FINANCE

Past, Present and Future of the New York Stock Exchange

Past, Present and Future of the New York Stock Exchange

Introduction

A stock market is a market for the trade of securities and other financial instruments. Like a market in books, transcription services, or labor, a stock market need not have a geographic reference, and it can be more or less fragmented into autonomous markets. More abstractly, the term stock market refers to aggregate supply and aggregate demand forces for securities. The supply of such securities is generally fixed, although new securities are issued from time to time by extant and new public and private corporate organizations. The principal actors in stock markets are investors (representing themselves or clients), brokers (who act as intermediaries between investors and the exchange and who may, on some exchanges, trade for themselves as well as their clients), and regulators. In contrast to the abstract stock market, a stock exchange is the organization and institution at which trading in stocks takes place—for example, the New York Stock Exchange.

The New York Stock Exchange is the largest stock market in the world money supply and the first number of companies assigned. Its volume in shares was surpassed by that of NASDAQ during the 90's, but the capital of companies listed on the NYSE is five times greater than the NASDAQ. The NYSE has an annual transaction volume of 21 billion dollars, including the 7.1 billion non-US companies.

Discussion

A wide variety of institutionalist scholars have made the reasonable argument that economic markets require certain legal, social, political, or cultural institutions in order to function. For example, the Nobel Prize-winning economic historian Douglass C. North has argued throughout his career that what distinguishes European and American economies from those in the developing world are the superior economic institutions in the former. Such institutions can be formal (for instance, legal property rights or government economic policies) or informal (for instance, norms, culture, or ideology). As North and others have contended, superior institutions structure human interactions so as to promote economic efficiency, minimize uncertainty, and thereby promote economic growth.

Recent researches have made a persuasive case for the necessity of certain basic institutions for the operation of a stock market. The scholars created a database of 49 countries that describes each nation's basic shareholder rights, creditor rights, and quality of law enforcement. Through a systematic comparison of the countries' legal rights and the quality of their stock markets, various researches have argued that only countries with a legal system that protects minority shareholder rights can allow dispersed ownership of corporations to occur and thus have a thriving stock market. The argument, as outlined in the first paragraph of their work, is quite intuitive. Who would voluntarily purchase an equity share in a corporation without legal protection from the majority shareholders (or from the controlling management), so as to ensure that the company will continue to behave as it has in the past? The scholars' intuitive finding was that only countries with strong minority investor protection legislation ...