STOCK EXCHANGES

A stock exchange is a forum provided by any organization, association, or group of persons for trading in securities representing shares of firms. By providing a trading system, a stock exchange performs two essential services. First, it provides a market for the buying and selling of stock. Second, it provides a way of monitoring the value of a stock investment portfolio.

The statutory definition of exchange as specified by the U.S. Securities and Exchange Commission (SEC) is a "market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange." The SEC carefully revised Rule 3b-16 to define these terms to mean any organization, association, or group of persons that: (1) brings together the orders of multiple buyers and sellers; and (2) uses established, nondiscretionary methods (whether by providing a trading facility or by setting rules) under which such orders interact with each other, and the buyers and sellers entering such orders agree to the terms of a trade.

A particular trading system may not be recognized as an exchange, depending on the securities laws of the country. Given that differences across countries may exist with respect to legal definitions, a more detailed discussion of what constitutes a trading system is appropriate.

TRADING SYSTEMS

Trading markets may be defined as systems consisting of an order-routing system, an information network, and a trade-execution mechanism. A trading system is a communications technology for passing allowable messages between traders, together with a set of rules that transform traders' messages into transaction prices and allocations of quantities of stock among market participants.

In the United States, the Securities Exchange Act of 1934, the primary legislation covering the securities markets, undertook to update the regulatory requirements for the buying and selling of securities. After the exposure of a concept release in May 1997 to gather ideas from interested parties, final rules effective as of April 1, 2000, were adopted. The regulations for alternative trading systems were promulgated to strengthen the public markets for securities, while encouraging innovative new markets. These new regulations more effectively integrated the growing number of alternative trading systems into the national market system, accommodated the registration of proprietary alternative trading systems as exchanges, and provided an opportunity for registered exchanges to better compete with alternative trading systems.

Exchanges may offer more than one trading system. Types of trading systems are sometimes differentiated by the form of market intermediation provided by entities with direct access to the system. The nature of competition between exchanges is a defining feature, since exchanges may adopt varying market structures in order to compete in different fashions. A stock exchange is a business entity, and the form of its governance arrangements is important in understanding its nature and conduct.

The nature of allowable messages varies with the trading system's (exchange's) rules and technology. A typical message consists of an offer to buy, or to sell, a given number of shares at a certain price. The New York Stock Exchange (NYSE), for example, permits such messages, as well as orders, to buy some amount of stock at current market prices.

The transformation of messages and information from the system into a price and a set of quantity allocations is governed by another set of rules. In open outcry auctions, bids and offers are orally exchanged by traders standing in a single physical location. The acceptance of a bid or offer by another trader generates a transaction. In dealer systems, such as NASDAQ, dealers accept orders by telephone or computerized routing, and transact at prices they themselves set. In batch auctions, such as that of the Arizona Stock Exchange, price is set by maximizing trading volume, given order submission at the time of the auction. In most computerized markets, traders submit orders to a central limit order book, and a mathematical algorithm determines prices and quantities. Examples include the CAC system of the Paris Bourse and the OM system of the Stockholm Stock Exchange.

MARKET INTERMEDIATION

Investors are generally not given free access to trading systems. Entry into the exchange's systems is intermediated by brokers. Brokers may simply route orders to exchanges. They sometimes make decisions as to what exchange, and what system within the exchange, should process various parts of an order. In open outcry markets, brokers also physically represent orders on the floor of the exchange.

Another class of intermediaries is known as market makers. Market makers trade for their own accounts, usually providing an offer to sell and an offer to buy at the same time, but at different prices. In doing so, they both contribute to the pricing process and supply immediacy to the market by a willingness to be a counterparty to an order for which another investor may not be immediately available.

On some exchanges, most notably the NYSE, there is one primary market maker designated by the exchange, known as the specialist. The specialist obtains consideration for the supply of immediacy and the maintenance of an orderly market by having private access to order-flow information through the order book for the stock.

There may be multiple market makers in a given stock, regardless of the precise form of trading system. The prototype example is that of dealer markets, in which the dealers are the market makers. They post bids and offers, and trade out of their own inventory.

Electronic-limit order-book markets offer the possibility of trading without such financial intermediation. In practice, however, market makers exist on electronic markets as well. Multiple market makers in a security are often designated by an exchange, fulfill obligations not dissimilar to those of a specialist, and receive some consideration for the service. Anyone with direct access to the trading system can function as a market maker, however, simply by continuously offering quotes for stock on both sides of the market.

