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History of Stock Exchange |
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Financial markets first came to prominence during the 17th century at the start of the industrial revolution. Businesses needed vast amounts of capital to buy bigger premises and new machinery. At the time of the industrial revolution, there were few investors capable of supporting business on the vast scale it required. The financial markets arose as a result of several small investors joining forces to present a unified approach towards major investments in industry. The first financial markets, came about in Europe, to fund both the industrial revolution and the expansion of the British empire. The most common location for the early financial markets was surprisingly in churches. As the need for financial trading grew, so did the places of trading, in London for example a lot of early financial trading took place in tea houses, prior to the establishment of the London Stock Exchange. Financial markets today, exist as a medium for processing financial transactions. The most common form of financial trading is usually done on stock exchanges in the form of share dealing. Businesses generate extra investment capital by releasing shares onto the stock exchanges. Whilst investors in shares make money by selling shares for a higher value than they are purchased for. The majority of financial markets are based in the financial capitals of the world such as the London, New York and Tokyo Stock Exchanges. Although the emergence of the internet has seen a rise in the number internet stock exchanges such as Nasdaq, as well as several on-line stockbrokers. If we look at the London Stock Exchange (LSE) today, we can state the LSE is a market place which deals in:
The way the LSE used to operate involved 'Jobbers' and stockbrokers. Jobbers run around the trading floor buying and selling shares for stockbrokers. The jobbers make money for themselves by the difference between what stockbrokers are prepared to pay for shares and the price at which they are actually bought and sold for. A stockbroker makes money from commissions earned from buying and selling shares to the world at large. The system of the LSE was little changed from the 1800's until the 1980's. The LSE operated on a single capacity basis where it was there to provide information about share values, whilst the stockbrokers simply bought and sold. The system worked fine until the 1980's, where a result of increased public share ownership meant a radical rethink of the stock exchange. The stock exchange needed to adopt a new approach. The statistics showed that during the 1960's there were 30 institutions that held most of the shares bought on sold on the stock exchange. By 1981 the financial institutions held only 58% of shares. The growth in the disposable income of society meant the stock exchange had to deal with a much larger volume of transactions. The stock exchange decided to introduce dual capacity into the trading floors, this is where the jobbers can now buy and sell shares like stockbrokers whilst at the same time serving the stockbrokers. The function was designed to cope with all the increased transactions. The LSE is a private company, owned by it's members, who are the stockbrokers who compete against each other in share trading, bizzare!. Back to Financial Economics Main Menu |
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