New York Stock Exchange

The New York Stock Exchange (NYSE) , also nicknamed the "Big Board", is the largest stock exchange in the world by dollar volume and second largest by number of companies listed. Its share volume was exceeded by that of NASDAQ (historic comparison graph - PDF) during the 1990s, but the total market capitalization of companies listed on the NYSE is five times that of companies listed on NASDAQ. The New York Stock Exchange has a global capitalization of $21 trillion, including $7.1 trillion in non-U.S. companies.

The NYSE is operated by NYSE Group, which was formed by merger with the fully electronic stock exchange Archipelago Holdings. The New York Stock Exchange trading floor is located at 11 Wall St., and is comprised of five rooms used for the facilitation of trading. The main building is located at 18 Broad Street, between the corners of Wall Street, and Exchange Pl., in New York City. The building is listed on the National Register of Historic Places.

Business

The NYSE trades in a continuous auction format. There is one specific location on the trading floor where each listed stock trades. Exchange members interested in buying and selling a particular stock on behalf of investors gather around the appropriate post where a specialist broker, who is employed by a NYSE member firm (that is, he/she is not an employee of the New York Stock Exchange), acts as an auctioneer in an open outcry auction market environment to bring buyers and sellers together and to manage the actual auction. They do on occasion facilitate the trades by committing their own capital (approximately 10% of the time) and as a matter of course disseminate information to the crowd that helps to bring buyers and sellers together. Most of the time natural buyers and sellers meet in a market that provides efficient price discovery in an auction environment that is designed to produce the fairest price for both parties. The human interaction and expert judgment as to order execution differentiates the NYSE from fully electronic markets. However, in excess of 50% of all order flow is now delivered to the floor electronically. Recent proposals have been made to adopt a Hybrid market structure combining elements of open outcry and electronic markets. The frenzied commotion of men and women in colored smocks has been captured in several movies, including Wall Street. Its main index, the Dow Jones Industrial Average, started life on October 1,1928. It hit a peak on January 14, 2000 of 11,722,98. Since September 30, 1985 its trading hours have been 09:30 - 16:00 EST. The right to directly trade shares on the exchange is conferred upon owners of the 1366 "seats". The term comes from the fact that up until the 1870s NYSE members sat in chairs to trade; this system was removed long ago. In 1868, the number of seats was fixed at 533 and this number was increased several times over the years. In 1953, the exchange stopped at 1366 seats. These seats are a sought-after commodity as they confer the ability to directly trade stock on the NYSE. Seat prices have varied widely over the years, generally falling during recessions and rising during economic expansions. The most expensive seat was sold in 1929 for $625,000 which is over six million in today's dollars. In recent times, seats have sold for as high as $4 million in the late 1990s and $1 million in 2001. In 2005, seat prices shot up to $3.25 million as the exchange was set to merge with Archipelago and become a for-profit, publicly-traded company. Seat owners received $3.5 million cash per seat in the deal, and the NYSE now sells one-year licenses to trade directly on the exchange.

History

The origin of the NYSE can be traced to May 17, 1792 when the Buttonwood Agreement was signed by twenty-four stock brokers outside of 68 Wall Street in New York under a buttonwood tree. On March 8, 1817 the organization drafted a constitution and renamed itself the "New York Stock & Exchange Board". This name was shortened to its current form in 1863. Anthony Stockholm was elected the Exchange's first president.

The Exchange was closed shortly after the beginning of World War I (July 1914), but it was re-opened on November 28 of that year in order to help the war effort by trading bonds.

On September 16, 1920, a bomb exploded outside the NYSE building on Wall Street in a terrorist attack, killing 33 people and injuring more than 400. The perpetrators were never found. The NYSE building and some buildings nearby, such as the JP Morgan building, still have marks on their facades caused by the bombing.

The Black Thursday crash of the Exchange on October 24, 1929 and the sell-off panic which started on Black Tuesday, October 29, are often blamed for precipitating the Great Depression. In an effort to try to restore investor confidence, the Exchange unveiled a fifteen-point program aimed to upgrade protection for the investing public on October 31, 1938.

On October 1, 1934, the exchange was registered as a national securities exchange with the U.S. Securities and Exchange Commission, with a president and a thirty-three member board. On February 18, 1971 the not-for-profit corporation was formed, and the number of board members was reduced to twenty-five.

On August 24, 1967; Abbie Hoffman led a group opposed to capitalism (and other things, including the Vietnam War) in the gallery of the New York Stock Exchange. The protestors threw fistfuls of (mostly fake) dollar bills down to the traders below, who began to scramble frantically to grab the money, as fast as they could. Hoffman claimed to be pointing out that, metaphorically, that's what NYSE traders "were already doing". The NYSE then installed barriers in the gallery, to prevent this kind of protest from interfering with trading again.

On October 19, 1987, the Dow Jones Industrial Average fell 22.6%, one of the largest one-day declines in recorded stock market history. It has been dubbed "Black Monday."

Following a 554.26 point drop in the Dow Jones Industrial Average (DJIA) on October 27, 1997, officials at the Exchange for the first time invoked the "circuit breaker" rule to stop trading. This was a very controversial move and prompted a quick change in the rule; trading now halts for an hour, two hours, or the rest of the day when the DJIA drops 10, 20, or 30 percent, respectively. In the afternoon, the 10 and 20% drops will halt trading for a shorter period of time, but a 30% drop will always close the exchange for the day. The rationale behind the trading halt was to give investors a chance to cool off and reevaluate their positions (see the October 27, 1997 mini-crash).

The first central location of the NYSE was a room rented for $200 a month at 40 Wall Street in 1817.

The NYSE was closed from September 11 until September 17, 2001 as a result of the September 11, 2001 attacks.

On September 17, 2003, NYSE chairman and chief executive Richard Grasso stepped down as a result of controversy concerning the size of his deferred compensation package. He was replaced as CEO by John Thain, the former President of Goldman Sachs Group Inc.

On April 21, 2005, the NYSE announced its plans to acquire Archipelago, in a deal that is intended to bring the NYSE public.

On December 6, 2005, the NYSE's governing board voted to acquire rival Archipelago and become a for-profit, public company. It began trading under the name NYSE Group on March 8, 2006.

Marsh Carter is the Chairman of the New York Stock Exchange, succeeding John S. Reed. John Thain is the CEO of the NYSE and Catherine Kinney is the President of the NYSE.

External links

Articles

All Business: The conflicted roles in NYSE merger
''Move Over, Adam Smith: The Visible Hand of Uncle Sam Report concludes that the U.S. government surreptitiously intervenes in the American stock market

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