COMPETITION

Exchanges have two clienteles: companies, which list their shares, and investors, who trade on the exchange. Historically, the product (a listing service) offered to companies was a bundle, consisting of (1) liquidity, (2) monitoring of trading against forms of fraud, (3) standard-form rules of trading, (4) a signal that a listing firm's stock is of high quality, and (5) a clearing function to ensure timely payment and delivery of shares. The product offered to investors consists of a combination of liquidity and pricing information, as well as any benefits accruing to the investor from the bundle offered to companies.

Government regulation and increased competition from automated-trading systems lessen the importance of exchange monitoring and standardized rules. Technological advances in information processing allow better signals about company quality than simple listings, permit wide distribution of pricing information outside exchanges, and enable separation of the clearing function from other exchange operations. The result is that exchanges now compete solely along the dimensions of liquidity and cost of trading.

Competition through liquidity and cost has led to increased automation of the exchange trade-execution process. Automated exchanges are less costly to build and operate, and provide lower-cost trade execution. Liquidity is enhanced by the ability to establish wide networks of traders through communications systems with an automated-execution system at the nexus. The drive for increased liquidity through computerization has led to new developments in the structure of the exchange services industry, most notably including mergers and alliances between automated exchanges for increased order flow.

Communications technology and the computerization of trade execution have also globalized trading. The physical location and boundaries of an exchange floor are no longer important to traders. A company does not need to be listed, or even traded, on a domestic exchange. Not only are there many possible execution services providers, but electronic exchanges place their own terminals on foreign soil, allowing direct access to overseas listings, regardless of the nationality of the companies involved.

GOVERNANCE

The organizational structures commonly found for exchanges are: nonprofit, the consumer cooperative, and for-profit. Historically, most exchanges have been non-profit organizations, but since the 1990s, there have been trends toward incorporating an exchange as a for-profit organization. Ten such demutualizations globally are listed in Ian Domowitz and Benn Stell's article, "Automation, Trading Costs, and the Structure of the Securities Trading Industry" (1999), and such initiatives are under investigation by many traditional exchanges, including NASDAQ and the NYSE. The NYSE approved its intention of becoming a publicly traded entity after its merger with the Archipelago exchange as of early 2006. (The merger was approved in December 2005.) Archipelago is an electronic trading platform that owns the Pacific Stock Exchange. Shares of the merged company, to be known as NYSE Group Inc., will trade on the exchange's board under the NYX symbol. There is uncertainty about what changes will be made in the traditional process of buying and selling securities at the NYSE as a result of the merger.

Increased competition between exchanges forces the change in ownership structure. This is the view of the exchange services industry, as well. The industry argument is simply that a corporate structure with a profit motive enables faster initiatives in response to competitive advances than a committee- and voting-oriented membership organization. Efforts for mergers and acquisitions among several stock exchanges throughout the globe were in process as of the end of 2005.

Changes in the contractual relationship between exchanges and listing companies might outweigh competition as a force behind the shift from cooperative to corporate ownership arrangements. The long-term mutual dependency between companies and exchanges no longer exists, and market makers do not make firm-specific investments that might be fostered under a cooperative umbrella.

The third view is that communications and computerized execution technology permit and encourage the change in governance structure. Traditional exchanges are limited by floor space, and access is rationed through the sale of limited memberships. In an automated auction, there are no barriers to providing unlimited direct access with a transactions-fee pricing structure, which in turn lends itself to corporate for-profit operations. All examples of the change in governance begin with a conversion from floor-trading technology to automated-trade execution. For trade-execution services with no prior history of cooperative governance structure, the mutual structure is routinely avoided in favor of a for-profit joint-stock corporation.

One important aspect of the exchange's governance in the United States is the concept of self-regulation, a concept that highlights the American approach to the regulation of securities and futures markets. As a self-regulating organization it is subject to constraints with regard to its governance structure. The Securities Exchange Act imposes four major obligations on exchanges: a fair representation of its members in the selection of directors; one or more directors representing issuers and investors who are not associated with members of the exchange; subject to some exception, only brokers and dealers may become members; and its rules are designed to protect investors and the public interest.

see also Stock Indexes ; Stocks

bibliography

Dalton, John (Ed.). (2001). How the stock exchange works. Paramus, NJ: New York Institute of Finance.

