The New York Stock Exchange

A Guide to Information Sources

Lucy Heckman

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351371131
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

First published in 1992, The New York Stock Exchange is an informative library resource. The book begins with a history of the stock exchange, and offers a series of annotated bibliographies devoted to dictionaries and general guides, directories, bibliographies, general histories, and statistical sources. The book provides important coverage of the stock market crashes of 1929 and 1987 and the appendices offer a useful collection of data, including a directory of serial publications, listings of abstracts and indexes, online databases, and CD-ROM products. This book will be of interest to libraries and to researchers working in the field of economics and business.

CHAPTER I

ORGANIZATION AND HISTORY

I. Organization

The New York Stock Exchange is a not-for-profit organization governed by a Board of Directors, with a full-time salaried Chairman and an Executive Vice-Chairman and President. It is the Board of Directors who is responsible for guiding the NYSE's programs and policies. The NYSE staff have responsibility for carrying out these programs and policies. Additionally, thirteen Advisory Committees are appointed by the Chairman and approved by the Board of Directors. Each Committee has a charter that is renewed annually. These Committees are: the Listed Company Advisory Committee, Individual Investors Advisory Committee, Pension Managers Advisory Committee, Institutional Traders Advisory Committee, Exchange Traders Advisory Committee, Committee of Upstairs Traders, Regional Firms Advisory Committee, Specialty Firms Advisory Committee, Regulatory Advisory Committee, Advisory Committee on International Capital Markets, European Advisory Committee, Japan Advisory Committee, and Legal Advisory Committee.

By the end of 1990, there were 1408 members of the Exchange, including 1366 members who own seats and have full distributive rights in NYSE net assets. Members of the NYSE may buy, sell, and lease seats on the Exchange. Prices for seats vary but generally are in the approximate range of $250,000 to over $430,000, according to 1990 data. In 1876, however, the price of a seat was $4,000 and in 1987 another sold for $1.1 million. Leased seats ranged, in 1990, from between $48,000 to over $85,000.

Prices of securities traded at the Exchange are not set by the NYSE. They are determined by decisions of individual and institutional investors where buyers and sellers of securities meet and agree upon a price in an auction environment. Securities traded at the NYSE are: common stock, preferred stock, bonds, options, warrants, shares of beneficial interest, and American Depository shares. The New York Futures Exchange, a wholly-owned subsidiary of the NYSE, specializes in financial futures. Major indexes of securities traded include the NYSE Composite Index, the Dow Jones Averages, and the S & P 500 Index.

Those participating in the New York Stock Exchange market include: listed companies from the U.S. and other parts of the world, individual investors, securities dealers, institutional investors, and specialists. The New York Stock Exchange market is governed by set rules and regulations as set forth in their Constitution and By-Laws. All NYSE rules and regulations are, however, subject to approval by the Securities and Exchange Commission. The first Constitution for the NYSE, then called the New York Stock and Exchange Board, was published in 1817 and has undergone revisions throughout the Exchange's history.

The NYSE's 1990 survey of shareholders indicated that approximately 51 million individual investors owned stock in a publicly traded company or in a stock mutual fund. NYSE Services to the investing public include: materials published and distributed at the NYSE Publications Department; a visitors’ center where individuals have the opportunity to watch activities on the trading floor, see a film about the Exchange, and view exhibits about the NYSE; and the Archives, available by appointment, which house historical materials concerning the NYSE. Further information about these services is contained in Appendix III.

Throughout the past decades, the NYSE has expanded its automated trading systems. The NYSE's SuperDot is an electronic order-routing system that enables member firms to transmit market and limit orders in all NYSE-listed securities directly to the NYSE trading floor where the order is routed to the specialist assigned to the securities or to the member firms’ booth. Information concerning the order is then reported back to the member firm through the SuperDot system. Other electronic systems include the Intermarket Trading System or ITS which links the markets: the New York, American, Boston, Cincinnati, Midwest, Pacific, and Philadelphia Stock Exchanges and the NASD. The NYSE's Consolidated Tape lists and reports transactions in NYSE-listed securities which were executed on other markets, including seven stock exchanges and two over-the-counter markets.

