A Trading Guide to the New York Stock Exchange (NYSE)
The NYSE or New York Stock Exchange is located in New York City in the USA, on Wall Street. It is the biggest stock exchange in the world, with an average daily value for trading of around US$169 billion. There are around 2000 companies listed on the Big Board, or NYSE, and out of these, the majority are companies based within the United States. The New York Stock Exchange (NYSE) is under the ownership of IntercontinentalExchange, and it is subject to regulation by the Securities and Exchange Commission.
A History of the NYSE
The origins of the NYSE go all the way back to 1792, when the Buttonwood Agreement was signed in New York City by 24 stockbrokers to eliminate the need to have auctioneers, who were frequently used at the time for tobacco, wheat and several other commodities and who set their own rate of commission. These 24 stockbrokers set up their headquarters in the Tontine Coffee House and made government bonds their primary focus until in 1817 this organisation became known officially as the New York Stock & Exchange Board – a title that later was changed to the New York Stock Exchange. During the early part of the 19th century, the New York Stock Exchange expanded beyond bank stocks and government bonds as New York took over as the United States’ financial hub and trading became easier thanks to the development of telegraphic communication. The membership of the NYSE grew, with gold, commodities and securities driving up participation in the exchange. Although the location of the NYSE changed numerous times, it finally settled into its current location in 1865, and 13 years later, the installation of telephones meant that direct access could be gained to the brokers on the floor, increasing activity still further. A set back faced the NYSE in 1929 when the stock market crash caused a huge drop in share prices of 89%, and this led to the government stepping in with heavy regulation, resulting in the NYSE registering with the United States Securities and Exchange Commission. Today, the NYSE has moved forward in respect of its technology, progressing from ticker tapes to computation devices that were held in the hand, and on again to today’s high speed transactions.
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Trading on the NYSE
Any trader who wishes to invest in a company registered on the NYSE can purchase or sell stocks via the internet through exchange companies. All trading on the trading floor takes place through Designated Market Makers and floor brokers, and bells for closing and opening are rung at the end and beginning of the trading day. The New York Stock Exchange’s trading hours are between 9.30 am and 4 pm ET on Monday to Friday, and many celebrities and well known CEOs have had the honour of ringing the bell. All trading is entirely automated, although some occasional high priced stocks are excluded from this. Manual trades take about 9 seconds to complete, while electronic ones take under a second. There are 5 regulated markets held by the NYSE. These include:
- The New York Stock Exchange
- Amex Options
There are both medium sized and large companies listed on the NYSE, and small companies can find their listing on the NYSE MKT. There is a choice of major asset classes to invest in on the NYSE including options, equities, bonds and exchange traded funds. The NYSE also houses a number of indices, with the best known being the Dow Jones Industrial Average. The others include the S&P 500, the NYSE US 100 Index, the NYSE Composite and the NASDAQ Composite.
Companies Listed on the New York Stock Exchange
The New York Stock Exchange is, at the present time, the largest IPO provider in the world, with about a fifth of all the industries being represented being financials, such as insurance and trusts companies. Other important industries that are covered by the NYSE include telecommunications, technology, healthcare, oil and gas, and consumer goods and services. Some of the best known corporates that list on the exchange include:
- Ford Motor Company
- Bank of America
- General Electric
The NYSE’s Influence on the Economy
As one of the first stock exchanges in the world, the NYSE has grown and developed to have a major influence upon not just the economy of the United States, but also on the global economy. It is not just America’s biggest exchange, but also the biggest exchange in the world, and therefore the New York Stock Exchange, and all trading executed on it, is responsible for both the destruction and creation of vast amounts of money each hour of every single trading day. The way that share prices fall and rise on the exchange has an effect upon investor sentiment, and these movements either encourage or discourage investors all over the world to invest more money, or indeed, less money, in the economy depending upon the losses or gains experienced in their investment portfolios.
Organisation and Licensing of NYSE Membership
After its foundation, NYSE membership grew gradually, and by the year 1866, a fixed number of seats had been set at 533. The term “seats” dates back to the early days of trading in the late 19th century when the members had chairs that they sat in for trading. When a company holds a seat on the New York Stock Exchange, its owner is entitled to trade stock directly on the NYSE. Initially, the privilege of owning a seat was priced at US$25, however over time, each seat gained in value, becoming a commodity in its own right. In 1928, the most expensive seat in history was sold for US$625,000, which today is equal to around US$6 million. The number of seats was increased in 1878 to 1060 and again in 1953 it was raised to 1366. In 2005, the NYSE agreed to a merger with Archipelago and at that time it became a publicly traded for profit company. Due to this change of ownership structure, the New York Stock Exchange now sells licenses of one year each allowing direct trading on the exchange. The current price for one of these floor trading licenses is around US$59,000, and a license cannot be sold, although it is possible to transfer a license should a company change ownership during its validity period.
Other educational materials
- FTSE 100 Index
- Japanese Exchange Group (JPX)
- LSE – London Stock Exchange
- Toronto Stock Exchange (TSX)
Recommended further readings
- Volume, volatility, and New York stock exchange trading halts. Lee, C., Ready, M.J. and Seguin, P.J., 1994. The Journal of Finance, 49(1), pp.183-214.
- The volume of transactions and price changes on the New York Stock Exchange. Crouch, R.L., 1970. Financial Analysts Journal, 26(4), pp.104-109.