Encyclopedia of Greater Philadelphia

Arthur S. Guarino

Philadelphia Board of Trade

Philadelphia’s Board of Trade worked for more than a century to promote commercial development in the city and the region while also arbitrating disputes among its member businesses. Formed in 1833, the board filled unmet needs for economic development and became the largest organization of its type in the nation.

The original concept for the organization had its roots in England during the colonial period. From 1675 until 1696, the Lords of Trade, also known as the Lords of Trade and Plantations, watched over the affairs of the American colonies. In 1696, King William III (1650-1702) replaced the Lords of Trade with eight paid commissioners tasked to promote trade for the American colonies and its plantations. These commissioners became the Board of Trade, acting as an advisory body overseeing the American colonies. The board did not have executive or legislative authority, but it represented the British government in making policy for the American colonies. In addition to assuring that laws passed by the colonies’ legislatures benefited British trade policies, the board nominated governors for the colonies, recommended laws to the British Parliament that affected the colonies, and listened to colonialists’ complaints regarding the actions of its administrators.

[caption id="attachment_19024" align="alignright" width="300"]A picture of the Merchant's Exchange building, an example of Greek Revival architecture. The Merchant's Exchange was an early home of the Philadelphia Board of Trade. (Library of Congress)[/caption]

Philadelphia’s Board of Trade also followed American precedents, such as the New York Chamber of Commerce, which began operating by 1768 to promote business development and settle commercial disagreements. In Philadelphia, the Board of Trade formed as a counterweight to the Chamber of Commerce. Created in 1801, the Philadelphia Chamber of Commerce focused on encouraging shipping and arbitrating commercial disputes among its members, not on promoting the city’s general economic development. The chamber limited membership to ship owners, exporters, and importers, and marine insurance brokers. In 1824, notable individuals from Philadelphia also formed the Pennsylvania Society for the Promotion of Internal Improvements in the Commonwealth to develop a system of state-run canals and railroads from Philadelphia to Pittsburgh. Although the society succeeded in creating a complex and costly system of intertwined canals and railroads, New York had already developed the Erie Canal and its parallel rail system. Philadelphia experienced another economic setback in 1832 when the Second Bank of the United States, headquartered in the city, failed to be rechartered.

[caption id="attachment_19023" align="alignright" width="278"]A portrait of John Welsh, longtime president of the Philadelphia Board of Trade John Welsh served as the President of the Philadelphia Board of Trade between 1866 and 1881. (Library of Congress)[/caption]

The Philadelphia Board of Trade, created by local merchants in 1833 to combat the restrictions imposed by the old Chamber of Commerce, sought to keep pace with the growing port cities of New York and Baltimore by developing and promoting Philadelphia’s economic infrastructure and financial future. The board began with 220 members, more than three times the membership of the city’s Chamber of Commerce. Less than thirty years later, after merging with the city’s early Chamber of Commerce in 1845 to better represent commercial and industrial interests, the Board of Trade had 730 members. By 1869 it reported 1,433 members. Its phenomenal growth enhanced the city’s credibility as an economic and financial rival to New York City and Baltimore. By the middle of the nineteenth century, the Board of Trade had become the largest such organization in the United States, so popular that it led to the creation of the National Board of Trade in 1869. A key figure in the growth of the Philadelphia organization was John Welsh (1805-86), who served as its president from 1866 until 1886 and as president of the Board of Finance for the 1876 Centennial Exhibition.

Over the decades, the consolidated Board of Trade facilitated commercial development in Philadelphia and arbitrated disputes between its members. The board helped, so far as it could, with improving the channels of the Delaware and Schuylkill Rivers, expanding and bettering the city’s harbor facilities and traffic control, recording the value of foreign imports into Philadelphia, and advancing the interests of the business community. Annual statistical surveys tracking the city’s economic growth and trends in industrial development became a key service. These annual reports gave business owners, leaders, and policymakers documentation of Philadelphia’s economic growth and the diversity of its industries and businesses. This eventually put pressure on the federal government to improve its own record-keeping, collection of economic and financial statistics, and the methodology of the U.S. Census.

