Stock certificates are a legal document that represents ownership of stock in a corporation. A certificate confirms the number of shares owned and the corresponding participation of a company. The first share certificates were created in the early 17th century as a way to bring together many investors in one project. Essentially the first corporations, stock certificates were given to investors who put their money into the investment capital of the group. Many of the early experimental companies were created with the goal of using investment capital to build bridges and roads. With the growth of financial markets, the privileges and rights granted to certificate holders have changed over the years.
The Dutch East India Company is the first instance where share certificates were issued and used to represent ownership in the company. In 1602, the Estates General of the Netherlands issued a royal charter to found the Dutch East India Company. The Dutch East India Company issued paper to its investors in 1606. Investors in the Dutch East India Company were issued paper certificates as proof of their share ownership. This is the first recorded instance of share certificates being issued to investors. Investors were able to trade their shares on the original Amsterdam stock exchange, another breakthrough in the history of financial markets.
After the revolutionary invention of the Dutch East India Company, the stock certificate as a currency for stock ownership began to grow. By the end of the 18th century, stock certificate trading as a means of exchanging company ownership was growing exponentially. At that time, three types of certificates were used: bonds, which were certificates representing investments in public debt; bank shares; and company shares. In 1792, the New York Stock Exchange was created to meet the high demand by investors for a centralized trading venue. NYSE brought greater price transparency and liquidity to investors.
The growth of financial markets from this time has been widely documented. The New York Stock Exchange has grown from a local stock exchange under a tree to the largest financial trading floor in the world. Billions are exchanged every day. The growth of the stock markets was a byproduct of the industrialization of the United States. Railroad companies issued stock certificates that were in huge demand in the 1830s. This catapulted stock market activities center stage in American life. The financial industry beginning in the 1830s would shape America’s innovation and entrepreneurship.
Despite America’s economic expansion, the stock certificate was a national symbol. It symbolized for the United States their common achievement in creating a better place. Very often, the certificates themselves had and still have eagles and flags printed on them. With the exponential growth of the American economy, all industries have benefited from investors’ capital investment through invention, such as: the aerospace industry, the mining industry, the railway industry, the telecommunications industry, among so many others. Paper stock certificates are now a rare sight in brokers’ offices, a lesser and lesser invention. Its replacement is electronic alternatives that represent the ownership of shares that offer greater convenience, ease and profitability than their paper counterparts.
Despite its demise, interest in paper certificates remains considerable. Scripophilia, the hobby of collecting old certificates, has grown in recent years. Today, paper stocks are considered both historically valuable and collectible, but are more often than not inconvenient in modern times. It is quite evident that the stock certificate was a great innovation and has influenced the financial markets and the world in many ways.