1. Unit 2A:
Stock Exchanges
Mr. Elsesser
Wall Street I

2. 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.

3. How does a company become a
member 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

4. 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

5. 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)

6. Where are the major US exchanges
located?

7. 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)

8. 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)

9. 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.

10. 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.

11. 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.

12. 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

13. 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.

14. NASDAQ
(National Association of Securities Dealers
Automated 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.

15. 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.

17. NASDAQ Examples:
 Here are just a few of
the “little start-ups”
you’ll find on the
NASDAQ: