Governance Issues at the New York Stock Exchange

Background Note Contd...

In 1968, NYSE faced a paperwork crisis as member firms failed to process the transactions on time causing delays in stock transfers and payments. The paperwork crisis resulted in the demand for more automation in the exchange. In the same year, NYSE established the Central Certificate Service (CCS) for transferring securities electronically. The CCS was succeeded by Depository Trust Company (DTC) in 1973.

The implementation of the ITP was completed in 1995, and in the same year NYSE shifted to a three-day settlement period¹⁰ for listed equities. In the same year, Grasso was elected as chairman of the exchange. In 1996, NYSE launched its first real-time ticker on the CNBC and CNN-FN channels, and in the following year, it also started a wireless data system which allowed brokers to receive and execute orders from anywhere on the trading floor.

During the late 1990s, NYSE focused on upgrading technology because of increasing criticism of its outdated technology compared to NASDAQ's.¹¹ In 1999, the exchange had established a 3-D trading floor using up-to date technological systems such as plasma monitors and silicon graphics workstations to provide market information to the brokers. In 2000, NYSE shifted to decimal trading¹² and in the same year it announced plans for a NYSE Platform network comprising NYSE Direct+¹³, NYSE MarkeTrac¹⁴, NYSE OpenBook¹⁵, Institutional XPress¹⁶, and NYSE e-Broker¹⁷.

The early 2000s saw investor confidence in stock markets plummeting due to the dotcom bust. Investor confidence took a further beating after terrorist attacks in the US¹⁸, after which NYSE was closed for five days. In 2002, NYSE reported an average daily trading volume of 1.44 billion shares and annual revenues of $1.065 billion. The total number of listed companies on the exchange was 2,783. In mid-2003, NYSE was facing a lot of flak for its governance practices. Investors were additionally aggrieved to learn the size of Grasso's compensation package.

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8] The bid price is the price at which an investor, trader, or dealer wants to buy a security. The ask price is the price at which an investor, trader or dealer wants to sell a security.
9] A contract specifying the future date of delivery or receipt of a certain amount of a specific tangible or intangible product. The commodities traded in futures markets include stock index futures; agricultural products like wheat, soybeans and pork bellies; metals; and financial instruments. Futures are used by business as a hedge against unfavorable price changes, and by speculators who hope to profit from such changes.
10] The date by which an executed securities transaction must be settled, by paying for a purchase or by delivering a sold asset; usually three business days after the trade was executed (T+3); or one day for listed options and government securities.
11] National Association of Securities Dealers Automated Quotation (NASDAQ) is an automatic information network that provides brokers and dealers with price quotations on securities traded over-the-counter.
12] In decimal trading the quotation and trading of stock or bond prices are stated in decimals, as opposed to quotation in fractions.
13] An automatic-execution service for limit orders up to 1,099 shares, which enables users to opt for an immediate execution at the best bid or offer.
14] An online investor tool providing a 3-D connection to the point of sale, bringing individual investors closer to the trading floor and creating additional transparency in trading. Features include a virtual representation of the trading floor with news, an activity map and historical price charts; customizable portfolio and index tracking; and detailed quote views and performance graphs.
15] An information tool that offers a real-time view of the exchange's limit-order book for all NYSE-traded securities. Traders can see aggregate limit-order volume at every bid and offer price.
16] An electronic gateway designed specifically for the needs of NYSE member firms and their institutional customers.
17] A wireless handheld order-management tool facilitating seamless connectivity between floor brokers and off-floor locations by organizing orders, tracking executions, and speeding the flow of information. Using market "looks," a broker can provide his or her customer with current quotes, crowd participation, and other market insights directly from the point of sale.
18] On September 11, 2001, terrorists had attacked the US through airplane crashes on the twin towers of the World Trade Center and the Pentagon.