Stock markets began before ‘stock’ meant equity in businesses – when it meant animals (sheep, cows and pigs). Stock markets date back to the agricultural revolution, when our ancestors stopped being hunter-gatherers.
The original stock exchanges
Cattle, or stock, markets continue to represent the simplest form of a stock exchange. Owners take stock to market. Buyers bid for the stock. Prices are agreed. Money changes hands. Stock is delivered. Delivery versus payment is a phrase that professional investors still use today.
A modern exchange is an institution, organisation or association that hosts a market where stocks, bonds, options and futures, and commodities, are traded.
Buyers and sellers come together to trade during specific hours on business days. Exchanges impose rules and regulations on the firms and brokers that are involved with them. If a particular company is traded on an exchange, it is referred to as ‘listed’.
Securities that are not listed on a stock exchange are sold over the counter, or OTC. Companies that have shares traded OTC are usually smaller and riskier because they do not meet the requirements to be listed on a stock exchange.
Stock markets today are mostly electronic and screen-based. They are almost unrecognisable from their former selves. In the years BC (before computers), open outcry trading was the norm. This involved shouting of bids and offers and the use of hand signals.
The trend away from open outcry continues. CME (Chicago Mercantile Exchange) Group announced on 12 April 2017 that it would close its London-based derivatives exchange and clearing house, CME Europe and CME Clearing Europe, by the end of this year.
This announcement came almost a year to the day that it announced the closure of its New York open outcry options floor because of a lack of volume.
In July 2015 the CME closed its own trading floor. This brought to an end a 167-year era of garishly dressed traders shouting out commodities orders.
Derivatives built on the physical
While the physical markets have closed, business has boomed, thanks to computers.
The increase in volume has been matched by an increased complexity in products and trading strategies enabled by computers. This can be bewildering for even sophisticated investors.
But it is important to bear in mind that the modern clutter of futures, options, other derivatives and stock indices build on the original physical stock market.
The first stock exchange as we know them was opened in Amsterdam in 1602.
The largest exchanges in the world today are:
- New York Stock Exchange (NYSE)
- NASDAQ (originally the National Association of Securities Dealers Automated Quotation exchange)
- London Stock Exchange (LSE)
- Tokyo Stock Exchange (TSE)
- Shanghai Stock Exchange
- Hong Kong Stock Exchange
Each has a story to tell.
The London Stock Exchange Group describes itself as a diversified international exchange group that sits at the heart of the world’s financial community.
The group can trace its history back to 1801, though trading took place in London's coffee houses and other venues before that.
The Main Market is London’s flagship market for larger, more established companies, and is home to some of the world’s largest and most well known companies.
A listing on the Main Market represents a badge of quality for every company listed and traded on it, and an aspiration for many companies worldwide.
AIM on target
The AIM (formerly the Alternative Investment Market) is the London Stock Exchange’s international market for smaller growing companies.
A wide range of businesses including early-stage, venture capital-backed, as well as more established companies, join AIM seeking access to growth capital.
AIM is the most successful growth market in the world. Since its launch in 1995, more than 3,600 companies from across the globe have chosen to join it.
The 21st century London Stock Exchange Group is also a developer of trading platforms and capital markets software.
In addition to the group’s own markets, more than 40 other organisations and exchanges around the world use the group’s MillenniumIT trading, surveillance and post-trade technology.