The Corner

[Epilogue to the four part series on the development of stock exchanges.[

The stock exchange on Wall Street—that started out in 1817 bearing the name New York Stock and Exchange Board and since 1863 the New York Stock Exchange (NYSE)—is not the oldest in North America. An exchange started operating in Philadelphia one year earlier. In both cities trading was initially only in bonds issued by the young United States. Banks and insurance companies followed. The construction of canals and roads increased the number of shares on offer. The second stock exchange in New York, the American Stock Exchange (Amex), was founded during the Civil War. Coincidently NYSE, which purchased Amex in 2008, announced last week that it is discontinuing the historic name, “American Stock Exchange.”

The longest chapters in stock exchange history have been written in Europe. In Central and South America the first stock exchanges were not set up until the second half of the 19th century. Until fairly recently these were of modest size, with the exception of the “Bolsa de Comercio de Buenos Aires.” The Johannesburg Stock Exchange was established in 1887 in order to make capital available to exploit the rich gold fields of Witwatersrand. The Sydney stock exchange dates from 1871 and reflected the demand for capital of the rapidly developing continent of Australia.

Asia’s stock exchanges are very new, except for those of Tokyo and Bombay. The latter was set up in 1860, when India saw much speculative activity involving cotton prior to the American Civil War. The Tokyo bourse dates from 1878. In the last decades of the 19th century, Japan underwent rapid industrialization which accelerated the development of its stock exchange. Today, the Tokyo Stock Exchange is one of the most important stock markets worldwide.

The Shanghai Stock and Hong Kong Stock exchanges have become extremely important over the past 10 years. The Shanghai was re-established in 1990 and is the world’s fifth largest. The Hong Kong exchange was established in 1891 and is the world’s sixth largest.

The growth of stock exchanges has been linked to the issue of new shares by new companies. In the 19th century many stock markets expanded in line with railroad companies. During the early 20th century steel and automobile concerns were responsible for stock exchange growth. Nowadays microelectronics, the computer industry and medical and health care companies and Internet-based companies are the ones driving new listings on the world’s stock exchanges. Other lines of business such as clearing trades, providing data and trading in derivatives are important to the big time world exchange operators.

The business that started out in the alleys and fish markets has now evolved into a mix of humans on trading floors, electronic trading in the digital world and the intense mergers and globalization of the world’s stock exchanges. Charles Geisst, in his book “Wall Street: A History,” sums up the corners of Wall and Broad quite nicely: Wall Street’s history has reflected an extraordinary growth that has paralleled the fortunes of the United States… Its short comings are often blamed for all sorts of economic ills while its normal, everyday functions are taken for granted. But it is that curious mix which has evolved over the years into the history of modern American finance.” As JP Morgan once said, “stocks will fluctuate”—that is a well known fact by the folks who work at the Big Board, located at 11 Wall St.

Quote of the Week: “One of the first—and hardest—lessons that individuals must learn if they want to be successful traders or investors is how little they know—and how much they actually need to understand—about the complex and often illogical world of financial market.”—Michael J. Panzner.

Bart Ward is the chief executive officer of Ward & Co. Ltd. an Anoka based registered investment advisor – specializing in the management of stock and bond portfolios in companies which are listed on the NYSE.

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