Domowitz, Ian, and Stell, Benn (1999). Automation, trading costs, and the structure of the securities trading industry. In Robert E. Litan and Anthony M. Santomero (Eds.), Brookings-Wharton Papers on financial services. Washington, DC: Brookings Institution.

Hart, Oliver, and Moore, John (1996). The governance of exchanges: Members' cooperatives versus outside ownership. Oxford Review of Economic Policy 12, 53–69.

Lee, Ruben (1998). What is an exchange?: The automation, management, and regulation of financial markets. New York: Oxford University Press.

Macey, Jonathan R., and O'Hara, Maureen (1999). Globalization, exchange governance, and the future of exchanges. In Robert E. Litan and Anthony M. Santomero (Eds.), Brookings-Wharton Papers on Financial Services. Washington, DC: Brookings Institution.

Securities and Exchange Commission. (1998, December 8). Final rules: Regulation of exchanges and alternative trading systems (Release No. 34–40760, File No. S7-12–98). Retrieved March 3, 2006, from http://pages.stern.nyu.edu/~jhasbrou/Teaching/SEC/ATS/Reg%20ATS%20Summary.pdf

Stoll, Hans (1992). Principles of trading market structure. Journal of Financial Services Research, 6, 75–107.

Wyss, B. O'Neill (2001). Fundamentals of the stock market. New York: McGraw-Hill.

Anand Shetty

Ian Domowitz

Stock Exchanges

BIBLIOGRAPHY

Stock exchanges are organized markets where investors buy and sell shares of corporate stock and bonds. Some of the better-known stock exchanges are the New York Stock Exchange (established in 1792), the Tokyo Stock Exchange (1878), and the London Stock Exchange (1698). Stock exchanges are important insofar as they promote economic efficiency. They offer private investment opportunities to individuals and direct a large part of production in capitalist societies. If stock exchanges work well, this efficiency will promote efficiency in the general economy.

Corporations promote economic efficiency by producing goods that consumers want most urgently and keeping production costs to a minimum. Investors speculate over which corporations will be most efficient and profitable before they buy corporate stocks. After buying shares of stock, investors must monitor the activities of corporate officers to see that their company is operating efficiently to earn the highest potential profit. Corporate officers can mismanage their businesses in several ways. First, they can form faulty business plans. Management can invest in producing products that consumers do not want or invest in a production plan that is excessively costly. Second, corporate officials can mismanage the execution of essentially sound business plans. Third, corporate officials can commit deliberate fraud or deception for personal gain. In any case, stockholders in a mismanaged corporation will lose money.

Competition in stock exchanges determines who plans much of production. When corporate executives plan and carry out efficient production, profits rise and the price of the corporation’s stock increases. When corporate executives form defective business strategies or mismanage the execution of sound strategies, stockholders have an interest in replacing them. If stockholders do not replace incompetent corporate executives, then the price of the stock will likely fall. That is, if stockholders do not deal with inefficient corporate executives, the stock exchange can penalize stockholders by cutting the value of their stock. This is how stock exchanges pressure corporate shareholders to terminate incompetent corporate managers. Of course, stockholders may not respond to such pressure from the stock market. However, if stock-holders fail to remove incompetent corporate managers, the low price of that corporation’s stock will make it an easy target for a takeover bid or leveraged buyout. In other words, a new group of investors could move to buy out some or all of the old stockholders and replace the existing management. Takeovers and leveraged buyouts often transfer ownership of a corporation from a large number of inattentive stockholders to a small number of large investors, who demand better performance from their executives. One of the more famous examples of such a move is when Henry Kravis bought out RJR Nabisco for $25 billion in 1989 and ejected CEO Ross Johnson.

Investors compete in stock exchanges to earn money for themselves. Yet competition between investors promotes the careers of efficient corporate executives and ruins the careers of incompetent ones. This is how stock exchanges determine who plans production. Of course, it always takes some time for pressure from the stock exchange to remove inept management from any particular corporation. However, stock exchanges do not tolerate incompetence indefinitely.

