The Buttonwood Agreement — That Established A Grand Future For Stock Trading
It is miraculous how small actions can define the course of the future and rarely do we stop to ponder over and appreciate them. Today I want to stop you for a few minutes in your day and tell you about one such historical event, that hopefully you could tell your family or friends over the dinner table tonight and catch their attention and awe.
Ambitious Voyages Were The First Public Investments
Humans have always been opportunity seekers and risk-takers. For the same reason, we have admired great explorers like Marco Polo, Christopher Columbus, James Cook and others for their immense courage to sail away into unknown seas in search of new lands. In a time without the high-precision devices to tell about location and weather, the risk of loosing lives at sea was real. Imagine sailing off in rickety wooden ships braving monstrous waves and bad weather. Also there was the risk of coming across pirates at sea, fighting whom you could loose not only your ships but also the wealth it was carrying. However, all the risk was worth it when a new promising land was found at the end of a voyage. New-found lands in the east like India, Sri Lanka and those in South East Asia like Cambodia, Vietnam and more would become sources of riches (spices, cash crops, jewels etc.) for future voyages to take back home and sell.
However, making such voyages in the future were not any less risky. If the ship could return back safely, it would bring great wealths along with it, but the risks and costs of such voyages were too much for a single sailor to bear. This led to the sailors and ship owners to raise money from people willing to invest in each voyage, with the promise that they would share the wealth that the ship brought back home, but also with a significant risk that the ship might be lost at sea and never return. This way the sailors distributed the risk to multiple investors while raising significant capital for each voyage.
The Crude Stock Trading On The Streets
Fast forward to the 1700s, when the general public had started investing in almost every other promising venture across Europe and America, from construction of public infrastructure like rail-roads to steal and manufacturing businesses.
The American society and its businesses kept growing at a tremendous pace, and the investment markets kept fuelling it with more public money. One special market based in a small colonial outpost in the east of America, was at the helm of these investments — ‘Wall Street’. It was a small lane in the city of New York where the Dutch Settlement had raised a wall to protect against Native Americans, and the British. Investment and stock trading then were completely different from what we see today. Brokers, buyers and sellers would literally gather on Wall Street and trade shares in companies. Imagine a street bustling with the sound of brokers shouting at the top of their voices to make deals with other brokers willing to buy or sell at lucrative prices, intermingled with the noise of horse-carts and carriages transporting people and goods.
This free market soon started getting out of hand, when the market became full of brokers much like street peddlers and the trades became less trustworthy. People started using unfair and illegitimate practices in trading to make profits for themselves. This significant source of the country’s economy started to loose reputation and began to be associated with gambling and notoriety.
24 Brokers And A Document
The turning point arrived in 1792, when a small group of 24 brokers on Wall Street decided to sign a small agreement under which they could deal only with each other and took no less than a quarter percent commission on each transaction. The agreement was signed under a buttonwood tree thus being called the ‘Buttonwood Agreement’.
Who could have thought that this small agreement would shape the course of stock trading in such a way that it would lead to the world’s largest stock exchange with a market capitalisation of US$ 19.3 trillion today, known as The New York Stock Exchange (NYSE). The agreement helped eliminate bad agents in the business who were not allowed to be member brokers of the organisation. People could transact their shares in the New York Stock Exchange only if they hired one of the 24 member brokers to do the trade for them, also the brokers agreed to trade only the most reputed stocks. The brokers would meet inside a coffee-house where one central auctioneer would execute the transactions one by one.
Over the course of time when the NYSE got its own building, it allowed more reputed brokerage firms to become members and an official trading floor came into existence, where brokers from those member firms would deal with each other face to face. Today the U.S.A and the rest of the world rely heavily on the capital raised in the stock markets for progress and innovation, and has regained the trust of the public. The trading of stocks has become a skilled and reputable career and has brought livelihood to millions of people. The NYSE leads as a strong example for other stock exchanges around the world and leaves thousands of students and professionals with serious aspirations of making it big on Wall Street.
The course of the world could have been completely different had the Buttonwood Agreement not been signed.
If you enjoyed this journey into the history lanes, I request you to give it your thumbs up by clicking the ‘heart’ button below and I’d be more than glad if you end up having that dinner table conversation with your family tonight. :)
If you want to increase your understanding of the stock markets, check out this Searchtrack guide I created — The Basics of Stock Markets And Trading.
