The Birth of the World's Greatest Stock Exchange

On this day in economic and business history...

The New York Stock Exchange (UNKNOWN: NYX.DL  ) was founded on May 17, 1792, when 24 stockbrokers signed an agreement establishing the basic rules for stock trading. This document was named the Buttonwood Agreement, because these pioneering stockbrokers would regularly meet beneath a buttonwood tree on New York City's Wall Street, like some sort of elven capitalists, to hammer out the structure of the eventual New York Stock and Exchange Board, which was formally established in 1817.

The familiar stock exchange we know today -- the iconic neoclassical building with the wide-open trading floor -- did not open until 1903. Before that time, the NYSE occupied several places in downtown Manhattan. Its first location, at 40 Wall Street, was destroyed by a catastrophic 1835 fire that burned more than 700 buildings to the ground and ruined the city's insurance industry. The NYSE's next permanent home was built on Broad Street in 1865 and was the site of some of America's most notable 19th-century panics. It was the location that experienced multiple booms and busts generated by the nascent railroad industry, which became a national investing obsession following the completion of the Transcontinental Railroad.

As the nation grew, the NYSE grew along with it. Daily trading volume frequently surpassed 250,000 shares at its 1865 location, and after the turn of the century an occasional million-share day was witnessed on the trading floor. This period also marked the beginning of the Dow Jones Industrial Average (DJINDICES: ^DJI  ) , which was surprisingly little changed from its creation in 1896 to a low point in 1921, before the market took off and brought the NYSE the most action in its already extensive history. These 25 years experienced a total growth of just 50%, which is about as much growth as the market enjoyed in 1928 alone as it roared toward a multidecade peak.

The Roaring '20s and its attendant investing mania brought so much interest to the markets that the NYSE began experiencing million-share trading days far more often than not, culminating in the first eight-digit-share day on 1929's Black Tuesday, when frenetic trading in 16.4 million shares so snarled the exchange's antiquated recording mechanisms that they nearly fell apart.

The next great wave of growth didn't arrive until well after World War II, when a digitizing world began to seek out easier ways to trade. The NYSE became fully automated in 1966, which soon pushed the exchange's executives to dismantle a century-plus tradition of fixed commissions. Once the floodgates were open to both computerized trading and retail investing, there was no turning back. By the start of the 1980s, trading volume had climbed well beyond 10 million shares per day. By the time Black Monday crashed the market in 1987, the NYSE consistently experienced trading in more than 100 million shares -- Black Monday itself was the first half-billion-share day in NYSE history.

Billion-share days became common by the start of the 21st century, but the NYSE found itself struggling to find real financial growth. Thus the NYSE became NYSE Arca in 2006 following a merger with the Archipelago Exchange, and then NYSE Euronext in 2007 after merging with Euronext, a Dutch-based exchange with one of the world's largest market caps. The world's biggest exchange (with a total market cap of more than $16.5 trillion) almost became the only real game in town in 2011 when Nasdaq OMX (NASDAQ: NDAQ  ) proposed an $11 billion merger. Regulatory opposition scuttled the deal on May 17, 2011, 219 years to the day after those 24 founding stockbrokers first gathered beneath a buttonwood tree. However, that's not the end of the NYSE's story. In December 2012, the Intercontinental Exchange (NYSE: ICE  ) made a cash-and-stock offer to acquire NYSE, which stands a much greater chance of clearing antitrust hurdles. As the NYSE's stock has climbed to 52-week highs, the value of the deal has exceeded $10 billion.

It took the NYSE more than 100 years to reach its first million-share day, and roughly another century to see trading surpass a billion shares per day. What sort of scale will the exchange reach by the end of its third century? Will computers zip trillions of trades through the NYSE's hardware in 2092? Will the exchange still exist? For this most venerable of stock markets, momentous change now seems to be only just around the corner.

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