The New York Stock Exchange (NYSE) is one of the largest, and most recognizable, stock exchanges in the world. The NYSE is in New York City, New York at 11 Wall Street. The NYSE has been in existence since the earliest days of the United States becoming a nation, in 1792 and is primarily made up of blue-chip companies with large market capitalizations. In fact, many of the stocks that make up the Dow Jones Composite Index (i.e. The Dow) are listed on the NYSE.
This article gives a brief history of the New York Stock Exchange. In addition, it covers topics such as what kind of stocks trade on the exchange, what are the listing requirements, how trading is performed, and what the daily price movement of the NYSE tells investors about investor sentiment.
What Were the Origins of the NYSE?
Today, the New York Stock Exchange is known as the center of the financial universe. However, the exchange’s origin is far more humble. On May 17, 1792, 24 stockbrokers signed the Buttonwood Agreement creating a centralized exchange to help provide order to the securities market in what was still a young nation. The "Buttonwood Agreement” comes from the tree of the same name under which the founders signed the agreement.
An initial benefit of the exchange was how it removed the need for auctioneers when trading commodities like wheat and tobacco and to set a commission rate. The exchange initially focused on government bonds.
However, the exchange had no formal home. Business was usually conducted informally in the local coffeehouses. In 1817, the exchange changed its name to the New York Stock & Exchange Board which later became the New York Stock Exchange. At this time, the exchange adopted a constitution that set the rules for trading. A group of stockbrokers met twice a day at 40 Wall Street to trade 30 stocks and bonds.
Over time, the exchange moved became the financial hub of the country and moved to its current location in 1865.
What Kind of Stocks Trade on the NYSE?
As of June 2022, the NYSE includes approximately 2,400 companies with a market capitalization of over $28.2 trillion. Although the NYSE trades stocks of all market capitalizations, it’s best known for trading the stocks of large cap companies. These have the benefit of being mature companies in mature industries. And many of these companies reward shareholders with dividends.
However, that also means that many of these companies are better suited for value investors as opposed to growth investors. In bear markets this stability can be a benefit for investors as these stocks tend to perform “less bad” than more volatile stocks. But in a bull market, these stocks are not likely to provide investors with the growth that they look for.
An interesting fact about how the NYSE and NASDAQ operate is that the companies with the five largest market caps on the NYSE are also listed on the NASDAQ exchange.
What Are the Listing Requirements For the NYSE?
The NYSE has strict guidelines that govern the types of companies that can list on the exchange. Here are the major requirements that all companies must meet:
The company must have at least 2,200 shareholders
The company must trade over 100,000 shares per month
The company must have a market valuation of over $100 million
The company must generate more than $75 million in annual revenue
However, there is at least one advantage of having such stringent requirements. That is the companies that meet the requirements generally find it easier to get more investors funds when they hold their initial public offering (IPO).
Once a company begins trading on the NYSE, it must continue to meet these requirements. If it doesn’t it can be delisted. In addition to these requirements, the stock must continue to trade above $1. If the price of a stock drops below $1 for more than 29 consecutive trading days, the stock receives an Initial Price Violation Notice.
At that point, the company has 10 days to provide the exchange with a plan for bringing their shares above $1.
How are Trades Executed on the NYSE?
For over a century, the floor of the NYSE was the place for investors to be. This meant trades were conducted by traders who ran buy and sell orders across the trading floor looking to broker a deal for their clients. But with the birth of the NASDAQ exchange in 1971, the New York Stock Exchange began conducting electronic trading.
However, the NYSE continues to conduct trades in an auction style. Brokers purchase stocks on behalf of their clients or firms. Every order features a broker who will enter the order electronically and a specialist who serves as the market maker for that stock. The specialist posts bid and ask prices and manages the actual execution of the trades. And there are still a handful of stockbrokers who still traffic buy and sell orders physically on the floor of the exchange.
How Does the NYSE Signal Investor Sentiment?
Like its counterpart, the NASDAQ, the NYSE measures the risk appetite of investors. When the NYSE is moving higher over a length of time, it signals that a “risk on” environment. Conversely when the NYSE moves lower over a significant period, it signals that investors are moving to a “risk off” position.
Some Final Thoughts on the NYSE
Financial news networks plan their programming schedule around the opening and closing bell of the New York Stock Exchange. It’s still considered a distinguished honor when individuals or groups are invited to ring the opening bell. In fact, Warren Buffett is attributed with saying that in the short term, the stock market acts like a voting machine. A fact that many U.S. presidents will attest to.
The NYSE is the oldest and most recognizable of all the stock exchanges. It also has the most stringent requirements for inclusion. And those requirements must be maintained even after a stock begins publicly trading on the exchange.
Although the NYSE still has a small in-person Trading Floor, much of the trading is done electronically to provide traders with the speed to execute trades.