EMUJeff
June 11th, 2008, 2:39 pm
The following is the result of a whim to better understand the Dow Jones Industrial Average and the markets. With the significant help of Veritas Scriptor we have developed a primer on the History of the Stock and Commodities Markets while taking away much of the "street speak" or trying to define the terms (Part 2). There will be five threads to start with and we will see where it goes. As always, it is important and interesting to see where we have been. Though we will not be recommending any products or firms we look forward to your questions in these threads and we will do all we can to answer them. The only dumb questions are the ones never asked. Therefore, Part 1:
A Brief History of United States Markets
What we see in the trading markets of today actually emerges from a history of trading that could be said to go back to 11th century France. But what we see in the United States is a level of diversity and opportunity that would astound their early ancestors.
The Philadelphia Stock Exchange (PHLX) begins in 1790 and continues there to this day, with the apparent exception of a time in 1968 when there was a dispute over taxes with the city. Originally trading in government paper and bonds, by 2005 it was the home of over 2,000 stocks and accounted for about 14% of the trading in the U.S.
Known for acquiring other exchanges over the last 60 years, it was purchased by the NASDAQ (not to be confused with NASCAR) in November of 2007
Over time commodities and stock exchanges thrived in towns as far flung as Chicago, Boston, St. Louis, and Spokane.
But New York, where many of the boats landed and news arrived first, quickly became the center for the nation’s largest exchanges.
The American Stock Exchange (AMEX), based in New York also has beginnings in the Colonial Era. Like its Philadelphia brother the AMEX started by selling government securities to raise money for projects. It was referred to as the New York Curb Exchange because in 1842 the traders met outside on Broad Street to deal. Because the noise from the brokers became so loud, hand signals were introduced similar to what we see nightly from the AMES floor and those of other exchanges.
In 1921 the AMEX moved inside a building in another part of town. The exchange continued transformation from just securities to the trading of company stocks, both small and mid-caps*. An attempt in the 1990’s to create the go-to place for penny stocks and emerging companies failed because too many shady conpersons populated the market. This attempt, however, was indicative of the nature of AMEX as they often looked for innovation in the types of items and ways in which to trade. Though not all worked, the AMEX became the sounding board for many of the successful things the NYSE and other markets chose to do later
As a side note, after the attacks of 9/11 the AMEX briefly cohabitated with the PHLX so trade could continue.
The New York Stock Exchange (NYSE) is one of the best known of all the boards of exchange. The “Big Board” (so named due to the number and stock value of the companies traded) had small beginnings in 1792 when 24 brokers settled on the “Buttonwood Agreement”. They would trade together outside 68 Wall Street under a buttonwood tree. There they traded Whiskey Warehouse Receipts which are a currency still used today.
Going back another 150 years, Wall Street got its name because the Dutch settlers eventually had built a 12-foot earth and timber wall along the street in 1653 to keep the ambitious English from invading. After the English arrived anyway, they dismantled the wall in the 1690’s but the name stayed.
Eventually the number of traders increased and meeting occurred under the curved lamps that lined the street.
1817 saw the formation of the New York Stock & Exchange Board and the group moved inside 40 Wall Street. Eventually the lighting designs for the interior were made similar to the lamps under which they had traded outside. It moved three more times in the next 50 years. 1867 saw the addition of the first ticker, an early version of text over wire that could send information about the days ongoing trades across the country. The stability of a building of their own combined with the quick occupancy of the surrounding area by banks and other financial firms made the area the financial center. To this day the term “Wall Street” evokes not just the location but the image of capitalism in America.
The big breakthrough for the exchange happened over a 5 year span in the late 1890’s when the number of traded companies tripled. In part the publication of Dow Jones Industrial Average (DJIA) by the young Wall Street Journal** in 1896 brought prominence to the market and gave traders a gauge to read activity and direction.
The current exchange building opened in 1903 but has been added to and altered in five major projects over the next 100 years. In 1978 the building was added to the list of Historic Landmarks. One of the additions during renovations in 1988 was the “Blue Room” where computers were installed to mark the goings on and allow for on site electronic trading. This and two other trading floors closed later as brokers increased on-line activity and the numbers of people on the floor finally decreased.
The NYSE, like all those exchanges listed here, over time has trended upwards. There have been some notable glitches in the trend. 1914 and The Great War (WWI) trading halted for four and a half months.
On September 16th, 1920 there was a bombing which damaged both the trading building and JP Morgan headquarters the scars of which still exist on the latter’s building. 38 people died and over 300 were injured. Though much investigation occurred, the FBI moved the file to inactive in 1940.
