Trading places. (History).
These modern exchanges date from the trading centres that began in the 13th century in the commercial cities of Italy and Flanders (Belgium). These were true exchanges, where a sheep might be exchanged for several sacks of grain. Then, in Antwerp, Belgium someone thought why not just exchange notes promising to deliver the sheep or grain? That was in 1531, and it saved people the bother of bringing bulky and disobedient goods to the exchange.
The trading of shares in businesses had to wait until the creation of something called the joint-stock company. The earliest of these was The Muscovy Company of Merchant Adventurers and it had several connections to what was to become Canada. It was started in 1553 for the purpose of finding a northern sea passage to Asia. The idea was that if merchants pooled their financial resources they would have enough money to pay for the exploration. Here's how one of The Muscovy Company's first shareholders described it:
"Every man willing to be of the society (company), should disburse the portion of twenty and five pounds a piece: so that in a short time, by this means, the sum of six thousand pounds being gathered, three ships were bought."
Each investor owned part, a share, of the total company. The Muscovy Company introduced a new idea: the shareholder could sell his or her share to someone else. If the company did well, the value of the shares rose. If the company did poorly, its share value fell. If the company made a profit, this was divided up among the shareholders as a dividend.
Within 17 years of its formation, the East India Company was paying out handsome dividends to its investors. Those who got in when the company started were being paid annual dividends worth 40% of their original investment. However, those early investors had to go through a period of nail-biting anxiety as the East India Company frequently flirted with going bankrupt.
Soon, other joint-stock companies started up. The historian W.R. Scott estimates there were 140 joint-stock companies in existence in 1695, and there was a brisk business in the buying and selling of shares.
The centre of share trading was two coffee houses in London--Jonathan's and Garraway's. Business people gathered there to swap news and to buy and sell shares.
Eventually, the informal gatherings in coffee houses became a club, which charged a daily entrance fee. In 1801, a Stock Subscription Room opened in London. Entry was limited to those elected and able to pay a substantial annual fee. The "room" was quickly found to be too small and a Stock Exchange was built to house those who had paid for the privilege of conducting business there.
The members seem to have been a skuzzy lot. An old lady who sold tea and sweet buns outside the room moved away because, she said, "The Stock Exchange is a wicked place." She was not alone in her opinion. In 1812, the Exchange itself found it necessary to bring in rules to control the "rude and trifling practices, which have long disgraced the Stock Exchange."
Canada's first Stock Exchange began operating in 1852. At that time, it was rather like the early exchange in London, with businessmen meeting in each other's offices. By 1871, they had a formal meeting place and had drawn up a list of rules for trading. Three years later, the Montreal Stock Exchange opened and listed 63 securities, including shares in banks, mining companies, and railroads.
Later, other exchanges opened in Winnipeg (1909), Calgary (1913), and Vancouver (1907). Edmonton briefly had a stock exchange (1953-58), but couldn't attract enough business to stay afloat. These exchanges focussed mostly on the trading of shares in local enterprises, and smaller companies, called juniors. The Vancouver Stock Exchange developed quite a reputation for risky ventures.
The Muscovy Company was founded by Sebastian Cabot, the son of John Cabot, who explored the coastlines of Cape Breton Island, Labrador, and Newfoundland in 1497.
In many countries, the Stock Exchange is called The Bourse, or a variation of that word (Borsa, Burza). This is because in the 13th century, merchants began gathering to trade in front of the house of the Van Der Buerse family in the city of Bruges (Belgium). Soon, the name of the family became identified with trading and a "bourse" came to mean a stock exchange. The Montreal Stock Exchange is referred to in French as Le Bourse de Montreal.
There are two main types of companies--public and private. Private companies are those that are owned entirely by one person, ar a small group of people, often members of the same family. McCain Foods, EllisDon Inc., (construction), and A & W Foods are examples; shares in these companies are not traded on stock exchanges.
Public companies (Bell Canada, General Motors, Bank of Nova Scotia, for example) are owned by their shareholders who may buy and sell their shares at any time on stock exchanges.
The first joint-stock company in Canada was created by King Louis XIII of France. In 1627, he granted a charter to La Compagnie de la Nouvelle France to trade, govern, and colonize all of North America. But, the directors of the Compagnie got greedy. They paid themselves such high salaries that the Compagnie ran out of money. It was folded in 1663 and control of the colony of New France passed to the king.
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|Publication:||Canada and the World Backgrounder|
|Date:||May 1, 2003|
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