Taking Stock: Historians and Canada's Securities Markets and Exchanges

Most Canadians normally pay little attention to the daily gyrations of stock markets; however, markets rudely intruded into our consciousness in mid-2008 when index values plummeted by over 40%. As many of us painfully witnessed the rapid contraction of our mutual funds and pensions, and saw planned retirements quickly recede from view, we learned a forceful lesson: our financial prospects are intimately enmeshed with market fortunes. Statistics Canada reported in 2007 that "Pensions, investment funds and equities account for 76% of household financial assets of $3.7 trillion" (Statistics Canada 2007). Evidently, market fortunes affect the lives of huge swaths of our population. It is also clear that stock markets are a critical part of Canada's economy. Before the global credit crisis that began in 2007, the nation's two stock exchanges—the Toronto and the Venture exchanges¹—recorded an aggregate trading volume of over 149 billion shares. The value of these shares was over $1.7 trillion. About 3,951 corporations were listed on the exchanges with a combined capitalization value of $2.2 trillion, fully 157% of Canada's annual gross domestic product (GDP) (TSX Group 2007). Stock markets matter, and they matter in ways we never really understood.

The financial pain and panic of the credit crash elicited important questions: How had stock markets become so vast and so powerful that, within months, they could vaporize, or at least seriously damage, our personal wealth, fortunes, and retirement prospects? Where and when did these powerful market institutions originate? Does this history help us to understand the recent market crash and its lethal fallout for Canadians? Naturally, I expected that historians would provide the answers to these questions. To my surprise I discovered that they have shown scant interest in the history of our stock markets.² Indeed, over two decades ago, in his massive history of Canadian business entitled Northern Enterprise: Five Centuries of Canadian Business, Michael Bliss concluded, "The history on all non-bank financial institutions in Canada is very weak [and that] on stock exchanges and brokerage and investment houses is even worse" (1987, 601). Little has changed since then.³ This investigation summarizes what we know about the history of our stock market institutions, reveals the gaping holes that still need to be filled in order to explain their role in our lives today, and identifies the dangers of a short collective memory about our financial history.

Markets and Exchange Origins

Edward Neufeld, in The Financial System of Canada: Its Growth and Development (1972, chap. 14), located the origins of Canada's securities markets and formal exchanges⁴ in the mid-nineteenth century. He informs us that before such markets could develop, several preconditions had to be met. These included the appearance of transferable debt instruments and stock certificates that represented part ownership in joint stock companies, brokers or intermediaries who traded these securities, and sufficient demand to create a market for them. He charts how debt instruments—treasury bills, bonds, and debentures—grew rapidly after 1820 when colonial and municipal governments used them to raise funds for militia pensions and infrastructure, such as wharfs, roads, canals, and railways. Banks, such as the Bank of Montreal (est. 1817), the Bank of Upper Canada (est. 1821), and the Bank of Nova Scotia (est. 1832), along with some wealthy individuals, were the major purchasers of these securities. Banks also issued stock or shares, followed later by mortgage loan companies and industrial and manufacturing concerns. Shares of incorporated companies were slow to appear, since the Joint Stock Companies Act that permitted limited liability did not become law until 1850. Moreover, large, incorporated industrial concerns only emerged later in the nineteenth century.

After describing these market preconditions, Neufeld then surveys the early formation of exchanges in Montreal and Toronto where securities could be bought and sold in centralized locations. In Montreal, brokers began to meet regularly in 1832. A Board of Stock and Produce Brokers was formed in 1842. The Board of Brokers, formed in 1863, began keeping minutes; it was later chartered under Quebec law in 1874. Neufeld...