II. History

On May 17, 1992, the NYSE marks its two hundredth anniversary. During the late 1700s, Wall Street was the center of government and finance. New York City was the United States’ first capital, from 1785 to 1790 and Federal Hall, located in the Wall Street area, served as Congress’ headquarters. George Washington was inaugurated at Federal Hall as the nation's first president on April 30, 1789. Throughout the late 1700s, merchants and brokers met to buy and sell securities, including bank stocks and government bonds. These securities were bought and sold through competitive bidding at auctions. The founding of the New York Stock Exchange is traced back to when twenty-four New York brokers and merchants, who did not want auctioneers to gain control, signed an agreement. This agreement, known as the Buttonwood Agreement or Buttonwood Tree Agreement was signed on May 17, 1792.

The Agreement was named for a buttonwood tree on Wall Street under which the brokers met to conduct business. The Agreement stated: “We the Subscribers, Brokers for the Purchase and Sale of Public Stock, do hereby solemnly promise and pledge ourselves to each other, that we will not buy or sell from this day for any person whatsoever any kind of Public Stock, at a less rate than one-quarter of one percent percent on the specie value, and that we will give preference to each other in our negotiations. Whereof we have set our hands this 17th day of May at New York, 1792.”

Among early meeting places for the brokers was the Tontine Coffee House, which opened in 1794 on the northwest corner of Wall and William Streets. Funding for the Tontine Coffee House was through Private subscription, with a total of 203 shares selling for $200 each.

The year 1817 marked the establishment of a more formal organization of brokers: the New York Stock and Exchange Board (NYS & EB). A constitution, adopted on March 8, 1817, set rules for: selection of a President; membership; sales procedures; commission rates; and contracts for delivery. Forbidden by the rules were fictitious sales or contracts. The NYS & EB's first location was a rented room at 40 Wall Street. The Constitution of the NYS & EB, and later, the NYSE, was to undergo continuous revisions throughout its history.

During the following decades, trading increased in: government securities; state and municipal bonds; and stocks of banks and private companies. In one example of trading, over $8 million worth of New York State bonds were issued to fund construction of the Erie Canal, which opened in October 1825. The Mohawk & Hudson Railroad in 1830 became the first railroad stock to be traded on the Exchange. Railroad building expanded to bring about a proliferation of railroad stocks traded among which were the New York Central Railroad, the Chesapeake & Ohio Steam Transportation and Mining Company, and the Marine Railroad.

The Panics of 1819, 1837, and 1857 were early crises which affected the financial community. Wall Street, however, survived these crises, maintaining and solidifying its status as the nation's financial center. By the conclusion of the 1850s, prices of securities traded on the NYS & EB were telegraphed to major U.S. cities.

At the outset of the Civil War, the members of the NYS & EB, formally pledged not to trade in Confederate bonds. The early years of the Civil War saw the beginning of a depressed period on Wall Street, due to losses on money owed to New York brokers by their customers from the South. The market rallied after a series of Northern military victories over the Confederacy. Jay Cooke, founder of Jay Cooke & Co. was a major financier of the Northern cause; his biographers called him, “Financier of the Civil War.”

In 1863, the New York Stock and Exchange Board changed its name to the New York Stock Exchange (NYSE). After moving to various rented spaces, the NYSE established its first permanent headquarters at 10-12 Broad Street, located just south of Wall Street. In 1867 membership in the NYSE increased to over 1000 when the Exchange merged with a competitor, the Open Board of Brokers, and also added members of the NYSE's Government Bond Department. 1867 was, in addition, the year that the stock ticker was first used on the Exchange. The practice of selling memberships or “seats” on the NYSE was introduced in 1868.

During the 1869s, financiers who had great influence on Exchange activity were Jay Gould, Daniel Drew, Cornelius Vanderbilt, and Jim Fisk, Jr. These individuals were at the center of the Erie Railroad Wars, a struggle for control over this railroad. As a result of Erie stock price manipulation, the NYSE instituted stricter registration standards for its securities. In 1869, Gould and Fisk attempted to corner the gold market through a series of intrigues and precipitated the “Black Friday” panic of September 24. Hearings investigating the “Gold Corner” were conducted by the Committee on Banking and Currency in January-February 1870.

