In the market capitalization of listed companies, the New York Stock Exchange (NYSE), the world’s largest stock exchange, is listed by over 2,400 companies. The NYSE markets stocks, futures, goods exchanged and bonds. In 2006, NYSE merged into NYSE Group inc. and then, into the year 2007, into the Archipelago electronic stock exchange, integrating into the Euronext N.V. The US Stock Exchange purchased it in 2008, making it the world’s third largest options market and growing its product range. Its formation dates back to the year 1790 after the revolutionary war where the federal government issued bonds worth $80 million to repay the war debt. In the year 1792, twenty-four stockbrokers signed the “Buttonwood Agreement” resulting in a centralized exchange for the growing securities market (Ott 2). The new exchange headquarters were located at the Tontine Coffee House, and it was known as the New York Stock & Exchange Board (“NYSE History,”). The earliest securities traded were government and bank bonds only, but the securities had grown to 30 by the year 1817.
The exchange’s first president was Anthony Stockholm, elected in the year 1817. In 1860, the Historical price Quotation system was introduced where the closing price of stock was printed at the end of each day and sent to the broker. The system has had an enormous influence on corporate finance today because it provides the history of a bond’s and stocks historical prices since listing. Such information is essential for investment bankers when they are determining the cost of capital and analyzing mergers and acquisitions. In 1863, it shortened its names to the current name, New York Stock Exchange.
The year 1929 is significant in the history of the NYSE because it was when the stock market crashed, investors lost billions of dollars, and it marked the beginning of the great American depression. Crafts (13) points out over 9000 banks collapsed between the year 1929 and 1933, mainly as a result of weak laws and lax banking systems. Other stock crashes have occurred in 1987, the late 1990’s, and most recently in 2007.
The primary role of a stock exchange is to enable companies to raise capital from a pool of investors (Boubakari and Jin 15). In corporate finance, the main sources of capital are equity and debt, and the stock exchange connects these firms and investors. Companies can raise funds by issuing bonds or by selling their stock in an initial public offering. The stock exchange facilitates the transfer of funds between the investors and the companies, the trading of the issued securities, and the buying and selling of the different securities between investors. The New York Stock Exchange facilitates the trading of equities and bonds of the listed companies as well as providing the platform where investors can buy and sell the different securities.
The management of financial risk is a key concern addressed by corporate finance. Companies are exposed to various foreign exchange risks such as foreign exchange, interest rate, and credit risk. The management of such risks is incredibly complex, and firms have the option of entering into hedging transactions. Of greater importance is the fact that individual investors are also exposed to the same risks, and they need to find a way of managing risk. The derivatives market provides a means of investors and companies to manage financial risk (Don et al. 1) by enabling the transfer of risk to other parties for a price. The NYSE offers various derivatives such as equity and FX derivatives, options, and swaps to companies and investors who wish to manage their financial risks.
“NYSE History”. Stock-options-made-easy.com. N.p., 2017. Web. 26 Jan. 2017
Boubakari, Ake and Dehuan Jin. “The Role Of Stock Market Development In Economic Growth: Evidence From Some Euronext Countries”. International Journal of Financial Research 1.1 (2010): 14-20. Web
Chance, Don M., and Roberts Brooks. Introduction to derivatives and risk management. Cengage Learning, 2015
Crafts, Nicholas. “It Was A Failure Of Regulation.” New Statesman 137.4917 (2008): 13. Academic Search Premier. Web. 26 Jan. 2017.
Ott, Julia C. ““The Free and Open People’s Market”: Political Ideology and Retail Brokerage at the New York Stock Exchange, 1913–1933.” The Journal of American History 96.1 (2009): 44-71