The concept of the stock market as we know it today goes
back many centuries.  Simple stock markets started in medieval
Italy.  Modern versions started first in Amsterdam in the 17th
century and then in London in the 18th century.

The name is somewhat misleading since stocks are not the
only instruments traded on the stock market; bonds, warrants, and
even financial futures are routinely traded.  However, stocks
have the lion’s share in term of trade volume.

To the layperson the stock market exists to raise capital;
the truth is that it does so only to a very limited extent.
Between 1982 and early 1996, U.S. nonfinancial corporations
retired over $700 billion more in stock than they issued, thanks
to takeovers and buybacks.  Most of the daily trading is of
existing shares.  Nevertheless, the trading of existing shares
represents an important activity; for instance, chronically low
stock price for a corporation can be an invitation to a takeover.

Even after a total review of our financial system, and a
replacement of the floating price of shares, I believe that the
stock market will still have an important role to play.  We will
still need the stock market to trade bonds, other instruments,
and existing stocks.  But the stock market of the future may be
quite different from the present one.

Sources

1) How to Read and Understand the Financial News
Gerald Warfield
Harper and Row, Publishers, Inc.
New York
1986

2) Wall Street, How It Works and for Whom
Doug Henwood
Verso
New York
1997

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