THE HISTORY OF SHORT SELLING

Short selling has been around since the 1600’s and it has always had good and bad opinions even from the beginning. In various examples throughout history, it has been labeled as a primary reason in large market declines.

WHO ARE THE BEST KNOWN SHORT SELLERS IN STOCK MARKET HISTORY?

There are theories that said that the practice of short selling was invented by Dutch trader Isaac Le Maire, a big shareholder of the Vereenigde Oostindische Compagnie in 1609. In 1602 he invested about 85,000 guilders in the Vereenigde Oostindische Compagni (VOC) and by 1609, the VOC still was not paying dividend, and Le Maire's ships on the Baltic routes were under constant threats of attack by English ships due to trading conflicts between the British and the VOC. Because he thought that eventually British ships will destroy some of the ships, there would be losses for Vereenigde Oostindische Compagnie, and as a result stock price will go down. So what he does? Le Maire decide to start another company with a few other people and front run the Vereenigde Oostindische Compagnie! He sold his shares and sold even more than he had. That moment, when he sold something (shares) he didn't owned, is a moment when short selling was invented. All this led to the first real stock exchange regulations, a ban on short selling.

In the 18th century, England banned short selling. The London banking house of Neal, James, Fordyce and Down collapsed in June 1772, leading the fall of other banks and finally leading to banking crisis which included the collapse of almost every private bank in Scotland. The bank had been speculating by shorting East India Company stock on a massive scale, and using customer deposits to cover losses.

The term "short" was in use from nineteenth century. It is commonly understood that "short" is used because the short seller was short ie. need shares to cover his position with his brokerage house. Jacob Little, known as "The Great Bear of Wall Street", was famous for shorting stocks in the United States in the early to mid 1800’s. (The picture above is the original certificate signed by himself). Another short seller, the great Jessie Livermore was the one who was blamed for the crash of 1929, because of his well known reputation.

SHORT SELLING REGULATIONS IN HISTORY OF THE US:

In Wall Street Crash of 1929, short sellers were blamed for it. After the crash,  SEC banned short sellers from selling shares during a downtick, and "uptick rule" was created. This means that a short sale order can only be filled after someone bought that same stock and their order caused an uptick when purchased at the Ask price. Some people believe that the uptick rule prevent stocks from dropping so fast and others believe the stocks would have gone down anyhow. This was in force until July 3, 2007 when it was removed. Legislation in 1940 banned mutual funds from short selling, until 1997, when this law was lifted. In 1949, Alfred W. Jones founded a fund that bought stocks while selling other stocks short, ie hedge market risk by using a combination of owning shares, using various stock option strategies and shorting the stock at the same time. This is how the hedge fund was born.

In September 2008 short selling, and naked short selling was seen as a contributing factor to undesirable market volatility, and it was prohibited by the SEC for around 800 financial companies for three weeks time.

WHO MADE THE HIGHEST AMOUNT OF MONEY IS A SINGLE SHORT SALE TRANSACTION?

In Black Wednesday of 1992, George Soros became became notorious for "breaking the Bank of England", when he sold short more than $10 billion worth of British pounds.

History Of The London Stock Exchange:

The London Stock Exchange, or LSE, is one of the world's oldest stock exchanges, with a rich history dating back to 1698. The exchange began its life in the coffee houses of 17th century London, when John Castaing began issuing "at this Office in Jonathan's Coffee-house" a list of stock and commodity prices called "The Course of the Exchange and other things."

The London Stock Exchange history is proof that from something small, a huge giant can be built. It can trace its history back more than 300 years. Starting life in the coffee houses of 17th century London, the Exchange quickly grew to become the City’s most important financial institution.


Important Years In History Of The London Stock Exchange:

1698 - John Castaing begins to issue 'at this Office in Jonathan’s Coffee-house' a list of stock and commodity prices called 'The Course of the Exchange and other things'. It is the earliest evidence of organised trading in marketable securities in London.

1698 - Stock dealers are expelled from the Royal Exchange for rowdiness and start to operate in the streets and coffee houses nearby, in particular in Jonathan’s Coffee House in Change Alley.

1720 - The wave of speculative fever known as the South Sea Bubble bursts. Details of this can be found in many investment books - especially those related to investor or crowd psychology. It makes for an instructive and entertaining read!! Without doubt, this has to be one of the most interesting times in London Stock Exchange history.

1761 - A group of 150 stock brokers and jobbers form a club at Jonathan's to buy and sell shares.

1773 - The brokers erect their own building in Sweeting’s Alley, with a dealing room on the ground floor and a coffee room above. The members soon name it the 'The Stock Exchange'.

1801 - On 3 March, the business reopens under a formal membership basis. On this date, the first regulated exchange comes into existence in London, and the modern Stock Exchange is born.

1812 - The first codified rule book is created.

1836 - The first regional exchanges open in Manchester and Liverpool.

1854 - The Stock Exchange is rebuilt.

1876 - A new Deed of Settlement for the Stock Exchange comes into force.

1914 - The Great War means the Exchange market is closed from the end of July until the new year.

1923 - The Exchange receives its own Coat of Arms, with the motto 'Dictum Meum Pactum' (My Word is My Bond). For many decades, this phrase summed up the code of those working on or in the exchange. 

1939 - The start of World War Two. The Exchange is closed for 6 days and reopens on 7 September. The floor of the House closes for only one more day, in 1945 due to damage from a V2 rocket – trading then continues in the basement.


London Stock Exchange In Modern History:

1972 - Her Majesty the Queen opens the Exchange's new 26-storey office block.

1973 - First female members admitted to the market.

