Unit 2A:Stock ExchangesMr. ElsesserWall Street I
What is a Stock Exchange?• Central Marketplace where buyers and sellers meet to trade stock ▫ Members of a stock exchange are brokers who buy membership (seats) so that they may use the exchange.• Only members can trade on the floor of the exchange.
How does a company become amember of an exchange?• Must pay a “membership fee:” ▫ NYSE SEAT PRICE 1 $55,000 2 $250,000 3 $680,000 1999 $2.65 M 2005 $3.25 M
What does the exchange do?• Stock exchanges do not own the stocks being traded and do not set the prices of the stocks, but they do determine what stocks can be listed. ▫ Why might they be picky about what is listed? Working towards a reputation Reputable companies = more trades = profit
How does an exchange make money?• Using the NYSE as an example: 1. Collects Listing fees ($250 million annually) 2. Collects Brokers fees (software) 3. Market data distribution 4. Collects a few cents on every trade 5. Electronic book of specialist (Open book)
4 Major Exchanges:• New York Stock Exchange (NYSE)• American Stock Exchange (AMEX)• Over the Counter (OTC)• National Association of Securities Dealers Automated Quotation System (NASDAQ)
New York Stock Exchange (NYSE) Largest and oldest stock exchange Requirements to be listed on exchange: Pre-tax income of $2 Million Net tangible assets of $18 Million 2,000 shareholders who each have 100 or more shares (ex. Motorola, Disney)
DID YOU KNOW? The New York Stock Exchange actually left the Wall Street area once in its long history. In 1819, a yellow fever epidemic forced brokers to set up temporary quarters in Washington Hall at Broadway and Reade Street. The longest closure of the New York Stock Exchange occurred from July 31, 1914 through December 14, 1914. The uncertainty caused by the onset of World War I caused trading to be suspended for almost 5 months.
Notable Stock Moments: 1790 – The US government issues $80 million in bonds to help the debts accumulated during the Revolutionary War. 1792 – The Buttonwood Agreement is signed, marking the beginning of what has become known as the New York Stock Exchange. 1817 - The New York Stock & Exchange Board is officially established, with its headquarters at 40 Wall Street. 1868 – Membership in the NYSE is considered “property” which can be bought and sold at a price. The idea of buying and selling “seats” on the Exchange takes hold. 1886 – On December 15, trading volume exceeds one million shares on the NYSE for the first time.
Notable Stock Moments: 1913 – The Federal Reserve System is established. 1929 – The Great Depression begins as the stock market crashes, and stock values drop significantly. 1934 – The Securities and Exchange Commission (SEC) is established to act as a watchdog agency over the markets. 1970 – The Securities Investor Protection Corporation (SIPC) is created to insure customers against losses from insolvency. 1987 – The stock market drops 508 points, or 22%, on October 19, the largest single-day point drop in the history of the stock market. 1992 – The NYSE celebrates its 200th birthday.
NYSE AMEX(Formally the American Stock Exchange) Third largest stock exchange Stocks listed are smaller, new ones with smaller trading volume. Requirements to be listed on exchange: Pre-tax income of $750,000 1,800 shareholders who each have 100 or more shares
Over the Counter Market (OTC) A way of trading stocks rather than a place for trading stocks Stocks are traded by deals in a complex telephone and computer network, rather than on the floor.
NASDAQ(National Association of Securities DealersAutomated Quotation System) An organization of dealers that is self- regulated and requires dealers to follow reputable business practices. Stocks are traded over the phone lines through a network of computers that links dealers and brokers for the purpose of trading OTC stocks.
NASDAQ Orders for stock are sent out electronically on the NASDAQ, where market makers list their buy and sell prices. Once a price is agreed upon, the transaction is executed electronically.
NASDAQ Examples: Here are just a few of the “little start-ups” you’ll find on the NASDAQ: