The New York Stock Exchange (NYSE) is an American stock exchange on Wall Street in New York City. With a market cap of more than US$16 trillion, the NYSE is the world's largest stock exchange, averaging US$169 billion in daily trading value in 2013. As of 2014, the NYSE (also known as "the Big Board") has a listing of nearly 1,900 companies, 1,500 of which are U.S. companies. The NYSE is owned by IntercontinentalExchange and is regulated by the Securities and Exchange Commission.
History Of The New York Stock Exchange
The NYSE was founded 17 May 1792 when 24 stockbrokers signed the Buttonwood Agreement on Wall Street in New York City. Famously, they met beneath a Buttonwood tree and formed a centralised exchanged for the burgeoning securities market in the United States. The agreement eliminated the need for auctioneers—used frequently for wheat, tobacco and other commodities—and set a commission rate. The organisation made the Tontine Coffee House its headquarters and focused on government bonds.
Twenty-five years later, 8 March 1817, the organisation officially became the New York Stock & Exchange Board, later simplified to the New York Stock Exchange. Throughout the early 1800s, the NYSE expanded beyond government bonds and bank stocks. New York itself soon surpassed Philadelphia as the financial center or the United States.
Advances in telegraphic communication allowed buying and selling through the telegraph, creating a new ease in trading. Membership increased and became more exclusive. By the start of the Civil War, securities, commodities and gold, discovered in California, excited participation in the exchange.
The location changed several times before settling into its present location at 11 Wall Street in 1865. The Neo-Classical building was registered as a Historic Landmark in 1978.
In 1878, telephones were installed, giving investors direct access to brokers on the floor of the exchange. The increased activity made the exchange cap the number of members to 1,060, seats for which required purchase from retiring members.
Between the late 1800s and the end of World War I, the NYSE struggled in the wake of international turmoil. Then the stock market crashed 23 October 1929, causing an 89% drop in share prices. The crash led to heavy regulation by the U.S. government. The NYSE subsequently registered with the United States Securities and Exchange Commission. On 19 October 1987 the Dow Jones Industrial Average dropped 508 points, the biggest crash since 1929.
Technology on the NYSE moved from early ticker tapes to handheld computation devices to its current high-speed transactions.
When a company registers with the NYSE (fundamentally to raise capital), shares of the company's stocks become available for public trading. Traders wanting to invest in the stock market can buy and sell stocks online through exchange companies. Trading takes place on the trading floor through floor brokers and Designated Market Makers. The NYSE assigns Designated Market Makers to each stock to provide liquidity—the only exchange that requires this assignment.
Opening and closing bells are rung at the start and end of each trading day; the NYSE's hours of operation are Monday through Friday, 9:30 am to 4:00 pm ET. Since the 1870s, market participants have been invited to ring the bell, included CEOs, celebrities and more.
Trading is automated, with the exception of occasional high-priced stocks, making the NYSE the premier hybrid market. Trades execute in less than a second when electronic, while manual trades typically take nine seconds. Likewise, trades run in a continuous auction format. Currently, investors need only find a brokerage who is a member of the NYSE. Through the brokerage, investors buy and sell stocks and other products from quotes provided to the brokerage from the NYSE.
The NYSE holds five regulated markets, including the New York Stock Exchange, Arca, MKT and Amex Options. The NYSE lists medium and large companies, with smaller companies listing on NYSE MKT. On the NYSE, investors can trade several major asset classes: equities, options, exchange-traded funds (NYSE Arca) and bonds (NYSE Bonds).
The NYSE houses several stock market indices: the Dow Jones Industrial Average, the S&P 500, the NYSE Composite, NYSE US 100 Index, the NASDAQ Composite and others.
NYSE Listing Companies
The NYSE is currently the world's largest IPO provider, raising US$55 billion in 2013. Companies listing on the NYSE use a ticker symbol (Apple Inc.: AAPL). Some 20% of the industries represented are from financials—trusts, insurance, and others. Oil and gas, consumer goods and services, healthcare, technology and telecommunications are among other major industries covered by the NYSE.
Major corporations listing on the NYSE include:
- Bank of America
- Ford Motor Co
- Sprint Corp
- General Electric Co
- Twitter Inc.
- Pfizer Inc.
Trading Activity And Controls
As a response to the market crash of October 1987, the NYSE established a circuit breaker system in October 1988, whereby trading is halted temporarily if the prices fall steeply in a short period of time. The system was devised under the recommendation of the federal Brady Commission report, which suggested that rapidly falling prices could intensify panic among investors and cause limit orders to become stale.
