e in the City of London.
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.
The First Bank of the United States was chartered in 1791, and the shares in this bank sparked additional securities trading in the United States. Securities trading now began to assume and importance that caused New York City securities traders to demand a facility of their own (similar to the Philadelphia Stock Exchange), where they could escape the near monopoly of the auctioneers. The outcome of this demand was the Buttonwood Tree Agreement in 1792 that created the New York Stock Exchange. The agreement provided that securities brokers would deal only with one another (excluding the...