Modern economy is unthinkable without the active work of the stock market, but its importance was formed gradually. Initially, stock markets did not occupy a key place in the financial system. In this material, we will consider how the role of exchanges has changed over time and why they have become a catalyst for economic progress.
Evolution of financial markets
Exchanges, as a phenomenon, appeared not so long ago, but their influence on the economy has grown rapidly. The history of stock exchanges demonstrates how they became a crucial element of financial infrastructure, determining the directions of business and investment development.
Early prototypes of stock markets
Although the concept of the stock market as we know it began to emerge in the sixteenth century, there were older forms of market relations that resembled exchange activities. For example, in twelfth-century France, a system was developed whereby bailiffs dealt with the adjustment of land debts on behalf of credit institutions, which can be interpreted as an early version of brokerage and debt trading.
Inventions of the banking system of the Middle Ages
Northern Italy of the Middle Ages is considered the cradle of many financial innovations. Here the foundations for modern bills of exchange, corporate structures, and banking were developed. Despite this, the world's first stock exchange originated in Bruges, in 1409. This Belgian trading city was home to the early stock markets, named after the local Van der Bourset noble family name, Beurzen.
The Van der Burset family's influence on market processes
The Van der Beurze family had a significant influence on trade in their town. They provided storage space for goods and mediated commercial transactions. Their famous hotel attracted traders from all over the world, who gathered in the square in front of it to trade. The prototypes of modern stock exchange platforms were already functioning, but they traded in commodities other than stocks. The structure and management were similar to today's stock exchanges, but the subjects of the trades were much different.
The first limited liability company
In 1600, a special economic organization emerged - “The London Company of Merchants trading with East India”. It was the first company to adopt the limited liability model. This innovation was due to the high risks of maritime expeditions to distant countries, where shipwrecks led to losses of investors. The creation of such a company made it possible to spread the risks and was a breakthrough in world trade.
Diversity of investments as a defense against risk
Investors realized that concentrating investments in one project increases the risk of loss. For example, ships sailing from the East Indies had a one-third chance of being captured by pirates. To avoid a total loss of capital if one venture failed, capitalists began to spread their funds among several expeditions. In this way, even if one ship was lost, they retained the chance of profits from other investments.
History of the creation of stock exchanges
The formation of the first stock exchange sites occurred at different times:
- In Bruges, Belgium, the first unofficial appearance of an exchange is noted in 1409;
- In 1531 a stock exchange was founded in Antwerp (Belgium);
- Amsterdam (Netherlands) got its stock exchange in 1612;
- The London Stock Exchange started operating in 1801;
- In 1825, the New York Stock Exchange began operating.
In the Russian Empire the first commodity exchange appeared in 1703 thanks to the decree of Peter the Great. Initially it was located in St. Petersburg near Troitskaya Square, but in 1816 it moved to Vasilyevsky Island.
Evolution of the securities market
The stock market is constantly progressing. Nowadays, stock platforms function in many countries, closely interacting with the world financial systems. Every day on these platforms there is a turnover of funds worth trillions of dollars, which makes them a key element of the economic structure.
Although the New York Stock Exchange reigned supreme for over two hundred years, in 1971 it faced the emergence of a serious rival. That year, the merger of the National Association of Securities Dealers and the financial regulator led to the creation of a new trading floor, NASDAQ.
NASDAQ revolution and innovation in the financial market.[]
NASDAQ differs from classic stock exchange platforms by relying entirely on digital technology. This platform has no physical address as all transactions take place online.
This approach has provided NASDAQ with unique opportunities and incentives for development, which in turn has stimulated competition and progress in the industry. In response to these challenges, the NYSE merged with Euronext in 2007, creating the first intercontinental exchange, NYSE Euronext.