The report also suggested that broad price swings could create uncertainty about order execution, which would prompt investors to refrain from trading. The NYSE said that by implementing a pause in trading, "investors are given time to assimilate incoming information and the ability to make informed choices during periods of high market volatility."
Initially, the exchange set the triggers to suspend trading for up to 15 minutes following point declines in the Dow Jones Industrial Average of approximately 10%, 20% and 30%. In 2013, the exchange altered the rule to establish circuit breaker triggers for declines of 7%, 13% and 20% in the S&P 500. Also under the rules modification, if the market declined by 20%, trading is halted for the remainder of the trading session.
Under the influence of the changes implemented at NYSE and other U.S. exchanges, some other exchanges around the globe adopted the system over the years.
Since the establishment of the circuit breaker market protection system, the NYSE has been subject to periods of stress on several occasions.
- October 1989: The prices on the NYSE exchange saw a 6.9% one-day decline following a collapse of the junk bond market.
- October 1997: The Dow Jones fell 7.2%, in response the outbreak of the Asian Financial Crisis.
- September 2001: In the wake of terror attacks in New York on September 11, the NYSE was closed for four trading sessions. It was only the third time since since March 1933 that the exchange was closed for more than one session.
- May 2010: The Dow Jones Industrial Average fell about 10%, its largest intraday percentage drop since the October 19, 1987 decrease, in what was called the "Flash Crash."
- October 2012: The exchange was closed for two days due to Hurricane Sandy. It was the first weather-related multi-day shutdown since 1888.
- July 8, 2015: The exchange halted trading for nearly four hours due to technical issues that were initially suspected to be the result of a cyber-attack. No evidence of a security breach was found.
Membership Organisation And Licensing
After its founding, the membership of the NYSE gradually expanded and by 1868 it was set at a fixed number of 533 "seats." The term came from the fact that, in its early years through around the 1870s, members sat in chairs to trade.
Holding a seat on the NYSE entitled the owner to directly trade stock on the exchange. Because of this privilege, the seats, which were initially sold for a price of US$25, gained value over time and became a commodity in their own right. The most expensive seat ever was sold for US$625,000 in 1928, which on an inflation-adjusted basis was the equivalent of over US$6 million.
In 1878, the number of seats was set at a fixed level of 1,060, though it was raised to 1,366 in 1953. In 2005, the exchange accepted an agreement to merge with Archipelago and become a for-profit, publicly traded company. As part of the deal, seat owners received US$500,000 in cash per seat and 77,000 shares of the newly formed corporation. With the change in the ownership structure, the NYSE now sells one-year licenses to trade directly on the exchange.
In 2015, licenses for floor trading were available for US$50,000 and a license for bond trading is available for US$1,000. Unlike seats, licenses cannot be resold, but they can be transferred during the change of ownership of a company that holds them.
Competition And Mergers
In 1971, NASDAQ National Association of Securities Dealers (NASD), founded its own exchange, NASDAQ, which specialised in electronic trading and eventually became a U.S.-based rival to the NYSE. In 2006 NYSE merged with Archipelago Holdings, forming NYSE Group, Inc.; and the following year, NYSE Group, Inc. merged with Euronext N.V., which manages exchanges in France, Belgium, Amsterdam and Portugal.
Following this merger, NYSE Euronext CEO introduced electronic trading on the NYSE to replace its traditional open outcry system. In 2008, NYSE Euronext acquired the American Stock Exchange, and in 2011, NYSE Euronext was sought for purchase by Deutsche Borse. The latter action, however, was rejected by European regulatory authorities.
In December 2012, NYSE Euronext was acquired by the IntercontinentalExchange, which separated NYSE from Euronext. In 2016, Deutsche Borse proposed to purchase the London Stock Exchange for US$30 billion, making it a potential strong rival for the NYSE in Europe.
Despite facing new rivalries, the NYSE still remains the largest exchange in the world. It represents a market capitalisation greater than the next three largest exchanges (NASDAQ, Tokyo and London) combined.
Influence Of NYSE On The Economy
The NYSE is one of the earliest major world stock exchanges, and it has grown to have significant influence on the U.S. and global economies. As the largest exchange in the U.S. and in the world, the NYSE and its trading are understood to be responsible for the creation, and destruction, of large amounts of financial wealth every hour of every trading day. The rise and fall of share prices on the NYSE affects investor sentiment, encouraging or discouraging investors to spend more or less money in the economy according to gains or losses in their investment portfolios.
The exchange offers companies a significant mechanism to raise capital for their investments, which also injects money directly into the economy and into the creation of jobs. Trading volume on the NYSE in 2015 totaled US$18 trillion, nearly equal to the U.S. gross domestic product and approximately 20% of the gross world product, according to an estimate calculated by the World Bank.
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…