The American Stock Exchange (AMEX) once commanded significant influence as the third-largest stock exchange in the United States, handling approximately 10% of all securities traded nationally at its peak. Today, this iconic institution is known as the NYSE American following its acquisition by NYSE Euronext in 2008. It had a series of rebrands, adapting titles such as NYSE Amex Equities and NYSE MKT over the years.
Key Highlights
- The American Stock Exchange (AMEX) once ranked third among U.S. stock exchanges in terms of trading volume.
- Acquired by NYSE Euronext in 2008, it is presently known as NYSE American.
- It primarily engages in trading small cap stocks today.
- Market makers on the NYSE American ensure liquidity and uphold an orderly marketplace for listed securities.
Unwrapping the American Stock Exchange (AMEX)
The AMEX carved its niche by pioneering new financial products and asset classes. Notably, it launched its options market in 1975, introducing contracts that allow holders the right, but not the obligation, to buy or sell an asset at a specified price before a determined expiry date. Along with options, AMEX provided comprehensive educational material to inform investors about the strategic benefits and inherent risks associated with options trading.
In 1993, the AMEX made a landmark innovation by launching the first exchange traded fund (ETF), a type of security that tracks an index or a composite of assets, much like mutual funds, but traded likes stocks on an exchange. This step into ETFs broadened investor access and set new standards for tracking indexes.
Over the decades, AMEX has solidified its reputation for listing companies unable to meet the stringent criteria of the NYSE. Today, substantial trading activities on the NYSE American involve small cap stocks, aligning with its operation as a fully electronic exchange.
Rich Historical Roots
Tracing back to the late 18th century, when brokers met in coffeehouses or on the streets to trade securities, AMEX earned the nickname the New York Curb Exchange. These street traders, known as curbstone brokers, vigorously engaged in trading stocks of nascent companies, especially those emerging in the railroad, oil, and textile industries.
To organize the rather chaotic curb trading, the New York Curb Market Agency established regulations in 1908. By 1929, it evolved into the New York Curb Exchange, featuring a formalized trading floor and standardized rules. The 1950s saw burgeoning growth as more companies listed their shares, and the exchange’s total company valuation soared. Consequently, in 1953, it was rebranded as the American Stock Exchange.
Looking Deeper
Over the years, the NYSE American became an attractive platform for innovative, growth-oriented companies still in early stages. Although it operates at smaller trading volumes compared to giants like NYSE and Nasdaq, there could be concerns over trade execution speeds and liquidity.
To maintain market liquidity—ensuring securities can be easily converted to cash without impacting market prices—NYSE American employs electronic designated market makers. These are firms or individuals ready to buy and sell specific securities throughout trading sessions, thus earning through the bid-ask spread and associated fees.
Through this exemplary use of market makers, despite lower volumes, NYSE American ensures an efficient and orderly marketplace, crucial for the trade of smaller and emerging companies.
Related Terms: Derivatives, Exchange Traded Fund, Market Makers, Liquidity, Small Cap Stocks, Options.
References
- The New York Times. “NYSE to Acquire American Stock Exchange”.
- New York Stock Exchange. “American Stock Exchange Historical Timeline”, Page 2.
- New York Stock Exchange. “American Stock Exchange Historical Timeline”, Page 1.
