Stock markets are some of the most important part of today’s global economy. Countries around the world depend on stock markets for economic growth. They have always played an important role in global economics. Earlier civilizations around 6000BC used Barter System in which people use to exchange goods against other goods.
It is believed that Commodity Markets occurred even before 4000 BC the Sumer in Iraq during Mesopotamia where goats were traded as stocks to be delivered. They use to promise time and date of delivery which resemble future contract today. Early civilizations variously used pigs, goats, rare seashells, or other items as commodities. Since that time traders have sought ways to simplify and standardize trade contracts.
Some were around 1000’s or also before than that in Europe and Asia it grew. In the 1100’s, France had a system where “Courtiers De Change” use to managed agricultural debts throughout the country on behalf of banks. This can be seen as the first major example of brokerage because the men effectively traded debts they could also be called as the first brokers as they were working on behalf of banks.
In the 1200’s and 1300’s, Merchants of Venice were credited with trading government securities. Soon after, bankers in the nearby Italian cities of Pisa, Verona, Genoa, and Florence also began trading government Securities. Venetian bankers began to trade in government securities.
In 1351 the Venetian government outlawed spreading rumors intended to lower the price of government funds. Bankers in Pisa, Verona, Genoa and Florence also began trading in government securities during the same
1300’s. This was only possible because these were independent city-states not ruled by British Monarchies but a council of influential citizens. Italian companies were also among the first to issue fractional partnerships or sharing of their firms.
During the same 1300’s, Bruges in Belgium, commodity traders gathered inside the house of a man called Van der Beurze, and in 1409 they became the “Brugse Beurse”, institutionalizing what had been, until then, an informal meeting, but actually, the family Van der Beurze had a building in Antwerp where those gatherings occurred; thebVan der Beurze had Antwerp, as most of the merchants of that period, as their primary place for trading. The idea quickly spread around Flanders and neighboring countries and “Bourse” or “Beurzen” soon opened in Ghent and Rotterdam.
Companies in England and Countries nearby followed in the 1500’s and it almost spread across major Europe. It is also believed that the first genuine stock markets didn’t arrive until the 1500’s. However, there were plenty of early examples of markets which were similar to stock markets. The world’s first stock market actually was without stocks. Belgium had the world’s first stock market. Bruges, Flanders, Ghent in Belgium and Rotterdam in the Netherlands all hosted their own “Stock” market systems between 1400’s – 1500’s.
However, it’s generally believed that Antwerp in Belgium had the world’s first stock market system. Antwerp was the commercial center of Belgium and it was home of influential Van der Beurze family. As a result, early stock markets were typically called Bourse or Beurzen. All of these early stock markets had stocks & shares missing in them. Nobody was actually trading shares of a company although the infrastructure and institutions resembled today’s stock markets. Instead, the markets dealt with the affairs of government, businesses, and individual debt. The system and organization was similar, although the actual properties (instruments) traded were different.
“The East India Company” is widely recognized as world’s first publically traded company. There was one simple reason why the East India Company became the first publically traded company was because of risk associated with the shipments to East Indies as Sailing to the far corners of the planet was too risky for any single company. When the East Indies were first discovered to be a haven of riches and trade opportunities, explorers sailed there in droves (that is to India). Unfortunately, few of these voyages ever made it home. Ships were lost, fortunes were splurge and wasted, and financiers realized they had to do something to diversify their risk. A unique corporation was formed in 1600 called “Governor and Company of Merchants of London trading with the East Indies”. East India Company was first and famous and it was the first company to use a limited liability formula. During that era
First IPO was made in 1602 when the Dutch East India Company offered shares of the company in order to raise capital from the general public. It proved to be very successful formula to raise funds. Similar charters had been granted to other businesses throughout England, France, Belgium, and the Netherlands within a Decade and Dutch East India Company became the first publically traded company when it released shares and bonds to the investors of the company on the Amsterdam Stock Exchange and wherein each investor was entitled a fixed percentage of Profit. In this way Dutch East India Company became the first company in history to issue bonds and shares of stock to the general public.
Sooner Investors realized “Putting all the Eggs into one Basket” was not a smart way to approach investment in trading with the East Indies. They say that a ship returning from the East Indies had more than 30% chance of being seized by pirates. Investors started to purchase shares of other companies also to diversify their risk instead of investing in one voyage and risking the loss of all invested money. The investors would still make a profit even if one ship was lost out of 3 to 4 invested companies. Before investors ran here and there across trade floors and threw order forms of shares into the air, they conducted trade in coffee shops. Earlier on a sheet of paper stocks were handwritten and investors traded these stocks with other investors in coffee shops. Coffee shops were the first real stock markets because investors would visit these markets to buy and sell stocks. Somebody realized that the entire business world would be more efficient if somebody made a dedicated marketplace where businessmen could trade stocks without having to order a coffee. People realized it was powerful and valuable, but nobody truly understood exactly what it would become. Nobody really understood the importance of the stock market in those early days. There were no rules and regulation and only few ways to distinguish good companies from average and poor companies as a result, the bubble quickly burst. Companies stopped paying dividends to investors and the government of England banned the issuing of shares until 1825.
In 1801, Despite ban on issuing shares First Official Stock Exchange, ”The London Stock Exchange” was formed but companies were not allowed to issue shares but only debentures were allowed till 1825. But this prevented London Stock Exchange from becoming global Super Power. The New York Stock Exchange (NYSE) in 1817 was such an important moment in history that NYSE leaded till today. The NYSE has traded stocks since its very first day. Yes NYSE wasn’t the first stock exchange in the United State. The Philadelphia Stock Exchange holds that title. However, the NYSE soon became the most powerful stock exchange in the country because of lack of any type of domestic competition and it was in New York the center of U.S. trade and economics.
