Most people I speak with had no idea that someone could simply “lease” or rent a seat at the Chicago Board of Trade or New York Stock Exchange. You leased a seat, found an investor to stake a bit of money, and started trading on the floor. There was a little more to it than that, but in elementary terms, almost anybody that had the money could have leased a seat and taken a shot at trading at the exchange. Remember, there are mainly two types of traders on the floors, those that work for firms and fill orders and the “locals” that are trading their own money. It was actually on this day back in 1869 that the NYSE first put memberships up for sale.
The New York Stock Exchange is arguably one of the most important financial institutions in the world. The biggest and most powerful companies in the world list their stock on the U.S. exchange, giving it a total global market cap of more than $25 trillion. The exchange has been in existence since 1792, starting out as a private entity run by 24 businessmen that signed the Buttonwood Agreement. The agreement eliminated the need for auctioneers—used frequently for wheat, tobacco and other commodities—and set a commission rate.
The exchange officially became the New York Stock & Exchange Board in 1817 after brokers operating under the Buttonwood Agreement instituted reforms and reorganized. Drawing from how their competitors in Philadelphia operated, the New York brokers implemented restrictions on manipulative trading and established formal organs of governance. The “Big Board,” as it was nicknamed, also began renting out unlimited floor seats, which cost nothing more than the $25 initiation fee. Members weren’t exactly lining up to get in, though. By 1825, only 70 stocks were listed. With the opening of the Erie Canal and New York’s harbor, the Big Board soon overshadowed Philadelphia.
Stock trading really began to flourish with the introduction of telegraphic communication, which further consolidated stock trading to New York. The New York exchange also weathered some financial disruptions better than others, including once dominant Philadelphia, helping to cement New York as the new financial center of the U.S. In 1863, the Board renamed itself the New York Stock Exchange.
Of course, New York’s increased stature also meant increased interest in acquiring a seat on the NYSE. On Oct. 23, 1868, the exchange vested a seat with property rights, meaning a membership could be sold at the market price or given to heirs. The exchange then began selling seats rather than renting them for the first time in its history. The NYSE capped the number of seats at 1,060 in 1869 to limit access to the trading floor, with that number soon rising to 1,100.
Back when it was “members only,” owning a seat was considered prestigious and prices were determined by supply and demand. The cost of a seat ranged from $4,000 in the mid-1800s to $3.575 million at the end of its heyday as a private entity in 2005. Demand for seats tended to wax and wane with the market’s fortunes. During the stock market boom of the 1920s, seat prices reached as high as $625,000. When the market crashed on October 24, 1929, the price fell to $68,000. In 1942, shortly after the end of the Great Depression, a seat cost a mere $17,000.
After weathering historic events such as the Wall Street crash in 1929 and Black Tuesday in 1987, the NYSE has remained the world’s largest stock exchange by market capitalization ever since the end of World War I. The exchange became a public company in 2006 and ended its private membership structure. At that time, the NYSE structure that allowed for seats changed. The remaining 1,366 seat owners received 80,177 shares of the newly public company, plus $300,000 in cash and $70,571 in dividends. I know you are wondering, as of yesterday the +80,000 hares would be worth more than +$8Million. The NYSE is owned, as of Sept. 2019, by Intercontinental Exchange (ICE), which bought it for over $10 billion in 2013. Below are some other fun facts about commodity trading exchanges: (Sources: Forbes, Investopedia, Americas Library)
First Commodity Traded: The earliest recognized futures trading exchange is the Dojima Rice Exchange, established in 1710 in Japan for the purpose of trading rice futures.
The LME: Western commodity futures markets started trading in England during the 16th century, but the first official commodity trading exchange in England, the London Metals and Market Exchange, was not established until 1877.
The Chicago Board of Trade (CBOT), formed in 1848. The CBOT arose in the aftermath of railroads and the telegraph connecting the agricultural marketplace hub of Chicago with New York and other cities in the eastern U.S. The first traded futures contracts in the U.S. were for corn. Wheat and soybeans subsequently followed, and these three basic agricultural commodities still account for the bulk of trading business conducted at the CBOT.
The New York Cotton Exchange (NYCE): The next large market to begin trading futures contracts was the cotton market. Forward contracts in cotton began trading in New York in the 1850s, leading eventually to the establishment of the New York Cotton Exchange (NYCE) in 1870. Futures contracts for other products developed over time, including commodities such as cocoa, orange juice and sugar. Massive U.S. cattle production in led to cattle and pork futures contracts.
The CME and NYMEX: The 1970s saw a large expansion in the futures trading markets. The Chicago Mercantile Exchange (CME) started offering futures trading in foreign currencies. The New York Mercantile Exchange (NYMEX) began offering trading in various financial futures, including U.S. Treasury bonds (T-bonds) and eventually futures in stock market indexes. The Commodities Exchange provided futures trading in gold, silver and copper, and later added platinum and palladium when gold ceased to be pegged to the U.S. dollar. The rapid expansion of trading in financial futures led to the creation of futures contracts on the Dow Jones and S&P 500 stock indexes.