The history of the stock market – how did it all start?

From utterly unfamiliar with finance to the most expert in the field, everyone has heard the most used stock market concept. But how did we get here? Where and when did the stock market start?

It was not in New York, nor London, nor in Tokyo. The concept of the stock exchange was born in Belgium in the 16th century. More specifically, in Bruges. In a building owned by the noble Van der Buërse family, important economic transactions were carried out. 

The history of the stock market 

Creation of the first stock market in Bruges

Before the appearance of stock exchanges, financial securities (such as debt securities for example) were exchanged exclusively “over the counter”, between a seller and a buyer who met in places like the current Pont au Change in Paris or on the square where the inn run by the Van der Buerse family was located in Bruges.

In this city, the first stock exchange was founded in 1309 and took the name of this family. In France, the first stock exchange was organized in Lyon in 1540. The first shares were traded in 1698 at Jonathan’s Coffee House in London. These exchanges facilitate the exchange of financial securities by allowing all buyers and sellers to meet in the same place.

The first official stock exchange

It was not until 1602 when the first official stock exchange was established. It was the Amsterdam stock exchange, today the oldest in the world. The Dutch East India Company founded it, and it was the first to function as the current stock market (buying and selling of shares).

The company’s power was great and widespread. It controlled all business between the Netherlands and Asia. The objective of founding the exchange was to be able to raise funds for future business trips.

In this way, little by little, the stock market grew and became popular in other countries, giving rise to New York (1792), Paris (1794), and Tokyo (1878) stock exchanges, among others.

The ten biggest stock exchanges in the world

Now that we know the origin of the stock market, it is time to ask ourselves: what is its current disposition? According to the Stock Market Institute, these are the ten largest stock exchanges in the world today:

1. New York Stock Exchange (US)
2. NASDAQ (US)
3. Tokyo Stock Exchange
4. London Stock Exchange
5. Hong Kong Stock Exchange
6. Shanghai Stock Exchange
7. Toronto Stock Exchange
8. Deutsche Börse
9. Australian Securities Exchange
10. Bombay Stock Exchange

In them, shares and bonds, subscription rights, warrants, ETFs, certificates, and other products are traded and exchanged.

Wall Street as a first stock market model 

Through this side street, quickly named Wall Street since it runs along the wall of the colony, many products and goods, coming from or destined for Europe, are transported and stored. It was on the threshold of these warehouses that the first stock market transactions took place, at the time in the form of sales and public auctions.

Wall Street thus created a first stock market model which would prevail until the end of the 18th century, that of an open auction market where everything was quickly bought and sold, real goods such as securities, shares or promises on goods. future.

At the beginning of its history, Wall Street struggled to go beyond the walls of its native street. This emerging stock market is blocked by English domination which prevents the creation of a real currency or even a real American entity (understood here as the United States of America). Old England also remains very cautious about financial speculation activities, considered impure and often prohibited by the prelates of the Christian religion.

Its geographical position, however, continues to prove extremely strategic since the city of New York is located at the end of the first canals linking the East Coast and the Great Lakes which will be built during the 19th century. Among them: the Erie Canal, the nerve center of grain exports, whose commercial and banking monitoring was ensured by Wall Street. This position at the heart of trade routes also ensures an incessant influx of cash to Wall Street, then available for lending and trading.

The three birth certificates of Wall Street

A quick flashback is necessary, to the end of the 18th century more precisely, to the time when two founding events of the Wall Street stock market took place. Two dates with which the small street of Manhattan will move from an auction market to a more developed, less material financial system, the future breeding ground of modern finance.

The birth of the United States of America

On April 19, 1775, the states not yet called the United States of America went to war against English domination. A 7-year war which will see the birth of a new country, a new people, but also the first securities, in the form of treasury bonds issued by the very young American government to finance the war. Actions backed by an ideal of freedom which will immediately arouse enormous enthusiasm and speculation.

The Buttonwood Agreement

On May 17, 1792, less than 10 years after the ratification of the United States Treaty of Independence, another major declaration was signed. Many have never heard its name, but in the context of our history, the Buttonwood Accord, which takes its name from the plane tree residing at 68 Wall Street, marks a second birth: that of the stock market.

Under this agreement, 24 New York brokers came together for the first time who organized an agreement, a cartel, to regulate and organize their trade.

The New York Stock Exchange and the Dow Jones

Finally, the New York Stock Exchange, the “New York Stock Exchange” (NYSE), was officially created on March 8, 1817. But this date was not the last birth of Wall Street, it was found instead in 1896 with the creation of the Dow Jones index.

Dow Jones Industrial Average

More than an index, the Dow Jones is a stock market average obtained by dividing the prices of the 30 largest stocks, which makes it possible to identify a trend every day. It promotes a true democratization of investment because everyone, at home, can now form an opinion on developments in the stock market and thus speculate on future developments.

An activity until now reserved for investors who populated Wall Street and constantly manipulated prices in order to win the stock market battle. These investors were generally split into two: bears versus bulls. Bulls, like the bull who attacks from the bottom up, believe in an upward trend, unlike bears who, like the bear, attack from the top down, being therefore rather bearish.

These three acts then brought a new vision of the stock market and its place in society, as in the economy, which will not be without impact on the history of Wall Street, definitively linked to American society.

