Some Facts About Stock Exchange
There is much noise around the concept of
stock exchange when it comes to its origin. Famous scholars who carried out
various researches did not arrive to a consensus. Some believe that the
founding of Dutch East India Company in 1602 is the key event, while others
emphasize earlier developments. At the same time the other ones argue that a
share market existed in ancient Rome.
A stock exchange is a form of exchange
providing services for traders and brokers to trade stocks, securities and bonds.
It usually functions as a continuous auction market where buyers and sellers
consummate deals at a central location. But, obviously, stock exchanges were
not always this way; there were a lot of changes until we have come to the current
exchange system.
A
Piece of History
The most important periods during the
development of stock exchanges include the existence of organizations of
traders in the Roman Republic who performed temple-building and various other
services for the government; later commercial innovation moved to Europe with
mercantile cities such as Antwerp and Bruges where counting houses operated to
facilitate trade. By 1500s, English
merchants formed joint-stock companies that operated on a regular basis. The
next major step was the foundation of the Dutch East India Company in 1602
which was based in six locations and had readily tradable shares; the stock
market had begun then. In 1621, the Dutch West India Company was founded that
brought a new issuer to the bursting forth security market.
The Tulpenmanie
The tulip mania is a term used to refer to the
period in the Dutch Golden Age when the prices for bulbs
of newly brought tulip reached unbelievable high levels and suddenly fell
afterwards. The extraordinary about this mania was that in 1637 single tulip
bulbs were sold for more than ten times the income of a craftsman.
The tulip was something of a novelty in
Europe at that time with petal color that no other flower had. The introduction
of this plant was the beginning of the country’s Golden Age. The merchants from
Amsterdam were in the middle of the East Indies trade. The great success of
merchants was showed by building vast estates surrounded by flower gardens
featuring sensational tulips as a status symbol.
In such as way tulips became luxury items
and people were feverishly paying high prices which led to considerable price
rise. By 1636 tulip bulbs were the fourth leading export product of the
Netherlands. Tulip mania reached its peak in winter 1636-1637 during which some
bulbs were changing hands over ten times in a day. Unfortunately, in February
1637 the tulip mania collapsed. It began in Haarlem when buyers refused to show
up at a bulb auction probably because of the bubonic plague that struck Haarlem
at that time.
Tulip mania is considered to be the first
recorded economic bubble and nowadays this term is sometimes used to refer to a
huge economic bubble.
The
British East India Company
The British East India Company is
known for having one of the most significant advantages in financial history –
a legal monopoly.
In 1600 the company acquired a Royal
Charter from Queen Elizabeth becoming one of the oldest among similar European
East India Companies. The company’s shares belonged to rich merchants and
aristocrats. The government had only indirect control over those shares.
Eventually, the company started to rule vast areas of India with private
armies.
The East India Company was formed to
carry on trade with East and
Southeast Asia and India. Additionally, its activities in China gave an impetus to the expansion of British influence there
and beginning with the 19th century, the Company financed the tea
trade with prohibited opium exports to China. As a result, the Opium War started (1839–42) which ended in a Chinese defeat and the
expansion of British trading authority.
The political monopoly of the Company was
broken in 1813 and in 1874, the Company ceased to exist as a legal entity.
Stock
Exchange Today
It is remarkable
how much has changed since the first forms of trade emerged in the past. The systems have been improved, new rules
have been introduced, and everything continues to develop day by day. The
introduction of electronic exchange that facilitated trades can serve as a good
example of the evolution of stock exchange system.
There are
several powerful stock exchanges today located in Philadelphia, Chicago, Los
Angeles, etc.; but the NYSE is still one of the most influential and largest
stock exchanges in the world. Obviously there are many stock exchanges that
have grown stronger through the development of their economies; however it is
still almost impossible for them to fly at a higher pitch than the NYSE.
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