The need for centralisation
The idea of trade goes back to the days of old ancient and with it the idea of exchange in return: barter. An individual possesses a good and exchanges it for another good or service.
There are examples of trade in sacred texts but also in more ancient representations or artefacts, in all civilisations, and in all historical periods.
If we take for example books like the Bible, the Thora, or the Koran, we realise that most of these exchanges took place mainly in public places, the squares (platea, agora) or at the ports. This is perhaps the first example of a ‘centralised’ market where people met to exchange goods, commodities and services.
In Switzerland, the first stock exchange was founded in 1850 in Geneva (Société des agents de change réunis) with the first trading floor opened in 1855. This was followed by Basel in 1866 and Zurich in 1873.
The need to find a common center where people could meet and exchange reflected the limitations of the period in terms of communication, travel, but also risks in moving potentially exchangeable goods.
This laid the foundation for what we now consider finance, investment, stock exchange, marketplaces.
The idea remains the same: to centralise. The means, however, have changed dramatically and continue to do so.
According to some scholars, the first stock exchange in history dates back to 1500 in the Belgian city of Bruges and was a credit transaction for material goods available in another country (what today we might consider to be a future or an option).
An interesting anecdote is that this transaction was carried out in a building owned by a local family, the Van der Bourse, whose coat of arms was three bags, hence probably the reference to the “Bourse” in French, “Borsa” in Italian or “Börse” in German when talking about the place where financial exchanges take place.
Trading centers have evolved continuously throughout history, drastically changing the way of ‘doing business’.
However, the first stock exchange dates back to 1531, also in Belgium but in Antwerp, where the prices of goods were negotiated (today we could compare it to a Commodity Exchange center such as the CCX in Chicago, XNYM in New York or even the IFEU in London).
Over the years, these exchange centers began to appear all over Europe: 1548 in Lyon (FR), 1564 in London, Amsterdam in 1609, Venice in 1600.
In Switzerland, the first stock exchange was founded in 1850 in Geneva (Société des agents de change réunis) with the first trading floor opened in 1855. This was followed by Basel in 1866 and Zurich in 1873.
Given the constraints of the time, it was not uncommon to have several trading centers within the same country to facilitate transactions and to create organised centres for these activities.
It was not until 1993 that the country’s three main stock exchanges were brought together to form the SWX Swiss Exchange.
August 16 1995, is an important date, and perhaps a sad one for the nostalgic because it was the last day “the bell” rang on the Swiss trading floor, marking the definitive closure and transition to “digital” trading of stocks, options and bonds.
Trading centers have evolved continuously throughout history, drastically changing the way of ‘doing business’.
We still remember scenes from famous films or media reports from the 1990s showing scenes of “ordinary madness” with people shouting buy and sell orders or waving their arms and making precise gestures for each type of transaction and being interpreted by brokers on the upper floors to carry out their requests. To the untrained eye, it all seemed confusing and nonsensical, but in reality, everything was perfectly organised in every detail.
Over the last thirty years, we have seen these famous trading floors (commonly referred to as “the pit”) closing or undergoing drastic changes in their operations in favour of digital services that have soon taken over and “decentralised” trading operations.
Digitalisation has changed the financial market, making it faster, more efficient and more accessible, even reaching private investors who can now open a bank account and access the world’s stock exchanges directly from their smartphones, without having to go to the bank to trade securities or manage their portfolios.
The digitalisation process
Perhaps this is one of the most drastic changes in the modern era of financial trading: For ages, trading venues have been centralised. From open-air plazas to the palaces of wealthy traders, from the associations of aristocrats to the institutional venues of the trading floors. Today, it would seem that this no longer makes sense, and we have decentralised the mere physical place in favour of flexibility and accessibility.
This is of course not the only change that has taken place, but it is perhaps the most important one. The underlying changes from time to time, but the principle remains the same: the exchange of one good (usually money) for the purchase of another (usually raw materials, shares in companies, and so on).
The way in which these exchanges are carried out has changed. Digital has had a profound impact on the industry, with the advent of digital trading platforms that allow those people who once had to go in person to the stock exchange to trade securities for their clients, to stay in the office and instantly execute each trade.
This has helped to greatly reduce transaction errors that could previously be due to misinterpretation of gestures or shouting. It has made it possible to execute important transactions in just a few clicks and seconds (milliseconds even). It has allowed access to billions of data in real-time, from all over the world.
Having an app on our phone that gives us the real price of a product is something that seems obvious to the younger generation, but 20 years ago this was unimaginable.
There is an emblematic example of this change by looking at the trading room of one of the biggest banks in the country.
But what is important to stress is that such halls no longer have any reason to exist, at least not on this scale, and we will most likely never see them again.
Digitalisation has changed the financial market, making it faster, more efficient, and more accessible, even reaching private investors who can now open a bank account and access the world’s stock exchanges directly from their smartphones, without having to go to the bank to trade securities or manage their portfolios.
Investment solutions are multiplying and the range on offer is growing all the time. Having a chat with your investment manager has become much faster and is also possible remotely from anywhere in the world.
Some interesting facts
- There are more than 60 global exchanges in the world. The largest are, in order, 1. NYSE 2. NASDAQ 3. JPX- Japan 4. SSE – China 5. Hong Kong. Switzerland is 13th. The smallest stock exchange is the one is Seychelles, with only four stocks and a capitalisation of about 100 million dollars.
- The analogy of “bears” and “bulls” comes from California: the bear attacks from above with a downward movement. The bull charges from below with an upward movement. In California, there were bull fights against bears on Sundays after church. During the challenge, the bears remained more defensive while the bulls were more aggressive in attacking.
- The most expensive stock to date is Berkshire Hathaway Inc Class A shares, trading above $400,000/share since April 2021.
- Until 2001 it was possible to trade fractions of shares. The idea came from Spanish gold doubloons that could be divided into 2, 4 and 8 so that everyone could count with their fingers (for some strange reason, thumbs were not considered).
- The first economic crisis was in 1630, with the Tulip bubble in Netherlands (remember the beginning of the article? The first stock exchange was in Belgium, not far away…).
- One of the biggest digital transaction mistakes can be attributed to a junior trader at Deutsche Bank who mistakenly sent $6 billion to a hedge fund, in 2015.
- The oldest transaction error: Isaiah in the Old Testament. He negotiated inheritance rights over the material and spiritual assets left by his father with his brother Jacob in exchange for a bowl of lentil soup.
- In Somalia, there is a Pirate Stock Exchange where locals can invest in pirate gangs.
- On average, September is the worst month of the year in finance. Since 1950, US indices have always closed negative in September.
- Since 1903, the opening of the trading day in New York has been signaled by the ringing of a bell at 9.30 a.m.
- Australia had the best stock market performance from 1900 to 2009 with an average of 7.5%/year (US 6.2%), making it the second least volatile market, a sign of stability and prosperity.
- The first woman to work at the New York Stock Exchange was in 1943 due to the lack of men involved in World War II until 1947 when women were again barred from entering until 1965 when Muriel Siebert bought a chair at the NYSE and earned the respect of all that culminated in the naming of a room on the seventh floor.
- A chair at the NYSE can cost up to $4 million (December 2005)
Bonus video: Last day of Geneva’s stock exchange
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