Stockmarkets
Chapter 5
Stockmarkets
Stockmarkets have a much higher role to play than the events like dotcom bubble of late 1990s would say. For hundreds of years, they have been contributing in making the transfer of money from investors really easy who do not need it at once to companies to do. The whole idea of exchanges comes from 16th century. Until that period of time, the firms were generally owned by a small group or any individual. But after that came the big offers by foreign exploration – the trips to the East Indies, to India and Africa. These efforts to do something were far too costly – and also far too risky – for the cost to be bear by one man or partnership alone. The answer? Limited financial commitment and the first real joint-stock companies.
The East India Company, which was launched on 31 December 1600, was in point a classic case. It required huge amounts of cash for a long journey from which there was no guarantee that the money will come back or not. So the stocks were offered to investors in return of the fund they gave, the only reason behind that was the risk factor would be divided among all investors and there will be no fixed return on the stocks. But also if any company makes profit all the profit will be divided between the shareholders of that company. This brilliant idea worked. With increase in trade, the investors also did well and developed. An example - In 1611, The tenth voyage returned investors 148%. As the 17th century ended, many people were getting involved with the stock markets – there were more than 100 joint-stock companies with tradable stocks, and buyers and sellers had started to meet in London coffee shops.
This system came up in 1801 when the London Stock Exchange was created and from that time – tolerating some shocks, like the South Sea Bubble and the fall of the railway boom, it has never looked in past.
Today, runs Britain’s biggest exchange with 1,800 companies making up what is referred to as the ‘main market’ is run by the London Stock Exchange (LSE) . Along with it, the LSE runs the Alternative Investment Market (Aim), which is a ‘starter market’ for young companies that offers trading in another 1,040 firms.
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