Let’s begin by understanding what a stock market is.
- A share represents the ownership of a portion of a company.
- Stock exchanges connect companies and their shareholders, who wish to sell their stock, with the investors who want to buy it.
- The first IPO occurred in August of 1602.
- The first market crash happened in 1720.
Some stock exchange terms
What’s a share? A share is a unit of measurement for the ownership of a company. If the Acme company had 100 shares and you bought one share, you would now own 1/100th of Acme.
A stock represents a general ownership interest in a company. So, you wouldn’t say, “I have ten stocks of Acme.” You could say, “I own stock in Acme” or “I have ten shares of Acme.”
A stock exchange, or a stock market, works similar to Amazon. Amazon is an Internet marketplace where sellers can set up their online store, and buyers can purchase goods from different sellers while being on one website. Likewise, stock exchanges connect companies and their shareholders, who wish to sell their stock, with the investors who want to buy it.
An Initial Public Offering (IPO) is when a privately-owned company starts selling shares to the public. The company transitions from private ownership to a public one, thus the expression “going public.”
What was the world’s first IPO?
In 1602, independent Dutch sailing merchants joined to form the United East India Company, or Vereenigde Oostindische Compagnie (VOC), in Dutch. Its common name was the Dutch East India Company.
The VOC, however, didn’t have enough money to sail ships to the far reaches of the world. Where previous companies had private investors to fund their business ventures, the Dutch East India Company did a novel thing. They put up posters inviting anyone to invest in the company. And so, in August of 1602, people came to the house of Dirck van Os, a co-founder of the VOC. There, they invested money for the company’s initial capital, and the bookkeeper added the names of the investors in the register. By August 31, 1602, the bookkeeper counted 1,143 investors, including Dirck van Os’s maid.
The Dutch East India Company, in 1602, became the first IPO.
To organize trade, the VOC also formed the first stock exchange in 1602: The Amsterdam Stock Exchange. That market still exists today as Euronext Amsterdam.
Where was the first stock market built?
Amsterdam ordered the construction of an exchange building, and architect Hendrick de Keyser took on the project. He completed the structure, with its large open courtyard, in 1611. Since the city designated sections of the building for trading VOC securities, the Hendrick de Keyser Exchange became the world’s first stock exchange building.
After two centuries of structural problems, the city decided to tear it down in the 1800s. The current exchange building stands at Beursplein 5, at the heart of the city’s historic district.
When was the first stock market crash?
In 1711, through an act, the British parliament founded a stock company called The South Sea Company. Parliament’s goal was to consolidate and reduce the national debt and help Britain increase its trade activities and profits in the Americas. The South Sea Company began by offering shareholders an astonishing 6% interest.
However, the war with Spain resulted in higher taxes and more trading restrictions. The company wasn’t generating profits. But the public perception was that the company was doing well, especially when King George took governorship of the company in 1718. The stock price kept increasing.
In 1720, parliament permitted the South Sea Company to fix the national debt. The company bought the £32 million national debt for £7.5 million. This change inflated the stock further, and by August 1720, the stock price reached £1000.
A selling frenzy then started, and by December 1720, the stock price was £124. The drastic drop ruined investors, bankrupted companies, and caused an increase in suicides.
- The Philadelphia Stock Exchange (originally called the Board of Brokers of Philadelphia) was the first stock exchange in the United States.
- In the 1920s, the Amsterdam Stock Exchange was the first to broadcast share prices by wireless.
- October 1987 saw the first significant stock market crash of the electronic trading era.
- In 1971, trading began on a new stock exchange: the National Association of Securities Dealers Automated Quotations (NASDAQ). The Nasdaq was the first stock market to allow the buying and selling of stocks on a computer network instead of in-person trading.
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