History of the

Stock Market

Mr. Henry
AP Economics
 Part I: Quiz
• # your whiteboard #1-14
• Write down the correct letter to each Q
 #1
• Where's the oldest stock exchange in the
world?
A Lyon, France
B Barcelona, Spain
C Hamburg, Germany
D Toulouse, France
E Antwerp, Belgium
F Geneva, Switzerland
 #2
• Where was the first stock exchange in the
United States?
A Boston, Mass.
B New York, N.Y.
C Philadelphia, Pa.
D Washington, D.C.
 #3
• The founders of the New York Stock Exchange
took inspiration from which country's stock
market?
A Great Britain
B France
C Italy
D Spain
 #4
• What was the first listed company on the
NYSE?
A Nationwide Insurance
B Prudential
C Bank of New York
D Merrill Lynch
 #5
• What's the largest stock exchange in the world, in
terms of market capitalization (basically, the total
value of all listed companies)?
A New York Stock Exchange
B Tokyo Stock Exchange
C NASDAQ
D Bombay Stock Exchange
E London Stock Exchange
F Hong Kong Stock Exchange
 #6
• What's the name for the method of
communications used by stock traders
frantically running around a trading floor and
using hand signals?
A verbal auction
B open outcry
C hand dealing
 #7
• Which of the following is an example of a
defensive stock?
A a weapons manufacturer
B a utility company
C an auto manufacturer
 #8
• What does it mean when a trader flashes four
fingers parallel to the floor, palm out?
A sell four shares
B sell nine shares
C buy four shares
D buy nine shares
 #9
• What was the first totally electronic stock
market?
A NASDAQ
B London Stock Exchange
C NYSE
D Tokyo Stock Exchange
 #10
• How many companies are in the Dow Jones
Industrial Average?
A 10
B 30
C 50
D 100
E 130
 #11
• Which company is NOT a member of the Dow
Jones Industrial Average?
A Verizon
B Amazon
C Hewlett-Packard
D Wal-Mart
E Pfizer
F Home Depot
G Boeing
H American Express
 #12
• What do we call a strong economy -- a bull or
bear market?
A bull
B bear
 #13
• Which federal agency is responsible for
regulating the stock markets?
A Federal Trade Commission
B Securities and Exchange Commission
C Federal Reserve System
 #14
• What historic agreement rang in the start of
the New York Stock Exchange in 1792?
A Buttonhole Agreement
B Cottonwool Agreement
C Clothespin Agreement
D Buttonwood Agreement
E Cottonclub Agreement
 #1
• Where's the oldest stock exchange in the
world?
E) Antwerp, Belgium The Antwerp Bourse opened its
doors in 1460 and kept going until 1997.
 #2
• Where was the first stock exchange in the
United States?
C) Philadelphia, Pa. New York is where all the action
is today, of course, but the Philadelphia Stock
Exchange, founded in 1790, predated it by two
years.
 #3
• The founders of the New York Stock Exchange
took inspiration from which country's stock
market?
D) Spain The value of the dollar had been based on
the Spanish real, so the NYSE founders looked to
Spain for inspiration for their stock market, too.
Long story, but the Spanish real is also the reason
for all the fractional stock prices in the NYSE.
 #4
• What was the first listed company on the
NYSE?
C) Bank of New York Shares of the Bank of New York
were traded under the fabled buttonwood tree on
Wall Street in 1792.
 #5
• What's the largest stock exchange in the
world, in terms of market capitalization
(basically, the total value of all listed
companies)?
A) New York Stock Exchange The NYSE tops the list
here.
 #6
• What's the name for the method of
communications used by stock traders
frantically running around a trading floor and
using hand signals?
B) open outcry Open outcry is the (perhaps soon-to-
be extinct) way to communicate transactions
through shouting and hand signals.
 #7
• Which of the following is an example of a
defensive stock?
B) a utility company A defensive stock is so named
because its value doesn't fluctuate much. So a good
example of defensive stock would be utility stocks.
 #8
• What does it mean when a trader flashes four
fingers parallel to the floor, palm out?
