The History of the Stock Market

The London Stock Exchange

The proliferation of stock-issuing companies led to the creation of the London Stock Exchange. At first, there was no one building where shares were exchanged. Rather, the bulk of brokers and investors did their business at various coffee shops around London. At this time, when companies wished to sell shares or issue debt, they posted notices on coffee shop doors or mailed newsletters to their patrons. Jonathan’s Coffee House in Change Alley, in particular, evolved into a major hub for London’s nascent stock exchange.

Decentralized trading continued to swell at London’s coffee houses until a fire ripped through Change Alley in 1748, leading a group of wealthy traders to erect a dedicated building for the exchange in 1773. So began what would be a lengthy tenure for Britain as the finance capital of the world. While since surpassed by the United States, London remains one of the world’s financial epicenters.

The Amsterdam Stock Exchange is believed to have been the first stock exchange that allowed continuous trade, and according to Murray Sayle, “…pioneered short-selling, option trading, debt-equity swaps, merchant banking, unit trusts, and other speculative investments, much as we know them.” Despite these innovations, Amsterdam’s exchange never achieved quite as much prominence on world finance’s stage as London or New York.

The New York Stock Exchange

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Several years later, in 1793, the New York Stock & Exchange Board opened for business on Wall Street. Despite not being the United States’ first stock exchange (the Philadelphia Stock Exchange was), the NYSE quickly established itself as the cornerstone of finance in the fledgling new country. Like its London counterpart, the NYSE started small, originally operating out of a single room. This location was destroyed by fire, prompting a relocation to Broad Street and the renaming of the exchange to the New York Stock Exchange.

It didn’t take long for the NYSE to become a financial powerhouse. According to NYSE.com, the volume of traded stocks shot up sixfold from 1896-1901. Much of this success can be attributed to the location of the exchange in New York City, the center of virtually all business and trade in the US at the time. The NYSE also was the first exchange to successfully institute listing requirements and fees, which generated a substantial amount of revenue for the exchange. For over 200 years, the New York Stock Exchange stood as the unquestioned leader among all exchanges.