Defining the Playing Field: Here's the Skinny on the Three Major Stock Exchanges

Article excerpt

How'd you like to play a game in which the rewards are real dollars in your pocket and security for your family?

The game is the stock market and the fields of play are the nation's stock exchanges. The most well known are the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX) and the National Association of Securities Dealers Automated Quotations (NASDAQ).

Every business day, these exchanges are scenes of frenzied activity. Members, specialists and traders rush to buy and sell billions of shares representing ownership in the publicly held companies that investors want to dump or acquire.

It's a simple cycle that begins when you want to buy a new stock or sell an old one. Your broker places an order on the exchange that trades your stock. The order is a flag to other investors that you want to buy or sell.

You can specify the price at which you want to buy or sell. When someone is willing to accept that price, the trade is executed. Or, you could opt to buy or sell no matter what the price is at a particular moment. This is called an open order, or buying "at the market." Word of a successful trade is sent back to the broker who placed the order, who in turn tells you that your request has been completed. Activity on these exchanges or markets is measured by indices such as the Dow Jones industrial average or the S&P 500 (see Moneywise, March 1995).

Securities firms or wealthy individual investors buy "seats" on the exchanges. A seat allows them to directly buy and sell stocks. A seat on the NYSE cost $760,000 as of last December. The record cost for a seat on the exchange was posted in September 1987 at $1,150,000. The most recent price of a seat on the AMEX was $152,000 with the record sale posted at $420,000, also in 1987.

There are many different exchanges, but the NYSE is the oldest and largest stock market in the United States. Its start can be traced back to an early morning in May 1792, when 24 business brokers met under a buttonwood tree in lower Manhattan. They agreed to establish a central marketplace for the buying and selling of shares. It took 94 years for the exchange to trade more than 1 million shares. Today, the NYSE trades 291 million shares a day.

In addition to paying for the privilege of being listed on the NYSE, a company must meet certain minimum requirements: It must have earnings of $2. …