In medieval times, big merchandise markets and annual fairs were held at strategically important centres of transport or communications. In addition to goods, currencies were also exchanged at these events. Over time, maritime trade also became increasingly important. From the 14th century onwards, major centres of international trade developed in northern Italy – in Venice and Florence, for instance – and in Bruges in Flanders. Bruges became the warehouse of northern Europe’s seaports. Goods, money and information poured into the Hanseatic city from all over the world. Bruges thus played a crucial role in the development of trade and payment transactions. Spices from the East Indies, English fabrics, sugar, and raw materials were stored, traded and sold on the European continent. Stakeholders included the merchants and traders who travelled to these centres or overseas to get the best deals for their business. The Bruges inn run by the “van der Beurs” family was one of these locations. Fittingly, the family coat of arms depicts three purses: going “zu den Beursen” (to the Beursen) had become established as a figure of speech and, legend has it, is the origin of the term “Börse” (stock exchange). A form of initial stock exchange was thus created in 1409. “Beurs” still means stock exchange in Dutch today.
The birthplace of the term “Börse” (stock exchange). The Beursplein in the centre of Bruges, with the Genoese trading house (second building from the left), the “Ter Beurze” inn (adjoining the trading house – with stork’s nest), the “Ter Ouder Beurze” house (with stepped gable) and the Florentine trading house (with the turrets).
As time went by, the merchants realised that they didn’t always have to transport all their goods to the fairs to sell them. Goods were given more or less fixed prices if consistent quality was guaranteed. The merchants started meeting up on the sidelines of the established fairs and did business without exchanging specific goods or money. This goods-free trade was subject to binding rules and deadlines that were tied to contracts.
The Antwerp stock exchange of 1531 is considered to be the first place where these transactions were conducted, and the first to be institutionalised as a commodities exchange. Financial instruments such as bills of exchange, promissory notes and letters of credit were the normal practice, and were linked to banking transactions. A bill of exchange is a binding obligation in written form undertaken by a person assuming a debt, committing them to repay a specified sum to the holder of the bill of exchange at the agreed time. To begin with, the bills of exchange were still tied to the merchant as an individual and were directly linked to the trade in goods. However, this was to change over time: financial instruments became transferrable, or could be sold with deduction of interest and a fee. Merchants who dealt largely with financial transactions increasingly became financiers and bankers. A new profession was born.
Bills of exchange and bonds were now bought and sold, and it was no longer only the prices of goods and raw materials that were fixed. These processes were centralised at specific locations. Experts are divided on the question of where the world’s first stock exchange was located. One theory is that the first such formal institution was the Amsterdam Börse, where shares of the Dutch East India Company (Dutch: Vereenigde Oostindische Compagnie, often known as VOC) were traded for the first time in the 17th century. Another holds that the Royal Exchange in London – which burned down in the mid-17th century – was the first, about 30 years earlier than the Amsterdam Börse. Incidentally, the VOC was the first joint-stock company in the world, because as from its establishment on 20 March 1602, it had all the elements of a joint-stock company as we know it today: the “shares” denote collective ownership, a right to share in any profit, and limitation of liability to the nominal value of the share.
By trading in equity shares in companies such as the VOC, or other companies such as the French East India Company (Compagnie française des Indes orientales), the stock exchanges in Europe increasingly specialised in securities trading. In 1724, the Paris stock exchange was founded at the Compagnie’s headquarters, by order of royal authorities. The purpose of the new institution was to prevent uncontrolled trading speculation. The Compagnie des Indes Orientales itself was founded on 27 August 1664 by Louis XIV, the Sun King, on the initiative of French Finance Minister Jean-Baptiste Colbert. Existing small companies were consolidated into a single large one, based fully on the model of the VOC.
Individuals investing privately, and even cities, began increasingly to buy shares in companies. In 1727, for example, the city of Zurich acquired 120 shares in maritime trading company The South Sea Company, founded in London in 1711. The Zurich Seckelamt – essentially, the national treasury – believed it was worth 100,000 Zurich guilders to invest in the English company. For the Zurich Council, this represented a secure, interest-bearing investment. Just 10 years earlier, the city of Bern had invested in a much larger stake of 1,300 shares. Despite what was known as the “South Sea Bubble”, the share price collapse that went down in global economic history, Bern made a profit on its investment.
At the core of this South Sea bubble was the fact that, in 1719, the South Sea Company took over a large proportion of England’s national debt. In return, the company was granted a monopoly on trade to the English colonies. This plan seemed to be working, as South Sea Company stock prices soared. But the phenomenal trade envisaged, and the profits that the company promised, never fully materialised. The organisation began to act almost exclusively as a sort of bank: lending money to potential buyers, which kept demand for its shares high and artificially pushed up the price. A “bubble” formed. At the end of May 1720, shares were selling at a price of £900, up from £350 in April. The bubble finally burst in late summer, when the share price fell to £190.
Between 1719 and 1734, the state of Bern owned shares like this one in the English South Sea Company, which was also involved in the lucrative slave trade. In July 1720 the share price reached the fantastical sum of 950 pounds, before the South Sea bubble burst. Share certificate, London, probably 1729.
Source: Stiftung Sammlung historischer Wertpapiere
The “South Sea Bubble” was one of the biggest bubbles of the Early Modern Period. In parallel with the South Sea Bubble, in France the so-called Mississippi Bubble occurred in 1720 in connection with the Compagnie des Indes Orientales, resulting in a similar collapse in share prices. Although the cities of Zurich and Bern didn’t really suffer from the consequences of the South Sea Bubble, merchants from St Gallen, Zurich, Bern, Basel and Lausanne fared differently.
As the industrial era progressed, the number of joint-stock companies increased exponentially. Capital provided by the public at large was needed in order to finance these companies. Accordingly, trading in securities increased. Conversely, people who owned shares also wanted the security of getting their invested money back at a fixed price. What was needed was places like stock exchanges where stock prices were levied in an orderly manner. In Switzerland, share trading would not be institutionalised until a century later. Over the course of the 18th century, and especially after the establishment of the Swiss Confederation in 1848, stock exchanges for the country’s financial business became a necessity. In 1850 the United Brokers Association, an exchange trading institution, was established in Geneva. The Stock Exchange Act of 1856 then created the “à la criée” or “open outcry” trading floor. The Basel stock exchange followed in 1876 and the Zurich stock exchange in 1884; both were under cantonal supervision.