In 1873, the renowned Philadelphia banking house of Jay Cooke & Co. failed due to overspeculation in railroad stocks. The collapse of Jay Cooke & Co. caused other bank closings, a major decline in stock prices, and the subsequent closing of the NYSE for ten days. After the Panic of 1873, a severe depression followed, lasting for six years.

Among notable developments at the NYSE during the 1870s were: continuous trading replaced calls of stock at set times; the role of the specialist began when brokers who dealt in a particular stock or type of stock stayed at one location on the trading floor; and the first telephone was at the NYSE was installed in 1878.

During the 1880s and 1890s, “trusts” or giant conglomerates dominated U.S. industry and had a great impact on stock trading. The first million share trading day at the NYSE took place in 1886, due to increase in shares issued by the trusts. During this time period, the financier J.P. Morgan, Sr. gained international recognition and prominence. Other developments during these decades included: the publication of the first issue of the Wall Street Journal in 1889; the creation of the first major industrial stock index, the Dow Jones Industrial Average; and the increase in issues on the NYSE to 1000. The securities markets suffered major setbacks during the Panics of 1884, 1893, and 1907.

In 1903, the NYSE moved into new headquarters, where it remains today. The building, styled in classical-revival manner, was designed by the noted architect and engineer, George B. Post. The pediment statues were designed by sculptor, John Quincy Adams Ward.

The NYSE was investigated during the early part of the 20th century by the Governor Charles E. Hughes Committee and in the Pujo Committee or Money Trust Hearings. Reports by the Hughes and Pujo Committees, issued in 1909 and 1913, respectively, studied NYSE organization and practices and called for reforms.

At the outset of World War I, the NYSE was closed to forestall a major panic and market collapse. The NYSE was closed in July 1914, reopened in December 1914, and was only able to resume trading without restrictions in April 1915.

During the first World War, the NYSE traded issues of United States Liberty Bonds. The issues were in such large quantities that the NYSE installed a separate ticker symbol for bonds. After the War ended in 1918, the market experienced a period of decline. The market, however, recovered by the early 1920s and the subsequent years were a time of a bull market. On September 17, 1920, a bomb, which was placed by an anarchist, exploded on Wall Street causing thirty deaths and injuring hundreds of individuals.

From 1925 to 1929, the market value of NYSE listed stocks increased from $27 billion to $90 billion and market volume grew from 450 million shares to approximately one billion shares. More Americans had decided to invest in securities due to: people buying Liberty Bonds had become familiar with the market and continued to purchase securities; individuals could buy on margin, a process of purchasing securities by putting up between 10 to 25 percent of the price and borrowing the rest from brokers; personal income had increased giving investors available capital for investing; and dividends were now being paid on a regular basis. Events at the end of October 1929 would abruptly end this decade of the bull market.

Events of the 1929 Crash or “Great Crash” began on October 24, 1929 when the market fell. Crowds gathered on Wall Street and bankers met to attempt to deal with the crisis. Despite efforts by the bankers and officers of the NYSE, the market did not recover but, rather, conditions worsened, and on October 29, the market crashed. On October 29 or Black Tuesday, the market lost $14 billion of value, and a record 16,410,000 shares were traded. The market was not to recover fully for several years and the early thirties became a time of significant declines in stock prices. The state of the country changed from a time of great prosperity to the years of depression in the 1930s.

After the Crash, the securities markets, banks, and brokerage houses became the subjects of Congressional investigations and subsequent legislation. From 1932-1934, a Subcommittee of the Senate Committee on Banking and Currency held hearings which studied events of the Crash, manipulative activities at the Exchange, and practices, including margin buying. The Counsel for the investigation was Ferdinand Pecora and the Subcommittee conducting the study became known as the “Pecora Committee.” Among key witnesses at the hearings were: Richard Whitney, President of the NYSE; Michael Meehan, of M.J. Meehan & Co.; Charles E. Mitchell, Chairman of the National City Bank of New York; and Fiorello H. LaGuardia, a Representative from the Twentieth District of New York.

