History Of The New York Stock Exchange

History Of The New York Stock Exchange

Feature Photo: Javen / Shutterstock

When bringing up the topic of America’s best-known city for commerce, odds are New York City will be the top mention, along with its infamous Wall Street. The reason for this is credited to the New York Stock Exchange as it has served as the primary hub of stock exchange trading practices for many years. With at least thirty trillion dollars’ worth of capital from the number of companies listed within NYSE, the trading floor’s Big Board inside the New York Stock Exchange Building located on the corner of Wall Street and Broad Street, billions of dollars are traded daily as buyers and sellers exercise an auction-style bidding format to try and capitalize on what investors hope to be sure bets as a rising star in the consumer marketplace. When discussing the history of the New York Stock Exchange, one of the first things that come to mind is the infamous stock market crash that occurred in 1929, an event that served as the starting gate to the Great Depression that crippled most of the American population for a time.

There is so much more to NYSE’s story than the rollercoaster ride as market shares are traded back and forth like baseball cards. At the moment, the New York Stock Exchange is owned by Intercontinental Exchange, an American holding company otherwise known on NYSE’s board as ICE. This deal was made in 2007 when NYSE merged with Euronext, a move that would make the New York Stock Exchange the largest stock exchange giant in the industry.

Despite the changes and the modernization of NYSE, it still holds the tradition of starting the day with an audible signal when the clock strikes 9:30 AM in New York City, followed by a 4 PM closing signal. At first, this was done so by a gavel before it was accompanied by a bell. The gavels and the bells are located in their own corner of the four main sections inside the New York Stock Exchange Building. They all go off at the exact same time at their appointed times. There are also two other bells that are used in the building, one serving as a signal for a moment of silence while the other is used to have everyone who hasn’t heard the previous bells stop and pay attention.

In the Beginning

The starting point of the New York Stock Exchange’s history begins with the Buttonwood Agreement. This event took place in March 1792 when twenty-four of New York’s top merchants secretly met at a Corre’s Hotel to discuss methods to make the securities business more organized and orderly. As of May 17, 1792, the Buttonwood Agreement was signed.

It earned its name as it was under a buttonwood tree these men met to discuss this strategy to bring businesses together under an umbrella of corporate protection. At the time, there were too many brokers to simply meet underneath this tree so often they would take their meetings to various offices, coffee shops, and hotel facilities. One such location, the Tontine Coffee House, became a location of choice for New York City’s business merchants to meet not long after the Buttonwood Agreement document was signed. That document is now in the archives belonging to the New York Stock Exchange.

Prior to this agreement, securities exchange was conducted exactly like intermediated auctions that featured commodities like grains and tobacco. The earliest known securities traded at the time were mostly government-related such as the Revolutionary War’s War Bonds and the stock belonging to the First Bank of the United States. Non-governmental securities exchange stock also featured the Bank of New York and the Bank of North America were also among the first shares traded in this newly developed New York Stock Exchange.

Over the years, as the prominence of NYSE grew, the need to reform the Buttonwood Agreement became a necessity in 1817 as stockbrokers recognized certain changes needed to be made. This included sending a delegation to Philadelphia to observe how their stock exchange program worked, observing their board of brokers, as well as restrictions placed against manipulative trading. Adopting these safety measures as regulations, the New York Stock and Exchange Board was reorganized, then relocated from the Tontine Coffee House to different rental spaces used for securities trading. From 1817 until 1865, the New York Stock Exchange had a trading floor that did not have a permanent location set up yet. This wouldn’t happen until the electrical telegraph was invented, a method the New York Stock Exchange immediately utilized as a means to consolidate markets and gain dominance over its competition in Philadelphia.

Early Expansionism

Starting in 1864, the newly organized Open Board of Stock Brokers served as a competitive rival against the New York Stock Exchange. The Open Board of Stock Brokers had a membership roster of 533 men, crediting the superior trading system it had over NYSE’s call sessions. However, in 1869, these rivals merged as one and the name of the New York Stock Exchange prevailed as its own membership roster grew, as well as the trading volume.

The combined resources of these two stock exchange giants allowed buyers, sellers, and dealers to complete transactions quickly and cheaply, thanks to the technological advances that made this possible. NYSE’s goal was to minimize the competition as a means to keep the flow of securities exchange going. Due to the rapid growth of the New York Stock Exchange, a cap was needed to be put in place as of 1869 to control the membership roster count.

This surge in the prominence of the NYSE was also credited to the events that took place during the American Civil War as it stimulated speculative securities trading in New York City. However, this surge wasn’t always smooth sailing as the turn of the twentieth century saw the market prone to panics and crashes, resulting in the need for government regulations of securities trading to become a necessity to protect shareholders.