A business place in a puritan country

A true legacy of the first Dutch settlers, New York (and the Manhattan district) is a busy business place in a puritan country that does not like to touch money. It is this dissonance that will allow Wall Street to establish itself as the only stock market in the United States, until then in competition with other places of equal importance, in Boston or Philadelphia for example.

To certains, like Thomas Jefferson (president of the United States from 1801 to 1809), the United States is a vast agricultural plain under divine domination, and where all speculation is an excess of hubris which can only be punished (this is how the first crashes will be explained).

Despite this, anyone who has read Democracy in America by Tocqueville knows to what extent the American context gives everyone a chance. Thus, everyone can trade, exchange goods, securities, treasury bonds, without there being a question of social class, heritage or inheritance. Unlike the European vision where these actions were reserved for an elite.

Stock markets models

Heirs to the first Wall Street auctions, it is the different stock markets that will make the power of American finance. In a country where the expansionist and commercial spirit dominates (descended from the myths of the rush to the West), street markets where everyone can buy and sell securities, without regulation, will truly anchor the stock market model. in American customs. There is no United States citizen who has not already traded a stock at the stock market near him!

A model that is certainly unstable in the absence of any regulation, but which allows American financial centers to assert themselves against European centers, which are quickly regulated. The last stock market in France, called La Coulisse, died for example with the end of the Second Empire. This informal group of financiers, also called the Coulissiers, gathered on the Place du Palais de la Bourse to trade securities after the stock market closed.

The American method of stock markets

The American stock markets were not regulated until much later, from 1921. They allowed the stock market to adopt the trading techniques of an efficient and rapid market, where a speculative madness could die in an hour. .

This deregulated market dynamic will create an American method which does not exist on the old European continent. It is symbolized by the person of the trader, this man on the alert, ready to take all the risks, and who must assume them himself. A method strongly linked to human emotions which will create the story of Wall Street that we know, made up of a succession of booms and crashes. You can also read the series of articles on cognitive biases already published to understand these runaway phenomena.

 

Wall Street Stock Exchange – a Story of Madness and Frenzies

The history of Wall Street is closely linked to that of the United States, of successive discoveries and advances, financed by the frenzy of the stock market and traders, and enabled by an ultra-liberal government that does not want to intervene in business. financial.

Cotton, land, banking, railroads… Wall Street traders speculate on the great advances of their time, often risky bets that arouse excitement and strong emotions. Then come the mines, the telegraph, oil, heavy industry, the car, the radio, the planes: so many new things that give rise to such intense excitement that it is often followed by a painful crash.

The most resounding stock market crashes

Despite the crashes, the American stock market operated without state supervision until the New Deal (which followed the crisis of 1929, detailed in the article…). The absence of a central bank before 1913 allowed traders all possible speculations and outbreaks, while the Europeans had long put in place anti-speculation systems in response to the South Sea bubble (England) and the Mississippi bubble (France). These two bubbles will be detailed in other articles.

1907, 1929, 1987, 2000, 2008, so many dates known to everyone as those of the biggest stock market crashes, but from which Wall Street has always been able to recover. Spectacular collapses which also come from the mentality of the Americans who let the bubbles grow until they explode as long as there is a way to earn a little money, and refuse any government regulation, perceived as an attack on freedom and the confidence of the people.

A unique system of its kind which entrusts Wall Street couriers with much greater power than their European colleagues, and a primacy which will be one of the causes of the global impact of the successive crashes of the New York stock market.

A period of respite between 1929 and 1980

A good example of the influence of libertarian thought on the stock market activities of Wall Street is the absence of major crashes between 1929 and 1980, while the stock market had been corseted and organized by the New Deal following the financial crisis. 1929. From 1980, Reagan’s accession to the

Presidency of the United States changes the situation, since the latter considers the stock market as a driving force of the economy, thus linking speculative stock market activity and the real economy. The lifting of regulations allowed a renewal of the enthusiasm of traders which would give rise to a series of crashes in 1987, 2000 and 2008.

How then can we avoid these bubbles which seem inherent to the history and DNA of Wall Street? Indeed, the lessons of the subprime crisis do not seem to have been learned, the American ideal of market self-regulation, freedom and accessibility of the stock market continuing to be the watchword of financial activity .

Conclusion  

The history of the stock market, tracing its origins to joint stock companies and the establishment of the London Stock Exchange, reveals a fascinating evolution. 

The New York Stock Exchange (NYSE), located on Wall Street, stands as a major stock exchange in the world, symbolizing the might of the United States in global finance. 

This journey has seen revolutionary changes, from the era of physical trading floors to the advent of electronic exchange and electronic trading, reshaping the way stocks and bonds are bought and sold. 

Market capitalization has soared as more companies began issuing shares and becoming publicly traded, reflecting an ever-expanding economic landscape. However, this growth has not been without setbacks. 

Events like the stock market crash of 1929, Black Monday in 1987, and the dot com bubble burst have tested the resilience of global stock markets, including those in Hong Kong and beyond. 

The Dow Jones Industrial Average has chronicled these ups and downs, serving as a barometer for economic health. As the stock market continues to evolve, its history stands as a testament to human ingenuity and adaptability in the face of constant change.

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