Stock exchanges are essentially a place where stocks are traded. That being said, stockholders are given a share in the ownership of the company, and the company raises capital to further grow its operations.
The New York Stock Exchange is no exception, if anything it’s become symbolic in its ability to facilitate transactions between buyers and sellers. The New York Stock Exchange that’s headquartered on Wall Street has gained a presence in the financial world over the years—and will likely continue to hold that cachet.
What is the New York Stock Exchange (NYSE)?
The New York Stock Exchange (NYSE) is the world’s largest stock exchange (based on total market capitalization of its listed companies), sitting in the Financial District of Lower Manhattan, where equity shares of public companies are bought and sold. “It allows companies to raise capital in the public markets in an efficient way, where you can get good price discovery,” says Jamie Cox, managing partner for Harris Financial Group.
In May, the NYSE will celebrate its 231st anniversary and “continues to rank as the world’s largest stock exchange, with listed companies worth a total of $33 trillion,” says Michael Harris, NYSE’s global head of capital markets.
How the NYSE works
On the NYSE’s physical trading floor, brokers auction off shares of stocks for their clients. However, most trading is done electronically following the pandemic and increasing automation technology. Before the pandemic, the NYSE offered both physical and electronic trading, but was closed for a period of time following government lockdown restrictions.
“There were literal people that were doing the trading,” Cox says. “It still happens on the commodities exchange, but the New York Stock Exchange is largely electronic now, and so the floor brokers are there to facilitate the market.”
Those floor brokers essentially make a market for a particular company and its securities so that shares of the stock can be bought or sold, “and that way there's ample liquidity to move the shares from one person to another,” Cox says. Nonetheless, those market makers, as Cox refers to them, are “basically just facilitating the transactions with human interaction, but they're assisting the system's matching the buyers and sellers.”
Electronically, there’s a computer system that lists those looking to sell certain securities, and on the other side, those that have entered orders to buy. It’s the floor brokers through the electronic exchange that match up buyers and sellers on the price they’ve agreed on—Cox calls it “a modern day livestock market.”
NYSE listing requirements
For a public company to be listed and traded on the NYSE, it needs to meet a number of requirements, such as having:
- 400 shareholders
- 1.1 million publicly held shares
- a minimum share price of $4.00
- $40 million market value of those shares for IPO companies or $100 million for companies looking to list or transfer existing securities.
- Total pre-tax income earnings of at least $10 million in for the last three fiscal years (although there are some alternatives to this requirement).
These requirements are to ensure high-quality securities traded on the exchange. Harris calls them the “industry’s gold standard.” However, aside from the listing requirements, companies have to submit an application to be listed on the NYSE. It’s a four-step process including: choosing your market, reserving your ticker symbol, submitting your application, and selecting your designated market maker.
Companies can also be delisted from the NYSE if it does not comply with the exchange’s listing requirements. For example, if a company's stock price dropped below $1.00 for 30 consecutive trading days, then the NYSE would begin its delisting process.
When is the NYSE open?
From Monday through Friday, the ringing of the NYSE bell signals the opening and closing of the day’s trading. Its pre-opening trading session begins at 6:30 a.m. ET, when orders can be entered and queued. From 9:30 a.m to 4:00 p.m. ET, it’s the core trading session.
The NYSE is closed for trading on following holidays:
- New Years Day
- Martin Luther King, Jr. Day
- Presidents Day (or Washington’s Birthday)
- Good Friday
- Memorial Day
- Juneteenth
- Independence Day
- Labor Day
- Thanksgiving Day
- Christmas Day
How the NYSE has changed over time
The history of the NYSE dates back to 1792, when a group of stockholders established an agreement on how stocks could be traded, and in 1817 those informal trades had turned into a formal organization. The current building, that we know to be the NYSE, opened in 1903. It wasn’t until the 1970s that the first computers, made by IBM, were installed at the NYSE, which it says, more than tripled the number of shares sold by increasing the rate of trading substantially. And a decade later, its market capitalization topped $1 trillion. In 2005, NYSE launched a combination of floor-based auction and electronic trading, calling it the hybrid market. Ever since then, trading has consistently occurred electronically, with more transactions done electronically than on the physical floor.
The NYSE’s head of markets, Jon Herrick, says its “cutting-edge technology, coupled with the human judgment that floor traders bring to our market model at critical moments, creates a unique and unparalleled offering.”
NYSE vs. Nasdaq
The Nasdaq is an all-electronic exchange that’s much younger than the NYSE, with a lower market capitalization. That being said, investors tend to see companies listed on the Nasdaq as newer, riskier investments rather than those listed on the NYSE. “There's a certain cachet of being listed on the New York Stock Exchange, it's a legitimizing factor,” Cox says. Additionally, unlike the NYSE’s auction market model that calls for both buyers and sellers to bid, the Nasdaq’s dealer market model allows dealers to set prices, exclusively.
View this interactive chart on Fortune.com
The takeaway
Aside from the fundamental function of the NYSE, Cox says, it and other exchanges are incredibly important in terms of the information they store, which is something that’s not usually considered in the context of trading and investing. “The amount of information that goes across an exchange, during buying and selling, is incredibly valuable to financial institutions to determine momentum of stocks,” Cox says, giving an example. For that reason, Cox says, the NYSE is “probably more valuable for that particular part of their business than any other at this moment,” because firms and asset managers have become big enough that they can trade amongst themselves. So the function of trading has become less important over time, in his view, whereas the information passed across the exchange is almost invaluable.
