Events Leading to the Creation of the Securities
Investment Protection Act, and the Environment
The events leading to the enactment of the Securities Investment Protection Act of 1970, began with the creation of stock exchanges in the United States. Informal trading in the shares of limited liability companies began in the American Colonies around 1725, five years after the South Sea Bubble. This trading grew out of an auction market that had developed at the foot of Wall Street in New York City. The auction market dealt extensively in commodities, particularly wheat and tobacco. The trading of financial securities was slowly introduced into the auction market.
Informal securities trading in the American Colonies continued to grow at a steady pace. Trading in financial securities was stimulated to a significant extent, however, in 1790, subsequent to the American Revolution. In 1790, Alexander Hamilton, as Secretary of the Treasury, in the post Constitution government of the United States, recommended that the new federal government fund all Revolutionary War bonds issued both by the Continental Congress and the governments of the 13 colonies.
The Hamilton proposal ignited intense speculation in the Revolutionary bonds, and, in 1790, the first stock exchange in the United States, the Philadelphia Stock Exchange, was established. With the birth of the Philadelphia exchange, the first formal stock market in the United States was created. Most of the early trading on the Philadelphia exchange involved Revolutionary War bonds.
Hamilton secured Congressional approval for federal funding of the bonds issued by the Continental Congress, but was initially denied approval for funding of the bonds issued by the 13 colonies. A deal was struck between Hamilton and Thomas Jefferson, the leading opponent of federal funding of the bonds issued by the colonies, which ensured federal funding for the war bonds issued by the col...