New York Stock Exchange Argumentative Essay Example

towers equipped with telescopes, flags and signal beacons transmitting information from one tower to another along lines running through New Jersey's mountains and ending in a station hub in New York City; this new system greatly improved upon traditional horseback messenger services narrowing the advantage enjoyed by New York speculators. Alexander Hamilton recommended that bonds sold to finance the Revolutionary War should be endorsed by fledgling federal government in 1789 rendering them valuable after being previously almost worthless. As such, free markets can only thrive where instantaneous transmission of information is possible.Hamilton's strategy of selling stock to the public in the first national bank in America paved the way for Wall Street to become the financial center of the United States. Securities quickly became a distinct industry with scheduled sales, as evidenced by the first "Bull Market" of 1792, which took place on the same street where Congress convened in New York. As stocks and securities grew in value, brokers emerged and formed partnerships offering their services for a fee or commission. The Philadelphia Board of Brokers was licensed in 1790 and played a crucial role in innovating the Philadelphia Stock Exchange. Under a large buttonwood tree on May 17, 1792, twenty-four men made an agreement to trade securities exclusively among themselves, known as "The Buttonwood Tree Agreement," which led to the birth of the New York Stock Exchange (NYSE). Although loosely organized at first, NYSE survived without significant success until it modeled its constitution after that of Philadelphia's successful exchange. This resulted in establishing NYSE as we know it today - The New York Stock and Exchange Board (NYSE).Advancements in telecommunications technology revolutionized the

stock market in 1846, following Samuel Morse's successful demonstration of the telegraph line two years prior. The telegraph provided up-to-the-minute information on stocks from cities across the US, allowing for more efficient trading and selling. By 1851, daily reports could be quickly distributed, and by 1867, the first ticker was introduced into trading. In 1957, the "black box" ticker was replaced with an automated version called the 900 ticker to provide current stock prices to traders. Super DOT followed in 1984, increasing computer trades and orders while off-hours trading brought additional automation in 1991. At its peak during the canal boom, NYSE became America's financial center before switching to decimal fractions at the turn of millennium. NASDAQ emerged as a floorless exchange system through internet technology that enabled brokers to monitor it anytime and anywhere starting from1971.Unlike NASDAQ's middlemen-free operation,NYSE uses specialists to conduct transactions for brokers which can prove costly and slow down trading with numerous competitors vying for handling trades per each stock on NASDAQ's open market or multiple-dealer system .In 1981, a computerized display system was introduced on the trading floor for traders to monitor global prices. Despite changes in the industry, conflict persisted between bulls and bears competing on the stock exchange. Similarly to past battles involving Drew, Vanderbilt, and Gould, bear raiders sought revenge against bullish opponents by hiring professionals to carry out attacks. As the economy and stock exchange grew, these battles became more substantial with increased shares traded between 1875-1885. Stocks began dominating trading instead of bonds as common stocks from railroad companies saw rapid growth although industrials such as Western Union Company and Edison General Electric also

rose. Bear raiders favored railroad stocks due to their liquidity and lower prices leading two German-American speculators into a struggle for them on NYSE similar to those carried out by Drew and Vanderbilt. Before J.P Morgan's involvement, Henry Villard from Prussia gained control over Northern Pacific Railroad after acquiring Kansas Pacific's receivership.At nineteen years of age, Heinrich Hilgard, later known as Villard, was born and he emigrated to the US in 1853. He moved to Colorado where he acquired a steamship company by borrowing funds. Later on, he merged his operations in the Northwest and used stock watering and planting favorable press reports to force stock prices up to almost $200 per share. His strategy of selling new stocks to pay dividends on existing shares fueled exponential growth. Villard's team utilized a popular tactic at the time for monopolizing transportation in the Pacific Northwest by purchasing all forms of available transport.

In 1873's speculative market, this tactic was still well-liked. However, when Villard found out about the $40-million bond issue led by J.P Morgan and August Belmont and Company that threatened his regional trade monopoly by rebuilding Northern Pacific railroad, he decided to buy it himself through forming investment money pools or syndicates. He bought all outstanding shares becoming its baron while breaking records for travel time using the final track laid for the line leading into Portland Oregon.