There are reasons to question the efficiency of stock exchanges. The key issue in stock exchange efficiency is information. A stock exchange is efficient if the price of each stock reflects all relevant and available information on that stock. Any stock that is undervalued, given available information, will be coveted—and its price will rise. Any stock that is overvalued will be sold off and its price will fall. In theory, such buying and selling of stocks will push stock prices to their true values.

Ideally, stock prices will reflect the actual performance of the corporate management. In actual stock exchanges, the price of corporate shares can overestimate or underestimate the performance of corporate management. Since investors have incomplete, and sometimes inaccurate, information regarding corporations, there will always be some inaccuracy in stock prices. Investors do, however, profit from being accurately informed, and this prompts them to eliminate serious deficiencies in their information. Stock prices move toward levels that reflect the true performance of corporate officers, but it always takes some time for pertinent information to be uncovered.

Efficient stock exchanges adjust to a continuous flow of new information, but the fact that this information is always incomplete means that stock prices are never perfectly accurate measures of executive performance. Trading with incomplete information is speculative, but unavoidable. The lack of perfect information means that stock exchanges can never achieve 100 percent efficiency, yet stock exchanges are relatively efficient if they adjust to new information as it becomes available. Some studies indicate that stock markets are efficient. Yet other studies of stock exchanges indicate inefficiency. Stocks of small firms tend to earn excess returns in January, and returns tend to be low on Mondays. Also, upswings and crashes in aggregated stock prices (bull and bear markets) indicate that stock prices deviate from their true values, based on market fundamentals. For example, on October 19, 1987, the Dow Jones Index declined 22 percent. Some argue that this and other crashes are evidence of irrationality in stock exchanges, while others claim that the October 19 crash was triggered by the proposal by the House Ways and Means Committee to limit the deductibility of interest on corporate debt.

While it is obvious that stock exchanges are not perfect, the case for regulating stock exchanges is less clear. Some insist that anomalies in stock exchanges indicate a need for government regulation. Given the importance of stock exchanges in modern economies, governmental regulation that improves stock exchange performance can improve overall economic conditions. On the other hand, government regulation is sometimes flawed and will sometimes impair market performance. Expert opinion is divided over the issue of stock exchange regulation, but there is a considerable amount of evidence indicating that current regulations are excessive.

We can illustrate the importance of stock exchanges by examining the economic performance of countries where they do not exist. Stock exchanges are particular to capitalism. Socialist economies prohibit private ownership of stocks, private dividends, and stock exchanges. In a socialist society, all citizens have an equal stake in all parts of industry and all are paid a social dividend as equal owners of industry. Since socialist societies lack stock and other financial markets, socialist production gets directed by central authorities. This is a critical difference between socialism and capitalism. Twentieth-century experience with Soviet-style central planning indicates that Wall Street does a better job of directing industry than do central authorities. While there is room for doubt concerning the need for regulation of stock exchanges, there is far less doubt about the need for some kind of market for trading equities. Stock exchanges are an indispensable part of modern economies because they provide an efficient means of planning production in an efficient manner. Without stock exchanges, capital investment would be far less efficient.

Some recent proposals for socialism would allow people to own shares of stock in particular businesses. However, every citizen would be limited to an equal amount of stocks that could be traded only for other stocks. Advocates of this proposal believe that this sort of limited stock exchange would improve managerial performance, while approximating equal ownership of the means of production. However, a “socialist stock exchange” would not be as effective at removing inept managers, simply because it would eliminate hostile takeovers and leveraged buyouts at the hands of large professional investors.

Stock exchanges promote overall economic efficiency, despite the occasional appearance of significant flaws. Improvement in information technology has improved the efficiency of stock markets, and this trend will most likely continue. The general public often misunderstands the role that stock exchanges play in modern economies. People often see stock trading as a purely financial matter, but stock exchange activity is important for planning real production. Stock exchanges have and will continue to play a central role in modern economies because of their indispensable role in promoting economic efficiency.

SEE ALSO Bubbles; Capitalism; Corporations; Efficient Market Hypothesis; Finance; Financial Instability Hypothesis; Financial Markets; Information, Asymmetric; Lender of Last Resort; Modigliani-Miller Theorem; Panics; Socialism; South Sea Bubble; Speculation; Stock Exchanges in Developing Countries; Stocks; Tobin’s Q; Veblen, Thorstein

BIBLIOGRAPHY

Borough, Bryan, and Helyar, John. 1991. Barbarians at the Gate: The Fall of RJR Nabisco. New York: Harper.

