Stock exchange History, from the Origins

From the coffee house in London, the stock exchange market have transitioned through the shred to a large physical centers where indices were written on boards and now to super computers and electronic exchange of shares and stocks.

In these days, you can receive updates on any slight change in the financial market over the internet. Evolution has occurred. Let's see what took us here through a brief view of the stock exchange history.

stock exchange history

How and where was the first stock index born? What was the first official stock exchange in history? Why is the market called a stock exchange? We will unravel these questions in this article where we talk about the history and origins of the stock exchange and its evolution to our days.

There are more than a hundred Stock Exchanges operating worldwide where more than thirty thousand representative shares are listed, and there is a network of investors that globally exceeds one billion. As Newton well said,

I can calculate to the inch and to the second the orbits of celestial bodies, but I am absolutely incapable of predicting how far a hysterical crowd can drag the stock market quotes

First Origins of the Stock Exchange History

the london stock exchange a history

The concept of stock exchange is something relatively recent, since the stock exchange and the stock markets were nothing more than a consequence and an evolution over time of commercial places.

It should be noted that in the ancient Greece and Rome, there were regulations that applied to exchanges and merchants meet at a fixed time to formalize transactions. But it could be said that the exchanges, which emerged in Europe around the 12th century, are the first official places where transactions, buying and selling of goods were carried out, due to the concurrence of merchants and traders, and would be the first ancestor of what we currently know as the Stock Exchange.

With the rise of these markets, the volume began to be increasingly larger, leading to the appearance of figures such as the lender, wealthy people who provided financing in exchange for guarantees (usually jewelry and gold), as well as the Templars. Templars functions like a bank, they use their network of castles and fortresses of the Order to serve as a deposit place for those who needed it, and thus avoid possible attacks and thefts.

The Stock Exchange in the 12th-14th centuries

During the 12th and 14th centuries, the financial center of Europe gradually moved from northern Italy, to the commercial cities of Antwerp and Bruges among others and to the Low Countries

Why is the Stock Exchange called a stock exchange?

It was precisely in 1360, when the fairs held in the city of Bruges could have given rise to the word “Stock Exchange”, but because these fairs were held in front of the mansion of an influential businessman with the title of Knight of the Purses (“chevalier Van der Beurse”), named so due to three purses carved on the shield of his facade. Hence, the first official Stock Exchange was created in Antwerp in the year 1531.

The Stock Exchange in the 15th-18th centuries

With the appearance in the year 1600 of what can be considered as the first joint-stock company (the English East India Company) the first “boom” of the stock exchanges occurred.

Years later, in 1610 the Dutch East India Company was created, which decreed that its shares could only be liquidated by selling them on the Amsterdam Stock Exchange, unleashing enormous speculation, which resulted in the “Tulip crisis” the first stock market crash in history (1630-1637).

By this time, a jargon similar to “bull” was already used in Amsterdam to refer to markets with an upward trend, and “bear” for the bearish ones. The “lovers” were the optimists, and the “onlookers” the pessimists.

👉 Learn about the Bullish and Bearish market here: Bullish and bearish markets explained

Less than a century later, another of the greatest speculations in history occurred in France, in 1717. John Law, a Scottish banker settled in the Parisian village proceeded to launch the first bearer shares belonging to another East India Company, known as the Mississippi Company.

This led to violent negotiations on the Paris Stock Exchange with numerous fraudulent operations, which resulted in the first Stock Exchange Law in 1724 considered as the “birth certificate of modern Stock Exchanges”.

With the arrival of the first industrial revolution and a radical change in the foundations of the economy, industrial production became the main engine of the economy.

As it could not be otherwise, the rise of England allowed the emergence of the London Stock Exchange between the years 1760 and 1775, already with the lesson learned from the bubble created around the South Seas Company at the beginning of the century.

This also allowed the development of companies in need of large capital, such as steel companies, industrial machinery, or shipping companies. However, the main function of the growing stock market was carried out by the placement and negotiation of state loans, with the aim of obtaining financing for colonization projects.

The Stock Exchange in the 19th century to the present

From the 19th century, the rapid growth of the United States aroused the interest of investors that allowed the creation of the New York Stock Exchange, which began operating in 1865 after the civil war, and gradually displaced the London Stock Exchange as the reference stock center, thus absorbing the New York Stock Exchange the largest capital movements of the time.

In the 20th century, the crash of 1929 and the Great Depression were the first major warning about the importance of stock markets in the global economy. In order to reduce the relationship between the economy and financial markets, which could drag the entire economy of a country in times of decline, the State emerges as a substitute for private initiative in its role as an engine of growth.

