Governance Issues at the New York Stock Exchange
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Details
Themes: Coporate Governance
Period : 2003-2004
Organization : NYSE
Pub Date : 2004
Countries : USA
Industry : -
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Case Code : BECG035
Case Length : 20 Pages
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Background Note
The history of the NYSE dates back to 1792 when the Buttonwood Agreement was signed by 24 New York-based stockbrokers and merchants. The agreement facilitated trading in securities between the signatories on a commission basis. In 1817, a formal organization - the New York Stock & Exchange Board (NYS&EB) was formed by brokers; the board also formulated rules and a constitution for conducting business. By 1824, the NYS&EB's annual trading volume had reached 380,000 shares and by 1835, the daily trading volume had increased 50-fold to 8,500,000 shares.
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By the 1850s, the NYS&EB had started formulating rules and regulations for listing companies. In 1853, the listing standards were formulated, and these made it mandatory for listed companies to provide complete information about outstanding shares and capital resources. In the late 1850s and early 1860s, the NYS&EB witnessed a turbulent period. In 1857, there was a sharp downward movement in trade due to the collapse of the Ohio Life Insurance & Trust Company. |
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In 1869, the NYSE abolished 'watering stocks'6 and introduced a new rule according to which all shares of companies listed on the NYSE had to be registered with banks or authorized agents. In 1872, the NYSE created the Specialist System (Refer Exhibit I for a note on the Specialist System). By the mid-1880s, the NYSE had also introduced telephone and paging systems to increase trading. In 1889, the exchange formed its first subsidiary -
The New York Quotation Company, for providing ticker services to its members. In 1892, the New York Stock Exchange Clearing House was formed to centralize securities transfers between brokers.
By the end of World War I in 1918, the NYSE had replaced the London Stock Exchange as the world's investment capital. Over the next decade, the public issues of around 1,800 foreign companies had been offered in the US market. In 1920, the NYSE established the Stock Clearing Corporation to provide a centralized system to enable the delivery and clearance of securities among members, banks and companies. In 1923, the NYSE witnessed a bull run7, during which stock prices increased rapidly for the next six years.
The bull run came to end in 1929 with the onset of the Great Depression. The NYSE started restructuring itself in the late 1930s. In 1938, it hired its first full-time salaried president, and in the following year it opened its first public gallery enabling the public to witness trading and thus bringing greater transparency in its operations. In 1943, the NYSE started allowing women on the trading floor. Beginning in 1945, there was another bull run on the NYSE.
This continued uninterrupted upto 1953. In 1954, the NYSE launched its first marketing campaign -
'Own Your Share of American Business' with the aim of educating investors and increasing public participation in the stock market. In the same year, it also launched a monthly investment plan, which enabled ordinary people to invest around $40 per month in the market by investing in NYSE members' special accounts. In 1961, the average daily volume on the exchange surpassed 4 million shares and in 1966, NYSE's composite index called the common stock index was launched.
5] A telegraphic system that continuously provides the latest sale prices and volume of securities transactions on exchanges. Information is either printed or displayed on a moving tape after each trade.
6] Stocks issued in secret before the initial public offering (IPO) are called watering stocks.
7] During a bull run, the prices of stocks keep increasing. A bull run denotes optimism in the market.