As the importance and influence of the New York Stock Exchange grew, so did the need to accommodate its board members and stockholder membership. On August 3, 1898, the Stock Exchange Luncheon Club was formed as an exclusive club that would later find a permanent location after the 1903 development of the New York Stock Exchange Building. At first, this dining club had a membership roster of two hundred people that eventually grew to 1,400 members as of 1999.

While the Stock Exchange Luncheon Club was still in operation, there was a lengthy waiting list just to earn the privilege to dine at the club as a member. In 1970, Joseph L. Searles III was the first African-American member of NYSE, often finding himself eating alone at his own table in the beginning. In 1987, the exclusive dining club finally installed a ladies’ restroom, which was twenty years after women started to become members of the NYSE. Registered as 11 Wall Street in Lower Manhattan, this seventh-floor dining room catered to its members-only clientele until it closed for good on April 28, 2006.

When the September 11, 2001 attacks took place, security measures made the dining club less accessible. This, plus the scandal revolving around Richard Grasso, a regular patron, and one of NYSE’s more prominent members, became a favorite news story as the legal battle between him and NYSE lasted until 2008. Although no longer serving as a dining club, this seventh-floor facility still served as a venue for important events, including the merger of NYSE and Euronext that took place on December 19, 2006.

Modern Expansionism

The 2005 merger of the New York Stock Exchange to merge with Archipelago made it a for-profit, publicly-traded company that began to trade under the name of NYSE Group on March 8, 2006. After merging with Euronext on April 4, 2007, NYSE Euronext became the first transatlantic stock exchange to do business. As a member of the Wall Street international matrix of financial institutions, markets, sectors, and industrial firms, NYSE has become the hub of asset management, commercial banking, insurance, and securities exchange.

Leading up to this merger, the January 24, 2007 introduction of the electronic hybrid stock market trade format paved the way for modern expansionism to once again stay ahead of the stock exchange competition. Now able to execute immediate transactions, customers can also route orders at an even faster rate than they could previously.

New York Stock Exchange Building

Built in 1903, the New York Stock Exchange Building has the street address of 18 Broad Street, situated between the corners of Wall Street and Exchange Place. Designed by George B. Post, this building sits adjacent to 11 Wall Street’s 1922 structure that was designed by Trowbridge & Livingston. Both of these, now designated as National Historic Landmarks as of 1978, feature the Breaux Arts style that was so popular in the day.

This designated location to serve as the official headquarters of NYSE has operated the same as any other corporation, featuring a work schedule from Monday until Friday. Aside from weekends and holidays, it has been extremely rare for the doors to be closed. However, on July 31, 1914, NYSE was closed for security reasons shortly after the start of World War I. It partially opened again that same year on November 28 as a means to help the war effort by trading bonds. Before the year was over, NYSE was back to its regular operating schedule, which starts at 9:30 in the morning and finishes at 4:00 in the afternoon.

Featured in the New York Stock Exchange Building is The Big Board. This is the giant board buyers and sellers look at when trading shares of company stock that’s been registered for public trading. The auction format that was used at the beginning is still used with NYSE today. There are still auctioneers in place to bring buyers and sellers together as transactions are conducted, even as today’s technology has seen the 1995 transaction of IBM’s one thousand shares be done so electronically instead of the old-school paper tickets that had been strictly used up to that point.

Up until 2005, the right to trade shares at a direct level was strictly among the owners of the membership seats of the New York Stock Exchange. At the time, there were 1,366 seats that were filled. This was a huge jump since 1868’s 533 seats. These seats were considered highly coveted commodities due to the desire to become more directly involved with NYSE’s securities exchange operations.

One family, in particular, Barnes, held this pricey membership with NYSE for five generations, starting with Winthrop H. Barnes in 1894 and ending with Derek J. Barnes in 2003. The membership is called pricey because this didn’t come for free. The rates changed according to the financial picture at the time, rising and falling just as the stock values have been known to do.

When Archipelago turned NYSE into a for-profit, publicly-traded company in 2005, sat owners at that time each received a payment of $500,000 USD, along with 77,000 shares of this newly formed corporation. Instead of seats, NYSE sells one-year licenses to trade directly with its securities exchange. The license for floor trading is so far sold at $40,000 USD and cannot be resold. It can, however, be transferred whenever there is a change of ownership of a corporation that happens to be holding the trading license. This is also applied to the bond trading license that is also available.

