Global Stock Markets: Historical Influence Research Paper

Global Stock Market is a big word today and one that has changed the way we look at and understand things around us. What is actually Global Stock Market? What do we understand by this word? Global Stock Market is simply the predisposition of the economy through business, knowledge through technology, and thought through philosophy to spread globally. Global Stock Market can also mean the process by which this happens. This term is almost synonymous with an intertwining of markets and economies without any consideration for physical borders or legal restraints.

The term Global Stock Market has brought some positive impacts and some negative impacts on the world market economy. As with all types of changes, this massive economic revolution has influenced the marginalized people as well along with the business. It is hard to say whether the impact has been positive or negative because there is a lot of gap and difference between the status in the middle and upper and lower-middle and low classes of business.

Global Stock Market has widened this gap to the extent that they look un-breachable. Whichever way you look at this transformation it is obvious that the interlinked status of the Global Stock Market is an economical aspect. And it is good that it is; the onset of such market has kick-started a movement of liberalization of independent thought process, which due to the heightened global interconnectivity may prove more successful than it ever was in any of the past socio-economic and cultural revolutions. (Smith, 2004)

Historical evidence equates the origin of the first stock markets with the conception of the term “bourse” which means a “bag” in Latin. In the thirteenth century, France bags were hung in front of the houses where the ancient traders met to discuss various affairs of commerce. By 1309, such informal meeting centers were formalized into “Bruges Bourse”, and soon the “bourse” became popular in nearly all the European nations. By 1602, the Dutch launched the first joint-stock companies and in 1688, a stock exchange was opened in London.

Stock markets, or “bourse”, as it is termed in continental Europe are actually organized markets for the purchase and sale of securities such as stocks and bonds. According to financial theories, the subscribed capital of any industry, corporation, or a small company of limited liabilities are divided into shares, bought, and sold as transferable certificates.

Trading in a stock exchange may be conducted by various methods such as being a continuous auction method, or brokers buying from and selling to a specialized dealer in certain stocks, maybe a process of exchange among specialists in particular, or specified stocks. It is also the practice of some stock exchanges, the New York Stock Exchange, for instance, to sell seats or the right to trade to a few limited clients who are required to meet the most stringent eligibility criterion. It is also mandatory for stock exchanges to meet at regular intervals to regulate prevalent trading terms and even duelist overtly risky ventures. (Madura, 2006)

The guidelines that shape a stock exchange varies from one country to another in specifying eligibility requirements and the amount of direct government intervention in the functioning of the exchange. Thus, it has been found that the London Stock Exchange is a relatively independent body, which does not have to toe the lines of governmental policies and dictates. The perspective shifts sharply in Europe where the members of the stock exchange are governmental appointees and preserve their semi-governmental status.

In the United States of America, though it is not the government that regulates the actions of the stock exchange, yet law regulates it. In the present times, technological developments have enhanced the very nature of trade and commerce; access to the Internet and the proliferation of Electronic Communications Network have wrought amazing changes in the world of investments and stock markets throughout the world. (Pring, 2002)

Traditionally, the inception of the New York Stock exchange can be traced to a certain day in the month of May 1792 when twenty-four stockbrokers met under a buttonwood tree on Wall Street and signed an agreement. However, it was in 1817 this organization redrafted a constitution and adopted the name of New York Stock exchange. Today, the New York Stock Exchange (NYSE) has emerged as one of the world’s leading stock markets dealing in securities. Nicknamed as the “Big Board”, the NYSE is reputed to be the largest stock exchange in terms of dollar volume and comprises as many as 2764 securities. In recent times, the NYSE is functioning as a non-profit organization controlled by a board of directors.

