IEX Group Inc. made headlines this summer when the Securities and Exchange Commission approved the alternative trading system operator’s proposal to become a new national stock exchange, making it the 13th U.S. stock exchange. But here’s a party trick: can you name the other 12?
Sure, we all know of the New York Stock Exchange and Nasdaq, but what about the other 10? It can be a bit of a trick question since, sure, Nasdaq is an exchange, but Nasdaq OMX Group is an exchange operator with multiple stock and options exchanges under its helm. And Nasdaq isn’t the only operator with multiple balls in the air.
Just between the Nasdaq and NYSE families, you can get to six of the 13 U.S. stock exchanges out there, with each group counting three different stock exchanges. Then there are four other U.S. stock exchanges owned by a different company, Bats Global Markets. Add two other independent exchanges — the Chicago Stock Exchange and the National Stock Exchange — and the total comes to 12. The newest to the group, IEX, makes 13. (There are also several U.S.-based options exchanges, but let’s stick to stocks for now, shall we?)
The number of exchanges today is remarkable, especially when you consider that the New York Stock Exchange was one of the only national players in town for more than a century, competing mostly with only a handful of regional exchanges. So, how did we come to this point?
Nasdaq emerged on the scene in the 1970s as the first major national competitor to the New York Stock Exchange, but it started out as an automated quotation system. And even then, NYSE and Nasdaq were the only national players in the game for years to come.
It wasn’t until the Securities and Exchange Commission introduced new regulation in 2005 that competition among exchanges really took off.
We know the history of U.S. stock exchanges is long and complicated, but here we’ll guide you through some highlights in this tangled tale, starting with the two largest U.S. exchange groups.
The New York Stock Exchange, NYSE Arca and NYSE MKT
One of the largest stock exchanges by trading volume, the New York Stock Exchange can trace its roots all the way back to 1792, when two dozen brokers met under a Buttonwood tree in lower Manhattan and signed an agreement to trade securities on commission.
In 1817, the stockbrokers of New York operating under the Buttonwood Agreement adopted some key changes and reorganized as the New York Stock and Exchange Board, giving birth to the storied exchange. Just a few decades later in 1865, the exchange moved into its present location at 11 Wall Street. (For more, check out our slideshow.)
By 1886, NYSE reached a major milestone: 1 million shares traded in a single day. Today, daily trading volume on the NYSE typically exceeds one billion shares, with much of the trading focused on shares of large and medium-sized companies. Though most trading today is done electronically, one of the most enduring images of Wall Street is that of traders crowding the NYSE’s chaotic, bustling floor.
The push toward electronic trading was part of what prompted the NYSE in 2005 to acquire a rival: the Archipelago Exchange, a fully electronic exchange focused on new and fast-growing companies, which had been operating on a national level since 2001. The Archipelago Exchange was renamed NYSE Arca, and continues to operate under that name today.
Not long after the Archipelago deal, the NYSE joined forces with another competitor — one with a history nearly as long as its own: the American Stock Exchange.
The American Stock Exchange got its unofficial start in the first half of the 19th century, with so-called "curbstone brokers" — brokers who, like the NYSE's original founders, traded outside, on specific streets in lower Manhattan and eventually formed what was later called the New York Curb Market. In 1953, the market, which had moved indoors decades earlier, renamed itself the American Stock Exchange.
In 2008, the two historic stock exchanges moved under one umbrella when the NYSE's then-parent company, NYSE Euronext, acquired the American Stock Exchange. The American Stock Exchange was later renamed NYSE MKT and, in contrast to the NYSE, generally focuses on trading in small companies.
Today, all three national stock exchanges — along with several other futures and options exchanges — are owned by the Intercontinental Exchange, a global markets operator.
The Nasdaq, Nasdaq BX and Nasdaq PSX
In 1971, the National Association of Securities Dealers, or NASD, aimed to revolutionize trading with the introduction of a computerized quotation system, which it named the National Association of Securities Dealers Automated Quotations, or more colloquially, Nasdaq. Nasdaq was the world’s first electronic stock market with quotes on more than 2,500 over-the-counter stocks.
NASD, a self-regulatory organization and a predecessor to the Financial Industry Regulatory Authority (FINRA), founded Nasdaq but began the process of separating from its trading arm some 30 years later, in 2000 to put the marketplace on more even footing with other trading platforms, including the NYSE.
As part of this process, Nasdaq applied for SEC approval to register as a national securities exchange, which was granted in 2006. The following year, it merged with a European exchange operator, and a new parent company for the Nasdaq, called NASDAQ OMX group, was born.
Though the Nasdaq is far younger than the NYSE, it has two small sister markets that can claim greater historical gravitas.
In 2007, Nasdaq acquired the Boston Stock Exchange, and the following year, the exchange group expanded further under the new name Nasdaq OMX, by acquiring the Philadelphia Stock Exchange. Both markets had the distinction of being among the nation's oldest regional exchanges, with the Philadelphia exchange founded in 1790, before the NYSE, and the Boston exchange launched in 1834.
Today, the Boston exchange is known as Nasdaq BX, while the Philadelphia Stock Exchange evolved into two separate markets — an options exchange known as Nasdaq PHLX and a separate stock exchange, launched in 2010, called Nasdaq PSX. Both exchanges are much smaller than the namesake Nasdaq, and offer different pricing and incentives for traders.
To continue our voyage through U.S. stock exchange history, check out the second part in our series.