Jobber

What Is a Jobber?

A jobber was a historical type of market maker primarily found on the London Stock Exchange (LSE) prior to its major deregulatory reform in 1986, known as the "Big Bang." Within the realm of financial markets, jobbers served as intermediaries, trading securities from their own inventory with brokers, rather than directly with the public. Their fundamental role was to provide liquidity by continuously quoting both a buying (bid) and selling (ask) price for specific shares, profiting from the bid-ask spread.

History and Origin

The system of jobbing emerged during England's Financial Revolution in the late 17th century and became institutionalized on the London Stock Exchange. Until 1986, the LSE operated under a "single capacity" rule, which strictly separated the roles of jobbers and brokers. Jobbers were prohibited from dealing directly with the public; they exclusively traded securities with brokers, who in turn executed orders for their clients²⁰. This distinct separation was formally embedded in Stock Exchange rules in 1909, though it had largely been a custom for some time prior¹⁸, ¹⁹.

By the early 20th century, hundreds of jobbing firms operated on the LSE, ensuring continuous trading by maintaining an inventory of stocks¹⁶, ¹⁷. However, their numbers steadily declined throughout the 20th century as institutional investors gained prominence and the capital requirements for jobbing increased¹⁵. The definitive end for the jobber came with the "Big Bang" of October 27, 1986, a sweeping set of reforms introduced by the UK government under Prime Minister Margaret Thatcher. This deregulation eliminated fixed commissions, allowed firms to act in a "dual capacity" (combining brokerage and dealing functions), opened the LSE to foreign firms, and replaced floor-based trading with electronic trading¹³, ¹⁴. The Financial Services Act 1986 further restructured the regulatory landscape for financial services in the UK¹². These changes effectively rendered the specialized role of the jobber obsolete, leading to their disappearance from the market¹⁰, ¹¹.

Key Takeaways

• Jobbers were historical financial intermediaries on the London Stock Exchange, distinct from brokers.
• Their primary function was to provide liquidity by buying and selling securities from their own inventory.
• Jobbers profited from the bid-ask spread, the difference between their buying and selling prices.
• The "Big Bang" deregulation in 1986 eliminated the "single capacity" rule and led to the demise of jobbers.
• The functions once performed by jobbers are now typically integrated into the roles of modern market makers and integrated trading firms.

Interpreting the Jobber

The role of a jobber was crucial for the efficient functioning of the London Stock Exchange before 1986. By continuously quoting prices for various securities, jobbers ensured that there was always a counterparty available for a transaction, even when immediate buyers or sellers were scarce. This commitment to making a market helped to maintain liquidity and smooth price movements, preventing large fluctuations that might occur if buyers struggled to find sellers and vice versa⁹. Their constant presence minimized the impact of order imbalances, allowing for more orderly and continuous trading activity.

Hypothetical Example

Imagine the London Stock Exchange in the early 1980s. An individual investor, Sarah, wants to sell 500 shares of a UK-listed company, "BritCo PLC." She contacts her stockbroker, David. Under the "single capacity" system, David, as a broker, cannot directly buy Sarah's shares for his own account. Instead, David approaches a jobber on the exchange floor, perhaps "Global Stock Jobbers Ltd.," who specializes in BritCo shares.

David asks Global Stock Jobbers for their price in BritCo. The jobber quotes a bid price (what they're willing to buy for) and an ask price (what they're willing to sell for). Let's say Global Stock Jobbers quotes "200p – 202p" for BritCo. This means they are willing to buy shares at 200 pence and sell at 202 pence. David, representing Sarah, sells her 500 shares to Global Stock Jobbers at 200p per share. A few minutes later, another broker, Emily, approaches Global Stock Jobbers wanting to buy 300 shares of BritCo for her client, Tom. Global Stock Jobbers sells 300 shares to Emily at 202p per share. In this scenario, Global Stock Jobbers, the jobber, facilitated both transactions by holding inventory and profiting from the 2p difference (the bid-ask spread) on the shares they traded.

