A Very Short History of Securities: From Stocks and Futures to Ultra Liquid Digital Market

A Very Short History of Securities: From Stocks and Futures to Ultra Liquid Digital Market

Technological progress has been the main source of disruption in the financial markets. The changes in the financial markets were occurring from the standpoint of the functions carried out by the financial instruments, as well as their accessibility to the general public. The latter has become one of the key conditions for the present liquidity in the markets.

Dutch stock traders make the first move

Although the local-level stock exchanges have traces of origin as early as the 1100s, they are associated with the agricultural debt management in France. These markets were operating as the primary markets using secondary levels primarily as the platform for re-selling debt. The real financial revolution of securities dates back to the 17th century with the Amsterdam Stock Exchange in the Netherlands that became the first global securities markets.

It was a time when the East India Company had become the first publicly-traded company in the form of the Governor and Company of Merchants of London trading with the East Indies. The investors were mitigating the risks associated with the investments in long-distance commercial sailing. The Dutch East India Company had issued its shares on the Amsterdam Stock Exchange in 1602. However, the lack of transparency and frequent stock market crashes even led to bans of share issues by the London Stock Exchange in 1801.

British bonds expand the financial markets

Surety bond was the first type of bond traced back to 2 400 BC. The first bond existed in the form of the stone tablet with the carved information on it. Similar to the modern bonds, it cited principal and interest. The bond included the names of the witnesses pressed into the tablet. The payment currency was grain, namely corn during the period of the first bond.

The further utilization of bonds was popular for funding wars, including the 1100s in Venice. The government agreement bond dates back to 1693, issued by the Bank of England for funding war against France. The U.S. government started issuing bonds to fund revolutionary wars, as the U.S. Treasury issued its first bond in 1917. The U.S. bonds were offering 3.4 percent following the Great Depression of 1929. The modern bond markets are global in nature with the regulatory requirements limiting risks accepted by the companies purchasing bonds.

Derivatives create even more opportunities

The history of the derivative contracts goes back to 8 000 BC in Sumer. The contracts implied promises to deliver the particular crop at a specific date and price. Historians call the Dōjima Rice Exchange the first official futures exchange market where samurai — who received payments in rice — exchanged it for a stable coin in future. While it was established in 1697 in Japan, the first standardized exchange-traded derivative appeared at the Chicago Board of Trade (CBOE) in 1864.

The four main types of derivative contracts are forwards, futures, options, and swaps. The derivative contracts add specific conditions to the transactions, commonly related to the prices. The first futures contracts helped to trade agricultural commodities, and later futures contracts were negotiated for natural resources such as oil. Financial futures as an asset class launched in 1972.

Full cycle on repeat

Securities markets in particular play several key roles in the modern economy, as their advancement has accelerated in the past decade. The markets commonly operate on two levels, namely the primary level and the secondary level. The primary level entails the initial issues of the securities. The secondary level allows trading with the subsequent purchases and sales. The secondary markets consist of the organized exchanges and the over-the-counter exchanges.

The inception of the New York Stock Exchange (NYSE) in 1817 has become the start of the modern-day securities markets. It didn’t face competition until the NASDAQ appearance in 1971. The modern stage of the securities markets undergoes transformation with the introduction of the Digital Securities Offering (DSO), and Securer being a vivid example of the adoption of this approach. These new advancements are more likely to remove the third parties, namely brokers, from the trading process.

In particular, individual traders will be able to access the markets through their devices, including PCs and smartphones without the need of the brokerage services. It started with the issuing of securities and will continue into bond markets and equity markets with the logical evolvement of the DSO-based derivatives. Such a step is possible because of the unprecedented levels of safety offered by the blockchain technology. It will also grant higher levels of liquidity in the markets simply because of the larger number of individuals participating in the trading process.