The Keynesian economic doctrines acquire a dominant role, promoting public debt and fiscal policies, leaving for the stock exchanges a much more modest function in terms of economic development.

The Tokyo Stock Exchange became the largest stock market in the world, both in terms of trading volume and market capitalization, and Reagan and Thatcher's neoliberalism relaunched the stock markets in the 70s and 80s.

Subsequently, in the last 20 years, the consolidation of new markets such as the Nasdaq related to the Internet, and leading technology sectors, as well as fast and easy access to the markets, have greatly facilitated access to the Stock Exchange, and has allowed the massive entry of the individual investor.

What was the biggest Stock Market crash in history?

The 1929 stock market crash was the largest drop in stock market history. It began on October 29, 1929 and lasted two days.

During that time, the Dow Jones Industrial Average (DJIA) fell 25%, however, the market would not stop falling (although more moderately) until October 19, 1930, making it to this day the largest percentage drop in DJIA history.

In fact, the Dow Jones fell from a high of 381 points to a low of 41 points, a drop of 89%.

The crash was followed by the Great Depression, the worst economic recession in history. More than 9 million Americans lost their jobs during that brutal crisis, and many more were forced to accept wage cuts or reduced working hours.

Nevertheless, stock prices would not recover until the mid 1930s.

The following table reflects the largest stock market crashes in history.

1929Black Thursday25%
1987Black Monday22%
2000-2002Dotcom bubble burst40%
2007-2009Housing bubble burst44%

What were the Biggest Stock Market rises in history?

However, when we talk about long periods of growth, it is very difficult to highlight one in particular. Thus, these were the biggest stock market rises in history:

  • 1921 -1929: It was the time of the “Roaring Twenties.” The gold reserves of much of the world migrated to the USA, seeking to escape from the European countries, devastated by the effects of World War I and contributing to create a real financial bubble. The Dow Jones appreciated by 300% in that period, or in other words, an average of 37% per year.
  • 1932 – 1937: Roosevelt's Keynesian policies took time to take effect, and although they still did not manage to bring the Dow Jones to the highs of the late 1920s, they boosted a strong recovery thanks to the so-called New Deal.This five-year period ended with a rise of 281% in just 55 months, an annualized 33%.
  • 1949-1956: The post-war period positioned the USA as the main world power, causing another strong rise, where for the first time, the highs of the 1920s were broken. This period ended with a 250% appreciation, close to an average of 40% per year.
  • 1988 – 2000: This prolonged period, chained several catalysts that again shot the markets to historical highs:
    • A recovery period after a 70s sprinkled with wars and strong stagflations.
    • The arrival of the Internet.
    • The subsequent dotcom bubble.

In these 12 years, it was possibly achieved the biggest stock market rise in history, with an appreciation of 570%, or in other words an average of 45% per year. However, it should also be added, that in the following two years, the S&P500 lost almost 50%.

There are other periods of significant stock market rises that are reflected in the following table:

PeriodRevaluation% annualized
1921 – 1929300%37%
1932 – 1937280%33%
1949 – 1956250%40%
1988 – 2000570%45%
2009 – 2020330%30%
2020 – 202145%22.5%

History London Stock Exchange

origin of the Spanish stock exchange

The London stock exchange started with the Royal Exchange, opened in 1571 to facilitate the exchange of commerce and valuable goods. The Royal Exchange was founded by English financier Thomas Gresham and Sir Richard Clough on the model of the Antwerp Bourse. It was opened by Elizabeth 1 of England.

In the beginning, stockbrokers were not allowed in the Royal Exchange due to their rude manners. These stockbrokers had to operate in other establishment near the Royal Exchange vicinity, notably, the Jonathan's Coffee house.

At the coffee shop, John Castaing started listing the prices of a few commodities, such as salt, coal, paper, and exchange rates few days of the week in 1698.

After the Royal Exchange Building was destroyed by the Great Fire of London, it was rebuilt and re-established in 1669. This occurrence facilitate movement from the coffee shop towards the modern model of stock exchange.

In 1173,a more formal exchange was created in Sweeting's Alley. This became the official location of the London Stock Exchange by 1801.

There are currently sixstock exchanges:

Stock Exchanges in the UKYear of creation
London Stock Exchnage1801
Bermuda Stock Exchange1971
Cayman Islands Stock Exchange1997
Eastern Caribbean Securities Exchange2001
The International Stock Exchange2013
Gibraltar Stock Exchange2014

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