Have you ever wondered how New York’s Wall Street became the nerve center of the 

NYSE(120747)financial world? How did the concept of the Stock Exchange arise?

The informal bartering of assets is a manner of doing business that dates back to early civilization. It wasn’t until the 1600s, however, that this type of trading expanded and became more regimented. Stock and bond markets in London, Antwerp, Paris, Amsterdam, and other major European cities began to take shape and draw in investors anxious to increase their wealth and take advantage of the formality of these newly-established trading venues.

The Beginnings of the American Market

During America’s early days, the need for a regulated type of marketplace became apparent. Washington’s government was deeply in debt due to Revolutionary War expenses, and cash was urgently needed by the fledgling nation. Funding was needed by new banks, public works enterprises, and various businesses being started and expanded to help build the new nation. It was important to get citizens to feel confident enough to invest their money to help their new government and to enable their country to grow. But people needed to know, before they invested, that it would be possible to liquidate their holdings in a fair manner if they chose to do so. People wanted to be able to keep track of their investments and to know that they could easily locate their representative if they needed advice or trading services. Small groups of intermediaries were organized in several of the new states to meet these needs. Perhaps the best remembered was the group of 24 brokers who assembled on a daily basis beneath a large buttonwood tree just a few blocks away from Wall Street. In a short time, this group evolved into what soon became known as the “New York Stock Exchange.”

The Wall Street area flourished, and additional trading exchanges opened their doors as more and more people wanted to participate in this growth.

Toward the end of the nineteenth century, Charles H. Dow, a leader on the financial scene and the first editor of The Wall Street Journal, joined up with finance reporter Edward Davis Jones. Together, they designed and calculated a mathematical average, subsequently named after them, to enable the public to see the level and trend of the stock market by following the prices of a few representative stocks. Today, the most quoted index is the Dow Jones Industrial Average (DJIA), currently composed of 30 well-known companies. (The DJIA started with only 12 stocks, all but one of which was subsequently replaced. The survivor? General Electric.)

The New York Stock Exchange, known as the NYSE, is one of the most famous stock exchanges around the world. It offers an efficiently organized forum where the securities of established companies can be appraised and publicly traded. The exchange itself sets policy, lists securities, handles membership, rules on administrative matters, and monitors transactions to prevent unfair or fraudulent occurrences. The NYSE neither buys nor sells shares, and does not determine prices. Instead, it provides an auction floor for brokers to buy and sell at the most favorable prices.

Interestingly, in February 2011, NYSE was purchased by the Deutsche Borse, a company based in Germany, for the sum of $10 billion. And even though Deutsche Borse gained control of 60% of the new merged company's stocks as part of the deal, the New York Stock Exchange has still remained a uniquely American institution.

Stock exchanges today exist around the world, in London, in Paris (La Bourse), Brussels, Tel Aviv, Sydney, and more. The next time you hear about the stock exchange, stop for a minute and think about its fascinating history.