Origins, Trends, and Reversals: 1100–1720
The origins of the modern global securities market lie in medieval Italy where in the city states of Venice, Genoa, and Florence new financial arrangements emerged out of a growing trade between East and West. Advances included such developments as deposit banking, marine insurance, bills of exchange, joint stock companies, and transferable securities. An embryonic market in securities was created that extended beyond any specific location, in response to the financial requirements of both borrowers and investors, and to the need to make and receive payments over long distances. If a particular event can be taken to represent the beginnings of the global securities market it was the forced loan that Venice imposed on its inhabitants in 1171–2. Faced with a desperate need for money due to the exigencies of war, and unable to raise additional amounts from the normal sources of revenue such as taxation, the Venetian authorities extracted what they required from their own wealthy citizens. In return they promised to pay interest on the amount compulsorily borrowed until they were in a position to repay what they owed. These promises, in the form of interest-bearing bonds with no definite repayment date, then acquired a life of their own, being sold by those holders in need of money and bought by others seeking a regular income from their savings. Though initially regarded as of dubious worth, these transferable securities gradually gained acceptance as a secure form of investment that not only paid interest but also could be purchased and sold whenever the necessity for either action arose.
Between 1262 and 1379 Venice never failed to pay the promised interest at 5% per annum. As a result these bonds—known as prestiti—spread widely among long-term investors not only in Venice but also throughout Europe due to the financial network maintained by Italian merchant bankers. Other Italian city states such as Genoa, Florence, and Sienna followed the example of Venice and created debts in the form of interestbearing transferable bonds. In the 1340s, for example, Florence consolidated its outstanding debts into one interest-bearing and negotiable stock. These city states all had wars to finance, which added an element of uncertainty