Commercial Revolution - Key Features - Managing Risk - Joint Stock Companies and Stock Exchanges

Joint Stock Companies and Stock Exchanges

Stock exchanges were developed as the volume of stock transactions increased. The London Royal Exchange established in 1565 first developed as a securities market, though by 1801 it had become a stock exchange.

Historian Fernand Braudel suggests that in Cairo in the 11th century Muslim and Jewish merchants had already set up every form of trade association and had knowledge of every method of credit and payment, disproving the belief that these were invented later by Italians. In 12th century France the courratiers de change were concerned with managing and regulating the debts of agricultural communities on behalf of the banks. Because these men also traded with debts, they could be called the first brokers. In late 13th century Bruges commodity traders gathered inside the house of a man called Van der Beurse, and in 1309 they became the "Bruges Beurse", institutionalizing what had been, until then, an informal meeting. The idea quickly spread around Flanders and neighboring counties and "Beurzen" soon opened in Ghent and Amsterdam.

"In the middle of the 13th century Venetian bankers began to trade in government securities. In 1351 the Venetian government outlawed spreading rumors intended to lower the price of government funds." Bankers in Pisa, Verona, Genoa and Florence also began trading in government securities during the 14th century. This practice was only possible, because these independent city states were not ruled by a duke but a council of influential citizens. The Dutch later started joint stock companies, which let shareholders invest in business ventures and get a share of their profits - or losses. In 1602, the Dutch East India Company issued the first shares on the Amsterdam Stock Exchange. It was the first company to issue stocks and bonds.

The Amsterdam Stock Exchange (or Amsterdam Beurs) is also said to have been the first stock exchange to introduce continuous trade in the early 17th century. The Dutch "pioneered short selling, option trading, debt-equity swaps, merchant banking, unit trusts and other speculative instruments, much as we know them."