Key legislation resulting from these hearings were the Securities Act of 1933 and the Securities Exchange Act of 1934. The Securities Exchange Act of 1933 requires registration of new securities issues and full disclosure to the public regarding these issues. The Securities Exchange Act of 1934 established the Securities and Exchange Commission and gave the Federal Reserve Board the authority to regulate margin requirements. Other legislation during this time period included the Glass-Steagall Act or the Banking Act of 1933 which established the Federal Deposit Insurance Corporation (FDIC) and required complete separation of investment banking and commercial banking.

The year 1938 was an important year for changes at the New York Stock Exchange. Two major events led to a major revision in the NYSE's organizational structure. The first catalyst for change was pressure from the Chairman of the Securities and Exchange Commission, William O. Douglas. After a market break in 1937, Douglas indicated that the NYSE should examine and remodel its organization from what he called a private club structure. The NYSE administration subsequently established the Conway Committee, named for its Chairman, Carle C. Conway. The Secretary of the Conway Committee was future NYSE President, William McChesney Martin, Jr. Among the recommendations, which went into effect, were that: the NYSE appoint a full-time, salaried President; members of the public be representatives on the Board of Governors; committee organization be restructured; and the Constitution and rules be revised and simplified.

The second event that brought about changes was the case of Richard Whitney, President of the NYSE from 1930-1935. In 1938, Whitney, Senior Partner of Richard Whitney & Co. was arrested on two separate indictments which charged him with grand larceny. It was discovered that Whitney had misappropriated a customer's securities as early as 1926 and similar misappropriations were practiced later on a regular basis. The lateness of disciplinary action led to investigation and revision of rules regarding the New York Stock Exchange's supervision and monitoring of its members and their activities.

The years of the Second World War brought about significant innovations at the NYSE. The NYSE assisted the war effort with the sale of major defense loans. With an increase in women employees on the homefront, the NYSE hired women as quotation clerks and carrier pages on the trading floor.

The post-war era was a time of a great increase in investors. NYSE President G. Keith Funston (1951-1967) embarked on an educational program, “Own Your Share of American Business” to attract more investors. Part of the campaign was advertising in newspapers and magazines as well as on the radio. Throughout the fifties, the numbers of individual shareholders increased from about 6.5 million to 12.5 million by the end of the decade. The NYSE published its first shareownership survey in 1952; this survey offered statistics on the numbers of investors and their characteristics. For the most part, the fifties was the time of a bull market, with brief setbacks including the market decline after President Dwight D. Eisenhower suffered a heart attack in September 1955.

A major market break occurred in May 1962; both the NYSE and the SEC published reports examining implications of this market break. A landmark report was the SEC's Special Study of the Securities Markets (1963) which examined the securities markets, possible reasons for the break, and made recommendations for the future of the markets, including the NYSE. A result of the SEC's Study was passage of the Securities Acts Amendments of 1964.

Another crisis at the NYSE took place during the late 1960s when facilities in brokerage offices could no longer handle the vast amount of paper work. The “back office paperwork crunch” caused losses of stock certificates and major delays in the securities sale process. The NYSE, during 1967-1968, reduced its hours of trading to help alleviate the backlog of work. It did not resume its regular hours until May 1970. This time period was also marked by financial difficulties for many member firms of the NYSE. The number of member firms decreased from 647 in 1967 to 572 in 1970 due to bankruptcies, mergers, and acquisitions. The NYSE provided financial assistance to public customers and created a Special Trust Fund to handle much of this compensation. Congress, however, created the Securities Investor Protection Corporation (SIPC) in 1970 to protect customers’ money and securities holdings in the event of liquidations.

The 1960s were also a time of great changes and innovations. The NYSE now hired women for jobs on the trading floor and in December 1967, Muriel Siebert, became the first woman member of the NYSE. A major technological innovation was the addition of a new stock ticker which could print 900 characters per minute.

The 1970s was a decade of historic developments, organizationally, for the NYSE. In 1971, former NYSE President, William McChesney Martin, Jr. was commissioned by the NYSE to prepare a study of its organizational structure and make rec...