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New York Stock Exchange (NYSE): Defined & Explained


The New York Stock Exchange (NYSE) appeared 231 years ago, immediately changed the US market, and became the largest marketplace for buying and selling assets in the world. Nicknamed the BigBoard, it guides all market participants. Global traders monitor the NYSE on a daily basis as it affects subsequent European and Asian exchange operations. The global economic ups and downs of the last 100 years also begin in New York. In this article, you will find out how the NYSE evolved and why everyone is watching it now.

Origins And Timeline Of NYSE 

In order to avoid a repeat of the crash, the Securities and Exchange Commission (SEC) was created in 1934 as a powerful regulator. It approved mandatory registration of exchanges and brokers, full disclosure by listed companies, and no credit purchases of assets allowed. At present, almost 25 percent of Americans own shares in various companies. Thanks to measures taken, the work of the New York Stock Exchange was interrupted only several times by force majeure (the exchange was closed from the beginning of September to December 1914, but it did not stop working during World War II). 

How The NYSE Works

At the NYSE, some of the trades are done by people and some are done by computers. It is one of the last exchanges to use a hybrid model. There are 500 to 1,000 brokers on the NYSE trading floor every day. On the other stock exchanges, paper transactions have become fully automated.

The NYSE is usually open on weekdays and closed on Saturdays and Sundays and observes nine federal holidays every year: it is not open on those days.

How The NYSE Shapes The Dynamics Of Other Exchanges

Capitalized at $28 trillion, it is the largest trading floor in the world. The exchange calculates some of the major indices in the world - the S&P 500, the Dow Jones, and the NYSE Composite. They include the most expensive US companies and reflect the dynamics of the entire market. That is why they are called indicators of the country's economy. When people say "the US market is down," they usually mean the NYSE indices.

For example, if a crisis happens and the stock prices of all major companies drop, it will affect the value of the indices. Analysts and investors look at the S&P 500 or Dow Jones, understand what is happening in the market, and make investment forecasts.

Because of the time zone difference, the US indices are calculated first, so the NYSE not only shows the state of the US economy but also affects all the major stock markets of the planet. For example, if the Dow Jones falls, it will affect the indices of other countries.

NYSE Vs Nasdaq: What's The Difference?

The Nasdaq, founded in 1971, is the second-largest stock exchange in the United States after the NYSE, with a market capitalization of $19 trillion, $5.5 trillion less than the NYSE. Despite their similarities, there are several key differences between the two exchanges. The NYSE used to operate both an electronic trading system and an in-house trading system staffed by live specialists before the pandemic. In contrast, Nasdaq has been fully electronic since its inception.

The NYSE uses an auction market to set prices, with buyers and sellers bidding competitively at the same time, resulting in transactions when the buyer's bid and the seller's offer match. In comparison, the Nasdaq dealer market model sets all prices through dealers who continuously update bid (sell) and ask (buy) prices throughout the trading day.

Listing fees vary significantly between the two exchanges. Nasdaq's Capital Market's lowest level has listing fees ranging from $55,000 to $80,000, while NYSE's minimum listing fee is $150,000. Investors typically consider NYSE as an exchange for older, more established companies, while the Nasdaq focuses on newer companies, particularly those in technology and innovation, making a Nasdaq listing potentially riskier for some investors.

NYSE Indices

There are many groups of indices on the New York Stock Exchange, including those beginning with the NYSE - surprisingly, given the huge capitalization of the New York Stock Exchange, most of the indices are not popular. However, there are interesting but little-known variants - for example the index of brokers NYSE Arca Securities Broker/Dealer Index (XBD), composed of the largest investment and brokerage companies (Charles Schwab, Goldman Sachs, E*TRADE Group, etc.).

NYSE Composite

The best-known index in this series is the NYSE Composite, consisting of more than 3,700 stocks (at the moment). It contains all companies present on the exchange. It is clear that most of the companies constituting the index are American, and the index value measured in dollars is in fact the average value of all shares on the NYSE. Accordingly, if we multiply the index value by the number of all shares, we will receive the market capitalization of the stock exchange.

S&P 500

The S&P 500 Index (Standard and Poor's) includes the 500 richest companies and comprehensively evaluates the US economy. It is the most important US index. It includes stocks of 400 industrial, 20 transportation, 40 financial-economic, and 40 utility companies. The 1941 base value is 10 p., in 2023it is within 4,100 points.

Dow Jones Index

The Dow Jones Index is the oldest existing US market index. It was created by Charles Dow, to track the development of American stock markets. The index was first published on May 26, 1896. Originally, the index was calculated as an arithmetic average of the stock prices of the 12 largest companies. Now a scaled average is used to calculate the index in order to maintain comparability with changes in the internal structure of its constituent stocks.

At present, the Dow Jones index covers the 30 largest US companies. It is the simplest and most commonly used indicator of the US economy. The list of companies covered by the Dow Jones index is revised with the development of the stock market. The editors of The Wall Street Journal compile the list.

Conclusion

The NYSE is the largest stock exchange in the world, by a notable margin from second place. More than a quarter of the world's stock market capitalization is concentrated here. Because of its high liquidity, many traders prefer to trade on the NYSE, but for investors, the exchange is attractive due to its concentration of many low-cost exchange-traded funds with low spreads. It is this exchange and its assets that have the most reliable long-term data - you can find calculations on the behavior of US stock and bond prices since 1800, while for many other markets, this range is no longer than half a century.

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