The New York Stock Exchange seems like it’s been around forever, but it only dates back to the late 1700s. Legend has it that 24 people formed what would later become the NYSE under a tree on Wall Street. The first company offered on the exchange was the Bank of New York, now known as BNY Mellon.
The New York Stock Exchange didn’t form overnight, but early stocks included the Bank of New York, the First Bank of the United States and a group of insurance companies.
The Creation of the NYSE
On May 17, 1792, a group of 24 stood beneath a Buttonwood tree on New York City’s Wall Street, or so legend has it. Together, that group came up with an agreement that would change the way stocks were traded forever. Before that agreement, which became known as the Buttonwood Agreement, individual auctioneers were used to trade commodities. This agreement set a commission rate and named the Tontine Coffee House as its headquarters.
However, it would still take nearly 25 years for that organization to become the New York Stock & Exchange Board, which was shortened to the New York Stock Exchange in 1863. Gradually, the board began expanding beyond government bonds and bank stocks to include corporations. This move helped New York City become the financial center of the U.S., a position previously held by Philadelphia.
First Company Listed on NYSE
There were five securities traded in New York after the inception of the Buttonwood Agreement. Among those was the Bank of New York, which is recognized as the first publicly-traded company connected to the New York Stock Exchange. Known today as BNY Mellon, the Bank of New York was founded in 1784 by Alexander Hamilton.
The early years of trading in New York limited trades to the Bank of New York, The First Bank of the United States and a small number of insurance companies. Government bonds known as Hamilton Bonds were a big part of that early trading activity. Hamilton Bonds were issued by Alexander Hamilton to help the U.S. recover from debt from the Revolutionary War.
Buttonwood Agreement Participants
The group of people standing beneath that Buttonwood tree was a mix of business owners, stockbrokers and others. Here’s the full list of the individuals and businesses named on the agreement:
- Peter Anspach
- Armstrong & Barnewall
- Andrew D. Barclay
- Samuel Beebe
- G. N. Bleecker
- Leonard Bleecker
- John Bush
- John Ferrers
- Isaac M. Gomez
- Travis Handak
- John A. Hardenbrook
- Ephraim Hart
- John Henry
- Augustine H. Lawrence
- Samuel March
- Charles McEvers Jr.
- Julian McEvers
- David Reedy
- Robinson & Hartshorne
- Benjamin Seixas
- Hugh Smith
- Sutton & Hardy
- Benjamin Winthrop
- Alexander Zuntz
New York Stock Exchange Building
Although the first stock may have been exchanged when the NYSE was in the Tontine Coffee House, from 1817 to 1819, the exchange used rented space at 40 Wall Street, followed by a series of temporary locations, until 1827. In 1827, the exchange relocated to the Merchants’ Exchange until the building was destroyed during the Great Fire of 1835 when the exchange once again resumed moving from one temporary location to another.
In 1865, the NYSE moved to its current location at 11 Wall Street, a Neo-Classical building that was registered as a historic landmark in 1978. Wall Street was named for a 9-foot wall built in the 1600s during the first Anglo-Dutch War. The wall, built by the citizens of New Amsterdam, was designed to keep America’s English colonists out.
Early European Trading
New York didn’t invent commodities trading, so it’s no surprise that the first stock exchanges predate America’s founding. The first known instance of trading occurred in Europe, starting with lenders exchanging debts with other lenders. At the same time, lenders were also buying government debts and selling their debts to investors.
Venetians actually kicked off trading in the 1300s, when they began trading securities from other governments. Similar to the way stockbrokers operate today, Venetians would carry around slates announcing the issues for sale. The Amsterdam Exchange was the world’s first stock exchange, in 1602, followed by the Paris Bourse in 1724.
The London Stock Exchange
As with the NYSE, the London Stock Exchange has an interesting kickoff story. Legend has it that London’s exchange kicked off in a coffeehouse in 1698. After the Great Fire of London, a group of brokers built a new building that had a coffee room in 1773, which was the first time the brokers’ meeting place was referred to as The Stock Exchange.
However, the London Stock Exchange didn’t become formal until 1801, moving to a new building in 1802. Surviving both World Wars and a bombing, the London Stock Exchange is considered one of the top exchanges in the world.
The Philadelphia Stock Exchange
The London Stock Exchange wasn’t the only one to get its start in a coffeehouse. In 1754, a Philadelphia businessman raised £348 in order to build a coffeehouse, which initially drew in merchants, slave traders and business owners. Through the coffeehouse, investors pooled funds to support General George Washington during the Revolutionary War.
In 1790, investors put together the Philadelphia Board of Brokers to focus on trading government bonds and notes. Fees were instituted in 1796, but the exchange primarily dealt in trading banks and insurers, as New York’s exchange would do in its early years. Early participants included The First Bank of the United States and the Pennsylvania Bank.
The First Company to Trade
The Bank of New York was not the first publicly-traded company in the world. That honor goes to the Dutch East India Company, which traded on the world’s first exchange, the Amsterdam Stock Exchange. Interestingly, the Dutch East India Company was motivated to issue stocks out of fear of pirates raiding their ships.
