History of Today's Sharemarket

The world’s sharemarkets have an interesting history. The first publicly issued security can be tracked back to the fourteenth century in Venice.

The governing body of Venice wanted to begin paying back debt to neighbouring countries which had been incurred.

After discovering that they were unable to do so, the government made the first known issue of bonds. These government securities were purchased by merchants and landowners as investments. Bonds are still issued today by governments primarily to service debt and also to encourage cash based investment.

In London in 1693 King William of England raised one million pounds from the public at a fixed interest rate of 10%. A year later the Bank of England was formed so the government could finance wars. Credit facilities were set up to encourage merchants to expand their business, and systems were put in place to enable merchants to raise public funds through the issue of an early type of share.

The largest public company at that time was the South Seas Company which was listed In 1711. Robert Harley took over the government debt of 9 million pounds in exchange for exclusive rights to trade with Spain in the South Seas.

Following the exponential growth of the South Seas Company, a number of the company's directors decided to sell a large number of shares. This caused the share price to tumble, and also began what could be described as the first sharemarket crash.

Traders in these early companies would commonly meet in Jonathans Coffeehouse to trade shares and make business deals. Early share bids and offers were written on the coffeehouse walls and the trading process was highly unregulated, with insider trading forming the basis for most investment decisions.

By 1773, trading clubs had formed, and in 1801 a group of traders raised 20,000 pounds to build the London Stock Exchange in Capel Court. A similar process was occurring in America. By the early 1790s many merchants had begun trading shares. Just as in London, these early traders often met at coffeehouses in an informal environment.

In 1792, 24 brokers who each paid $400 for a "trading seat" signed the Buttonwood Tree Agreement. This agreement outlined the regulations under which shares could be bought and sold. These regulations formed the basis for trading rules that still exist today and led to the formation in 1817 of the New York Stock Exchange.

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