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About fifty years later, the East India Company needed capital to expand its trading operations. They too, sought to attract investors by spreading the risk of loss . But instead of selling shares in a single voyage or expedition, they decided to sell shares in the company itself . That way, investors were, in effect, investing in several voyages over a long period of time. The value of their investment was tied to the performance of the company as whole, not to the outcome of a single ship or expedition. This arrangement, known as a joint stock company, is the forerunner of the modern corporation . In 1602, The Dutch East India Company took this capital raising scheme to a new level when it listed its stock on the Amsterdam Securities Exchange for sale to the public . There you have it: the birth of the stock market and very first IPO. (Recall that IPO stands for Initial Public Offering, which is the process by which a corporation first offers its stock for sale to the public.) Who Put the Wall in Wall Street? Fast forward (and westward) to the New World. Dutch colonists settled on the lower end of Manhattan Island in the 1600‘s, dubbing it New Amsterdam. It was little more than muddy woods and streams, but they soon built up a few shops and businesses to serve ships that travelled the along the Hudson and East Rivers. At the time, the Dutch were at war with the British. The settlers had also managed to raise the ire of the local native population. In 1653, worried about attacks, they built a defensive wall across a part of the southern tip of the island to protect their settlement. In a stunning display of originality, they named the street near the wall Wall Street . We all know that the British eventually occupied Manhattan – until they were evicted in that little event called The American Revolution. For several years after the Revolution, the financial center of America remained in Philadelphia. In fact, there was a stock exchange there. Gradually, financial power shifted to New York, which had become the center of trade and business in the new nation. As in the days of New Amsterdam, shops and businesses were still located in the area near Wall and Water Streets . In 1792, the area’s merchants, business owners, and stockbrokers decided to organize a local exchange to buy and sell securities. Naturally, they selected a building convenient to their businesses, which happened to be on Wall Street. Such was the founding the New York Stock Exchange (NYSE) . The NYSE was (and still is) nicknamed The Big Board in reference to the large wooden board where stock listings and sales activities were originally posted. Wall Street is the center of global commerce and capitalism . How a Company Sells Shares Through a Stock Exchange Let’s revisit the IPO. The IPO is the means by which a private corporation “goes public,” meaning it is allowed to sell its stock for sale to the general public to raise capital. IPOs are a long and complicated process, but here’s a quick run down: Once a board of directors approves the decision to take the corporation public, the corporation registers with the Securities Exchange Commission (SEC) , the U.S. government commission that oversees the securities markets and IPOs. There are extensive rules, regulations, and financial disclosures – not to mention a massive amount of paperwork to go public. Publicly-traded companies must file financial disclosures with the SEC on a regular basis. Its shares and financial affairs are public. The corporation applies to be a member of a stock exchange . Once membership is approved, the corporation is assigned a stock symbol which is an abbreviation identifying the stock in the stock market , and the company is permitted to list its shares for sale to the public on that exchange. A stock symbol is also called a ticker symbol . SLIDE 14K PRODUCT PREVIEW
Lesson 14 | Who Put the Wall in Wall Street? 264
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