Fama, Eugene, and Kenneth French. 1988. Dividend Yields and Expected Stock Returns. Journal of Finance 22 (1): 3–25.

Grossman, Sanford. 1989. The Informational Role of Prices. Cambridge, MA: MIT Press.

Malkiel, Burton G.. 2003. A Random Walk Down Wall Street: The Time-tested Strategy for Successful Investing. New York: Norton

Mises, Ludwig von. [1922] 1981. Socialism: An Economic and Sociological Analysis. Trans. J. Kahane. Indianapolis, IN: Liberty Fund.

Mitchell, Mark, and Jeffrey Netter. 1989. Triggering the 1987 Stock Market Crash: Anti-takeover Provisions in the Proposed House Ways and Means Tax Bill. Journal of Financial Economics 24: 37–68.

Roemer, John. 1994. A Future for Socialism. Cambridge, MA: Harvard University Press.

D. W. MacKenzie

STOCK EXCHANGES

Jews came to the stock exchange by way of their medieval occupation of *moneylending and their activity in the modern period as *Court Jews and in *banking. Soon after the founding of the first European international exchange at Antwerp (1536), *anusim arrived there and for a short time played a prominent role in it until their expulsion by *Charles v. Many of them then moved to Amsterdam, the economic capital of Europe in the 17^th and early 18^th centuries. By 1674, 13% of the total number of investments on the stock exchange was in "Portuguese" Jewish hands, though the size of their individual investments was not great. A contemporary noted that many brokers refrained from visiting the stock exchange on Saturday, when the Jews were absent. The first book to describe the practices of the Amsterdam stock exchange was published in Spanish by Joseph *Penso de la Vega in 1688. Jews were excluded from most of the commodity exchanges in Germany. Benjamin and Abraham *Goldsmid were prominent on the Royal Exchange in London at the end of the 18^th and the beginning of the 19^th centuries, and after the Napoleonic Wars they were eclipsed by N.M. Rothschild who was the dominant figure on the London Exchange.

In the United States Ephraim *Hart was among the 22 founders of the first board of stockbrockers in New York in 1792. August *Belmont was the representative of the Rothschilds in the 19^th century. In the mid- and late 19^th century a number of German-Jewish underwriting firms were prominent on the board: J. and W. Seligman and Co., run by the eight *Seligman brothers and led by Joseph Seligman, and Kuhn, Loeb, and Co., which was raised to international repute by Jacob *Schiff, Otto *Kahn, and Paul M. *Warburg. The battle between Hill-Morgan and Harriman-Schiff for control of the Northern Pacific railway stocks resulted in the stock exchange crash known as "Black Thursday."

Even at the height of their activity, Jews were never the largest nor the most prominent group on the exchanges in England and the United States; by the mid-20^th century their number and proportion had declined considerably. In Continental Europe Jews were more prominent on the stock exchange (see Isaac *Pinto). Jews attended the exchanges of Lyons and Paris as early as the 18^th century but it was only with the rise of the house of Rothschild in the post-Napoleonic era that they became prominent there; the initiative of this house in floating railroad stocks was followed by the *Fould house and others. The *Pereire brothers founded the Crédit Mobilier, the first joint-stock bank. In the aftermath of the Panama Canal stock scandal (1892–93), in which Baron Jacques Reinach was incriminated, antisemitic attacks were made on Jewish activity on the exchanges.

Jews were not allowed into the Frankfurt stock exchange, the most important in Germany at the time, until 1811, but from then until the Nazi regime they played a dominant and later a leading role, partly attributable to the activity of the house of Rothschild and other Jewish financial magnates. The stock exchange of Berlin was a relative latecomer. The patrician Jewish families of Berlin – *Gomperz, *Veit, *Ephraim, Riess, and Wulff, who had amassed wealth as court jewelers, army contractors, and mint purveyors – played a predominant part from its foundation. The statutes of the bourse corporation of 1805 found it necessary to lay down that two of the four chairmen must be Christians. In 1807, 159 of the 174 member firms were Jewish. Such marked preponderance of Jewish firms continued for a short period only. As in banking, the role of the Jews on the stock exchanges declined rapidly with the founding of public banks. In 1882 there were 2,908 Jews in Prussia engaged in stocks and banking, 22% of the total; by 1925 the absolute number of Jews in these fields had increased to 5,620 but their percentage of the total was only 3.84%, although many of this small ratio were in key positions. The economic recession of 1873–76 was blamed on stock speculators, some of whom were Jews, and this was one of the factors behind the antisemitic movement led by A. *Stoecker. In Vienna H. *Todesco and other leading Jewish financiers were prominent from the foundation of the exchange, on which a Rothschild soon came to play a leading role. The number of Jewish stockbrokers was also high. In the stock exchanges of Budapest, Prague, and Bucharest, Jews filled important positions in the 19^th and early 20^th centuries. The Jewish role decreased as a result of antisemitic economic nationalism.

