Chapter 3: The Birth of Stock Exchanges
By: Ximena Peinado
The commercial markets during the Renaissance, The British East India Company and the Van der Buërse family
Now that you know all the components of a financial market, we will return to the main topic of the series: The Stock Market. We know what they are and how they work, but have you ever wondered how they originated? How is it that they exist? Who started this concept?
To understand it, we need to place ourselves in the 15th century, where the first merchant associations took place: the commercial markets.
The markets were a meeting place for merchants who wanted to buy or sell goods. These merchants, during the renaissance, were commonly gathered in churches or public buildings. In the XV century, Valencia was consolidated as one of the main commercial squares in the entire Mediterranean; In those days, the main and most valuable product was silk.
The Silk Route
The next step was taken in the 16th century, during the rise of European imperialism in East and Southeast Asia, where Europe sought wealth in the East Indies, which offered spices, cloth, and luxury goods coveted by the European upper class. It was at the beginning of this century that Spain and Portugal, thanks to their maritime knowledge, monopolized trade in the Far East, leaving Britain behind. However, the British took (basically, kidnapped) the ships from Spain in 1588 and thus began to become a naval power.
In 1600, a group of English businessmen asked Queen Elizabeth the first for an exclusive permit allowing them to travel to the East Indies on behalf of the crown in exchange for having a monopoly on the trade for 15 years. These merchants were able to finance the project by investing 70 thousand pounds from their own pocket, and this is how the East India Company was born.
This company was based on a system of “factories”, which consisted of leaving representatives called “factors” to establish commercial positions and acquire and negotiate the goods. The first factory was established in Surat, after having made a special negotiation with the Mongol emperor of the time, Jahangir.
For the first twelve years, the East India Company operated as a trading company in which each member risked their own capital; besides, membership was not restricted. Gradually, after 1612, it was transformed into a corporation. This means that it was the first company where wealthy merchants and aristocrats could buy shares in it. Its main objective was to unite English traders in Southeast Asia and mitigate trading risk by seeking different investors.
These investors could diversify their risk by investing in multiple expeditions at the same time. This worked very well for them, to the point that in 1602 Holland followed along and founded its own Dutch East India Company; and France founded it until 1664.
The creation of the East Indies companies completely changed the way business is done, and from that moment in history the transaction of stocks and bonds began, which at that time they were written documents and sold in coffee shops. These shares paid dividends on the accumulated earnings of all the trips in which they were invested. To promote the available stocks or bonds, people generally posted them on store doors or in newsletters.
The great role of a small city: Bruges
Now, we’ll have to go back a little bit. Bruges, during the 14th century, was the crossroads of two great commercial empires: the Mediterranean area (Italians) and the Baltic Sea area (German merchants), so in that city there were many shelters for all the merchants who passed through it. One of the most important host families was the Van Der Buërse family.
The word “stock” comes from the “Ter Buerse Inn” lodging that this family maintained, since 1285. It was called stock (or the “bag”) because of the family’s coat of arms, which displayed three leather bags (the wallets of the time).
This establishment was in front of the square that became the main commercial centre of the city. For this reason, during the 13th century, this building was the meeting point for businessmen, and the citizens themselves began to name the economic activity that took place within that house as “Bürse”. Thus, this word flourished to designate the centres of securities transactions.
IMAGEN Coat of Arms of the Van Der Buërse Family
The first Stock Exchange
However, the first official Stock Exchange was created in 1602 in this same country and it was founded by the Dutch East India Company. Its main objectives were to raise money for travel, to carry out operations with bonds and shares to increase investors, and to collect information on the shares for sale, the results of the vessels and the investors.
In the following years, the London Stock Exchange (1750), the New York Stock Exchange (1792), the Paris Stock Exchange (1794), the Madrid Stock Exchange (1831) and the Tokyo Stock Exchange (1878) were founded.
The Mexican Stock Exchange
The Mexican Stock Exchange was created in 1850. At that time the shares that were sold were mainly from mining companies. This changed until 1867 when the Regulatory Law on securities brokerage was enacted. It was in this way that the businessmen began to meet in Plateros street (what is now Madero) to carry out the sale of all kinds of securities and goods.
On that same street, the stock exchange operations centre, Bolsa de México S.A., was founded in 1895. Sometime after, they were forced to cancel their operations due to political instability and the economic crisis, but in 1908 it resumed its operations in Callejón Cinco de Mayo.
One of the most significant moments for the Mexican stock market was in 1933 when the Stock Market Regulatory Law was promulgated and the Mexican Stock Exchange, S.A. was established, under the supervision of what is now the National Banking and Securities Commission of Mexico.
In 1975 the stock exchange changed its name to the Mexican Stock Exchange with the entry into force of the Stock Market Law, incorporating the stock exchanges that operated in Guadalajara and Monterrey.
Keep learning from PR1ME Capital
We have already talked about how the Mexican financial system and all its parts work, in addition to telling you everything you need to know about stock exchange. Do not miss our next article and keep learning with Pr1me Capital.