HISTORY OF THE STOCK MARKET

The financial markets of the United States, today, are collectively

known as “Wall Street.” These words represent the heart of the business

and financial world in the United States conjuring up well known images of

companies being bought and sold, traders screaming out to get the best

prices for their clients, fortunes won and lost many times over, and the

billions of dollars exchanged in deals. Some may even claim that it is the

“Crystal Ball” that can predict and control the economy.

Wall Street actually does exist, physically, in New York City. It became

the symbol of financial dealing from its own history of being the base of the

large scale business dealings in Colonial America. Wall Street has also

become the term that describes several stock exchanges and broker/

dealer networks that have come into the computer age of finances. One

might find it strange that this financial center actually started out as a

barrier of mud and brush built by the early Dutch settlers to keep their live-

stock in and the local Native American tribes out. The street’s location put

it in the perfect position to become the base for the import/export traders

of the new colony to control business.

THE NEW YORK STOCK EXCHANGE

Despite the fact that New York City was the temporary capital of the

United States from 1785 to 1790, the first real stock exchange was begun

in Philadelphia, Pennsylvania in 1790. In 1789, Alexander Hamilton, the
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first Secretary of the Treasury, recommended to Congress that bonds sold

to finance the Revolutionary War should be backed by the fledgling

federal government. These almost worthless-at-the-time bonds jumped in

value when the government backed them up. Hamilton followed up on this

strategy by selling stock to the public in the first national bank in America.

It was from this modest beginning that Wall Street became the financial

center of the United States; since the Congress was meeting on this very

street, in New York. The trading of securities was rapidly becoming a

business of its own and even began following a schedule for daily sales at

22 Wall Street as early as 1792, when the first “Bull Market” was recorded.

The appearance of brokers, who worked for a fee or commission was also

recorded in 1792. With the constantly rising value of the stocks and some

securities, brokers actually formed partnerships. at reduced fees, to control

the exchange process. The New York Stock Exchange was born out of an

agreement among twenty-four men to trade securities only among their

membership to control commissions and transactions. This happened on

17 May 1792, at 68 Wall Street, under the large buttonwood tree that would

give the agreement its name---”The Buttonwood Tree Agreement.” The

London Stock Exchange, the world’s oldest, was officially begun only

nineteen years earlier. Ironically; the Stock Market, which forms the back-

bone of U.S. business actually started out as a cartel , that used the some-
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what distasteful practice of price-fixing to control the marketplace. The

New York Exchange would move several times over the years from the tree

at 68 Wall Street to its present location at 11 Wall Street. The first real

organization would occur in 1817 with the establishing of a constitution and

rules of practice. To be a member of the exchange board, at that time,

cost $400.00. Today, the same seat costs thousands of dollars, but hardly

anyone actually sits while trading today.

THE AMERICAN STOCK EXCHANGE

The Gold Rush of 1849 caused a great rise in trading values in the

Stock Exchange and the new railroad industry added fuel to this fire. With

this expansion of the trading market, came the “high risk” stocks. The

members of the New York Exchange felt that these stocks were not safe

investments and a subgroup known as “curbstone brokers” literally began

trading them in the street. This area was between William and Beaver

Streets in New York City and gave rise to the use of hand signals and

lamp posts as markers for brokers operating from offices in the street sides.

This new group of brokers came to be known as the “New York Curb

Market Association”, under charter, in 1911. The name would change in

1953 to the “American Stock Exchange” and remain the second largest

formal trading agency in America.


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THE NASDAQ

The use of computers in the trading system has given rise to a new

group of electronic brokers, known as The National Association of

Securities Dealers. Their trademark is the automated quotation system;

hence the term and identifier---NASDAQ.