15 years later the bubble burst in the market over speculative investments being called in initially on October 24th then again on the 29th. This loss of wreath signaled the beginning of the Great Depression. This fall was due in no small part to Margin buying where only a portion of the amount for a stock would be put down, with the rest to come later. The idea was to sell for more than the purchase price, keep the profit and pay the rest of the owed balance from the sale. It took 30 years (1959), another World War, injections of cash from the government and the beginnings of US foreign trade expansion, for the market to pass the height of value just prior to the crash.
Over the ensuing decades different versions of margin speculation have led to similar down turns. Seemingly every generation or so there is a forgetfulness and someone, tweaking the same speculative ideas, takes advantage.
Innovations by the NYSE continued in 1979 with the addition of futures trading.
1987 saw Black Monday, October 19th, where the market took its largest one day loss in term of percentage of value. Markets around the world beginning in Hong Kong earlier in the day dropped precipitously. The causes of this drop are hotly debated to this day but a total of 12% of value was erased. Since the market bottomed out only one day later and resumed its bullish theme the term “soft landing” came into vogue.
1996 saw the introduction of the “real time ticker” which allowed almost instant access to trading information as it occurred. Of course in 2001 the market was closed for four days after the attacks on America.
In 2007 the NYSE announces it will merge with the smaller AMEX.
Another important board to be aware of is the New York Board of Trade (NYBOT) which was founded in 1870 as a milk and egg trading market. This market, like its 1898 cousin the Chicago Mercantile Exchange (CME), deals in commodities, actual goods such as food, oil, and precious metals instead of shares in companies. The idea is to purchase goods in bulk and sell them for more at the time they are available for delivery. Chicago was the base for much trading of this type and the CME shared its work with the Chicago Board of Trade (CBOT).
Recent history of these boards includes the floor of the NYBOT being destroyed in the September 11th attacks and the NYBOT’s acquisition in 2007 by the Intercontinental Exchange (ICE) based out of Atlanta. The ICE, who had just purchase the Winnipeg Commodity Exchange, also made a bid that year for the CBOT but lost out to the CME. As a result, CBOT and CME after over 100 years of independent trading have formed a new corporation called the CME group. This group went on to purchase the here to for unmentioned New York Mercantile Exchange in 2008.
Just to make things more complicated, the ICE is closely affiliated with the NYSE
*see upcoming article on common term in the market
**see upcoming article on Indexes
EMUJeff
A Brief History of United States Markets
What we see in the trading markets of today actually emerges from a history of trading that could be said to go back to 11th century France. But what we see in the United States is a level of diversity and opportunity that would astound their early ancestors.
The Philadelphia Stock Exchange (PHLX) begins in 1790 and continues there to this day, with the apparent exception of a time in 1968 when there was a dispute over taxes with the city. Originally trading in government paper and bonds, by 2005 it was the home of over 2,000 stocks and accounted for about 14% of the trading in the U.S.
Known for acquiring other exchanges over the last 60 years, it was purchased by the NASDAQ (not to be confused with NASCAR) in November of 2007
Over time commodities and stock exchanges thrived in towns as far flung as Chicago, Boston, St. Louis, and Spokane.
But New York, where many of the boats landed and news arrived first, quickly became the center for the nation’s largest exchanges.
The American Stock Exchange (AMEX), based in New York also has beginnings in the Colonial Era. Like its Philadelphia brother the AMEX started by selling government securities to raise money for projects. It was referred to as the New York Curb Exchange because in 1842 the traders met outside on Broad Street to deal. Because the noise from the brokers became so loud, hand signals were introduced similar to what we see nightly from the AMES floor and those of other exchanges.
In 1921 the AMEX moved inside a building in another part of town. The exchange continued transformation from just securities to the trading of company stocks, both small and mid-caps*. An attempt in the 1990’s to create the go-to place for penny stocks and emerging companies failed because too many shady conpersons populated the market. This attempt, however, was indicative of the nature of AMEX as they often looked for innovation in the types of items and ways in which to trade. Though not all worked, the AMEX became the sounding board for many of the successful things the NYSE and other markets chose to do later
As a side note, after the attacks of 9/11 the AMEX briefly cohabitated with the PHLX so trade could continue.
