What is the New York Stock Exchange (NYSE)?
The New York Stock Exchange (NYSE), also known as the “Big Board” is a global marketplace for buying and selling corporate stocks. In addition to this, the exchange is itself a publicly traded company designated the stock symbol NYSE:NYS. It is the largest stock exchange in the world with an average daily trading value exceeding US$169 billion and a market capitalisation of US$19.69 trillion (as of May 2015). The NYSE is located at 11 Wall Street, Downtown Manhattan, New York City. The NYSE is owned and operated by Intercontinental Exchange (ICE), which is an American holding company. Just like the NYSE, ICE is listed in the NYSE and is designated the stock symbol NYSE: ICE.
On May 17, 1792- The NYSE was established following the signing of the Buttonwood Agreement by the founder members. This agreement was actually signed under a buttonwood tree at 68 Wall Street and it outlined the rules and regulations for trading stocks. This is also the year the NYSE traded its first securities which were from the Bank of New York.
- In 1817- The York Stock and Exchange Board drafts its constitution and changes its name to the New York Stock Exchange.
- In 1896- The first edition of the Wall Street Journal is published by the Dow Jones Industrial Average (DJIA).
- In 1903- The NYSE relocates its trading floor to 18 Broad Street.
- In 1914- The NYSE halts its operations for four months and two weeks as a result of World War I. This marks the longest shutdown in the history of the Exchange.
- In 1920- Terrorists detonated a bomb on Wall Street right outside the NYSE building killing 33 people and injuring more than 400. The explosion also caused significant damage to the surrounding buildings.
- In 1929- The NYSE establishes a central quote system. On 24th October, Wall Street experiences its first crash which was referred to as Black Thursday. The selling panic that followed this crash culminated into the Great Depression.
- In 1943- The NYSE trading floor is opened to women.
- In 1966- The NYSE compiles the Common Stock Index- a composite index of all listed common stocks. This index is transmitted daily. The name Common Stock Index is later changed to the NYSE Composite Index.
- In 1967- Muriel Siebert becomes the first female member of the New York Stock Exchange.
- In 1971- NYSE becomes a Non-profit organisation (NPO).
- In 1977- Foreign brokers are allowed to operate in the NYSE.
- In 1996- Year NYSE introduced real-time stock ticker.
- In 2000- The first NYSE global index was launched under the NYIID ticker.
- In 2001- NYSE replaces trading in fractions with decimals. In the same year, NYSE closed 4 sessions due to attacks in the month of September.
- In 2003- The NYSE Composite Index was launched with the value set equalling 5000 points.
- In 2006- A merger between ArcaEx and NYSE created NYSE Arca thus creating the publicly owned and for profit NYSE Group. A merger between Euronext and the NYSE Group saw the creation of the first trans-Atlantic stock exchange.
- In 2007- The NYSE merged with Euronext. This made it capable of trading up to 10 billion shares per day. The move combined the NYSE with the five major exchanges in Europe, including Amsterdam, London- the London International Financial Futures Exchange (LIFFE), Brussels, Lisbon and France- Bourse de Paris.
- In 2008- This year saw the acquisition of the AMEX (the American Stock exchange) by the NYSE.
How does the New York Stock Exchange Work?
NYSE uses brokers to trade their stocks on the trading floor. The buyers and sellers auction stocks at the highest price possible. Before the brokers trade they must acquire trading licenses and have approval by the NYSE.
The Brokers are a representative of the entity that wants to buy the stock. They set the bidding price which will be what the public will be willing to pay for the stock. When a stockbroker executes an order to sell, it will only be completed when a dealer on the floor of the NYSE finds a broker who will buy it.
Those selling the stock are matched up with the brokers by the dealers. The stock sellers then put forward a ‘ask’ price which usually is higher than the bid price. The difference between the ask price and the bid price is usually pocketed by the dealers for their troubles. This is minus the fees and expenses.
It’s worth noting that more transactions occur electronically than they occur even on the floor with the dealers and brokers.
Trading at the NYSE commences with the ringing of a bell at 9:30 ET and the closing bell is rang at 4:00 pm ET. The bell tradition began with a Chinese gong in 1870. Brass bells were the in thing after the NYSE moved to their present location. The day starts at 6:30am on the West Coast in summer, this is because the times are in East Coast time.
Other functions of the opening and closing bells include celebration of New York City events or financially related events.
Ringing the bell is considered an honour. In instances that a company has issued an IPO (Initial public offering) with the NYSE, the CEO of the firm gets the chance to ring the bell. On the NYSE Upcoming events you can get to see who will ring the bell in the oncoming days.
- During the following nine American holidays the NYSE is closed
- Martin Luther King Day
- Good Friday
- Independence Day
- New Year’s Day
- Washington’s Birthday
- Labour Day
- Memorial Day and
- Thanksgiving Day
- Additionally to this, the NYSE closes at 1:00pm ET in the following days
- The day after Black Friday (Thanksgiving)
- The day before Independence Day and
- The Christmas Eve day
Companies that Trade on the New York Stock Exchange
The NYSE trades stocks for more than 2500 companies. The companies range from blue chip to high growth companies. There are strict requirements that have to be met by each listed company. This is because the NYSE endeavours to maintain its trading reputation.
How companies get listed on the NYSE
The New York Stock Exchange operates globally. The various mergers has seen it become NYSE Euronext. There are minimum financial and non-financial standards that must be met for a company to be listed. Some of these include the number of shareholders, the stock price and the earnings. Listing requirements are governed by the NYSE while the securities trading is regulated by the Securities and Exchange Commission.
For a company to be listed on the NYSE, they have to file an application with an agreement to meet NYSE requirements and its guidelines. This application must also include;
- The company by-laws and resolutions.
- Articles of incorporation.
- Information on the organisation (Has to have the contact details for its key executives and that none has a conviction of a felony)
- Letter from security underwriters that it meets listing standards.
For a company to get NYSE listing qualification, it must have;
- at the least 400 shareholders owning more than 100 shares of the stock
- Market value of public shares of at least $40 million and publicly traded stock of at least 1.1 million shares
- Stock price of at least $4 per share.
- The IPOs, affiliates or spin-off from existing companies need a market value of at least $100 million
For a company to get listed it must also be profitable. One of the following two earning standards that must be met;
- An aggregate of $10 million in incomes before taxation in three previous years and the two previous years must aggregate to at least $2 million each. Or
- An aggregate of $12 million in incomes before taxation, a minimal of $5 million in the last year and $2 million in the year before it.
The New York Stock Exchange employs a wide discretion when it comes to listing companies. It has to deem shares to be listed from a company to be suitable for the market’s auction trading process. Even though a company can meet the financial criteria and the basic securities, the NYSE can use even more strict criteria. Trading of shares after a company has been accepted to list starts in a period of four to six weeks.
The NYSE applies even more strict rules when it comes to global trading. The $100 million market value and the 4$ share are applicable though it must have 5000 public shareholders and a minimum of 2.5 million shares outstanding. A brokerage firm needs to attest to liquidity of the company’s stock and to the depth of a market in the event that a non-American company’s home market does not have ‘registered shareholders.