Nearly three thousand companies with a combined market value of $ 15 trillion are listed under the NYSE. Specialists are assigned the duty to maintain a fair and free market and efficiently handle the smooth flow of processing nearly ten million shares in a single day. However, in modern times automation has further facilitated and hastened the process, yet the presence of human beings is highly appreciated on the trading floors. The NYSE ranks third in the global scenario as a large possessor of company listing and is superseded only by the Bombay Stock Exchange and NASDAQ. (Murphy, 2004)

The American stock markets experienced a boom after the War of 1812 and gradually New York emerged as an important port, facilitated by a flourishing trade with Britain. Consequently, there was a huge proliferation of banks and brokers, thereby increasing the trading volume to nearly five thousand shares daily in 1834. The late 1830s however experienced a slump as the British severely curtailed their American investments and uncontrolled speculation ran rife. However, the NYSE stood the test of times as emerged a factor to reckon with by 1863.

1869 evidenced two important mergers in the history of the NYSE when it joined hands with the Open Board of Brokers and the Government Bond Department. The introduction of the telegraph, the setting up of a Trans Atlantic cable, and the invention of the telephone improved the modes of communication between the brokers and the investors and aided the contemporary trading patterns.

The development of the stock ticker to ensure the accuracy of trade-related information was another stepping-stone in the road to progress. By the early 1900s, the amazing growth of the oil and steel industries and unprecedented speculation led to a sharp dip in the prices of shares. Post World War I, the NYSE established the Stock Clearing Corporation to enhance the free flow of cash and stock between its members. (Smith, 2004)

However, after the debacle of “Black Thursday” when the stock prices dropped sharply, the government passed a security act in 1934 by which it was stipulated that the NYSE should be able to provide all relevant information to the investors. After World War II, the NYSE was successfully able to assist the government in the sale of several huge defense loans.

By the early 1960’s the NYSE was the scenario for an amazing revolution in communication and information technology, whereby the state of the art automation methods changed the very face of the stock exchange ranging from investment, brokerage, stock related predictions, and prevalent trading practices. The introduction of the Market Data System led to the efficient integration of the stock exchange. By the 1970s the NYSE had joined hands with the Securities Industry Automation Corporation and introduced the Designated Order Turnaround, which streamlined the process of electronically channeling information between the members and the stock exchange. (Madura, 2006)

Finally, in July 1971, the NYSE was declared a non-profit organization and under the supervision of William Machesney Martin, new rules and procedures were implemented and the system of granting memberships through electronic access was introduced. In the 1980s the NYSE came to be influenced by several important market-related factors such as the development of financial markets and the rapid growth of non-exchange securities and the introduction of the computer to speed up the transactions and provide accurate information.

Despite its rapid development and implementation of highly sophisticated automation, the NYSE was powerless to avert the crisis of “Black Monday” of 1987, which unleashed unprecedented depredations, and the Dow Jones Industrial Average steeply plummeted 508 points. To prevent further catastrophe the NYSE was forced to debilitate its electronic order-delivery system because of which thousands of traders around the globe were crippled financially. This move was shrouded in controversy and the rationale provided for the trading halt was that the brokers and investors were being given a chance to take proper stock of the situation and attempt to understand the degree of losses accrued so far. In the year 2000, the first global index was formally launched. (Madura, 2006)

By 2005, NYSE was on the threshold to become a public entity after having successfully acquired the electronic trading archipelago. In 2007, NYSE entered into an important merger with the European stock exchange and henceforth the parent company for NYSE came to be known as NYSE Euronext. Almost since its inception, the NYSE had relied on the method of floor trading operating through the system of the open outcry process.

In a traditional brokerage system providing full service, it was required of a customer to place an order with a broker or a member of the stock exchange who was then responsible for passing it on to the specialists operating on the floor of the exchange, who then finalized the transaction. Today, the bulk of the trade is conducted through automation, yet floor specialists still play a major role while adjusting international price indices and dealing with international trade details. (Murphy, 2004)

The specialists in NYSE are the human operators on the trading floors who have access to the inventories of certain specific stocks who are trained to match prospective buyers with sellers and retain sufficient power to actually mobilize the market in times of illiquidity. It is the duty of the specialist to safeguard public welfare and as such, he/she should fulfill four important roles. Firstly, as an auctioneer, he/she should make the client aware of the best deals in the market.

Secondly, he/she should function as a catalyst between the demands and desires of the buyer and the seller, thereby keeping the market fluid and in motion. Thirdly, he/she should act as the intelligent agent who places electronically updated orders for his/her clients. Fourthly, he/she must act as the principal or most important figure in any stock-related transaction since it is a responsibility of theirs to maintain equilibrium.

