New York Stock Exchange (NYSE)

What it is:

The New York Stock Exchange (NYSE) is the oldest stock exchange in the United States, and it's located on Wall Street in lower Manhattan. It is the world's largest stock exchange by market capitalization of listed companies ($13.39 trillion as of March 2011).

How it works/Example:

Stocks, bonds, mutual funds, exchange-traded funds (ETFs) and derivatives all trade on the NYSE. The exchange also offers electronic trading products, historical trading information, and order-execution products.

The NYSE is an auction market where brokers and specialists buy and sell securities for people by matching the highest bidding price with the lowest selling price. This is one of the most distinguishing characteristics of the NYSE -- unlike the Nasdaq or other electronic exchanges, the NYSE has an actual trading floor at 11 Wall Street in New York.

Stocks, bonds, warrants, options, and rights are traded at 22 horseshoe-shaped installations, called trading posts, on the floor of the exchange. On the trading floor, the NYSE works in continual auction mode, where traders working on behalf of investors execute stock transactions. Traders congregate around a pre-ordained trading post where a specialist broker employed by an NYSE member firm behaves as an auctioneer in an "open outcry" auction environment, bringing buyers and sellers together.

The NYSE traces its origins to 1792, when 24 stockbrokers signed the so-called "Buttonwood Agreement" near Wall Street. The first company listed on the exchange was the Bank of New York. Today, the NYSE is operated by NYSE Euronext, formed by the 2007 merger of the NYSE and Euronext, an all-electronic stock exchange. In 2011, the NYSE and the Deutsche Börse merged.

The NYSE is open for trading Monday through Friday, between 9:30 a.m. - 4:00 p.m. U.S. Eastern Time (ET), excluding holidays designated in advance by the Exchange (click here to see the list of the NYSE Holidays). More than 1,600 companies are listed on the NYSE, and the average daily trading value hovers around $153 billion.

Also known as the "Big Board" or "The Exchange," the NYSE is an unincorporated association governed by a board of directors headed by a full-time paid chairman and comprised of 20 individuals representing the public and the exchange membership in equal proportion.

Operating divisions of the NYSE are broken down as follows: member firm regulation and surveillance; market operations; financial and office services; product development and planning; and market services and customer relations. Specialized staff groups are assigned to other functions, such as government relations, economic research, and legal and liability problems.

Why it Matters:

The NYSE ensures an orderly market for the trading of securities. In the eyes of investors, a firm that's listed on the NYSE has earned an important seal of approval, because of the NYSE's uniquely stringent listing requirements. Companies listed on the NYSE are generally perceived to be more well-established than companies listed on the NASDAQ or other exchange. However, this is not always the case.

The NYSE, in cooperation with the National Association of Securities Dealers (NASD), also offers an exam for registered representatives who are customers' brokers handling retail buyers and sellers.

For many, the NYSE is a symbol of all that is Wall Street. It is the place where fortunes are made and lost, and where the free market can be seen in its most tangible form.

Best execution refers to the imperative that a broker, market maker, or other agent acting on behalf of an investor is obligated to execute the investor's order in a way that is most advantageous to the investor rather than the agent.