Friday, December 30, 2005

History is for losers

After 213 years of being run as a non-profit organization, the NYSE, with the assistance of Arca, is finally being transformed to a for-profit, publicly-held, enterprise.

The NYX nay-sayer with the loudest microphone has been WSJ reporter, Aaron Lucchetti. He scribed numerous articles suggesting that the NYSE seatholders would have a hard time voting in favor of the NYX deal. For the months leading up to the 12/06/2005 vote, Lucchetti insisted that litigation, Langone, and Higgens would strong-arm other NYSE members into voting against the terms of the deal.

While Higgens wasted millions of dollars on his pathetic lawsuit, Lucchetti wasted valuable space in the WSJ, as well as the time of WSJ readers.

That said, Lucchetti drafts a mini-history of the NYSE in todays WSJ. And, his research is truly interesting to note.

The following is based on some of Lucchetti's research:

* Since the NYSE was founded in 1792, members have paid for the ability to trade on the NYSE. Memberships were known as seats since the early 1800s, when members sat in assigned chairs and stood to trade when stocks were called by an auctioneer.

* In 1868, the NYSE had a mere 533 seats. Folks seeking NYSE memberships could only obtain by purchasing a seat from an existing NYSE member. In 1952, following numerous increases in the supply of memberships (i.e., seats) the NYSE settled on having 1,366. By this time, "seats" went the way of carbon copies. Children today may ask what "CC" stands for in email sending options. And adults answer that long ago, we used carbon paper to make copies -- the name carbon copy stuck. Same with "seats." The name has stuck. And Thain has said publicly that he is committed to preserving the tradition of calling memberships "seats."

* In 1929 a seat sold for $625,000 (inflation-adjusted), an amount equal to more than $6 million today. For years, seatholders actually voted on applicants. Much like many fraternities during rush-week, members ("brothers"), actually voted by placing marbles in a box. Through the years, this fraternal entrance process has changed from a committee, to eventually, NYSE staff.

* In 1963, The US Supreme Court ruled that the NYSE could not reject memberships without fair procedures. Today, it can take months for a membership to be approved. Prospects must prove fiduciary soundness, a rich understanding of the markets, and other things in order to be admitted to the "club."

* The NYSE constitution that is kept in a locked credenza on the exchange's sixth floor is chock full of signatures from NYSE seatholders through the ages. Among the signatures are John D. Rockefeller's from 1883 and J.P. Morgan Jr.'s from 1895.

On 10/10/1953, the volume on the NYSE was 900,000 shares (the last time there was fewer than 1m shares traded for the day). 52 years later, billions of shares trade each day the market's open.

Today marks the end of one of capitalism's greatest traditions. However, it also stands to mark the beginning of one of capitalism's greatest technological advances. Colombia professor, Kenneth Jackson, the author of the Encyclopedia of New York (and other books), says, "History is for losers." His point is, evolution and advancments often occur at the expense of preserving tradition.

Today, Jackson's words ring in tandem with the closing bell.


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