The NYSE functions on an interesting formula called owning a seat. The acquisition of such a seat allows the member to either actively participate in the transactions of the trading floor, on his own behalf, or act as an agent for someone else. The price and availability of these seats are determined by demand and supply and in some cases may be as expensive as $2,500,000. To own a seat, traders must go through a stringent set of rules and henceforth abide by high levels of ethical compliance. (Madura, 2006)

Unlike the NASDAQ, which is a dealers market operating through the complex network of telecommunications, the NYSE is an auction market where transactions take place on a physical trading floor where people are actually involved in the process of buying from and selling to one another. The companies, which have invested their stocks with the NYSE, comprise many well-established industries a blue-chip firms, as in contrast to the volatile and growth-oriented stocks of the NASDAQ. Traditionally at 9.30 am every morning the opening bell is rung to indicate the onset of a busy trading day; again at 4 pm in the evening the closing bell is rung and trading for the day ends. (Smith, 2004)

The inception of the London Stock Exchange is directly related to the age wherein Britain emerged as the most powerful colonial power in the world. In fact, it all began as an initiative to raise funds for voyages and expeditions to explore the New World and the Far East. Since it was rather difficult for private organizations to sponsor the huge costs behind such expeditions, they hit upon the idea to sell shares to interested investors who were promised a share in the profits, which would eventually be accrued through these ventures. Trading in shares in the city of London usually took place in two coffee shops located in Change Alley and may be seen to be the first initiative towards stock exchange and by 1640 there existed as many as 140 such companies. (Pring, 2002)

By 1617, a law was passed wherein it was mandatory for all brokers to be properly licensed and take an oath to conduct transactions honestly. However, the disastrous incident of the South Sea Company effectively crippled the exchange, and the government was forced to take rapid action.

By the 1820s, however, with the introduction of railways and rapid industrial development, the London Stock Exchange was on a firm footing yet again, though somewhat troubled by the payment of stags and dividends. Soon after this, trade-in bonds or gilt-edged securities began to flourish. In 1972, the London Stock Exchange was inaugurated in Threadneedle Street where huge trade transactions were conducted on the exchange floors. However, things took a turn for the better as computerized systems were introduced and the brokers and specialists on the floor became largely redundant.

This phenomenon was termed the “Big Bang” and took place in 1986. In the year, 2006 NASDAQ orchestrated a major takeover bid to buy out the LSE but was strongly rejected by the shareholders of LSE. Soon the LSE entered into an alliance with the Borsa Italiana and emerged as an important factor in the European equities market. Structurally, the LSE comprises four main units. Firstly, the equities sector which encourages developing nations to raise the fund necessary for their overall growth.

Secondly, trading services offer a wide range of options for trade-in stock-related activities. Thirdly, the market data information, which provides the clients, brokers, and customers with up-to-date information about the benefit or risks of speculating on shares or bonds, was operational. Fourthly, the derivative market is actually an extension of the core business and accrues added benefits. (Madura, 2006)

Established in 1875, the Bombay Stock Exchange or BSE is perhaps the oldest extant stock exchange in Asia. This has played an important role in the stabilization of the capital market of the Indian sub-continent. In 1995, the BSE was upgraded into a fully automated on-line trading center and gone were the days when the brokers and dealers used to function through the system of the open outcry on the exchange floors. Today the BSE boasts of the Deutsche Borse and the Singapore Stock Exchange as its most eminent partners and is the largest stock exchange in the world in terms of number of companies listed under it.