It was not only in times of economic crisis and financial speculation that the activity of Jews on the stock exchange was seized on as a pretext for antisemitic outbursts; anti-Jewish agitators magnified their influence out of all proportion, creating an anti-Jewish stereotype out of "Jewish mastery" over the stock exchange. In this they were aided by the theories of men like Werner *Sombart, who ascribed the creation and workings of the stock exchange to the "capitalist Jewish spirit."

For stock exchange in modern Israel, see Israel, State of: Economic *Affairs.

bibliography:

G.N. Hart, in: ajhsp, 4 (1896), 215–8; S. Mayer, Die Wiener Juden (1917); R. Lewinsohn, Juedische Weltfinanz? (1925); H. Goslar, in: Gemeindeblatt der juedischen Gemeinde zu Berlin, 21 (1931), 14–18; J. Lestschinsky, Das wirtschaftliche Schicksal des deutschen Judentums (1932); H.I. Bloom, Economic Activities of the Jews of Amsterdam (1937); P.H. Emden, Money Powers of Europe (1938); H. Rachel, Berliner Grosskaufleute und Kapitalisten, 2 (1938), 541ff.; R. Strauss, in: jsos, 3 (1941), 15–40; D. Bernstein, in: S. Kaznelson (ed.), Juden im deutschen Kulturbereich (1959²), 720–59; E.V. Morgan and W.A. Thomas, The Stock Exchange (1962); R. Glanz, The Jew in the Old American Folklore (1961), 166ff.; R. Sobel, The Big Board (1965); A. Hertzberg, French Enlightenment and the Jews (1968), 74ff., 143–4, 146–7; S. Birmingham, Our Crowd (1968).

[Henry Wasserman]

STOCK EXCHANGES

STOCK EXCHANGES. Stock exchanges are formally organized secondary markets for financial assets that have already been issued in primary capital markets. Stock markets have become the hallmark of successful modern capitalist economies, despite the frequency of volatile price movements that lead to excessive speculation followed by panics and despite repeated scandals. They play an important role, however, for both the primary capital market and the mobilization of bank credit within any economy, basically by providing liquidity for the initial investors in government or corporate debt or in corporation stock. The assurance that a ready market exists for the sale of an investor's holdings in case of second thoughts, emergencies, or better alternatives for investment makes it easier to place debt or equity in the first place on the primary capital market. The daily pricing of all such financial products on a stock exchange also makes them ideal instruments as collateral for loans. In sum, stock exchanges are important complements to the efficient operation of the rest of an economy's financial sector.

The historical development of worldwide stock exchanges shows that three features are essential for their long-term success: a large stock of homogeneous, readily identified financial assets available to the public; a numerous and diverse customer base that is aware of the financial assets available; and a set of trustworthy intermediaries to handle trades of the various financial products among the customers.

The first feature arose with the creation of large-scale government debt, initially by Italian city-states such as Venice, Florence, and Genoa in the fourteenth and fifteenth centuries. While a secondary market of sorts existed, the city debts do not appear to have been widely held, as they took the form of forced loans from the wealthiest merchants and gentry. The second feature appeared with the creation of the joint stock of the Dutch East India Company or VOC (Vereenigde Oost-Indische Compagnie) in 1602, which was a forced amalgamation of a series of trading ventures organized within six different cities of the United Provinces. The existing shareholders were numerous and varied greatly in wealth and investment objectives; many were unhappy at the forced amalgamation and loss of voice in the management of the company. Active trading in the shares arose soon afterward, and a group of specialists in trading VOC shares appeared on the Amsterdam Beurs, which was the general wholesale market for commodities. According to de le Vega, these traders met in a corner of the exchange when it was open and continued business after hours in nearby coffeehouses. But this grouping does not appear to have had a formal organization or many other trading opportunities in other securities. Even though each city and province in the Netherlands issued large amounts of debt, each issue was closely held and seldom traded outside the city or province of origin. Not until 1795, when the Batavian Republic instituted reforms inspired by the French Revolution, did a regularly printed list of stock prices appear in Amsterdam, even though Dutch newspapers had reported prices of the leading securities since at least 1723.

