History Of Stock Exchanges

What is a stock exchange?

To put it simply, a stock exchange is basically a marketplace where people can buy and sell products, but the products are financial in nature, specifically equities, bonds and other financial products.

One important thing to note: only listed securities can be traded in an exchange. To be listed, a company or owner of the said security has to go through a rigorous review by the exchange to see whether the said security should be offered in the exchange or not.

For other securities that are not listed, they are traded off the exchange or what people working in the financial industry call over-the-counter.

Being listed has its advantages; you can be assured that trading is done in a more orderly fashion and that there is a ready buyer and seller market for you. Trading outside the exchange can be riskier as it is hard to find a central regulatory body which has jurisdiction over it when traded.

How Did It Start?
Most academics would trace the idea of finance through either the barter system, however; there are no records where and when did it start.

To be more stringent then, the first recorded financial activity was actually debt, which was shown by Mesopotamian city clay tablets. The improvement made by these are two-fold; records were kept ensuring the documentation and legal basis for collection and the added services made the debt to be interest-bearing. This was further developed by Italian city-states, where said cities made government bonds transferable. Transferability made the bonds and debts commodities by itself; this means the ownership of debt can be bought and sold, giving the market needed volatility and a ready market of buyers and sellers.

The first formal stock exchanges were in the 1600s when countries make companies to have monopoly over specific industries. A good example would be the Dutch East India Company. The company is the first one to issue bonds (debt) and shares (equity). Another historical innovation they made was the invention of corporate shareholders; the crown does not control the activities but the shareholders instead. This proved highly profitable when the company was paying on average 16 percent per year from 1602 to 1650.

In the 1700s, we have the great financial bubble of the South Sea Company and in the 1790s have regulations in London to allow only royally chartered companies to issue shares.

The 1800s have the founding of the stock exchanges in the USA, with the NYSE, the largest stock exchange in the world, being established on March 8, 1817.