Markets. Russia during the wars

Markets. Russia during the wars

Until the middle of the 19th century, all Russian exchanges remained only for commodities. They were used mainly for transactions of goods, ship insurance, and less often, transactions with bills of exchange and foreign currency were made. Exchange sessions were attended by persons belonging to the merchant class. It is notable that a significant proportion of the bidders were of foreign origin. The structure of the exchange in Russia in the 18th – the first half of the 19th century can be defined as a closed merchant corporation or an institution of brokers.

 

The first official exchange in Russia was established by Peter I in St. Petersburg, almost simultaneously with the founding of the new capital. He planned to establish similar exchanges in other large merchant cities of the country, but for almost the entire 18th century, the St. Petersburg Stock Exchange remained the only one in Russia. The second Russian stock exchange was in Arkhangelsk, founded in 1789. Not earlier than 1796, the third stock exchange appeared in Odessa, and in1816 – the fourth in Warsaw. The fifth in a row was the stock exchange in Moscow, which opened in 1837.

There were more than 100 exchanges in total.

 

In the second half of the XIX century significant changes began to occur, first on the St. Petersburg Stock Exchange, then on other stock exchanges of the country. In addition to increased turnover of goods, freight, bills and currency, transactions of state and private securities became a new phenomenon.

There was an opportunity for a more profitable investment of money in addition to state-owned banks. This process was inevitable because of the gradually increasing demand for capital for numerous new industrial, commercial and railway enterprises. The stock exchange, especially  the stock market, was gradually becoming an object of attention for the part of Russian society.

 

This interest either increased or weakened depending on the situation on the securities market and the state of the whole economy. The attitude of society towards the exchange also changed from indifference to cautious curiosity, from prejudice to timid participation, from enthusiastic worship to hatred.

By the way, now the story is the same, the number of brokerage accounts is growing, along with interest in the stock markets.

 

Returning to the topic of war,

On July 15, late at night, after long telephone conversations between the directors of the largest St. Petersburg banks decided to close stock exchange trade sessions  due to the alarming situation in Europe.

In the following days, on July 17 and 18, the international political crisis came to such a threatening state that on July 19 (August 1), 1914, the day Germany declared war on Russia, the Council of the Fund Department decided to close the St. Petersburg Stock Exchange until further notice, and postpone all futures sales. This decision was approved by the Minister of Finance.

 

The closure of the capital’s stock exchange was instantly reflected in all the provincial exchanges. In the absence of an official quotation from St. Petersburg, they were unable to give the real value of most funds and assets. And although the Moscow Exchange remained open those days, the issue of the exchange bulletin was discontinued from July 16. Odessa, Riga, Kharkov’s exchanges formally stopped operations also from July 16, and Warsaw from July 17.

 

The restoration of the work of the unofficial stock exchange in Petrograd, in the form of private sessions, began in the second half of September 1914. Initially there was demand for the 1906’s bonded loan with a greatly reduced price. When it became obvious that there were very few sellers at these low prices and a lot of people wanted to take advantage of the exchange rate drops and purchase the securities, their price started growing rapidly. There was also demand for other papers. By the end of 1914, certain exchange rates had been established for the majority of the assets listed before the war on the St. Petersburg Exchange.

 

Private meetings of stockbrokers took place in the Siberian Trade Bank. The circulation of securities at private meetings was initially extremely limited. Broad sections of the “public” kept detached from exchange transactions. Having suffered significant material damage due to the price of securities drops, the “public” was distrustful of any unofficial exchange news.

 

Although private exchange meetings were not regulated by any charters and legal provisions, their existence was conditioned by the unspoken consent of the Ministry of Finance, which indirectly, through the administration of the Siberian Bank, had some influence on these meetings.

 

In the third year of the war, the Treasury came to the conclusion that the stock market was so strong that it was possible to open a stock exchange, despite the ongoing war. On July 17, 1916, the Government Gazette newspaper reported that on May 13, Russian monarch Nicholas II “granted the Minister of Finance as a temporary … measure” with the right to open the Stock Department of the Petrograd Stock Exchange.

 

During the years of war, the market capacity of the exchange increased significantly, mainly due to the issuance of a number of shares that were sold without any participation of banks. The number of government bonds issued during the closing of the official exchange increased to a huge figure of 8 billion rubles. Before the war, such flooding of the stock market with new securities would undoubtedly lead to serious problems in their placement. But at the end of 1916, this served only as an excuse for increased stock exchange hype.

 

The excitement continued until February 1917. The daily turnover of the Petrograd Stock Exchange reached 75–100 million rubles. Enormous volumes for that time.

Stock chronicles noted a steady increase in all dividend papers and the emergence of “American-sized” transactions, most of which were made in cash. Shares were bought in banks and banking offices in hundreds and thousands of shares, at a price of tens of rubles higher than the last quote,for several million rubles at once.

The result of the exchange market in Russia during the First World War.

Initially, they were obsessed  by general panic. Stock exchanges were closed to avoid speculation. Further, having considered all the threats, the exchange started working again, followed by an unprecedented boom in securities.

Prior to the official opening, exchange transactions were made behind the scenes. At the same time, it was pointed out that the victories of the Russian troops had affected the revival of turnover with securities and an increase in their prices. Again, we see a direct link to the effect of hostilities.

As a result, the market fell on military risks, and then recovered with the influence of speculators and military wins. Those ones earned who had the capital, brains and courage.

 

The Second World War

There were no exchanges in Russia. The economy of the country became more and more centralized and command. At the beginning of 1927, the Council of People’s Commissars and the Council of Labor and Defense limited the work of the exchanges, in fact leaving them only the functions of intermediaries in individual trade transactions. As a result, there were only 14 exchanges remaining by March.

These 14 Soviet exchanges were closed in 1929-1930. The Moscow and Vladivostok sites were the last to stop working. The remnants of regulated market relations were suppressed. The USSR finally switched to a planned distribution economy.

 

Exchanges were revived only in 1990 in Moscow. On April 2, the Russian Commodity and Raw Materials Exchange was established, and on May 19, the Moscow Commodity Exchange. After that, an exchange boom began in the USSR: up to the collapse of the Soviet Union, more than 800 exchanges appeared in the country.

 

I don’t want to you think about markets only from the point of view that you have now due to the facts that we see. I just want you to take a look at the history.