1986 - Deregulation of the market, known as 'Big Bang': Ownership of member firms by an outside corporation is allowed. All firms become broker/dealers able to operate in a dual capacity. Minimum scales of commission are abolished. Individual members cease to have voting rights. Trading moves from being conducted face-to-face on a market floor to being performed via computer and telephone from separate dealing rooms. The Exchange becomes a private limited company under the Companies Act 1985.

1991 - The governing Council of the Exchange is replaced with a Board of Directors drawn from the Exchange's executive, customer and user base. The trading name becomes '“The London Stock Exchange'.

1995 - AIM is launched – read about it on other pages of this site.

1997 - SETS (Stock Exchange Electronic Trading Service) is launched to bring greater speed and efficiency to the market. The CREST settlement service is launched.

2000 - Shareholders vote to become a public limited company: London Stock Exchange plc.

2001 - London Stock Exchange plc lists on it's own Main Market in July.

Now let's go and see how trading is done on the London Stock Exchange!

Seats On The New York Stock Exchange

What Is The Seat On The New York Stock Exchange?

A seat on the New York Stock Exchange represent both an equity interest in the Exchange as well as the right to access the trading facilities of the market.

A Membership on the NYSE is traditionally referred to as a 'seat' because in the early year of its existence, Members sat in assigned chairs in the hall where the Exchange’s daily roll call of stocks was conducted.

After a post-Civil War boom in stock trading, the Exchange adopted a system of continuous trading, replacing calls of stocks at set times with simultaneous trading of all listed stocks on a large open trading floor.

The term 'seat' lost its literal meaning with the advent of continuous trading in 1871. Trading was then conducted at trading posts on a large open floor. The seats that the brokers had occupied were gone. Owning or leasing a seat on the Exchange enabled qualified and licensed professionals to buy and sell securities on the floor.

In 1868 the Exchange established a fixed number of Memberships and revised its rules to allow Members to sell their seats. After selling for as little as $4,000 in the late 1860s and early 1870s, Memberships reached $80,000 by the turn of the century, reaching a high of $625,000 during the bull market of 1929 before reaching new highs of over $1 million during the 1980s stock market boom.

In 1990, a seat sold for $250,000. The highest price ever paid for a seat was $4 million on Dec. 1, 2005, followed by several seat sales at the same price.

Since the late 1970s, NYSE Members have been permitted to lease seats and their assigned trading rights to qualified individuals. 

New York Stock Exchange In Modern Times:

At the close of the market on December 30, 2005, member seat sales on the New York Stock Exchange officially ended, in anticipation of the NYSE’s plans to become a publicly traded company by way of merger with Archipelago Holdings Inc.

In 2005, NYSE seat prices have reached an historic high, quadrupling from a low of $975,000 on Jan. 11 to reach a new all-time high of $4 million in early December.That is an increase of 310%! The most recent seat sale, on Dec. 29, was for $3,505,000.

On Wednesday, Jan. 4, 2006, the NYSE conducted a Dutch auction for trading licenses. This gave Members and Member organizations the right to access the trading facilities of the NYSE market.

Until 2006, members could only join by purchasing existing seats, which were limited to a total of 1,366. In April 2006, the NYSE went both electronic and public, by merging with the already publicly traded Archipelago electronic stock exchange. The new merged company is called the NYSE Group, Inc., and the seats of the NYSE translated into shares of stock. 

Now let's go to the London Stock Exchange or LSE, better know as the City of London!

History Of The New York Stock Exchange: 1792-2011

As you can see, the New York Stock Exchange was formed in 1792! To put things in the perspective, while in Europe were Napoleonic wars, in New York city a group of 24 out of 64 traders made an agreement on 17th May 1792 and formed New York Stock & Exchange Board. The agreement was signed under a buttonwood tree. In 1863 the name of the exchange was shortened to "New York Stock Exchange" - the name it still holds today.

As the 20th century dawned, the NYSE was firmly established as one of America’s preeminent financial institutions. Trading in listed stocks had tripled between 1896 and 1899 and would nearly double again by 1901.

More space was clearly needed, the market was expanding. So the Exchange invited eight of New York City’s leading architects to join in a competition to design a grand new building.

The Exchange chose the neoclassic design of architect George B. Post. Today, the Exchange building is considered one of Post’s masterpieces and is a New York City and American national landmark.

Of course, one of the most important events in the New York Stock Exchange history happened in 1929 when the 'Great Depression' and stock market crash occurred. It is a subject about which I have done quite a lot of reading and find fascinating.

 

The Great Depression And The New York Stock Exchange:

Stock prices fell sharply on October 24 1929, Black Thursday, with record volume of nearly 13 million shares. Five days later, the market crashes on volume of over 16 million shares which is a level not to be surpassed for 39 years. On September 3 1929, the Dow Jones Industrial Average reaches its 1929 peak of 381.17.

On October 29, Black Tuesday, prices fall sharply and the stock market crashes. This crash produces a record volume of nearly 16 million shares. The Dow Jones Industrial Average falls more than 11 percent.

Other important facts about members and member firms throughout NYSE history:
-Highest price paid for a membership: $4,000,000 on December 01, 2005
-Lowest price paid for a membership: $2,750 in 1871
-First member firm to incorporate: Woodcock, Hess & Co., Inc., 1953
-First member firm to go public: Donaldson, Lufkin & Jenrette, 1970
-First member firm to be listed on the NYSE: Merrill Lynch, 1971

Until 2006, members could only join by purchasing existing seats, which were limited to a total of 1,366. In April 2006, the NYSE went both electronic and public, by merging with the already publicly traded Archipelago electronic stock exchange. The new merged company is called the NYSE Group, Inc., and the seats of the NYSE translated into shares of stock.

Now let's go and see how the NYSE seat system worked in the Seats On The New York Stock Exchange.