Stock Exchange Trading History
The birth of the American investment market dates to 1790. The Revolutionary War ended and the federal government assumed the responsibility of repaying war debt incurred by the states. The government issued $80 million in bonds, the first issue of publicly-traded securities for the new country. The story of U.S. stock exchange trading begins in 1792. Twenty-four merchants and bankers met in New York and agreed to trade securities for a commission. The Buttonwood Agreement marks the birth of the New York Stock Exchange. Five securities traded: three government bonds and two bank stocks. The exchange continued to grow and change, creating what is today the world's largest trading exchange.
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Trading Systems Develop
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The securities market grew following the War of 1812. The exchange rented a trading room at 40 Wall Street. Government bonds, bank and insurance stocks traded. The 'call market' trading system was devised in 1817. The name of a security was announced, and trades transacted in that one security. Then the name of the next security was called, trades completed, and the arrangement continued. The call market system lasted until 1871, when all stocks could trade on the market floor at anytime during trading hours. Traders for a particular stock, later called specialists, worked at a specific location on the trading floor. The system persists, although most trades today are transacted electronically. Trading hit a peak of 380,000 shares in 1824.
The Growth of Stock and Bond Trading
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The Erie Canal opened in 1825, and New York became the gateway to the Midwest. Numerous New York State bonds traded on the exchange. The first railroad stock, Mohawk & Hudson, traded in 1830. Railroad companies dominated stock trading throughout the 1800s. The 1839 Panic precipitated a plunge in trading activity, falling from a daily volume of 7,000 shares to just over 1,500. It was years before the market recovered. The invention of the telegraph in 1844 allowed investors and brokers outside New York City to participate in daily trading. Market activity grew once again until the Panic of 1857 when the Ohio Life Insurance & Trust Company collapsed. Market prices dropped 10 percent in one day; the market declined 45 percent during the year.
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Civil War and Reconstruction Years
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Trading was suspended in the stocks of seceding states during the war, and the market closed for one week following the assassination of President Lincoln. The completion of the transatlantic cable in 1866 opened direct and immediate communications with London, paving the way for international trading. One year later the invention of the stock ticker by Edward Calahan revolutionized trading activity, allowing everyone to see market prices instantly. Rampant gold speculation led to 'Black Friday' on September 24, 1869. Another market panic occurred in 1873 when Jay Cooke & Company, a venerable Philadelphia banking firm, failed due to over speculation in bank stocks. The exchange closed for 10 days as fear seized the country.
Turn of the Century
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The first $1 million volume share trading day occurred on December 15, 1886. The Dow Jones Industrial Average, published by "The Wall Street Journal," was initiated in 1896 with a value of 40.74. There were 12 stocks in the original DJIA: American Cotton Oil, American Sugar, American Tobacco, Chicago Gas, Distilling and Cattle Feeding, Laclede Gas, National Lead, Tennessee Coal and Iron, North American Company, U.S. Leather, U.S. Rubber. The number of stocks in the DJIA increased to 20 in 1916 and the current 30 stocks in 1928. The DJIA topped 100 in 1906, collapsing the following year during the Panic of 1907. The Panic began with rumors that the Knickerbocker Bank of New York was in financial trouble. There was a run on the banks. J.P. Morgan almost single-handedly avoided the financial system's complete financial collapse by infusing cash into the banks and propping up the stock market.
War, Prosperity, Depression
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The NYSE closed for the longest period in its history, four and a half months, following the outbreak of World War I. The exchange closed its doors on July 31, 1914, reopening for bond trading on November 28th, and stock trading on December 15th. The end of World War I marked the beginning of New York City as the world's financial center, moving from London 'across the pond.' In the next 10 years over 1,700 foreign stocks traded in the American marketplace. A bull market began in 1923, ending badly and abruptly six years later. The market peaked on September 3, 1929 at 391.17. On Black Thursday, October 24, stocks fell as a record 13 million shares changed hands. The market crashed five days later on October 29, falling 11 percent. Sixteen million shares traded, a record lasting 39 years. The exchange would not break the 1929 record until 1954. The market hit bottom in 1932, losing 89 percent of its value from the 1929 peak. A number of federal laws overseeing the markets and regulating trading passed during the Depression years.
The Post War Years
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A bull market beginning in 1949 and lasting eight years highlighted the post-war years. October 10, 1953 was the last day trading volume was under 1 million shares. By 1961 average trading volume exceeded 4 million shares; volume exceeded 100 million shares by 1982 and 200 million shares by 1992. The DJIA closed over 1,000 for the first time in 1972.
Market Peaks, Declines, and Trading Records
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A major market drop occurred in 1987. October 19, 1987 marked the largest percentage drop in history. The DJIA lost 508 points; 22.61 percent. Volume hit 604 billion shares; the next day volume surpassed 608 million shares. On the first trading day of 1991 the DJIA surged past 3,000 for the first time. October 27, 1997 the DJIA dropped 554 points, triggering circuit breaker rules put into place to prevent the kind of trading chaos that occurred in 1987. Trading was halted at 3:30 p.m. The next day over 1 billion shares traded for the first time in history, and the DJIA rose 337.17 points from the previous day's decline. Two years later the DJIA topped 10,000 for the first time.
The 2000s
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Trading volume soared over 2 billion shares for the first time on the first trading day of 2001. On September 11, 2001, terrorist attacks triggered a market close lasting four days, the longest since 1933. The market reopened on September 17th with a record 2.37 billion shares changing hands. The day also marked the steepest decline in a single day; the DJIA lost 684.81 points to close at 8,920.70. The market regrouped and slowly rose over the next few years, peaking on March 9, 2007 at 14,164.53. The NASDAQ market peaked the following day at 2,811.61. The NASDAQ, an automated trading exchange created in 1971, today rivals the NYSE. Depending on the criteria used, the NYSE ranks number one in the world and the NASDAQ number two; or, the NASDAQ, according to its website, is the number one trading exchange in the world. March 19th, 2008 saw the largest IPO, initial public offering, in American history and the third largest in the world, when VISA went public. Markets leveled off and by the middle of 2008 were in a bear market. A bear market is defined as a 20 percent market decline. Both the DJIA and the NASDAQ bottomed on March 9, 2009, more than 50 percent below their 2007 peaks; the DJIA at 6,507.04 and the NASDAQ at 1,268.64. The markets made a remarkable recovery following the decline, closing on November 30, 2010 at 11,006.02 for the DJIA and 2,498.23 for the NASDAQ.
Stock Exchange Trading
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The NYSE Euronext is considered the largest stock exchange in the world based on market capitalization. The exchange embraced a series of mergers and acquisitions over the years, transforming from a private organization to a publicly traded company. There are over 2,800 companies listed on the exchange. The exact number of listed companies is difficult to pinpoint because companies are frequently delisted, and others added. The NASDAQ trades over 3,300 companies. Trading is not only in the common stocks of listed companies. Many companies have more than one type of stock, such as Class A and Class B shares. There are preferred stock issues. A lot of corporate bonds are traded. ETFs, electronically traded funds, and closed end mutual funds are traded. Different types of securities are continually added, increasing the trading reach and variety of securities offered.
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