Wall Street Terrorism

On Thursday, September 16, 1920, at 12:01 PM, New York City’s Financial District in Lower Manhattan experienced fell victim to a terrorist attack that became referred to as the Wall Street Bombing. Immediately, thirty people were killed before the total rose to forty when ten victims succumbed to the injuries they sustained. There were hundreds of injured citizens, ranging from minor to serious, that was victimized by an attack that remained an unsolved case. However, it was speculated the Italian anarchists known as Galleanists were responsible as this group also carried out a series of bombings during the previous year. This attack was related to the post-war issues, as well as labor shortages, that witnessed an anti-capitalist movement that was in opposition to what the New York Stock Exchange represented.

The explosion came from a parked and abandoned horse-drawn wagon that affected the lunchtime crowd on Wall Street. It sat across the street from the J.P. Morgan & Co. headquarters located on 23 Wall Street, which happened to be the Financial District’s busiest corner. There were one hundred pounds of dynamite inside the wagon, along with five hundred pounds of cast-iron sash weights. When the timer-set detonation occurred, it blew apart the horse and the wagon into bits while the exploded weights killed a total of forty young workers, injured hundreds of others, and extensive property damage, especially Morgan’s bank as its interior was mostly destroyed.

William H. Remick, president of the New York Stock Exchange at that time, suspended trading in the building within a minute after the explosion in an effort to minimize the potential for panic. Meanwhile, rescue workers outside worked through the wreckage to transport the injured for emergency medical care. The use of nearby automobiles, parked or not, served as emergency transport vehicles as they brought people caught in the blast to hospitalization. Much of this was directed by the police, who also provided first aid to those in need. According to the newspaper headlines, the bombing of Wall Street was the worst domestic terrorist attack to happen in America at that time.

Unfortunately, the September 11, 2001, terrorist attack that devastated New York City and its financial district took over as the nation’s worst terrorist attack to date. For obvious reasons, NYSE was closed for business until it was deemed safe enough to reopen. Closed for four sessions, it wasn’t until September 17, 2001, did NYSE resume operations. It was one of the rare occasions that witnessed the New York Stock Exchange shut down for more than one session at a time.

The location of NYSE’s building was five blocks away from the location of the Twin Towers, which has since been referred to as Ground Zero. The doors wouldn’t close again in this manner until October 29, 2012, when Hurricane Sandy made its destructive impact that lasted for two days. The last time the weather played a role in NYSE’s two-day shut down was the Great White Hurricane that occurred on March 11, 1988. That blizzard was marked as one of the most severe storms recorded in American history.

The Great Crash

The drama revolving around the 1929 stock market crash that had such a crippling effect on the American people reached its boiling point on Thursday, October 24, when the first crash would set off a panic to sell on Tuesday, October 29. Known as Black Thursday and Black Tuesday, respectfully. These two events were mostly blamed for the Great Depression that would devastate an entire nation for at least a few years before any sign of relief would come about. If nothing else, what the biggest stock market crash in global history caused was a screeching halt to the Roaring Twenties and its love affair with a lavish lifestyle that was bound to catch up to everyone sooner or later.

On March 25, 1929, the Federal Reserve issued a warning of excessive speculation. This caused a small crash as investors began to panic and sell off their stocks as quickly as they could. This action exposed the stock market’s shaky foundation, resulting in Charles E. Mitchell of the National City Bank of New York issuing $25 million USD in credit two days later, hoping to prevent the market from sliding into the abyss even further.

All this did was simply pause the imminent financial crisis as the American economy continued to flail. When industrialism became sluggish and automobile purchases waned, the debt load among the consumers was building up to a breaking point. Within the months of late March to late October, it appeared as if the warnings the Federal Reserve issued fell on deaf ears.

There were more than enough warning signs in place that something big was about to happen and not in a good way. Not long before the crash, the Dow Jones Industrial Average, which is a price-weighted stock market index, saw a nine-year run see its value increase tenfold to 381.17 points on September 3, 1929. Just before the big crash, well-known economist, Irving Fisher, made a proclamation that the stock prices have reached what looks like a permanent high. The September 8, 1929, publication from financial expert Roger Babson warned of a terrific crash on the way but it was one that was seen by investors as a healthy correction and a buying opportunity.

When the London Stock Exchange experienced its crash on September 20, 1929, this occurred when Clarence Hatry and his fellow British associates were jailed for fraud and forgery. That crash shook the American investments that dabbled into overseas markets, causing so much instability that it simply added even more fuel to a financial fire that was already raging out of control.

