Here’s How New York Stock Exchange (NYSE) Makes Money

UTC by Osaemezu Ogwu · 8 min read
Here’s How New York Stock Exchange (NYSE) Makes Money
Photo: Shutterstock

New York Stock Exchange (NYSE) is one of the most popular stock exchanges in the world. Here’s all you need to know about the company and its business.

New York Stock Exchange (NYSE) is among the top stock exchanges worldwide when consideration is given to the overall market cap of its securities. It has a market cap of around $28.5 trillion, a valuation that was ascertained in mid-2018.

As a stock exchange, investors can trade securities on the platform. Therefore, NYSE serves as a marketplace for investors to gain access to these assets. Asides from investors, companies can also take advantage of the platform by listing their stocks.

Companies that have registered on the platform can list their shares to be traded publicly. While New York Stock Exchange charges the company fees, it helps the latter raise money. Investors, on the other hand, hoping to invest in stocks will have to purchase and sell them on the platform.

NYSE is situated on Wall Street in New York. It advanced into a public organization in 2005 as a result of a deal with Archipelago, an online trading exchange. This means that prior to this time, the exchange was operated as a private entity. The popularity and expansion of the New York Stock Exchange can be tied to the high number of mergers it has gone through. It was just the NYSE at its inception but advanced by incorporating the American Stock Exchange.

Also, NYSE Euronext was bought in 2007, which can be attributed to a collaboration between Euronext. Nonetheless, Intercontinental Exchange, the owning company of NYSE acquired NYSE Euronext in 2013 and around $11 billion was paid for the platform. In 2014, Euronext sprang from ICE through an IPO even though ICE still owned the New York Stock Exchange.

Some History

The history of NYSE can be traced to 1792. At the time, twenty-four stockbrokers were signatories to the Buttonwood Agreement. The signees originated from New York. Accordingly, the platform launched after the agreement and there were only five securities on it.

A milestone was also hit in 1886 when NYSE traded a million shares within 24 hours. The record was broken in 1987 when five hundred million shares were exchanged on the platform in a day. It got even better by 1997 given that a billion shares were sold on the platform.

Key Dates for the NYSE

New York Stock Exchange has had a great history, hence, here’s an outline of the most notable events that occurred since its inception:

October 24, 1929

That’s the day of the most disturbing U.S. stock market crash. The crash started on Black Thursday into Black Tuesday, October 29. As such, there was a panic sale of shares between these days.

The crash came after another notable one that had occurred a month back. In this case, the London Stock Exchange crashed in September and it marked the start of the Great Depression. This crash impacted a good number of industrialized countries in the West.

October 1, 1934

On this day, the NYSE carried out registration with the SEC, and it enabled the organization to become a national securities exchange.

October 19, 1987

It was a time when Dow Jones Industrial Average (DJIA)  dumped by 22.6% within 24 hours. The dump in price amounted to 508 points.

September 11, 2001

After the 9/11 attacks occurred, it led to a shut down of trading on the NYSE. The shut down lasted for four days and on September 17, processes were continued. However, the temporary closure came with a major impact. There was a loss of around $1.4 trillion days after the continuation of trades. Besides, this is still the NYSE’s biggest loss since its inception.

October 2008

NYSE Euronext purchased the American Stock Exchange and the transaction was completed on this day. What was transacted is $260 million and the payment was made in stock.

May 6, 2010

There was also a major impact on the market as the Dow Jones tanked. In this case, there was an intraday drop and it’s considered the largest since the last one on October 19, 1987. Here, the Dow Jones dumped as far as 998 points and it was named the 2010 Flash Crash.

December 2012

ICE made a proposition to purchase the NYSE Euronext and this purchase was made as a swap in stock. The transaction was valued at $8 billion.

May 1, 2014

The SEC fined the NYSE $4.5 million in a bid to cover charges that stem from market rule violations.

May 25, 2018

It was another memorable day on the NYSE when the first female president of the exchange was elected. She is Stacey Cunningham.

Types of Commission Revenues

NYSE makes money through various ways and some of these have been outlined below:

Transaction Fees

Charging fees from all participants of its platforms enables NYSE to make a revenue. Usually, platform users get an exchange with stocks whose price they can agree on before the transaction occurs. NYSE also has to ensure there’s sufficient liquidity at each time.

Coupled with that, participants are charged a one-time fee as they register on the exchange. There is also a membership fee that has to be paid yearly to the NYSE. It’s also worth noting that these trades take place through licensed market participants.

Listing Fee Revenue

Companies list stocks on NYSE in a bid to raise funds from investors on the exchange. But first, they are required to meet the listing criteria of the NYSE, hold a trading license, and then pay the listing fee that is demanded once. The single-time fee is determined using the overall amount of shares that are required to be listed. The charges are also decided using certain corporate actions.

There is, however, a yearly fee the company is charged for listing and trading. What’s more, there’s the ability for the firm to list its assets asides from Equity. Other securities can include preferred stocks, options, and structured products.

Data Fee

There are different data that can be culled from the NYSE platform, and it charges fees from platform users that need this data. Some of its data include its real-time data, historical performance, summary data, and so much more. Data can help participants in investments as is the case of real-time data. Historical data aids in carrying out analysis. Coupled with that, there is data that is suited for auditing and reporting, and in this case, summary data is used.

Accordingly, the NYSE provides these different data using a range of data feeds, software products, etc. An instance is a trader looking to evaluate the high-frequency trading algorithm they had created would require the NYSE data. In contrast, historical data would interest a researcher on the lookout for the historical performance of an asset on the NYSE as of when the dividend was declared.

Other NYSE’s Key Sources of Income

NYSE also generates income using other sources, which accounts for its high revenue. Accordingly, it also raises funds in the following ways:

Software Revenue

There is a range of products and services from NYSE, which enables it to raise money. There’s the trading software, for instance, which is provided to wealthy investors including mutual funds.

Here, there may be co-location, and in this case, trading’s firm computers are stationed and controlled by the NYSE. The computers are also kept in the NYSE’s location, and offering specialized services while also having close proximity to the market. It results in quicker execution of trades.

Registration Revenue

There is a membership fee for participants of NYSE. Therefore, participants, brokers, etc. are required to pay the registration fee before trading on the exchange. There is also a fee charged for trading licenses.

Further, it is not crafted on a stone that an investor must be a part of the NYSE before they can make an investment. This is because they can resort to a brokerage that is registered with the NYSE. As a member of the NYSE, the brokerage will enable these investors to buy and sell assets from quotes offered to the brokerage from the NYSE.

Governance Services Revenue

There’s also the offer of corporate services to a certain customer base. These services may include risk and compliance services. Also, it’s worth noting that after ICE’s acquisition of the NYSE in late 2013, much data is not revealed to the public. Rather, its annual reports are merged for different exchanges of the ICE group.

Conclusion

NYSE is trusted by institutional and retail investors due to its long stay in the industry, which has earned it a reputation. It has served as a trading platform while also offering a basket of tools and data to increase a trader’s chances of making a profit. Based on its revenue, services, and products, it can be said that this exchange is a tough competitor with several out there. The same level of competition may be evident in years from now.

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