New York Stock Exchange

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New York Stock Exchange
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The NYSE originated on May 17th, 1972

• 24 stockbrokers signed the Buttonwood Agreement.
• Only 5 stocks were traded
• First called the curb market, because the
  brokers traded securities outside on the street.

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The NYSE is now located in Lower Manhattan, New
York at 11 Wall Street

• It is the largest exchange in the world by market
  capitalization of its listed companies.
• There are approx. 3000 companies listed.
• It is a for profit, publicly traded company.
• Trading occurs Mon-Fri from 930am-4pm
• Firms and individuals must become a member of the
  exchange in order to have the right to trade or
  make markets.
• There are a total of 1,366 seats on the exchange.

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In the early days of the exchange

• A call market system was used where the president
  of the exchange would call out the names of the
  stocks and their prices individually. The brokers
  would yell their bids/asks from their assigned
  chairs. Once a fair price was reached for a
  stock, it was done trading for the day.
• Daily sale prices, quotes, and bid/ask spreads
  were recorded by hand.
• Runners would be sent from investors to the
  exchange floor to relay orders. (Runners had to
  walk) Tracking a Trade

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Major Changes

• Telegraph invented - 1844
• Eliminated need for runners and increased
  allowable distance of investors from actual
  exchange.
• Transatlantic cable completed, linking the NYSE
  to exchanges in Europe. - 1866
• First stock ticker - 1867

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Major Changes

• All shares must be registered at a bank or
  appropriate agency - 1869
• Continuous trading is implemented using
  Specialists - 1871
• First telephone installed
• on exchange floor - 1878
• Increased efficiency takes the
• time of executing a trade from
• 15 minutes to under 60 seconds.

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Increasing trading speed and volume leads to

• Central quote phone system provided instantaneous
  quotes and bid/ask spreads.
• 500 character-a-minute Black Box ticker - 1930

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Increasing trading speed and volume leads to

• Expansions in 1922 and 1928 adding more office
  and trading floor space.
• Horseshoe shaped trading posts.
• Clerks worked on inside of posts while traders
  and specialists took parts in auction outside.

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Creation of Fed and SEC

• Federal Reserve System - 1913
• Securities Exchange Act - 1934
• Created SEC
• Governments reaction to market crash of 1929
• Two main goals
• Provide full disclosure to investors
• Prohibit fraud in connection with the sale of
  securities

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NYSE Growth

• By 1952 6 million Americans owned stock and by
  1961 the average daily trading volume exceeded 4
  million shares.
• 900 character-a-minute ticker replaces Black
  Box

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Automation

• Market Data System fully automates NYSE - 1966
• Newest computer tech integrates ticker system,
  NYSE index, and stock clearing index operation.
• Even with automation the exchange and its member
  firms faced mountains of paperwork.

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DOT and ITS

• Designated Order Turnaround System - 1976
• Electronically handled and routed small orders.
• Allowed orders to bypass a broker and go directly
  to the specialist at a post.

• Intermarket Trading System - 1978
• Implemented to link the NYSE to other U.S.
  exchanges including Boston, Chicago,
  Philadelphia, National, Pacific, Chicago Board
  Options Exchange, and NASDAQ.
• The linkage produced a way for investors to find
  the optimal sale or purchase price for their
  securities.

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Modernization

• Significant upgrades started in 1979
• Electronic ticker boards
• Monitors installed atop trading posts
• Computer automated
• and voiced quotation
• system.
• (One of the first of its kind)

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SuperDOT 250

• Super Designated Order Turnaround System - 1984
• Facilitates the transmission of both market and
  limit orders directly to the trading post.
• Bypassed all barriers to the specialist.
• Used for trades under 100,000 shares with higher
  priority given to orders of 2,100 or less.
• Increase efficiency due to 3/4 of orders sent
  being under 2,100 shares.
• Also handles portfolio and basket trading.

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Technology

• In 1995 the NYSE began using
• Hand-held terminals
• Fiber optic data transmission
• Cellular Communication

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Technology

• Trading volume reached 1 billion in 1997
• Wireless data system allows information to be
  accessed, orders executed, and reports sent from
  anywhere on the floor.
• NYSE Direct provides automatic execution of
  limit orders - 2000

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Today

• A Hybrid Market is in place that facilitates an
  automated electronic trading platform and a
  traditional floor broker system.
• All stocks can be traded electronically, but
  floor brokers have the choice of trading them the
  traditional way.
• Electronic trades take less than one second,
  while the average broker trade takes around 9
  seconds.

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Exchange Floor Personnel

• Specialists are now known as Designated Market
  Makers.
• Floor brokers now use information and algorithmic
  tools with minimal market impact.
• The newest edition is the Supplementary Liquidity
  Providers who are in place to stimulate fluid
  trading and provide liquidity to the market.

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The Specialist

• The specialist has been essential to trading at
  the NYSE since the position was created in 1872.
• May not only act as a broker/agent, but also as
  the principal or dealer
• They are the market makers for the stocks that
  are designated to their posts.
• Specialists are charged with finding a fair price
  for each stock they represent at the beginning of
  every trading day.

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The Specialist

• In order to facilitate efficient trading and keep
  the market in equilibrium it is sometimes
  necessary for them to hold an inventory of stock.
• This is not common due to increasing automation.
• Specialists are only in on 1 out of every 10-15
  trades
• Without specialists markets for certain stocks
  could stop functioning properly due to trade
  imbalances and inefficient price equilibriums.

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Conclusion

• Even though average daily trading volume is
  increasing less floor space is required due to
  automation and electronic trading.
• Specialists, traders, and brokers are now more
  concerned about markets running smoothly and
  efficiently then they are with specific trades.
• Activities and positions have been given new
  names and instruments, but the underlying steps
  and players have stayed relatively the same.