SENSEX, which is the index of the BSE enjoys worldwide reputation is based on the process of the “free float” methodology and is eminently sensitive to fluctuations and changes in the market. BSE deals mainly with providing a secure network to trade in equities, shares, bonds, debt instruments and other such derivatives and has launched websites in Gujrati and Hindi to expand its trade possibilities. (Pring, 2002)

The origin of the Shanghai Stock Exchange in China was a direct result of the Treaty of Nanking in 1842 conducted to signify the closure of the Opium Wars. This was a measure considered crucial to the economic development of China and the resident foreign communities in Shanghai. By the late 1860’s Shanghai emerged as a market for trading in securities, bonds and joint venture projects. In 1929, a formal merger between two major exchanges led to the official inauguration of the Shanghai Stock Exchange, which now mainly deals in funds, stocks and bonds. Stocks are of two types: A shares, which are quoted in local currency, and B Shares, which are priced in US dollars.

In Japan, the Tokyo Stock Exchange is the second largest exchange in terms of market value (over 5 trillion dollars) and is only superseded by NYSE. The entire organization is spearheaded by nine directors, supported by four auditors and officiated by eight highly efficient executives. Stocks, which are listed with the Tokyo Stock exchange, can be sub divided into three main categories: the first section, which comprises of the large companies, the second section deals with companies of a moderate size and the Mother section, concentrates on the rapid development of startups. The Nikkei 225 is the official index of the Tokyo Stock Exchange. (Smith, 2004)

Global Stock Market and International business has never been a simple matter. Actually, with the diversified number of countries, which engage in global business, the challenge is anything but easily surpassed. There are many lessons to be learned in gaining an international view of economics. Education about the world’s economic structure, cultural differences and the interrelation between the two is as important as understanding the methods your business uses from start to finish. It could be mentioned that under the parameter of understanding the method and interpretation of facts the context of execution changes from time to time and place to place.

The primary factor to conceptualize would be the fact that every country pursues business differently. Laws affect the ways in which business is conducted from region to region and country to country.

Negotiations are never conducted exactly as they would be where you have pursued such actions in any city, in any state in whichever country from which you originate. It is widely believed that to survive as a corporate sector in the long term it is extremely important to mould the organization into an international sector. Therefore, it is that much obvious to plan the strategies of the company in accordance to Global Stock Market sequences.

It is important evaluate the marketing policies to survive in the international market and analyze the effectiveness of the prevailing marketing plan. It is quite true that the activation of the international strategy would collide with that of the plans implemented while operating in the local market. (Smith, 2004) It should be mentioned that though there are many indications and examples of international business blunders there are hardly any reference point that can be regarded as a positive measure to avoid those blunders. It is definitely a complex formula to develop a winning strategy, which would be successful every time when implemented. However, there should be indication whereby the errors or blunders could be avoided by specified formulations.

Waters (1995) describes Global Stock Market as ‘a social process in which the constraints of geography on social and cultural arrangements recede and in which people become increasingly aware that they are receding’. (Waters, 1995) Ideally, it is believed that Global Stock Market and globalization in whole is the means to create a global positive impact upon the poor and the poverty in general by opening the doors to availability of a host of opportunities and resources, which would have, otherwise not been available nationally. The downside is that globalization seems to profit the rich more and the poor less, thus widening the gap further.

In conclusion, it can be stated that it is true that Global Stock Market and globalization actually means the broadening of global linkages, while also influencing upon the social and cultural dimensions of the global society, hence propagating a one-world-citizenship, which has one economy, one culture and one social order. Ecumenically globalization’s definition would be complete with the above classifications.

Nevertheless, there are many inroads in the understanding of the term. This is the process where the poor countries can think of modernization and global competition, enhanced living standards, and work opportunities. On the other hand, this very same process is the one, which can destroy economies by sudden influx of foreign capital, can destroy marginalized workers livelihood and destabilize national banks. Hence, Global Stock Market literally is like a coin – with two very separate sides. (Waters, 1995)

References

Madura, Jeff; 2006; International Financial Management; Thomson South-Western.

Murphy, John J; 2004; Inter-market Analysis: Profiting from Global Market Relationships; John Wiley and Sons.

Pring, Martin J; 2002; Technical Analysis Explained: The Successful Investor’s Guide to Spotting Investment Trends and Turning Points; McGraw-Hill Professional.

Smith, B. Mark; 2004; A History of the Global Stock Market: From Ancient Rome to Silicon Valley; University of Chicago.

Waters, Malcolm; 1995; Globalization; New York, Routledge.