A Short History of the Stock Market
Whenever someone mentions the stock market, most people think of Wall Street and massive offices, filled with screaming traders.
However, it wasn’t always like that. Stock exchanges appeared as early as the 1300s. And what’s more boggling, pioneer stock exchanges didn’t actually offer stock trading.
Now, let’s follow the road to evolution, from Venetian times to NYSE and the gang.
The Venetian Beginning
Back in the 1300s, private money lenders were probably as used as larger banks. They were an important part of the financial landscape and were the first to lay the groundwork for the stock exchange nowadays.
Money lenders used to trade debts with each other. Most logically, some lenders preferred to “swap” a high-risk, high-interest loan for a safer one with another lender. Money lenders also bought debt issues, concerning government-issued loans.
Later on, they began selling said issues to individuals. The latter became the first individual investors in the archaic stock exchange.
Additionally, Venetians did another “first”. They started trading securities between governments (both local and foreign).
They met with clients, presenting them with information on various sales issues and ensured that those issues were executed. In a sense, they were the first brokers, as we call them today.
Sans the Stock, the First-Ever Stock Exchange
The year is 1531, location – Antwerp, Belgium.
Brokers, lenders, and investors would meet here to deal with different kinds of debt issues. Business, government, and individual issues were sorted in what is perceived as the first stock exchange in the world.
However, they dealt entirely with promissory notes and bonds. The explanation – there weren’t any actual “stocks” in the 1500s. Nonetheless, business-financier partnerships then produced income just as stocks do nowadays.
No official “shares” changed hands but the stock exchange structure was there.
The Many East India Companies
The first publicly traded company in the world was the East India Company.
British, Dutch, and French governments all boasted charters, related to East India. Except for people living in India and Asia, everyone else had their eyes on the riches in the far corners of the world.
However, sailing to said corners was risky – many ships fell victim to storms, pirates, or unknown adversities. So, governments decided to take action against unprofitable risk.
This resulted in forming the “Governor & Company of Merchants of London trading with the East Indies”. Yeah, that’s one long company name. But I guess you need it if you’re going to be the first company to ever use a limited liability formula.
In simple, voyagers accepted sponsorship from investors in return for percentage of the voyage’s proceeds. Everyone was aware of the risk but at least nobody took 100% of it upon themselves.
Logically, Belgium, France, and the Netherlands joined the structure within a decade.
In 1602, the Dutch East India Company became the world’s first publically traded company – shares of the company were offered at the Amsterdam Stock Exchange. Investors could purchase stocks and bonds and earn a percentage of East India Company’s profit.
The Coffee Shops
Where would London investors trade East India shares? That’d be a nice “Who Wants to Be a Millionaire” question, at least in my opinion.
In the 17th century, stocks were issued on paper, and investors could sell those papers to other investors. However, there wasn’t a stock exchange in London yet.
So, investors would need to find a broker to execute their trade. Betting on comfort, investors and brokers met mostly in coffee shops across London and did their business there.
Some shops even wrote up and posted shares for sale on their doors. Others went the extra mile and mailed them to people as a newsletter.
South Seas Crash and the New York Stock Exchange
The British East India Company had one of the hugest advantages in early financial history – a monopoly, backed by its government.
So, investors would receive mind-blowing dividends and sell their active shares for even more profits. Logically, other investors wanted to join the action. Demand was booming and someone needed to take care of the supply.
It happened so swiftly, England didn’t have the time to set regulations on share issuing.
The South Seas Company (SSC), re-issued shares and, what a surprise, they were sold immediately upon listing. Before their first ship went on a voyage, they’ve used all of the investors’ money to open up luxurious offices in the most expensive parts of London.
Following SSC’s success, many new-made “entrepreneurs” started issues shares for their own ventures. And most of them sound absurd to a sensible person nowadays. To give you an idea – some “businessmen” offered shares to a venture, so important, that its purpose couldn’t be revealed.
As expected, the SSC bubble burst spectacularly when the company failed to pay dividends on its massive profits to investors. Then, the government banned share issuing and the ban “lived” up until 1825.
A Big Player in the Making
The New York Stock Exchange was established on the 17th of May, 1792.
Although the London Stock Exchange came to life 19 years earlier, Londoners couldn’t actually operate with stocks due to the governmental ban. However, the NYSE operated with stocks from its very inception.
The NYSE had little to no domestic competition for the following two centuries.
Even when London emerged as a major stock exchange for Europe in the 20th century, most international businesses still listed their shares on the NYSE.
A New Player Emerges
Nasdaq is a global digital marketplace, aimed at buying and selling securities.
Created by the National Association of Securities Dealers (NASD), it enables individuals to trade securities on a computerized system. Its platform is speedy, transparent, and ever-growing.
Electronic trading boosted efficiency and also reduced the big-ask spread, adopted by other exchanges.
Where Are We Headed Beyond 2020?
Although Nasdaq has more listed companies on its platform, the NYSE has a huge advantage in terms of market capitalization. Its MC is bigger than London, Tokyo, and Nasdaq exchanges combined.
The NYSE spreads globally, no matter how we look at it. Even if other exchanges thrive and upgrade their standing, the NYSE remains to be a giant in a field of dwarfs.