History of Stock Exchanges

Stock exchange or bourse is a mutual organization which provides facilities for stock brokers and traders, in trading company stocks and other securities, and for the issue of redemption of securities and other financial tools and capital events like the payment of income and dividends. The securities traded on a stock exchange include: shares issued by companies, unit trusts and other pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central location at least for recordkeeping, but trade is less linked to such a physical place. Electronic networks run modern markets are, providing them great speed and cost of transactions. Stock exchange is often called the most important element of a stock market. The Demand and Supply in the stock markets is attracted by number of factors that affect the price of stocks.

History of stock exchanges:
In 12th century France, the courratiers de change were concerned with managing the debts of agricultural communities on behalf of the banks and these men also traded in debts. These men were the first brokers.

In the middle of the 13th century, Venetian bankers traded in government securities. In 1351, the Venetian Government outlawed spreading rumors about lowering the price of government funds. Because of this rumor people in Pisa, Verona, Genoa and Florence also started trading in government securities which was possible because there were independent city states ruled by a council of powerful citizens during the 14th century.

Raising capital for businesses:
The Stock Exchange helps current and newly-formed companies raise capital for building and expanding their business through selling shares to the investing public.

Mobilizing savings for investment:
When people draw their savings and invest in shares, it leads to a more balanced allotment of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized to promote business activity that benefits several economic sectors like agriculture, commerce and industry, resulting in a stronger economic growth.

Creating investment opportunities for small investors:
The Stock Exchange provides opportunity for small investors like the big investors to own shares of the same or different companies.

Government capital-raising for development projects:
Governments at various levels may decide to borrow money for financing infrastructure projects like sewage and water treatment works or housing estates by selling another category of securities known as bonds. These bonds are raised through the Stock Exchange where public buy them, thus loaning money to the government. The issuance of such municipal bonds can prevent the need to directly tax the citizens in order to finance development, although by securing such bonds with the full faith and credit of the government instead of with collateral, the result is that the government must tax the citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature.

Listing requirements:
Listing requirements are the set of conditions forced by any given stock exchange upon companies that want to be listed on that exchange.

Requirements by stock exchange:
For companies to have their stock and shares listed at the stock exchange have to meet certain requirements of the exchange. But requirements vary in different exchanges.

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: Share trading. Government bonds. Debentures. Insurance - Short and long term. Commodities. 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!.