History of Stock Markets
The origin of stock markets is to be found at the
beginning of the industrial revolution that began in Europe about four
centuries ago. The early associations for trading were either individual owners
or partnerships. The first modern shareholding enterprise is generally
recognized as the proposal by Sebastian Cabot, the British explorer, to set up
an enterprise to find a North East trade route to China and the Orient. Many of
the pioneer merchants of the industrial age wanted to start huge businesses,
which no single merchant could accomplish alone. It therefore became inevitable
for them to come together, pool their savings and start their businesses as
partners and co-workers. The contribution of each partner to the enterprise was
to be represented by a unit of ownership. This was the precursor to what we
call shares and through this, joint stock companies were born.
Initially, trading in shares began informally on the
streets of London. As the volume of shares increased with more companies
floating shares (giving people opportunities to buy their shares), the need for
an organized market place for the exchange of these shares escalated. As a
result, these traders decided to meet at the coffeehouse, which they used as
the marketplace. Eventually, they took over the coffeehouse and changed its name
to stock exchange; this was in the year 1773 and the first stock exchange, the
London Stock Exchange, was founded. Financial intermediaries
(brokers, fund managers, investment advisors, investment banks, etc) and other
instruments like bonds then followed suit as an inevitable consequence.
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