The Corner

The first formal U.S. stock exchange was formed in 1791 in Philadelphia, then the nation’s capital. But in May 1792, under the shade of a Buttonwood tree in New York City, two dozen men established a trading agreement that would evolve into first the New York Stock and Exchange Board (Exchange) and eventually the New York Stock Exchange (NYSE).

Public trading of commodities like tobacco, sugar and wheat had been going on for more than 40 years before the men reached their agreement. But organized trading in the securities of corporations was still in its infancy. At first, the Buttonwood Group, which wanted to conduct business in private, traded largely in bonds. Laws against stock auctions put unwanted constraints on public trading, prompting the men to form a private group. By 1800, the principal stocks traded were those of banks.

Trading in securities increased during the early 1800s, particularly in 1812, when the U.S. government increased its borrowings to finance the war with Great Britain. In 1817, the exchange took the name the New York Stock and Exchange Board. At this time, shares of businesses were rarely bought and sold because few companies had promising outlooks. But that would soon change with the dawn of the railroad age.

Mohawk & Hudson Railroad, which had not yet laid a foot of track, was the first railroad to list its stock on the Exchange — others would soon follow. And by 1829, trading of several thousand shares a day was not unusual. By 1857, volume averaged more than 75,000 shares a day. In 1863 the Exchange was renamed NYSE. The NYSE established its first permanent facility in 1865. By 1868, NYSE had 533 members, firms or individuals permitted to trade.

Despite, the rapid growth in trading, NYSE continued to limit membership. Would-be brokers excluded from the NYSE opened competing markets to vie for investors’ money. As recently as 1900, more than 100 stock exchanges operated throughout the U.S. Eventually regional exchanges would operate in Philadelphia, Los Angeles, San Francisco, the Midwest, Boston and elsewhere. In 1953 the American Stock Exchange (AMEX) was born out of the New York Curb Exchange which had its roots in the New York Curb Market Agency formed in 1908. This international exchange traded both American and foreign securities.

Over time, however, the NYSE, earned the respect and confidence of the investing public and came to be the world’s dominant and most respected market for securities trading. But that reputation suffered during the Great Crash of October 1929. The Senate Committee on Banking and Currency found that stock manipulation and fraud were among the causes of the crash. To restore faith in the markets, the Securities Exchange Act was passed in 1934.

After World War II, NYSE and AMEX dominated securities trading. In 1945, the bigger, more established companies traded on the New York exchange, the smaller, speculative issues were listed on the American.

By the mid-1970s, however, the over-the-counter market, today known as the NASDAQ Stock Market, began to successfully attract and trade the shares of many smaller, growing companies that were selling stock to the public for the first time.

Things really heated up in 2005 when the NYSE announced its plans to merge with Archipelago. This deal would reorganize NYSE as a public company and give it access to the electronic trading systems that came with Archipelago. The new name of the holding company became NYSE Group. Shortly thereafter NYSE Group completed a merger with Euronext to form NYSE Euronext. This would become the first transatlantic stock exchange, with operations in the U.S., Amsterdam, Belgium, France, Netherlands, Portugal and the United Kingdom.

NYSE remains the home of some of the nation’s largest companies, including IBM, GE and GM. The AMEX was purchased by NYSE Euronext in 2008. And in December of last year NYSE Euronext and IntercontinentalExchange (ICE), announced that ICE would buy NYSE Euronext in a stock swap to be completed later this year. The new company will have dual headquarters in Atlanta and New York.

Regulation to create more competition has created a U.S. trading environment that operates in a multi-platform and fragmented environment – which has created a higher degree of opaqueness — not always serving the best interest of investors. All the while that NYSE struggles to enhance transparency, price discovery and accountability — right their on the corner of 11 Wall.

Quote of the Week: “The greatest discovery of my generation is that human beings can alter their lives by altering their attitudes.” — William James

Bart Ward is the chief executive officer of Ward & Co. Ltd., an Anoka-based registered investment adviser – specializing in the management of stock and bond portfolios in companies which are listed on the NYSE.

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