Villard celebrated his "success" by constructing a large mansion which dwarfed other robber baron's cathedrals on Madison Avenue.Despite his successful acquisition of Northern Pacific, Henry Villard's feud with Charles F. Woerishoffer, a renowned bear operator on Wall Street, ultimately led to his downfall. Woerishoffer began his career working

for Henry Budge before founding his own firm in 1876 and becoming famous for shrewd trading on both sides of the market. Villard accused Woerishoffer of disloyalty to the pool that financed the Northern Pacific deal, causing a rift between the two. Seeking revenge, Woerishoffer mounted a successful bear raid on Villard's holdings which caused the collapse of Villard's owned companies and northern Pacific stock prices. Some suggest that it was part of a larger conspiracy involving Morgan interests to drive Villard out of the railroad. Regardless, Villard was left penniless and forced to give up his Madison Avenue home to the railway company as a result.During the post-Civil War era, smaller NYSE member firms prospered by acting as paid plungers for others. The directors granted Villard a yearly allowance of $10,000 for his past services rendered and sought financial advice from Morgan and August Belmont. Although Villard briefly disappeared, he soon returned with an even more ambitious plan aimed at creating a monopoly. The NYSE had strict screening policies that required firms to meet high minimum standards in terms of capital size, number of shareholders, and proven track record. The exchange attracted large and widely held issues that were price-wise relatively stable while also adding costs to listed securities whose price fell below par or whose par value was less than $100. This discrimination against small capital-based companies caused difficulty for those in emerging industrial and commercial sectors such as land, mortgage, financial sectors, and mining industries. These rules made it nearly impossible to trade securities that did not generate the required level of trade volume in sufficient trade blocks with par value being

a crucial signal to unsophisticated savers during the nineteenth century. As a result, buying and selling stocks became expensive even if potential investors were willing to trade in normal lots due to the par value rule.Due to the charges imposed by the New York Stock Exchange, sophisticated investors and firms were unable to bear high transaction costs. As a result, both groups took their business elsewhere to rival exchanges. However, the number of informed domestic savers was small compared to unsophisticated peers. Despite this, as of 1910, the New York Stock Exchange still facilitated most equities and bond value that went through formal markets. Rival domestic exchanges struggled with mobilizing sufficient capital due to limited sophisticated investor participation. Nonetheless, British entrepreneurs capitalized on an opportunity to buy American enterprises and raise finance from relatively more sophisticated British investors via formal British capital markets. Although many American savers lacked capabilities for evaluating risky investment opportunities, some American entrepreneurs such as Andrew Carnegie could access savings of British investors by exporting securities to London and provinces directly. Most American savers in 1901 demanded official certification and relied on investment banks and the New York Stock Exchange for information.Despite the dominance of the NYSE, there were groups of sophisticated investors in Boston and Philadelphia who could evaluate investment alternatives without its services. These groups were growing and large investment bankers furthered investor education by placing quality stamps on some offerings. Even savers in Chicago who were reluctant to invest in well-established local enterprises were willing to buy stock in International Harvester thanks to J.P. Morgan & Co. Eventually, McCormick merged with a newly formed conglomerate that included International

Harvester, resulting in profitable investments that taught investors paper investments were not always uncertain. As a result, future purchases required less strong signals. The NYSE's success reducing informational asymmetries led to a reduction in its semi-monopolistic position as American savers became more educated and relied less on London for financial support for new industries and regions. This educational process continued for at least two more decades until World War I forced Britain out of the world's financial markets, allowing American savers to fill part of the gap.The following sources explore the history and growth of financial markets, including Stuart Banner's article "The Origin of the New York Stock Exchange, 1791-1860" (1998) in the Journal of Legal Studies. Also included are Warren Buffett's piece "Warren Buffett on the Stock Market" (2001) from Fortune magazine, found on EBSCOhost in 2007; Jonathan Barron Baskin's work "The Development of Corporate Financial Markets in Britain and the United States, 1600-1914: Overcoming Asymmetric Information" (1988), located on page 225; John Steele Gordon's article "A Short History of Financial Gravity" (1999) from Forbes ASAP volume 164, issue 4 on EBSCOhost; Birinyi Jr.Laszlo's piece "History's Lessons" (1999) from Forbes also accessed through EBSCOhost; Ranald C. Michie's book "The London and New York Stock Exchanges, 1850-1914," published by Allen and Unwin in 1987 on pages 170 and 198; Charlotte Sector's article "Tradition, Evolution: Markets March to Modernity" (2001) from Christian Science Monitor; John P. Shelton's work "The Rise of the Stock Market" featured in UNESCO Courier volume 49 issue 11 published November14th ,1996 as well as Emmanuel Vaillant’s contribution about stock market emergence which was published by UNESCO Courier also on November14th ,1996.