Capital Markets - A Brief History
Securities markets, like all economic concepts, are the product of the perpetual gap between demand and supply. Human desires tend to be very similar in nature, people want what their neighbors have. For this reason, demand for goods & services in societies tends to be similar & pooled across large groups of individuals. Hence the need for communities to create a similar supply side response. Securities markets permit societies to create a pooled supply response to its own instinctively pooled demands. This serves to reduce the gap between desire and fulfillment. Simply put; since we all want cars, it would be more cost effective to pool our money in order to finance one efficient automobile factory, as opposed to each of us trying to build a car in our garage.
Belgium incubated the world's first Securities Market in 1531. Individuals with ideas in excess of their means would attempt to convince small groups to pool savings in their support. Similar informal markets soon followed across Europe.
At the start of the industrial revolution, during the 17th century, financial markets began to come to prominence. Businesses needed vast amounts of capital to finance larger facilities; however few individual investors were capable of supporting such large scale ventures. Early exchanges facilitated both capital creation and exchange (Primary & Secondary Markets). The earliest financial markets were actually housed in churches.
Among today’s leading securities markets, the London Stock Exchange is the oldest. Its origins can be traced back more than 300 years. Starting out in the coffee houses of 17th century London, the Exchanges quickly became important financial instruments for developing businesses.
The New York Stock Exchange traces its origins back more than 200 years to the signing of the Buttonwood Agreement by 24 New York City stockbrokers and merchants in 1792. Securities were auctioned every day beginning at noon to the highest bidder. The seller paid the exchange a commission on each stock or bond sold. Prior to this agreement, a person wishing to buy or sell an investment would either advertise, or spread the word among associates and friends. The concept quickly became more attractive as investors realized they would not necessarily be stuck with equity in a given company, with dividends as the only means of recoupment. Centuries of growth and industry defining innovation has resulted in the New York Stock Exchange’s evolution into the world's foremost securities marketplace.
The last 20 years have been dominated by the information revolution, and all aspects of business activity have benefited tremendously. Electronic automation has not only become wide spread, but also standardized. The result is that independent data networks around the world can now be routinely integrated to form global electronic market places.
The “National Association of Securities Dealers Automated Quote System” (NASDAQ) has quickly emerged as the second largest securities market in the world, in terms of market capitalization, and is number one in average daily trade volumes. It is a 100% electronic stock market. This dramatic rise to prominence has resulted in the revamping of the standard bearer exchanges as they have quickly lost market share (NYSE\London). But perhaps more importantly, NASDAQ has stood as a model for fledgling securities markets across the globe.
The world is now dotted with over 40 major electronic stock exchanges. Toronto, Taiwan, Johannesburg, Helsinki and Caracas are but a few of the exchanges that represent over US$50 Trillion in corporate market value. Almost $US 200 Billion dollars of share value changes hands daily across global electronic markets.