What did this company do that made its stock so valuable? It actually had a monopoly in the spice trade, with its ships carrying spices everywhere. Unfortunately, though, in that time a ship had only a 30 percent chance of making it to its destination without sinking or falling prey to plundering pirates. Stocks were seen as insurance against this, allowing people to pay for multiple ships to bring spices over rather than putting all their money into one ship and taking that risk.
The NYSE Dominates
When it was founded, the New York Stock Exchange was far from the only game in town. Competition to become America’s financial leader was fierce, with Baltimore, Charleston, St. Louis and Boston competing with New York for the honor. After the first company listed on NYSE, all of these areas had to weather financial crises and, even with a fire, New York’s stock exchange remained strong.
After the fire, the New York Stock Exchange stepped up its game, establishing the position of paid president and charging membership dues. In the mid-1800s, telegraphs came along, allowing investors to keep up with their investments and changing investing forever. This technology eliminated the need for multiple auctions, which eventually led New York to take over as the top stock exchange in the U.S.
The NYSE may not have been the first stock exchange, but it dominated the country from the early 1800s forward. However, it faced competition in the form of the NASDAQ, founded by the National Association of Securities Dealers in 1971 to take advantage of electronic trading opportunities. Today, the NYSE and NASDAQ account for the vast majority of trading across the world.
The NASDAQ isn’t really an NYSE competitor since the two operate very differently. The NASDAQ is a dealer’s market, which means participants transact through a dealer. The NYSE, on the other hand, is an auction market, which means transactions occur between individuals, without the intervention of dealers.
The First Bell
Today, when you think of the New York Stock Exchange, it’s hard not to associate it with that all-too-familiar bell that lets the world know the market is both open and closed for business each trading day. As significant as the first company listed on NYSE is the inception of that bell, which wasn’t always a part of the exchange.
The original signal wasn’t a bell at all but a gong, which started signaling the start and end of business on the stock exchange in the 1870s. In 1903, a brass bell replaced that gong, with a large, electrically-operated bell brought in to ensure the sound was heard throughout the building. Over time, the stock exchange evolved into the system it uses today, which incorporates one bell for each of the four trading areas. But those bells are operated using one button, which is controlled from a central panel.
The Stock Exchange Floor
Prior to the electronic era, the NYSE trading floor was an essential part of the trading process each day. In 1878, telephones were installed on the floor, giving traders a way to directly communicate with investors. The trading method used was called Open Outcry, which had the traders using a combination of verbal and hand signals to convey what they wanted to do, including prices and stock names.
The days of intense trading floor activity, also known as “the pit” have faded a bit, thanks to electronic trading, but they aren’t gone completely. Sure, much of the trading is done in a New Jersey-based NYSE data center, but you’ll still find quite a few brokers milling around, especially as closing bell approaches. Some speculate that these humans are around merely for show and that they no longer play an integral role in most of the activity that happens every day.
Stock Market Crashes
The market has understandably had its ups and downs since the first stock was traded. Although there have been troubling times, the U.S. has only suffered four major stock market crashes since its inception, with each one seeing a recovery period afterward.
- The Stock Market Crash of 1929 – This is the one you see in the history books. The strong economy of the '20s led people to overborrow, which caused many to go into bankruptcy. The market fell 12.82 percent on what became known as Black Monday, which was the fourth day of the crash. Unfortunately, the U.S. took a full 12 years to recover from this crash.
- The Stock Market Crash of 1987 – As with the 1920s, the 1980s were known as a time of extravagance and overspending. But that strong economy had to go somewhere, and it did, in the form of another Black Monday, this one on Oct. 19. Junk bonds and margin accounts were blamed for this particular crash, which resulted in the stock market losing 23 percent of its value.
- The Dot-Com Bust of 1999-2000 – Long after the first publicly-traded company hit the NYSE, the internet transformed everything, including the stocks people bought. Overinvestment in tech stocks led many investors to realize their portfolio was worth nothing as investors began selling.
- The Stock Market Crash of 2008 – The real estate market was to blame for the 2008 crash, which had to do with the overuse of mortgage-backed securities. The government bailed out some banks, and the economy gradually recovered.
Video of the Day
- FXCM: New York Stock Exchange (NYSE)
- United States History: New York Stock Exchange
- Encyclopedia Britannica: The Bank of New York Company, Inc.
- Time: How a Financial Panic Helped Launch the New York Stock Exchange
- Revolvy: Buttonwood Agreement
- NPGallery: National Register of Historic Places Inventory -- Nomination Form
- Investopedia: London Stock Exchange (LSE)
- TradeCrowd: A History of London Stock Exchange
- The Encyclopedia of Philadelphia: Philadelphia Stock Exchange
- Investopedia: The NYSE and Nasdaq: How They Work
- NYSE.com: About the NYSE Bell
- Investopedia: Trading Floor
- Quartz: Why Robot Traders Haven’t Replaced All the Humans at the New York Stock Exchange—Yet