Talk of shares, options, forward selling, prices, risk and speculation did not begin on Wall Street. Rather, the first conversations relating to trading shares took place in Amsterdam and these talks pertained to the Dutch East India Company, which came into being in 1602.
Since that time, many a stock market boom and bust has occurred, and many a fortune has been won and lost. The market processes that support these fortune-making-and-breaking events were first described in Joseph Penso de la Vega's Confusion de Confusiones, a guide for modern investors that was originally published in 1688. De la Vega's missives on the basic workings of the stock market and the events it triggers remain as true today as they were then.
Amsterdam Stock Exchange
The Amsterdam Stock Exchange (AEX) offered the Dutch East India Company and other companies access to investors via the Dutch capital market, or stock exchange. The market offered traders and companies an environment in which private and institutional investors could partake in stock trades in a transparent manner. Today, the AEX continues to offer companies located in the Netherlands and abroad access to the global capital markets.
Read More: The Mechanisms of Trading in Stock Exchanges
Stock Exchange Purposes
A company's listing on the board of a stock exchange – a listing of stocks that are traded on an exchange – is a means for the organization to finance operations and enhance its credibility. Listing a company on a major exchange gives the business the funds it needs to accelerate future growth. The exchange also provides a liquid market for a company's shareholders.
What's more, a stock market listing can raise the visibility of a company's profile locally and internationally. Equally important, a listing on an exchange may increase a company's status with its stakeholders, promote employee commitment and facilitate corporate recruitment.
A stock market listing is also a convenient means by which legacy investors can exit a company. Equally important, a market listing signals a company's financial well-being to its suppliers and other stakeholders. Typically, a company maintains its listing unless its stocks' market values or their turnover fall below certain exchange-defined levels.
Stock Exchange Function
The National Association of Securities Dealers Automated Quotations (NASDAQ) and the New York Stock Exchange (NYSE), each of which is located in the United States, are the world's two largest exchanges. Exchanges, however, also exist in London, Japan, Hong Kong, Shanghai, India, Australia and elsewhere.
All stock exchanges provide a market whereby a company or its investors can sell stakes in its business and investors can buy those securities in hopes of earning a profit on their investments. The activities of a stock market, or securities exchange, are regulated by the government and must adhere to industry practices.
An exchange functions as an auction house for securities, including stock, in which companies list their equities for purchase, buyers bid for or offer to buy the equity at a certain price, sellers accept the offers made by the buyers, and the exchange facilitates the transactions. In turn, the purchasers of shares and other equities offer to sell those securities to other investors or the companies that issued the stock.
The NYSE maintains a physical trading floor but NASDAQ does not. Today, stock transactions are conducted digitally via exchange data centers. Consequently, trading takes place directly between investors who seek to sell or buy equities.
Read More: What Is the New York Stock Exchange Ticker?
U.S. Stock Market Crash
A stock market crash is a sudden and dramatic decline in share prices across a cross-section of the market, which leads to a sharp decrease in stock prices and thus company valuations. The Wall Street Crash of 1929 was, to date, the most significant in history on the basis of both the decline in company valuations and the effect of that decline and the country at large as demonstrated by the Great Depression.
According to the Federal Reserve, the origin of the stock market crash was excessive market speculation and the high volumes of buying and selling it triggered. On Black Tuesday, Oct. 29, 1929, 16 million shares were traded on the NYSE, resulting in the loss of billions of dollars. Between Oct. 30 and July 8, 1932, the market continued its downward slide until the DOW Jones Industrial Average closed at 41.22, a 20th-century low that led to an 89.2 percent loss for the index in less than three years.
Recapping the Stock Market's Origins
In 1602, the Amsterdam Stock Exchange (AEX) began offering the Dutch East India Company access to investors via the Dutch capital market, or stock exchange. The market offered traders and companies an environment in which private and institutional investors could partake in stock trades in a transparent manner. Many of the capital market practices that began that day continue today as companies seek capital to expand operations and, sometimes, remain afloat, and investors seek a reasonable return on their investments.
- Financial Times: The World's First Stock Exchange
- Rijks Museum: 1602 Trade with the East: VOC
- Euronext.com: Why Go Public
- NASDAQ: NASDAQ Regulations
- NYSE: Markets: NYSE
- NYSE: NYSE Exchange Data
- New York Times: The Crash of 1929
- Politico: Dow Jones falls to its lowest point, July 8, 1932
- Securities and Exchange Commission. "What We Do." Accessed July 29, 2020.
Billie Nordmeyer is an IT consultant of 25 years standing. As a senior technical consultant for SAP America and Deloitte Touche DRT Systems, a business analyst, senior staff, and independent consultant, Billie has worked across the retail, oil and gas, pharmaceutical, aeronautics and banking industries. Billie holds a BSBA accounting, MBA finance, MA international management as well as the Business Analyst and Software Project Management certificates from the Cockrell School of Engineering at the University of Texas at Austin.