What is the NYSE?
The New York Stock Exchange (NYSE) is the world's largest and most well-known stock exchange. But how exactly does it work?
April 12, 2022
With a market value of over $28.5 trillion as of mid-2018, the New York Stock Exchange (NYSE) is the world's largest and most well-known stock exchange. It’s the trading home for over 70 of the world's largest organizations, ranging from prestigious blue-chip companies to youthful and exciting high-growth companies.
Formerly a privately held firm, the NYSE is now a publicly traded entity owned by Intercontinental Exchange, Inc. It is traded under the ticker name NYSE: ICE.
The NYSE is headquartered in New York City, and the building, which also houses the exchange's renowned physical trading floor, was designated a National Historic Landmark in 1978. The NYSE acts as a central marketplace for buyers and sellers of public company stock — around 1.5 billion shares every day.
The exchange is home to many of the world's largest corporations, with sectors ranging from financial services to healthcare, technology and energy. Indeed, the NYSE trades a sizable portion of the S&P 500 and Dow Jones Industrial Average.
The history of the NYSE
The NYSE was founded in 1792 at 68 Wall Street, where 24 brokers and merchants drafted the Buttonwood Agreement, which set the regulations for trading securities.
Initially known as the New York Stock and Exchange Board, in 1863 it was renamed the New York Stock Exchange. At the time, the NYSE was exclusively for male traders. It was not until 1967 that a female merchant, Muriel Siebert, was permitted to trade.
NYSE became a not-for-profit corporation in 1971 and a publicly traded company in 2006. Additionally, during this period traders and the general public began trading equities electronically.
NYSE amalgamated with Euronext in 2007 and purchased the American Stock Exchange in 2008. The NYSE was ultimately acquired for $8.2 billion by the Intercontinental Exchange.
How does the NYSE work?
The New York Stock Exchange offers two trading platforms: all-electronic trading and brokers. All stock transactions, regardless of the mode of exchange, are auctions.
Brokers conduct aggressive trading on the NYSE floor. Sellers and buyers compete to obtain the best price for securities. Brokers act on behalf of the entity purchasing the stock, whether it is a retail brokerage firm or institutional investors such as pension funds. Brokers establish the "bid" price, the price at which an investor is willing to buy the stock.
A sell order executed by the stockbroker is not fulfilled until one of the dealers on the NYSE floor locates a buyer. Dealers and brokers must be NYSE approved and have a trading license before they can trade.
Brokers are matched with stock sellers, who present an "asking" price. It is frequently greater than the bid price. In this sense, it's almost the same as selling a home. The dealer is similar to a real estate agent in that he connects the buyer and seller. Dealers are compensated for their work by pocketing the difference between the ask and bid prices, minus fees and expenses.
The majority of transactions take place electronically. A computer serves as the dealer, bringing buyers and sellers together. Even the dealers and brokers obtain information and conduct business electronically.
How the NYSE composite index is calculated
In 1966, the NYSE Composite Index was formed with a 50-point base equal to the December 1965 close. It was developed to reflect the worth of all stocks trading on the New York Stock Exchange, rather than just a few top performers, as the Dow Jones Industrial Average does with its 330 best-performing equities.
The index was reintroduced in 2003 using a new methodology used by other popular US indexes. It increased the base value from 50 to 5,000 points, which corresponded to the 2002 annual close.
The index does not include closed-end funds, trust units, limited partnerships, derivatives or preferred shares under the existing methodology.
The NYSE listing requirements
A public firm must meet a few strict conditions before being listed on the exchange. According to structural requirements, all publicly traded businesses must have 1.1 million outstanding shares and a minimum of 400 shareholders.
Financially, listed businesses must have a minimum share price of $4 and a market value of at least $40 million for their publicly owned shares. Additionally, profitability benchmarks must be met.
Listed firms must have earned at least $10 million in the preceding three years and have a global market value of at least $200 million.
When is the NYSE open?
The NYSE exchange opens at 9:30 a.m. ET and closes at 4:00 p.m. ET. This practice dates back to 1870, when a Chinese gong was used. When the NYSE relocated to its current home in 1903, it adopted brass bells.
The NYSE utilizes the opening and closing bells to commemorate significant New York City or finance events. To be invited to ring is considered an honor. For instance, if a company has recently completed an Initial Public Offering on the NYSE, the company's CEO or the president of the company's board of directors is entitled to ring the NYSE bell.
The New York Stock Exchange is closed on nine U.S. holidays, including New Year's Day, Martin Luther King Day, Washington's Birthday, Good Friday, Memorial Day, Independence Day (July 4), Labor Day, Thanksgiving Day, and Christmas (December 25). Additionally, the New York Stock Exchange closes for the day at 1 p.m. ET on Black Friday and Christmas Eve (December 24).
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