[caption id="attachment_18997" align="alignright" width="300"]A map prepared by the Philadelphia Board of Trade in 1862. (Historical Society of  Pennsylvania) The Philadelphia Board of Trade produced this map in 1862 to educate its members about the South. Click to enlarge. (Historical Society of Pennsylvania)[/caption]

The reports also demonstrated that the Board of Trade’s interest in expanding its membership beyond local merchants to the greater Philadelphia business community. Philadelphia’s economy consisted chiefly of small businesses employing relatively modest numbers of workers. But it also had large industrial firms that produced a diversity of products such as carpeting, hardware and tools, furniture and interior decorations, boots and shoes, railroad cars, and chemicals, just to name few. Some were truly large employers, such as the Baldwin Locomotive Works at Broad and Spring Garden Streets, which had nearly 3,000 workers prior to the Panic of 1873. Statistics gathered by the Board of Trade showed that Philadelphia’s manufacturing output reached an estimated $500 million around 1870, its peak year in production. In 1875, the clothing industry produced more than $24 million in manufactured goods; iron manufacturing had production valued at more than $41 million; and exports of refined oil from Philadelphia reached 55 million gallons valued at over $14 million.

[caption id="attachment_19025" align="alignright" width="300"]Members of the Philadelphia Chamber of Commerce at the White House to meet with Presdient Coolidge. Members of the Philadelphia Chamber of Commerce, the organization that replaced the Philadelphia Board of Trade in the early twentieth century, visit the White House to meet with President Coolidge. (Historical Society of Pennsylvania)[/caption]

A second Chamber of Commerce formed in 1891, which again divided Philadelphia’s efforts to encourage economic and financial growth. The new chamber surpassed the Board of Trade as the city’s leading organization for businesses, publishing a twice-monthly economic bulletin that reached 6,800 members in 1920. In 1942 the Board of Trade disappeared after merging with this second chamber. The latter organization expanded its scope regionally in 1958 to become the Greater Philadelphia Chamber of Commerce.

In 1982 the Philadelphia Stock Exchange, on its own authority, revived the board’s name, if not its functions, by creating an in-house venue for trading currency and other futures called the Philadelphia Board of Trade. This quite successful subsidiary’s operations were folded into the exchange known as PHLX after NASDAQ purchased a controlling interest through a 2007 agreement. A key nineteenth-century institution for gathering economic data and harmonizing diverse business interests, Philadelphia’s Board of Trade found itself superseded by the Philadelphia Chamber of Commerce in the early twentieth century, then was absorbed by it, reappearing just briefly in a sharply-different context before vanishing entirely.

Arthur S. Guarino is Assistant Professor of Finance at the Rutgers University Business School teaching courses in Financial Institutions and Markets, Corporate Finance, Financial Statement Analysis, and Financial Management. He has published articles dealing with economic history and the role of finance and economics in public policy.

Philadelphia Stock Exchange

The Philadelphia Stock Exchange played an influential role in America’s financial and economic development. It helped the fledgling nation raise funds to develop infrastructure for a growing industrial base and new commercial banks and insurance companies. The Exchange is the nation’s oldest, founded two years before the New York Stock Exchange, and third-oldest globally, after the Amsterdam Exchange (1602) and Paris Bourse (1724). By 2015, it operated at the forefront of new technology accelerating accurate trading, providing better prices, and introducing new financial products.

[caption id="attachment_14256" align="alignright" width="300"]merchants-exchange-600 In 1831, wealthy entrepreneur Stephen Girard (1750-1831) created the Philadelphia Merchants' Exchange Company with the intention of building a new financial center. Constructed between 1832 and 1834, the Merchants' Exchange Building is now a preserved Philadelphia landmark. (Visit Philadelphia)[/caption]

The exchange originated in 1746 when Mayor James Hamilton (c. 1740-83) donated £150 in startup funds. Others followed his lead, but the funds went into constructing a new city hall. In 1754 Robert Morris (1734-1806) and local businessmen raised £348 to open the London Coffee House, which attracted merchants, slave traders, and enterprise owners.

The Coffee House raised funds to help General George Washington fight the Revolutionary War. When the British occupied Philadelphia, the City Tavern replaced it as the business epicenter. The City Tavern, later named the Merchants Coffee House, became Philadelphia’s exchange.

As securities trading activity grew, investors established the Philadelphia Board of Brokers (1790), later becoming part of the exchange, focusing on government and semigovernment financial instruments, such as bonds, notes, and bills. In 1796, a more-restrictive exchange debuted, setting an entrance fee for brokers. This exchange raised money for necessary public works projects, including the Philadelphia and Lancaster Turnpike Company, America’s first turnpike, and the Lancaster and Susquehanna Turnpike. The exchange also handled bank and insurance stocks, permitting firms to acquire needed financial capital. These included The First Bank of the United States, the Pennsylvania Bank, and the Philadelphia Bank, as well as The Pennsylvania Company for Insurance on Lives and Granted Annuities, and The Insurance Company of North America.

