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Produced and published by the School of Historical & Philosophical Studies, The University of Melbourne
Published July 2008
Published July 2008
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Melbourne's stock exchange is the premier financial institution in the city. Its role in providing capital to industry and government, and providing a market for a wide variety of shares and debt instruments, is far more important now than when the Melbourne Brokers' Association was formed in 1859. That small group of individuals traded in speculative mining stock and a thin list of 'industrials'. It was a raw and immature market whose horizons were limited to the colony of Victoria.
The stock exchange is a market place whose size and functions have changed over time. Rather like a crab that finds a series of new homes in larger shells, the exchange has moved house many times around the western end of Collins Street. There was little demand for the services of a stock exchange to raise capital in the mid-nineteenth century as most businesses were sole proprietors or partnerships and as colonial governments, who were voracious borrowers, looked to the world's premier capital market, London. The existence of the market owed much to the gold-mining industry. However, putting up capital to prove new mines was a risky business. By the 1870s legislation was passed to introduce a new class of share, no liability, which allowed investors to cut their losses rather than continue to pay calls to fund a shaft with no payable ore. While this new form of share increased the attractiveness of mining shares, the exchange remained a place for the speculator rather than the rentier. Furthermore, the strength of business in gold stocks gave rise to exchanges in provincial cities such as Ballarat and Bendigo, which challenged the position of the Melbourne exchange. The handful of brokers operating in Melbourne traded in rented space in the Hall of Commerce from 1865 until 1880 and elsewhere in the city until the newly established Stock Exchange of Melbourne (1884) moved into its own building at 380 Collins Street in 1891.
This move signalled a series of decisive changes in the size, functions and status of Melbourne's stock exchange. First it signalled an end to the quarrels that had divided the industry for decades. The new body formalised a set of practices governing the behaviour of brokers, listing requirements and trading procedures that were to last largely unchanged for a century. Second the scale of business done on the Melbourne exchange rose considerably in the 1880s as many companies sought to tap into the influx of British capital that underpinned the rise of Marvellous Melbourne. It outdistanced its smaller rivals. The spectacular development of the Broken Hill mines boosted the market, while much of the non-mining business also had a distinctively speculative air. In this giddy market the activities of some brokers were not above reproach. The subsequent depression opened up new opportunities for the exchange as the Victorian Government and State bodies such as the Melbourne and Metropolitan Board of Works, having lost favour in the London market, raised large sums locally. The market eschewed speculative stocks in favour of solid 'bluechip' investments and government securities. Massive borrowing by the federal government during World War I tilted the balance of new issues and trading towards fixed-interest business.
The character of the exchange did not alter in a decisive fashion until the late 1960s. While the volume of business rose and fell with the economy, and underwriting services were pioneered by J.B. Were & Son and Ian Potter, the exchange continued to operate much as it had in the 1880s. The building at 380 Collins Street became too small, so larger premises were acquired at 422 Little Collins Street in 1924. However, it could not accommodate the growth of the market during the post-World War II boom. Fortuitously, the new exchange at 351 Collins opened in 1968, when the wild mining boom was placing acute pressure on exchanges to cope with a vastly increased level of trading. The installation of computers was a portent of the revolution that was to come in the 1980s and 1990s, when computerised trading replaced the old floor system. Unhappy with the operation of exchanges during the boom, the federal government imposed its rules for the industry in 1981, overturning more than a century of self-regulation. Other old ways were brought undone by government competition policies that outlawed fixed commissions and the exclusion of companies from operating as brokers. Corporations, often subsidiaries of banks and insurance firms, now handle 99% of transactions. The last remaining partnerships were surrendered when William Noall & Son became part of Tolhurst Noall Ltd in 2001 and Weres disappeared into Goldman Sachs JB Were in 2003. During this period of radical change - in which the Stock Exchange of Melbourne was absorbed in 1987 into a new national body, the Australian Stock Exchange (ASX) - the exchange moved yet again. Its home since 1992 is at 530 Collins Street, Melbourne. The character of the exchange has altered dramatically with its demutualisation in 1996. Once owned by its members, the ASX is now a company whose own shares are traded on its screens.