What is the New York Stock Exchange?
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Wall Street is the home of the New York Stock Exchange. CREDIT: SeanPavonePhoto / Shutterstock.com |
The New York Stock Exchange, often referred to as NYSE and "The Big Board," is the largest stock exchange by market capitalization in the world. (The NASDAQ has a greater trading volume.) Home to more than 2,800 companies with a combined value of more than $15 trillion, the NYSE relies on face-to-face trades, rather than electronic trades.
History of the NYSE
The NYSE began in 1792, when 24 stockbrokers gathered under a buttonwood tree on Wall Street to sign an agreement that established the rules for buying and selling bonds and shares of companies. This agreement, or the Buttonwood Agreement, was named after the tree.
In the beginning, NYSE traded five securities in New York City, including the Bank of New York. The first constitution was drafted in 1817 and the organization was named the New York Stock & Exchange Board. Its name was shortened to its modern form in 1863.
In 1934, the NYSE registered as a national securities exchange with the U.S. Securities and Exchange Commission. The Governing Committee reigned over the NYSE until 1938, when the exchange hired its first paid president and created a 33-member board of governors. Incorporated in 1971 as a not-for-profit corporation, the members voted to replace the board of governors with a 25-member board of directors the next year. The board included 12 representatives, a chairman, and a CEO representing public interest, and 12 representatives from the securities industry. When the electronic stock exchange Archipelago merged with the NYSE in 2005, the NYSE became a for-profit organization.
In 2007, the NYSE Group merged with Euronext, forming the first transatlantic stock exchange, or NYSE Euronext. The next year, NYSE Euronext acquired the American Stock Exchange and led to the rebranding of the exchange as the NYSE Amex Equities.
Like other stock exchanges and financial entities, history played a major role in the development of the NYSE. The NYSE has had to close its doors a few times, including the beginning of the First World War and after the September 11, 2001, terrorist attacks. Other important dates in the NYSE's timeline:
- After the War of 1812, the market for securities began to grow exponentially. This growth led to the trade of government bonds, bank, and insurance stocks in 1815.
- The Industrial Revolution brought railroads to the forefront of the American economy, increasing trade and transportation while also bringing a number of immigrants from all over the globe to the United States. Beginning in 1830, when the first railroad stock was traded on the NYSE, railroad securities dominated trade for the rest of the century.
- The Great Fire of 1835, which destroyed more than 700 buildings in downtown New York including the NYS&EB building, forced the exchange to find temporary space until it could be rebuilt.
- The Panic of 1837 dropped the average daily volume from 7,393 to 1,534 in just six months.
- The stock market crashed on Black Thursday, Oct. 24, 1929, and resulted in a sell-off panic that started on Black Tuesday, October 29. These events are often blamed for precipitating the Great Depression.
- When America entered WWII, the price of NYSE membership fell to $17,000, the lowest price in the 20th century.
- In 1967, a group led by Abbie Hoffman, a political and social activist, threw wads of money from the Exchange's gallery. Some traders booed, but some scooped up the cash. The NYSE later enclosed the gallery with bulletproof glass.
- The Dow Jones Industrial Average dropped 508 points, a 22 percent loss, on Oct. 19, 1987. NYSE officials halted trading for the day, the first time they invoked the "circuit breaker" rule. Trading now stops for an hour, two hours or the rest of the day if the Dow drops 10, 20, or 30 percent.
Architecture of the Historic Building
As trading tripled between 1896 and 1899, then doubled by 1901, it became clear that the organization would need a new building to reflect its success. The NYSE invited eight of New York City's leading architects to compete to design the new facility. They wanted a trading floor with more space, light, and convenience for the transaction of business.
George B. Post's neoclassic design won the competition, and the new NYSE building at 18 Broad Street opened in 1903. The main façade of the building features a marble pediment by John Quincy Adams Ward, titled "Integrity Protecting the Works of Man." In 1978, the building was listed as a National Historic Landmark and added to the National Register of Historic Places.
One of the largest open spaces in the city at the time, the trading floor measures more than 15,000 square feet and the marble walls rise 72 feet to the gilded ornate ceiling. The ceiling offers a 30-by-30-foot skylight and meets the floor-to-ceiling window walls, where two sides of the building are made from glass. The NYSE building was also one of the first facilities in the world to use air conditioning.
Top-notch technology for its time was used to keep members connected — more than 24 miles of wiring were installed to run annunciator boards on each end wall of the trading floor. The building also offered amenities like dining rooms and even an emergency hospital. A familiar feature of the NYSE is the trading floor bell, which rings at the beginning and the ending of trading each business day.
Members only
The NYSE was a membership-only organization from 1868 to 2006. The coveted memberships could only be acquired by purchasing one of the existing 1,366 seats. When the NYSE went electronic and public in 2006, the requirements changed.
Today, to be listed on the NYSE, a company must have more than 2,200 shareholders with an average daily trading volume of at least 100,000 shares. The company must offer a total capitalization of $750 million or pretax earnings that total more than $10 million. There are other combinations that are considered for membership, but essentially, a company needs to be large and/or profitable to make it onto the NYSE.