The New York Stock Exchange: Origin and History - Report Example

The New York Stock Exchange: Origin and History. It is money which oils the cogs of capitalism and in the U.S., the bastion of the market economy, it is undisputedly the New York Stock Exchange which symbolizes American capitalism at its’ successful best. The New York Stock Exchange has a hoary tradition of over three centuries, which makes for fascinating study. Its’ establishment, location, function and evolution over the years all contribute to making this landmark on Wall Street a unique American icon. New York City was the scene of securities transactions as early as 1725. In 1790, the Federal Government issued $ 80 million in bonds, in order to refinance federal and state Revolutionary War debt. This first major issue of publicly traded securities marked the birth of the U.S. investment market (NYSE Euronext web site). By1792, securities, along with wheat, tobacco and slaves, were bought and sold at an open auction market located at the foot of Wall Street, which was a road running alongside a stockade wall designed to protect Dutch settlers from the British and Indians. Organized meeting of stock brokers were held beneath an old cottonwood tree at 12 noon on all weekdays, dealing with speculation in Revolutionary War bonds and First Bank of the U.S. stocks. By the end of 1792, in an attempt to break the monopoly of the security auctioneers, twenty-four prominent brokers and merchants signed an agreement to avoid public auctions, to deal exclusively with each other and to operate on a minimal commission of a quarter %. This was the culmination of a number of covert meetings at the Corres Hotel and constituted the renowned ‘Cottonwood Agreement’ which marked the birth of the New York Stock Exchange. The NYSE thus originated as “a mechanism for handling the first issue of government securities (and) became the standard of the country” (Myers, qtd. in National Registry of Historical Places Inventory, Nomination form). In 1793, the brokers established their headquarters at the Tontine Coffee House, although pavement meeting continued to be the norm. Following the acceleration in stock trade after the War of 1812, the New York brokers adopted a written constitution, along the lines of Philadelphia’s board of brokers, and the name ‘New York Stock and Exchange Board.’ By establishing a formal organization, conforming to rules of conduct and banning ‘wash sales’: fraudulent transactions which manipulated the market, security trading was finally systematized. Fueled by the Erie Canal and Railroads securities, the Board witnessed rapid growth over the next two decades and became the leading financial center of the nation. By incorporating the telegraph in 1844, the Board consolidated its’ precedence over Philadelphia. The Board’s resilience in the aftermath of the ‘panic of 1857,’ precipitated by the California Gold Rush, raised its’ prestige, making its’ membership “more exclusive, with brokers wearing silk hats and swallowtail coats during business hours and frowning upon the entry of young members” (National Registry of Historical Places Inventory, Pg. 3). The Civil War and the post-war Reconstruction further boosted the volume of speculation and the Board’s growth, with trade hours extending from early morning to late night. In 1863, the Board became the ‘New York Stock Exchange.’ The introduction of the electric stock ticker in 1867 and the telephone in 1878 facilitated trade. The issuing of shares in secret: ‘washing shares,’ was prohibited in 1869. In 1868, membership in the NYSE became a ‘property right,’ and entry was restricted to new applicants buying seats from retiring members. Membership was fixed at 1,100 seats in 1870. Government investigations and criticism of the Exchange’s lax self-regulation and pandering to wealthy financiers led to the passing of the Federal Reserve Act of 1913. The NYSE weathered the vicissitudes of the financial depressions of 1893 and 1907 and World War1 to experience further growth, with stock market speculation becoming the norm and Wall Street establishing itself as the financial capital of the world. On the heels of this boom came the ‘Great Crash’ of 1929, which wiped out security values and heralded the ‘Great Depression.’ October 23, 1929 or ‘Black Thursday,’ was “the most devastating day in the history of the New York Stock Exchange market” (Galbraith qtd. in National Registry of Historical Places Inventory, Pg. 5) and the NYSE continues to be a symbol of that American catastrophe. The Securities Exchange Act of 1933 brought all stock exchanges under extensive government regulation, in order to control irregularities in the securities market. A resurgent NYSE grew from strength to strength, reaching a share volume of four million shares by 1961. The NYSE opened its’ trading floor to women in 1943 and Muriel Siebert became the first woman member in 1967. The trading floor of the NYSE continued to keep pace with technology upgrades, from the radio paging system to the wireless data system. The 1990s saw the listing of non-U.S. companies on the NYSE. The volume of trading exceeded two billion in 2001 and the last sales price of a