In 1688, when Dutch financial techniques were grafted onto the English system of central government with parliamentary control over a constitutional monarch, the new British governments rapidly increased both their debt and the transferable stock of corporations holding government debt, such as the Bank of England, the New East India Company, and the South Sea Company. Despite the general collapse of share prices after the SouthSea Bubble of 1720, the customer base for English securities was large and increasingly diverse, comprising foreigners as well as provincial customers throughout England. Dedicated professional traders appeared who usually acted as brokers and often as dealers holding stock on their own account as well. Not until 1773, however, do we find documented evidence that they had a formal organization to assure confidence in trading with each other and on behalf of the general public.

With the substantial increases in government debt during the Napoleonic Wars, however, a formal exchange was created: the London Stock Exchange, with its self-regulated set of trading rules and information system. In response, the Paris Bourse, which had come under strict government control in 1726 after the collapse of the Mississippi Bubble in 1720, and then fell into disuse during the financial disruptions caused by the French Revolution, was revitalized by the French government and maintained under Napoleon. In the United States, the creation of federal debt in 1790 led to the appearance of the New York Stock Exchange, as well as other exchanges in Philadelphia, Boston, and elsewhere, eventually leading to over two hundred regional exchanges in the United States by World War I.

See also Banking and Credit ; Capitalism ; Commerce and Markets ; Interest ; Trading Companies .

BIBLIOGRAPHY

Dickson, P. G. M. The Financial Revolution in England: A Study in the Development of Public Credit, 1688–1756. London, 1967.

Garber, Peter. Famous First Bubbles: The Fundamentals of Early Manias. Cambridge, Mass., 2000.

Neal, Larry. The Rise of Financial Capitalism: International Capital Markets in the Age of Reason. New York, 1990.

t'Hart, Marjolein, Joost Jonker, and Jan Luiten van Zanden, eds. A Financial History of the Netherlands. Cambridge, U.K., and New York, 1997.

Vega, Josseph de la. Confusion de Confusiones. Translated by M. F. J. Smith. The Hague, 1939.

Vidal, Emmanuel. The History and Methods of the Paris Bourse. Washington, D.C., 1910.

Larry D. Neal

STOCK EXCHANGES

Stock market exchanges are a real or virtual location for the sale and purchase of private equities. A way for private enterprises to raise investment funds.

The first stock market exchange in post-Soviet Russia was primarily trade in privatization vouchers. As privatization proceeded apace, so did the volume of transactions on Russian exchanges. Shares

in certain Russian enterprises, particularly those of oil and gas companies, were also increasingly offered on the market, but the stock market or markets in Russia have yet to offer enterprises significant sources of either domestic or foreign investment funds.

Initially, the Russian stock exchanges were wild and risky places to venture funds. The early days witnessed two major boom and bust cycles: 1994–96 and 1996–98. Following the financial crisis of 1989, the Russian stock market almost ceased to exist. The Russian government sought to regulate the market step by step. Prior to 1996 enterprises were not required by law to maintain independent, public registries of stock outstanding, and both domestic and foreign investors learned to their dismay that they could be defrauded of their equity claims. The 1996 Russian Federal Securities Act required public registries and created the Federal Securities Commission and charged it with coordinating the various federal agencies that were responsible for governing the securities market. Conditions have improved for investors, but much remains to be done to create a reasonable market in equities comparable with those in more advanced capitalist countries. It remains more a site for speculation than for raising significant amounts of investment funds.

See also: economy, post-soviet

bibliography

Gregory, Paul R., and Stuart, Robert C. (2001). Russian and Soviet Economic Performance and Structure, 7th ed. New York: Addison Wesley.

Gustavson, Thane. (1999). Capitalism Russian-Style. New York: Cambridge University Press.

James R. Millar