What is the New York Stock Exchange (NYSE)?

The New York Stock Exchange is like a shopping mall…

When you go to your local mall, you can buy goods from all of your favorite stores. The mall isn’t the retailer selling the goods, but rather a facilitator that brings all of the buyers and sellers together. Similarly, the New York Stock Exchange (NYSE) is the marketplace where investors can buy and sell securities.

The New York Stock Exchange (NYSE), nicknamed the “Big Board,” is a marketplace where investors and brokers come together to buy and sell securities. The exchange is the largest in the world, with a market capitalization (the value of all shares) of more than $24T as of August 2022. Unlike some exchanges which run entirely on electronic trading, the NYSE still has a trading floor where brokers can go to make deals. The exchange was formed more than 200 years ago, and it’s where some of the world’s largest companies choose to sell their corporate stock.

The New York Stock Exchange (NYSE) dates back to 1792, with the signing of the Buttonwood Agreement, when 24 stockbrokers gathered beneath a Buttonwood tree on Wall Street and formally created the exchange. At the time, only five securities traded on the exchange. In its early years, people trading on the exchange were known as “curbstone brokers” because they executed their trades outside on the curb.

A few decades later, in 1817, the signers of the Buttonwood Agreement changed its name to the New York Stock and Exchange Board, later renaming it to the New York Stock Exchange as it’s called today. Though the exchange has moved several times, it’s mostly existed at its current location on Wall Street since 1865.

Once a private company, the NYSE is now a publicly traded corporation. In 2007, the NYSE went through a merger with Euronext, a European exchange, and the company’s name became NYSE Euronext. The exchange went through another major change in 2013: the Intercontinental Exchange of Atlanta acquired the NYSE for more than $8B, after the board of directors for each company approved the deal.

The New York Stock Exchange (NYSE) is a marketplace where investors can buy and sell stock in publicly traded corporations. Like other marketplaces, the NYSE relies heavily on technology to facilitate trades electronically. But unlike some other exchanges, the NYSE still has a trading floor where brokers can interact in person.

The NYSE works like an auction. Investors buy and sell securities to one another, and the highest bidder gets the shares. Brokers represent investors, buying and selling on their behalf for a fee or commission. They can participate from the trading floor or electronically.

The NYSE relies on three groups of people to keep things running smoothly:

• Designated market makers (DMMs) are the cornerstone of the NYSE model. The DMMs have obligations to maintain fair and orderly markets for their assigned securities. They also help facilitate trades and act as a point of contact for listing companies.
• Floor brokers are the stockbrokers who work on the NYSE trading floor. Brokers generally work for brokerage firms and represent clients who are individuals or organizations.
• Supplemental liquidity providers are members of the exchange that help make the market more liquid, meaning it’s easier for investors to sell their securities for cash.

The New York Stock Exchange (NYSE) Composite Index is kind of like a measuring stick that tracks the performance of all of the stocks trading on the NYSE. The index measures all domestic common stocks, which is a type of stock investors can buy that gives them ownership and voting rights within the company (and may or may not come with dividends). The index also measures American depository receipts (shares in a foreign company), real estate investment trusts (or REITs, which are companies that manage properties), and tracking stocks (stocks that companies issue to track a specific internal division).

The NYSE Composite Index includes about 2,000 stocks in more than 40 different industries. While some indexes are more narrowly focused in certain industries, the NYSE includes companies from many parts of the economy.

The NYSE Composite Index is market capitalization-weighted — The performance of certain companies within the Index gets more weight if those companies have more value in outstanding stock shares. For example, if one company has $100,000 worth of outstanding shares and another has $250,000 worth, the company with more share value (the higher capitalization) will generally have a bigger impact on the performance of the Index as a whole.

The NYSE Composite Index also offers a way for investors to indirectly invest in all or specific parts of the exchange. Investors can do so by investing in an index fund, a mutual fund, or an exchange-traded fund, which are investment funds that seek to track the performance of a particular stock index.

The New York Stock Exchange (NYSE) might be the world’s largest stock exchange, but it’s far from the only one. The second-largest exchange after the NYSE is the Nasdaq. While both are stock exchanges (a place where investors can buy and sell stocks), it’s worth noting their differences.

First, the Nasdaq is newer than the NYSE. While the NYSE dates back hundreds of years, the Nasdaq has only been around a few decades. When it got its start in 1971, the Nasdaq became the first fully electronic stock market. Unlike the NYSE, the Nasdaq doesn’t have a trading floor where brokers buy and sell securities.

In addition to the difference in age and location, the two differ significantly when it comes to how they work. The NYSE is an auction market, which means investors can buy and sell securities amongst themselves or through a broker. The Nasdaq, on the other hand, has dealers that act as a third party. Rather than selling stock to another investor, someone would sell to a dealer. The dealer then turns around and sells the stock to another investor. The dealers are financial professionals, often employed by brokerage firms.

Finally, the two exchanges differ in terms of the types of companies they host. The NYSE tends to be the home to companies that, like the exchange itself, have been around for a long time and are generally seen as relatively stable. The Nasdaq tends to attract more volatile stocks, many of which are growing rapidly. Many new tech companies have turned to the Nasdaq rather than the NYSE to do business.

The market capitalization (aka market cap) of a company is the total value of the shares currently held by shareholders. The market cap of a stock exchange is the dollar value of all outstanding shares on the exchange.

The New York Stock Exchange (NYSE) is the stock exchange with the greatest market cap in the world. The NYSE market capitalization of $24.2T is 30% higher than that of the Nasdaq, which has a market cap of about $18.6T, as of August 2022.

The NYSE is the larger of the two exchanges in terms of market capitalization, but the Nasdaq is catching up. In 2018, the NYSE hosted about $30B worth of initial public offerings (or IPOs, which is when a company issues publicly for the first time). In 2021, the Nasdaq hosted a total of $191.38B worth of IPOs, while the NYSE hosted only $109.25B worth of IPOs. Plus, the Nasdaq also saw faster growth than the NYSE between 2015 and 2019, growing 6% per year, compared to the NYSE’s 3% per year. Its spur growth in IPOs has helped the Nasdaq shrink the gap between its market capitalization and that of the NYSE, which used to be about double of that of Nasdaq's back in 2018.