance that in this terrible blow which it has pleased God to inflict on your great Nation they & you have the utmost possible sympathy of the members of our own Association, both individually and collectively.

In the absence from ill health of our own President, Edgar Musgrove, Esq, I beg to subscribe myself on behalf of this Association with all respect, Sir

Your Obt & humble servt,

D Buchanan

Vice President of the Liverpool Cotton Brokers' Association

US Consulate Liverpool May 1 1865 to DG Buchanan Esq Vice President of Board of Cotton Brokers Liverpool

Sir, I have to acknowledge the receipt of your letter of the 28 ult as Vice President expressing of the sense of your Board at the atrocious and appalling assassination of the President of the United States and the equally diabolical attempt to murder the Secretary of State and his son.

The action you have taken and the very proper terms in which you characterize these monstrous deeds cannot be other than grateful to the Government and the Country as well as to all mankind who alike with yourselves are interested in denouncing the murders.

It was not to be expected that your board or indeed that any considerable number of people could be found anywhere who would in the least degree countenance such acts as these even if levelled at the least in the land much less when aimed at the heads of the nation with the object and view of destroying that nation. I shall take much pleasure in transmitting a copy of your letter to the Government at Washington.

I am Sir Very Respectfully Your Obt Servant Thomas H Dudley

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28 July 1866

The Transatlantic Telegraph Cable becomes operational

It is impossible to overstate the significance of this development to the Liverpool Cotton Market. Messages that would take days to deliver by ship now became available in minutes, with the original speed of transmission being fifteen letters per minute. It meant a huge change for the "arrivals" market, as news was now instantaneous and the few days' grace of sightings of ships "off Lynas" was now irrelevant. A new system of trading was suddenly desperately needed.


John Rew invents the hedge fund system

Inspiration came from a Liverpool man who had worked at the Bank of Liverpool from the age of 15 before setting up in business as a cotton broker when he was 25. He saw the possibilities inherent in the idea of the simultaneous deal. By using the cable, he could get quotations from the Cotton Belt in the USA and buy the cotton at almost a moment's notice; previously, the only way to do this was via an exchange of letters, a process which took weeks. The cotton would be scheduled to arrive in Liverpool in two or three months' time. But as soon as he had bought his actual cotton, Rew could go to the "arrivals market" in Liverpool where he sold the exact quantity of cotton he had bought speculatively, selling it for delivery far enough ahead to cover the time it took for the cotton to arrive and a reasonable period in which to sell it. So Rew had two cotton contracts, one actual and the other speculative, which had been bought and sold simultaneously.

When the cotton arrived in Liverpool, Rew sold it to his spinner and bought back his speculative contract in the arrivals market. If the price of cotton had dropped, say, four pence since his purchase, Rew lost that amount on his cotton; but he would also have made a profit of four pence on his speculative contract in the arrivals market. This is the first example of a "hedge", which showed how brokers could import cotton in a falling market without losing money and how a speculative market could be used to avoid enforced speculation.

The development of the futures marked a rapid growth in trade, doubling the amount of business which the Liverpool Cotton Market turned over and ushering in an era of unrivalled prosperity, as more and more uses were discovered for futures trading. Cotton growers could take advantage of high prices when they came rather than being forced to sell at harvest time every year; spinners could book yarn orders for delivery much further forward than previously and could avoid loss through falling prices while carrying unsold yarn stocks by selling futures as a hedge against loss.

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The Liverpool Cotton Clearing House is established

Practical difficulties soon arose as a result of the huge increase in trading in the futures market. Trading took place largely in the open at Exchange Flags, with a gradual evolution into the brokers standing round a ring or pit and it was customary in this market that each account was treated separately and settled between the parties in cash. This meant that there was a constant stream of clerks moving from office to office, pockets bulging with cash, making or receiving payments. It was an obvious incentive to robbers and some clerks gave way to temptation and embezzled the money. Also, complicated futures contracts led to some unscrupulous traders using delaying tactics because they were not in a position to pay up. Joseph B Morgan proposed a solution in the form of a clearing house and, despite some opposition, his scheme was eventually accepted. The Clearing House was organised to facilitate the daily settlement of all futures accounts. Clerks met in a central place, and handed the money their firms owed to a Committee member, who then paid it to those firms who were owed the money. At the close of clearing, the Committee member had no cash left, as in the futures market there was a buyer for every contract sold and a seller for every contract bought. Clearing effectively put an end to the tactical delays some firms had used to prevent settlement.

14 April 1878

The Liverpool Cotton Bank is established

This was the obvious next step in the financial organisation of the Liverpool Cotton Brokers' Association. The dangers associated with large amounts of cash being carried - as much as £100,000-£150,000 on any given market day- had not been completely eradicated by the establishment of a Clearing House. The Liverpool Cotton Bank, a branch of the Bank of England, solved this problem by introducing a system whereby all payments were made into the Bank by cheque and the money received was paid out by credit vouchers to the firms to whom it was due. Furthermore, spinners were able to make all their cotton payments to Liverpool brokers and merchants through their own banks, as all the local banks in the Lancashire cotton towns had accounts with the Bank of England. Eventually the Bank and Clearing House were amalgamated so that all payments for futures were paid through the Bank and distributed by credit vouchers instead of cash, over the counter of the Clearing House.