When the War of 1812 disrupted American trade, the exchange helped the federal government raise capital for defense, and after 1815 became an important conduit for financial capital moving from Europe into America. Using these funds for construction, canals such as the Erie, the Chesapeake and Delaware, and the Susquehanna and Juniata helped extend the transportation grid. Soon, the exchange needed new facilities. In 1831, Philadelphia’s Stephen Girard (1750-1831) started the Philadelphia Merchants' Exchange Company to build a new financial center. The Board of Brokers relocated there in 1834 after a fire at the Merchants Coffee House.

Even though the exchange’s securities activity grew, financial problems eventually erupted. Total debt for American infrastructure soared, yielding bond defaults by the issuing states and capital flight to Europe. Hammered by the Second Bank charter crisis President Andrew Jackson set in motion, the American economy collapsed in 1837. Only in the 1840s did the growth of railways spur the exchange’s recovery, featuring capital raised for the Pennsylvania Railroad, the Philadelphia Railway, and the Reading Railway. Meanwhile, Philadelphia’s first streetcar line, the Frankford and Southwark, proved so successful that investors funded fourteen other companies.

In addition, a new technology, the telegraph, helped securities trading intensify. Starting in 1846, telegraphy allowed investors quick access to stock quotes, news, and confirmed transactions helping to level the trading field. Within a decade, the exchange began issuing daily transaction reports; the Philadelphia Local Telegraph’s stock tickers arrived in 1873, providing real-time data. Three years earlier, Philadelphia’s exchange pioneered a clearinghouse system, facilitating the accurate settlement of securities sales, purchases, and deliveries. This permitted larger transactions and increased volume for the exchange, but with growth came more problems, notably repeated national panics and depressions. Surviving these, the exchange closed for four months in 1914 because of World War I market turmoil. It also closed during the 1933 Bank Holiday declared by President Franklin D. Roosevelt. Nonetheless, the exchange thrived.

Following World War II, the exchange grew through mergers, first in 1949 with the Baltimore Exchange and in 1953 with the Washington (D.C.) Exchange. Acquisition of the Pittsburgh, Boston, and Montreal exchanges led to a new trading base called the Philadelphia-Baltimore-Washington Stock Exchange (PBW). In December 1968, the City of Philadelphia faced a fiscal crisis, resulting in a 5-cent-per-share stock-transfer tax imposed on every transaction. In reply, the exchange relocated its trading floor to Bala Cynwyd, just outside Philadelphia’s border. Three months later, a state court voided the tax and the exchange returned to Philadelphia.

In 1975, the exchange initiated electronic trading. The Philadelphia Automated Communication and Execution System computers interacted to provide instantaneous execution of security orders and more accurate price quotes than elsewhere. Furthermore, in the same year the exchange started listing stock options, the first regional exchange doing so. In 1976, its Board of Governors restored its original name, the Philadelphia Stock Exchange.

In April 1988, its Automated Options Market electronically delivered orders from member firms to the floor of the exchange and provided electronic confirmation of their execution. Exchange-traded currency options, introduced in 1982, yielded trading volumes eventually reaching $4 billion daily. Consequently, the exchange initiated evening trading sessions and, later, around-the-clock transactions.

The introduction of Sector Index Options in the 1990s, consisting of indexes such as the Gold/Silver Sector (XAU), KBW Bank Index (BKX), Utility Sector (UTY), and Insurance Index (KIX), allowed investors to use options trading for diverse industries and commodities. Further innovation occurred in the twenty-first century, as the exchange initiated Exchange Traded Funds (ETFs), combining the structure of a mutual fund with the possibility of transacting during the market day, not after its close. The exchange grew even more through the creation of UCOM (United Currency Options Market), which was the first financial market offering currency options customized for use in an exchange, including choice of exercise price, and expiration dates of up to two years.

In 2003, the exchange’s members voted to reorganize as a for-profit corporation, a major shift. This allowed it to become the first floor-based stock exchange converting from a member-owned institution to a shareholder-owned, for-profit corporation. This step led firms such as Citigroup, Credit Suisse, Morgan Stanley, and others to acquire nearly a 90 percent interest by 2005. The purchase allowed them a hedge against the increasing concentration of trading at the New York Stock Exchange and NASDAQ. In a major move in 2006, the exchange halted the traditional floor trading that started in 1790.

A year later, NASDAQ OMX purchased the exchange for $652 million in order to diversify by acquiring an options platform. This resulted in its becoming the largest electronic stock market, listing over 3,000 firms, and the third largest options market domestically. In 2014, the exchange handled approximately 14 percent of derivative trades in the United States, chiefly stock, currency, and index options, using an advanced trading system that set new technological standards.

Arthur S. Guarino is an Assistant Finance Professor at the Rutgers University Business School teaching courses in Financial Institutions and Markets, Corporate Finance, Financial Statement Analysis, and Financial Management. He has published articles dealing with economic history and the role of finance and economics in public policy.

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