In an attempt to thwart disaster, several Wall Street bankers met with Richard Whitney, NYSE’s vice president at the time, to place a $205 USD bid per share on 25,000 shares of U.S. Steel. This was well above the current price market at the time. Whitney also placed similar bids on several other stocks, exercising the same tactics that were used when a 1907 stock market panic also threatened the American economy. This move allowed the Dow Jones International Average to recover, at least for Thursday, October 24, 1929.

However, October 28, 1929, saw more investors facing margin calls that prompted them to bail out of the market. This caused the slide to continue, forcing the Dow to face a record-day loss of nearly thirteen percent. When October 29, 1929 hit, there were approximately sixteen million shares on the New York Stock Exchange posted in a single day. This resulted in billions of dollars of lost investments, literally causing thousands of shareholders to lose everything.

In an attempt to lessen the blow, William C. Durant joined with the Rockefeller Family and other financial giants to buy large quantities of stocks as a means to demonstrate to the public they are still confident in the market. However, this didn’t stop the decline in prices as the massive volume of stocks traded that day forced the floor to keep running until 7:45 PM.

Come October 30, 1929, there was so much panic that the sellers couldn’t even give stocks away as nobody was buying. This caused the Dow to drop even further. By July 8, 1932, the Dow reached its lowest level since the twentieth century at a closing value of only 41.22 points. This marked nearly a ninety-percent loss for the index in just under three years. It wouldn’t be until November 23, 1954, would the Dow meet the 391.17 point peak it experienced on September 3, 1929.

Additional Crashes

When the Dow Jones Industrial Average dropped by over five hundred points on October 19, 1987, this was labeled Black Monday and was followed by Terrible Tuesday’s poor stock exchange performance that made trading difficult to complete. Another stock market crash occurred again on October 13, 1989, when the reaction to a news story revolving around the parent company of United Airlines failed to go through, causing a collapse of what’s considered the junk food market. This event caused the Dow to drop by over 190 points. Less than ten years later, the 1997 financial crisis in Asia saw the Dow experienced its biggest point drop yet on October 27 at 554.26. However, May 6, 2010, saw the Dow experience nearly a one thousand point loss before rubberbanding back within a matter of minutes.

In 2011, the rules applied by NYSE to impose trading curbs to reduce market volatility and mass sell-offs saw a few changes. This trading curb first came about after 1987’s Black Monday crash which places a better control on the three circuit breaker levels, which are seven percent, thirteen percent, and twenty percent per level of the average closing price of the protective Standard and Poor 500 stock index respectively.

The first two levels’ declines result in a trading halt that lasts for fifteen minutes unless they occur within thirty-five minutes of NYSE’s closing time for the day. The third level decline results in the suspension of trading for the remainder of the day as a preventative means to not surpass the twenty percent mark.

This new security measure has so far proven effective, even when the New York Stock Exchange paused trading for a few hours on July 8, 2015, due to technical issues. There were reassurances made to traders it was not due to a cyberattack, and this was confirmed by the Department of Homeland Security as it appeared to be nothing more than a computer glitch that was rectified without compromising anyone’s commodities and investments.

Publicity Stunts

In 1967, the Yippie Movement led by Abbie Hoffman witnessed protestors hurl fists of cash toward the trading floor inside while inside the New York Stock Exchange Building. Their actions were met with mixed reactions from the traders on the floor but ultimately gave reason for NYSE to install bulletproof glass around the gallery as a means to protect the trading floor.

When Michael Moore directed Rage Against the Machine’s “Sleep Now in the Fire” music video, it was done so at the New York Stock Exchange Building. For security reasons, the band was escorted on January 26, 2000, when an altercation broke out during the filming process as NYSE members were attempting to gain access into the building.

Other Notable Events

On October 1, 1934, the New York Stock Exchange became registered as a national securities exchange with the U.S. Securities and Exchange Commission that featured a president and a board membership of thirty-three people. On October 31, 1938, NYSE revealed an upgraded protection program for public investors as a means to restore stock exchange confidence. Since then, this non-profit corporation has reduced its board member roster to twenty-five.

Upon the discovery of the New York Exchange violating rules set in place by the Securities and Exchange Commission, NYSE was fined $4.5 million USD on May 1, 2014. This also marked the same year Berkshire Hathaway’s A Class shares reached a record-setting price of $200,000 USD per share.

As of May 25, 2018, Stacey Cunningham became the first president of the New York Stock Exchange after taking Thomas Farley’s place in that role. Since then, as a response to the COVID-19 pandemic, NYSE made an announcement to temporarily conduct trading to an all-electronic method as of March 23, 2020, before resuming business as normal as of May 26, 2020.

 

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