The New York Stock Exchange (NYSE) is one of the best known of all the boards of exchange. The “Big Board” (so named due to the number and stock value of the companies traded) had small beginnings in 1792 when 24 brokers settled on the “Buttonwood Agreement”. They would trade together outside 68 Wall Street under a buttonwood tree. There they traded Whiskey Warehouse Receipts which are a currency still used today.
Going back another 150 years, Wall Street got its name because the Dutch settlers eventually had built a 12-foot earth and timber wall along the street in 1653 to keep the ambitious English from invading. After the English arrived anyway, they dismantled the wall in the 1690’s but the name stayed.
Eventually the number of traders increased and meeting occurred under the curved lamps that lined the street.
1817 saw the formation of the New York Stock & Exchange Board and the group moved inside 40 Wall Street. Eventually the lighting designs for the interior were made similar to the lamps under which they had traded outside. It moved three more times in the next 50 years. 1867 saw the addition of the first ticker, an early version of text over wire that could send information about the days ongoing trades across the country. The stability of a building of their own combined with the quick occupancy of the surrounding area by banks and other financial firms made the area the financial center. To this day the term “Wall Street” evokes not just the location but the image of capitalism in America.
The big breakthrough for the exchange happened over a 5 year span in the late 1890’s when the number of traded companies tripled. In part the publication of Dow Jones Industrial Average (DJIA) by the young Wall Street Journal** in 1896 brought prominence to the market and gave traders a gauge to read activity and direction.
The current exchange building opened in 1903 but has been added to and altered in five major projects over the next 100 years. In 1978 the building was added to the list of Historic Landmarks. One of the additions during renovations in 1988 was the “Blue Room” where computers were installed to mark the goings on and allow for on site electronic trading. This and two other trading floors closed later as brokers increased on-line activity and the numbers of people on the floor finally decreased.
The NYSE, like all those exchanges listed here, over time has trended upwards. There have been some notable glitches in the trend. 1914 and The Great War (WWI) trading halted for four and a half months.
On September 16th, 1920 there was a bombing which damaged both the trading building and JP Morgan headquarters the scars of which still exist on the latter’s building. 38 people died and over 300 were injured. Though much investigation occurred, the FBI moved the file to inactive in 1940.
15 years later the bubble burst in the market over speculative investments being called in initially on October 24th then again on the 29th. This loss of wreath signaled the beginning of the Great Depression. This fall was due in no small part to Margin buying where only a portion of the amount for a stock would be put down, with the rest to come later. The idea was to sell for more than the purchase price, keep the profit and pay the rest of the owed balance from the sale. It took 30 years (1959), another World War, injections of cash from the government and the beginnings of US foreign trade expansion, for the market to pass the height of value just prior to the crash.
Over the ensuing decades different versions of margin speculation have led to similar down turns. Seemingly every generation or so there is a forgetfulness and someone, tweaking the same speculative ideas, takes advantage.
Innovations by the NYSE continued in 1979 with the addition of futures trading.
1987 saw Black Monday, October 19th, where the market took its largest one day loss in term of percentage of value. Markets around the world beginning in Hong Kong earlier in the day dropped precipitously. The causes of this drop are hotly debated to this day but a total of 12% of value was erased. Since the market bottomed out only one day later and resumed its bullish theme the term “soft landing” came into vogue.
1996 saw the introduction of the “real time ticker” which allowed almost instant access to trading information as it occurred. Of course in 2001 the market was closed for four days after the attacks on America.
In 2007 the NYSE announces it will merge with the smaller AMEX.
Another important board to be aware of is the New York Board of Trade (NYBOT) which was founded in 1870 as a milk and egg trading market. This market, like its 1898 cousin the Chicago Mercantile Exchange (CME), deals in commodities, actual goods such as food, oil, and precious metals instead of shares in companies. The idea is to purchase goods in bulk and sell them for more at the time they are available for delivery. Chicago was the base for much trading of this type and the CME shared its work with the Chicago Board of Trade (CBOT).
Recent history of these boards includes the floor of the NYBOT being destroyed in the September 11th attacks and the NYBOT’s acquisition in 2007 by the Intercontinental Exchange (ICE) based out of Atlanta. The ICE, who had just purchase the Winnipeg Commodity Exchange, also made a bid that year for the CBOT but lost out to the CME. As a result, CBOT and CME after over 100 years of independent trading have formed a new corporation called the CME group. This group went on to purchase the here to for unmentioned New York Mercantile Exchange in 2008.
Just to make things more complicated, the ICE is closely affiliated with the NYSE
*see upcoming article on common term in the market
**see upcoming article on Indexes
EMUJeff