The Stock ExchangesWhile there are literally thousands of stocks, the ones bought and sold most actively are usually listed on the New York Stock Exchange (NYSE). The exchange dates back to 1792 when a group of stockbrokers gathered under a buttonwood tree on Wall Street in New York City to make some rules about how buying and selling was to be done. The NYSE has become the leading exchange in the United States, but the American Stock Exchange also operates in the same Wall Street area, and in much the same way, but on a smaller scale.
The NYSE, housed in a large building on Wall Street, does the bulk of trading in listed securities. On the trading floor more than 2,200 common and preferred stocks are traded. The NYSE has some 1,600 members, most of whom represent brokerage houses involved in buying and selling for the public. They buy "seats" on the exchange at considerable expense. They are paid commissions by the buyers and sellers who execute their orders. Almost half a million kilometers of telephone and telegraph wire link the NYSE with brokerage offices around the nation and across the globe.
Direct stockholders in American business number approximately 42 million. In addition, there are over 133 million indirect stockholders who share in the ownership of American corporations through their contributions or participation in pension funds (public and private), insurance companies, mutual funds, banks, foundations, colleges and universities.
How are stocks bought and sold? Suppose a schoolteacher in California wants to go on an ocean cruise. To finance the trip she decides to sell 100 shares of her General Motors stock. The schoolteacher calls her stockbroker and directs him or her to sell the shares at once at the best price. The same day an engineer in Florida decides to use the savings he has accumulated to buy 100 shares of General Motors stock. The engineer calls his broker and puts in a buy order for 100 shares at the market price.
Both brokers wire their orders to the floor of the New York Stock Exchange. The two brokers, one representing the widow and the other the engineer, negotiate the transaction. One asks, "How much do I have to pay for a hundred shares of General Motors?" The highest bid is $50.00 and the least amount for which anyone has offered to sell is $52.00. Both want to get the best price, so they compromise and agree on a buy/sell at $51.00.
The NYSE itself neither buys nor sells stocks; it simply serves as a mechanism by which brokers buy and sell for their clients. Each transaction is carried out in public and the information is sent electronically to every brokerage office in the nation.