The London Stock Exchange was the main stock market for Europe, while the New York Stock Exchange was the main exchange for America and the world. Today, every country in the world has its own stock market. Major Stock Exchanges typically emerged in the 1900’s soon after the London Stock Exchange and New York Stock Exchange.
From New Zealand to Chicago, all of the world’s major economic powers have highly-developed stock markets which are still active today. In 1861 Canada developed its first stock exchange. Canada’s TSX is the third largest in American Continent by market capitalization. It includes businesses based in Canada and the rest of the world. The TSX is known for oil and gas companies than any other stock exchange in the world, which is why it has such a high market cap. Even war-torn countries like Iraq and Syria have their own stock markets. The Iraq Stock Exchange doesn’t have a lot of publicly-traded companies, but it is available to foreign investors. It was also one of the few stock markets unaffected by the economic crisis of 2008.
The Global importance of stock market can be found around the world with no doubt. It is believed that everyday Trillions of Dollars of stocks are traded on stock markets around the world which are truly the engine of the capital market.
In 1970’s after dominating the world economy for centuries New York Stock Exchange NYSE faced its first real challenge from NASDAQ. The National Association of Securities Dealers and Financial Industry Regulatory Authority – created the NASDAQ stock exchange trading for over 2,500 securities. NASDAQ is organised differently from traditional stock exchanges. Instead of having a physical location, NASDAQ is held entirely on annetwork of computers and all trades are performed electronically. Electronic trading gave the NASDAQ a few major advantages over the competition. Most importantly, it reduced the bid-ask spread.
Competition between NASDAQ and the NYSE has encouraged both exchanges to innovate and expand over the years. In 2007 the NYSE merged with Euronext to create NYSE Euronext – the first transatlantic stock exchange in the world. NYSE Euronext, Inc. was a Euro-American multinational financial services corporation that operated multiple securities exchanges, including the New York Stock Exchange, EuroNext and NYSE Arca (formerly known as Arca Ex). NYSE merged with Archipelago Holdings on March 7, 2006, forming NYSE Group, Inc.
On April 4, 2007, NYSE Group, Inc. merged with Euronext N.V. to form the first global equities exchange, with its headquarters in Lower Manhattan. The components were then part of Intercontinental Exchange, although it has now spun off Euronext. Euronext is present in every country in Europe where the market was first evolved like Belgium, Netherlands, England and France. There are now stock markets in virtually every developed and most developing economy, with the world’s largest markets being in the United States, United Kingdom, Japan, India, China, Canada, Germany, France, South Korea and the Netherlands.
Among the few indexes first created by Wall Street Journal editor Charles Dow, Dow Jones Industrial Average is arguably the most important index in the world. Charles Dow along with Edward Jones also co-founded Dow Jones & Company. Dow Averages were first published in 1885. Thirty (30) Large publically owned companies which play key important role in American Economy contribute to Dow Jones Industrial Average. The “Industrial Average” name was given because the companies involved in heavy industry.
Today, many of the companies listed on the index have little to do with heavy industry. Companies are added and removed from the index over time to reflect their influence on the U.S. economy.
Stock market also faces crashes time to time due to over reaction of public attitudes which are unavoidable side effects of the market. Most major stock markets have experienced crashes at same point in history. Speculative economic bubbles always precede stock market crashes. When Speculations are stretched far beyond the actual value of stock, crashes in Stock market occur. History has witnessed many major crashes which include Terrible Black Thursday in 1929 after which Black Monday and Black Tuesday. Almost 50% of its value was lost during the crash and including the entire world along with America was into deep economic depression which whipped billions of dollars. Other major stock market crashes include: Stock Market Crash of 1973-1974, Black Monday of 1987, Dot-com Bubble of 2000, Stock Market Crash of 2008 all were double digit crashes, and all of these crashes were less painful as compared to 1929.
There are many questions that raise the foundation of the advance electronic trading of stock market. The Theory of Rational Human Conduct, the Theory of Market Equilibrium and the Efficient Market Hypothesis all are under question.
The first major crash of the electronic trade era during the 1987 crash was notable due to the fact that nobody really saw it coming. The 1987 crash was one of the major crash which started began in Hong Kong more than 45% between October 19 and October 31, Markets of Australia experienced more than 41% decline, New Zealand’s market was hit especially hard falling about 60% from its 1987 peak and spread west to Europe, UK with more than 26%,hitting Canada with more than 22%, hitting the United States with more than 22% after other markets had already sustained significant declines. The Crash had occurred without any major news announcements or world political affairs with no immediately visible reasons. The New Zealand economy was damaged heavily with the high exchange rates and the Reserve Bank of New Zealand refuses to loose monetary policy due to the crisis in contrast to countries such as Germany, Japan and United States whose Central Banks increased short-term liquidity to forestall recession and boost economic growth in the coming 2-3 years. By the end of October 1987, major stock markets around the world had all experienced double digit collapses. Possible causes for the decline included Program Trading, Over Valuation, Liquidity Crunch and Market Psychology. It was also believed that portfolio insurance hedger directed programmed computer based selling. However, economist Dean Furbush pointed out that the biggest price drops occurred during light trading volume. In program trading, computers execute rapid stock trades based on external inputs, such as the price of related securities. Common strategies implemented by program trading involve an attempt to engage in arbitrage and portfolio insurance strategies. As computer technology became widespread, program trading grew dramatically within Wall Street firms. After the crash, many blamed program trading strategies for blindly selling stocks as markets fell, exacerbating the decline.