Kay McCarthy, Head of Jersey Office at The International Stock Exchange (TISE), reflects on the evolution of stock exchanges and charts TISE’s journey in both the public and private markets.

Goods have been traded since the very beginning of civilisation and the exchange of currency was an important part of trade in the ancient world. In medieval Europe, merchants would come together in town squares to exchange goods, often coming from different countries, leading to money-changers setting up money exchanges so transactions could be done in the local currency.

The beginnings of stock exchanges

But the idea of a stock exchange as we know it today is in fact relatively recent by comparison, with the first modern stock trading coming about in 1602 at the Amsterdam Stock Exchange, where the Dutch East India Company issued the first shares of stock, allowing investors to buy and sell ownership stakes. This was the first company to issue stock and bonds to the public.

At first, only shares for the Dutch East India Company could be traded but in the years that followed similar companies began issuing stock, to satisfy demand. Eventually, more companies were added, and the Amsterdam exchange introduced important features like listing fees and regular trading hours.

This would lay the groundwork for future stock markets.

Towards the present

During the 18th and 19th centuries, several stock exchanges sprang up across Europe and North America. The London Stock Exchange (LSE) was officially founded in 1801, while the New York Stock Exchange (NYSE) traces its origins to the Buttonwood Tree Agreement signed by 24 stockbrokers in 1792. These early exchanges dealt in government bonds and a small number of shares but gradually expanded their offerings.

Major cities around the world now have exchanges that trade domestic and international stocks. The world’s largest exchange based on the market value of the shares traded is the NYSE. The NYSE’s market cap exceeds that of Tokyo, London, and the Nasdaq combined.

"As global economies have grown, so have markets dedicated to exchanging securities..."

As global economies have grown, so have markets dedicated to exchanging securities and over time, as world economies merge, so have some of their exchanges. The industry has undergone several rounds of mergers as exchanges have made the transition to electronic trading.

This consolidation has provided for a broader geographical reach, attracting a diverse range of investors and issuers. It has led to enhanced technology, greater efficiency and competitive positioning.  The NYSE is itself a subsidiary of a larger company, Intercontinental Exchange (ICE). ICE started as a platform for trading energy and power, but expanded by acquisition and Nasdaq, the second largest exchange by market cap globally, is the result of a number of mergers. As the economy becomes increasingly global, more exchanges are expected to come together.

Types of exchanges

Exchanges themselves are evolving. There are several types of exchanges around the world that facilitate the trading of financial instruments, either with physical locations, like the NYSE, or completely electronic, like the Nasdaq stock market.

The most common and well-known type of asset exchanges are exchanges where equities and equity linked securities are traded, for example the NYSE, the LSE and the Tokyo Stock Exchange.

"The evolution of stock exchanges from simple gatherings of merchants to complex digital marketplaces has been a cornerstone of global economic development."

Commodity Exchanges tend to trade mainly in agricultural products and other raw materials (like wheat, barley, sugar, cotton, cocoa, coffee, oil, and metals). Trading includes various types of derivatives contracts based on these commodities, such as forwards, futures and options. The Chicago Mercantile Exchange is one of the largest of these types of exchanges.

Derivatives exchanges specialise in trading futures, options, and other derivative instruments, often integrated with commodity or stock exchanges. The London Metals Exchange is a good example.

Cryptocurrency is now a USD1.50 trillion asset class and there is estimated to be over 600 crypto exchanges worldwide. These exchanges allow investors to buy, sell and exchange cryptocurrencies such as Bitcoin, Ethereum and Litecoin through an online trading platform. In addition to providing a platform to buy and sell digital currencies and tokens, many crypto exchanges offer additional crypto investment features, such as lending, and digital asset custody.

Public and private markets

At The International Stock Exchange (TISE) we operate an exchange to facilitate both the public and private markets. The public market, which is well established, specialises on debt listings and within that category TISE is well known for high yield bonds, securitisations and private equity acquisition linked listings for major companies globally. There are a number of REITs, investment companies and trading companies also listed. The Exchange has two separate listing rule books for bonds and equities, which ensure a pragmatic approach it is taken to both asset classes.

In terms of TISE’s own evolution, to operate alongside the public market, last year we launched TISE Private Markets. This is an offering for private companies who wish to manage their shareholder base on an efficient, electronic platform for registry management, auction trading and transaction settlement. It is an exciting new offering which is innovative among stock exchanges globally and is attracting significant international interest. Such innovation keeps TISE at the forefront of stock exchange development on the international stage.

"Stock exchanges are vital to the functioning of the economy, providing essential services that support capital formation, liquidity, price discovery and corporate governance."

Stock exchanges are vital to the functioning of the economy, providing essential services that support capital formation, liquidity, price discovery and corporate governance. They act as an economic indicator for the economy by facilitating trade and disseminating information. Stock market indices, such as the S&P 500 and FTSE 100, serve as barometers of economic health. They provide insights into investor sentiment and economic trends, influencing monetary and fiscal policies.

The evolution of stock exchanges from simple gatherings of merchants to complex digital marketplaces has been a cornerstone of global economic development. As the financial landscape continues to evolve, stock exchanges will remain vital to economic stability and growth.

An original version of this article was published in the Jersey Evening Post, June 2024