B) sell nine shares Palm out means sell. Four
fingers at a 90-degree angle indicates nine (four
upright fingers would indicate four).
 #9
• What was the first totally electronic stock
market?
A) NASDAQ has been electronic (meaning, no
trading floor) ever since its inception in 1971. All
other stock markets have lagged far behind,
although they're getting there.
 #10
• How many companies are in the Dow Jones
Industrial Average?
B) Very simply put, the Dow Jones Industrial
Average is the average stock value of 30 very
large, industrial companies.
 #11
• Which company is NOT a member of the Dow
Jones Industrial Average?
B) Amazon.com is a member of the NASDAQ-
100, not the Dow Jones.
 #12
• What do we call a strong economy -- a bull or
bear market?
A) A bull market indicates a strong economy.
 #13
• Which federal agency is responsible for
regulating the stock markets?
B) Securities and Exchange Commission The SEC
is in charge of the securities industry and the
stock markets.
 #14
• What historic agreement rang in the start of the
New York Stock Exchange in 1792?
D) The historic Buttonwood Agreement, which
was signed by 24 of the most prominent bankers,
brokers and merchants of the time, described a
plan for trading stocks and securities through a
common clearing house.
 Part II: History
• Foundings
• During the Revolutionary War, the new U.S.
government did not have the funds to pay for the war
effort. To gain funds, the government issued bonds
with a promise of repayment in the future. The bond
purchasers were given promissory notes on paper.
After the war, those in control of the bonds began
trading them for immediate compensation. Merchants
recognized the need for a place to exchange these
bonds as well as commodities; this gave rise to
commercial centers, which eventually became the
stock exchanges of America.
 NYSE
• In the last decade of the 18th century, 24 of the top
members of the New York financial community
recognized the need for an exchange. They created what
was then called the Security Exchange Office. This name
persisted until 1863; after that year, the exchange was
referred to as the New York Stock Exchange. Since its
inception, the NYSE has set limits on the minimum
amount of shares that had to be offered, along with
other requirements, if corporations wished to have their
stock traded on the exchange. The exclusive nature of
the exchange led to its becoming the premier exchange
in America. During the economic boom of the early 20th
century, every emerging company wanted to have its
shares traded on the NYSE. Today the NYSE is the largest
exchange in the United States.
 Amex
• The early days of the American Stock Exchange saw
trades taking place on the streets of New York City’s
financial district. Stockbrokers would meet outdoors on
the streets to discuss trades and negotiate deals.
Eventually these brokers formed the New York Curb
Exchange, the name by which it was known until 1953.
The American Stock Exchange was long the place for
companies that could not meet the standards set forth
by the NYSE. As the AMEX gained support, however,
they put standards in place as well. This increased the
reputation of the American Stock Exchange; since then,
the American Stock Exchange has become the third
largest exchange in the United States.
 NASDAQ
• The NASDAQ was founded by the National
Association of Securities Dealers. Founded in the
early 1970s, the NASDAQ was the world's first
electronic market. The NASDAQ has since
partnered with a Swedish exchange called OMX
and purchased the Philadelphia Stock Exchange.
The NASDAQ has grown quickly, and it is today
the largest electronic trading market in the world
with thousands of companies listed. It is also the
second largest trading market in the United
States.
 The Great Depression
• The depression originated in the U.S., after
the fall in stock prices that began around
September 4, 1929, and became worldwide
news with the stock market crash of October
29, 1929 (known as Black Tuesday).
• The Great Depression had devastating effects in countries
rich and poor. Personal income, tax revenue, profits and
prices dropped, while international trade plunged by more
than 50%. Unemployment in the U.S. rose to 25%, and in
some countries rose as high as 33%.
• Cities all around the world were hit hard, especially those
dependent on heavy industry. Construction was virtually
halted in many countries. Farming and rural areas suffered
as crop prices fell by approximately 60%. Facing plummeting
demand with few alternate sources of jobs, areas
dependent on primary sector industries such as cash
cropping, mining and logging suffered the most.