Liverpool Cotton Merchants set up the Liverpool Cotton Exchange

While the Bank and Clearing House were immensely successful for the brokers, it put Liverpool's cotton merchants at a disadvantage. Some brokers started doing business directly with the shippers in the United States, essentially becoming importers in direct competition with the merchants. Furthermore, all Futures Contracts had to be settled through Clearing House, but only members of the Liverpool Cotton Brokers' Association could use this facility. This meant that merchants who dealt in futures could only operate through a broker, which meant that they were effectively being charged for brokerage twice. They argued that they should be eligible for membership of Clearing, or that the brokerage rules should be changed. They formed the Liverpool Cotton Exchange in protest and declared that they would henceforth only do business with brokers who resigned from the Liverpool Cotton Brokers' Association and became members of the new Cotton Exchange.

Some members started doing business direct with shippers in the US, without the intervention of a merchant, becoming importers in competition with merchants. The result was the establishment of the Clearing House, through which all Futures Contracts had to be settled, and the right of using the Clearing House was refused to anyone who was not a member. The merchants doing Futures business were therefore handicapped to the extent of the amount of brokerage they were charged.


The Liverpool Cotton Association is formed

Fortunately, the differences between brokers and merchants were short-lived and the two organisations merged to form the new Association. Business was simply too good to allow domestic disputes to get in the way. On 22 August 1882, the Daily Post reported:

"The controversy between the merchants and brokers engaged in the cotton trade is at an end, the scheme of amalgamation drawn up by the joint committee, with sundry amendments, having been adopted by the Cotton Brokers' Association on Wed last, and by the Liverpool Cotton Exchange yesterday.

The new Association is to be called the Liverpool Cotton Association Ltd. Its capital is to consist of £60,000 in 600 shares of £100 each, and its affairs are to be managed by directors and committees, similar to the councils and committees of the Cotton Brokers' Association. All the shareholders are to have equal rights and privileges: that is, they may be either merchants or brokers, or both."


The Spot Cotton Market amounts to 1,589,500 bales of all growths in Liverpool

The success of the use of futures market in cotton as a hedge eliminated the major risk involved in building up substantial cotton supplies - that of falling prices. Liverpool merchants, conscious of the cotton famine that had resulted from the American Civil War, began to build up a colossal stockpile of cotton from all parts of the world. This gave spinners the opportunity to make comparisons of prices and quantities, as Liverpool's spot cotton market became internationally renowned - the best in the world. The spot market increased the range and flexibility of its products and made cheaper the spinners' 'mixings', making yarn prices more competitive. It also helped the development of cotton growers in developing countries where possession of a 'money' crop such as cotton supplied much-needed finance. The rate of accumulation of this spot market was quite staggering: in 1878, stocks amounted to 372,950 bales; the increase to the 1892 figure of 1,589,500 bales represented an increase of over 400%.

4 January 1896

The Liverpool Cotton Market moves indoors for the first time in its history

Ever since brokers had traded in cotton, they had naturally gravitated towards the outdoors, oblivious to any inconvenience caused to local shopkeepers or general traffic. When they moved from the top of Castle Street to Exchange Flags in 1808, they had merely swapped one open-air space for another. On the fourth of January 1896, however, a tradition of almost 200 years was ended: the Liverpool Cotton Association moved inside to its premises in Brown’s Buildings overlooking Exchange Flags.

It was the coming of the telephone that brought an end to one of Liverpool’s more unusual tourist attractions. The cotton brokers had always required the fastest means of communication available to them in order to cope with the distribution of the rapidly-changing news within the business. The telephone brought Liverpool in immediate and constant touch with all the great financial centres of the world and the great stream of orders for the futures market. The telephone could not be operated out of doors; and some degree of peace and quiet was needed for conversations to take place. The brokers moved from the open air into the office and the indoor Liverpool Cotton Market. It was the end of an era.

30 November 1906

The Liverpool Cotton Exchange Building is officially opened by the Prince and Princess of Wales

Within a few short years, the indoor accommodation at Brown’s Buildings proved inadequate for the increasing hoards of traders in cotton futures, whose numbers continued to grow at this time. In March 1903 property was acquired in Old Hall Street which covered just over an acre. A competition was held to design the new building and from the 24 sets of plans submitted by Liverpool and Birkenhead architects, the winning entry came from Messrs Huon Matear and Frank Simon of the Temple, Dale Street. The original estimated cost was £150,000, which rose to nearer £300,000 on completion. It had the whole panoply of the very latest features at the time, including 12 electric lifts, synchronised electric clocks and a spacious main hall in the centre of which was the cotton ring, or pit. Thousands of people turned out to cheer on the Prince and Princess of Wales when they officially opened the new building, the speech of welcome being delivered in the presence of some 3,000 guests.


Liverpool imports a record figure of 5,230,399 bales of cotton of all growths

Just over 200 years ago, in 1708, the first slaver left Liverpool to return a year later with a small cargo of West Indian cotton. In that year, the total amount of cotton imported into the country – mostly through London – amounted to a mere 2,000 bales. The record import of over 5 million bales is graphic testament to the sheer scale of the growth of the cotton industry in that time. This represented the very peak of Liverpool’s achievement, which was considerable. It had replaced the capital as the major cotton importer, built itself up as the most important cotton market in the world and, in a country incapable of actually growing cotton, it had nevertheless amassed in its spot market the finest selection of cotton available anywhere in the world.

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