No matter how large or sophisticated contemporary financial markets become, they continue to be battered by financial crises. How these markets should be structured to withstand shocks is an important and incompletely resolved question. In this paper, we examine how the Paris Bourse, the second most important European exchange of the nineteenth century, sought with varying degrees of success to manage the failures of its broker members. Its unique character—primarily a forward market—contrasted its rivals in London and New York. As a derivatives exchange, the Bourse was particularly vulnerable to certain types of risk and developed institutions to cope with shocks. We identify the basic regulatory regimes under which the Bourse operated in the nineteenth century and the macroeconomic, individual and institutional factors that were responsible for the broker failures, which at times of crisis threatened to undermine the liquidity of the exchange. From its inception, the Bourse was troubled by the high number of defaulting brokers. Brokers were confronted with the problem of ensuring that customers complete their contractual obligations in the forward market, which did not have legal status until 1885. If there was a large fraud or general shock, enough customers might default to endanger the solvency of a broker
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