NYSE membership was $ 4,000,000 in 2005, before the NYSE’s subsequent transformation into a publicly held company. In 2006, the NYSE and Archipelago Holdings Inc. merged to become the NYSE Group, Inc. and on April 4, 2007, the merger of the NYSE Group Inc. and Euronext N.V. resulted in the formation of NYSE Euronext, consolidating the U.S. and European marketplaces (NYSE Euronext web site). The NYSE shifted from the Tontine Coffee House in 1817 to rented space at several temporary locations, including the Merchant’s Exchange, destroyed in the ‘Great Fire’ of 1835, until 1865, when it moved to its’ permanent location on 18 Broad Street, bounded by Broad Street, Wall Street and Exchange Place. The ten storey building of white Georgia marble in the neo-classical style was designed by George R. Post in 1903. It was rightly acknowledged to be “the best that architectural ingenuity and engineering skill can produce” (NYSE Euronext web site). The six fluted Corinthian columns that make up its’ Wall Street façade support a pediment with statuary by John Q.A. Ward entitled ‘Integrity Protecting the Work of Man,’ which comprises of a twenty-two foot figure of Integrity flanked by Science, Agriculture, Invention, Mining and Industry, as representative of American prosperity. The original statuary was replaced by a lead-coated replica in 1936. The 109 x 140 feet trading floor extends the entire length and width of the building and has a 30 foot square ceiling skylight. The front and rear façade boast glass curtain walls with dimensions of 96 x50 feet within ornamental brass casings. Other renowned features of the building are the vast ‘Annunciator Boards,’ with over twenty-four miles of wiring, used to page members, which were originally electromechanical devices before being digitalized. The brass trading floor bell, measuring twenty-four inches in diameter is another unique feature of the NYSE (NYSE Euronext web site). The NYSE remains one of the worlds’ foremost securities marketplaces. It operates as a not-for-profit corporation, run by a board of directors, with 1,366 members. The board is independent of the floor trading activities. At present, about 3,000 companies, U.S. and foreign, are listed on the Exchange, with a combined market capitalization of $ 15 trillion. Fees on listings and on trading and market data are its’ sources of revenue (Answers.com web site). The NYSE has firmly repositioned itself in today’s world as the optimum combination of the traditional stock exchange and the modern instant electronic communication network. In functional terms, the NYSE consists of an auction floor on which there is a continuous trading of stock. Each company listed on the exchange is allocated one out of twenty specific floor locations called ‘trading posts’. Each trading post manages about four hundred trading positions under an attached ‘specialist.’ Specialists receive, buy and sell orders from the floor ‘brokers,’ handle the actual auction of stocks and are responsible for maintaining a share’s liquidity. Brokers belonging to investment firms trade stocks on behalf of the firm or the firm’s clients. The brokers negotiate the price of the stock to be bought or sold with other floor brokers at the trading posts. Once the price is fixed, the stock is exchanged and the price is updated on terminals across the world. This interaction of specialists and brokers ensures that the investors get competitive prices in accord with prevalent market conditions. (everything2.com web site) All trade is subject to public scrutiny, bolstering the NYSE’s reputation for integrity. Over 3,000 people are engaged in this floor activity. The NYSE figures among the top ten tourist attractions of New York City, with an estimated 700,000 annual visitors (Superior Investor web page). When the NYSE reopened in the aftermath of the World Trade Center bombings, a trader held aloft a placard which defiantly declared, “We’re still here” (BBC News online). This image reinforces the NYSE’s position as an enduring symbol of free enterprise, financial might and indomitable human spirit. Works Cited. Answers.com web site. Company History. New York Stock Exchange, Inc. Accessed on 3 October 2007 from < http://www.answers.com/topic/new-york-stock-exchange-economics?cat-biz-fin > BBC News online. (18 September, 2001) Papers Salute New York Stock Exchange. Accessed on 3 October 2007 from < http://news.bbc.co.uk/1/hi/uk/1549909.stm > New York Stock Exchange Euronext web site (2007). History. Accessed on 3 October 2007 from < http://www.nyse.com/about/history/timeline_chronology_index.html > National Registry of Historical Places Inventory (1965). U.S. Department of the Interior. National Park Service. New York Stock Exchange. Accessed on 3 October 2007 from < http://pdfhost.focus.nps.gov/docs/NHLS/Text/78001877.pdf > Sekicho (2002) New York Stock Exchange. Everything2.com web site. Accessed on 3 October 2007 from < http://everything2.com/index.pl?node=New%20York%20Stock%20Exchange > Superior Investor web page. New York Stock Exchange. Stock Market Forum Investing Company. Accessed on 3 October 2007 from < http://stock-market.superiorinvestor.net/new-york-stock-exchange.html > Read More