Practical Applications

While the specific term "jobber" is now largely historical, their foundational functions are still critical in modern capital markets. Their role in providing liquidity and ensuring continuous trading is now carried out by firms known as market makers. These contemporary entities, often large investment banking divisions or specialized trading firms, use sophisticated electronic systems to quote prices, manage inventory, and facilitate transactions across a vast array of financial instruments.

The transformation from jobbers to modern market makers highlights the evolution of financial market structure. The "Big Bang" reforms not only allowed for dual capacity but also ushered in an era of intense competition and technological advancement that continues to shape global financial centers. The shift from physical trading floors to automated electronic trading platforms has made the market-making process faster, more efficient, and often more transparent than the traditional jobbing system. ⁷, ⁸This transition was a direct consequence of the 1986 deregulation, which sought to modernize and globalize London's financial industry.
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Limitations and Criticisms

The jobber system, despite its role in providing liquidity, faced several criticisms that ultimately contributed to its demise. One significant drawback was the perceived lack of transparency. Jobbers operated in a somewhat opaque manner, keeping few detailed records of their internal dealings, which made it difficult to fully understand their activities. ⁴, ⁵Critics, even in the 18th century, denounced practices like market manipulation and "front running," where jobbers might profit from prior knowledge of large client orders, viewing it as unethical profit without genuine interest in the underlying stocks.

Furthermore, the "single capacity" system, while creating distinct roles, limited direct access to the market and potentially led to higher commissions for investors, as brokers had to go through jobbers. The structure was seen as insular and less competitive compared to other major global exchanges. ³The pressure for antitrust action against the LSE's restrictive practices, initiated by the Office of Fair Trading in the early 1980s, was a key catalyst for the "Big Bang" reforms that dismantled the jobber system. The eventual adoption of electronic trading also highlighted the inefficiency of the floor-based, manual system upon which jobbers relied.
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Jobber vs. Market Maker

The terms "jobber" and "market maker" refer to entities that perform similar functions—providing liquidity by quoting buy and sell prices for financial instruments—but operate in different contexts and eras. A jobber was a specific historical role on the London Stock Exchange prior to 1986, characterized by the "single capacity" rule. This meant jobbers dealt exclusively with brokers, never directly with the public, and specialized in holding inventory to facilitate trades. Their operations were largely manual and floor-based.

A market maker, by contrast, is a broader, contemporary term for an individual or firm that stands ready to buy and sell a particular security on a regular and continuous basis at a publicly quoted price. Modern market makers operate in a dual capacity, dealing directly with both retail and institutional clients, and primarily utilize advanced electronic trading systems. While a jobber was a type of market maker, the modern market maker has a vastly expanded scope, greater capital, and operates within a more integrated and technologically driven financial landscape, a direct result of the evolution triggered by the "Big Bang."

FAQs

What was the main purpose of a jobber?

The main purpose of a jobber was to provide liquidity in the financial markets by continuously offering to buy and sell shares from their own inventory, ensuring that brokers could always find a counterparty for their clients' orders.

Why did jobbers disappear?

Jobbers disappeared primarily due to the "Big Bang" deregulatory reform of the London Stock Exchange in 1986. This reform abolished the "single capacity" rule, allowing firms to act as both brokers and dealers, and introduced electronic trading, which rendered the traditional, floor-based jobbing system obsolete.

How did jobbers make money?

Jobbers made money by profiting from the bid-ask spread. They would buy shares at a slightly lower price (their bid) and sell them at a slightly higher price (their ask), earning the difference on each transaction.

Are there jobbers today?

No, the specific role of a "jobber" as it existed on the London Stock Exchange before 1986 no longer exists. Their functions have been absorbed by modern market makers, who operate under different regulatory frameworks and leverage advanced technology.

What was the "single capacity" rule?

The "single capacity" rule on the London Stock Exchange before 1986 mandated a strict separation between brokers (who acted as agents for clients) and jobbers (who acted as principals, buying and selling securities from their own books). Brokers could not make markets, and jobbers could not deal directly with the public.