Welcome to another module of Smart Money! In the other modules, we’ve been focusing on the nitty gritties of the Indian stock markets. In this module, however, we’ll be delving deep into a parallel universe - the American stock markets. Now, you must be wondering why we’re about to get into the specifics of American stock exchanges, right? Here’s the answer.
Because, despite being an Indian investor, your investment choices are not just restricted to the Indian stock markets. In fact, you have the freedom to invest in American stocks and indices as well. So, to be able to make informed trading decisions with regard to the American stock markets, it is essential to be aware of everything there is to know about the American way of investing. Wouldn’t you agree?
That’s precisely why we’ve put together an entire module based on the American stock markets. So, without further ado, let’s start off by taking a look at the various stock exchanges in America.
American stock exchanges: A short history
Although the United States of America was (and continues to be) in the forefront of global finance, the honour of having opened the world’s first ever official stock exchange didn’t rest with the country. As a matter of fact, it was the British who snatched the title away. The first ever official stock exchange in the world was the London Stock Exchange (LSE), which was founded in the year 1773.
Not willing to be outdone by the British, the Americans then came up with their first ever stock exchange - the Philadelphia Stock Exchange (PHLX) - in the year 1790. They quickly followed it up with a second exchange - the New York Stock Exchange (NYSE) - in the year 1792.
Though the Philadelphia Stock Exchange was the first, the New York Stock Exchange managed to surpass it within a few years. Since then, the NYSE has been and continues to remain the largest stock exchange in the world.
Here’s a very interesting tidbit. The NYSE was first formed by a set of brokers under the cool shade of a buttonwood tree on Wall Street. Yes, you read that right. That legendary tree was situated in Wall Street, which is now widely considered to be the financial epicentre of the world. The agreement that the brokers and merchants signed together to establish the NYSE borrowed its name from that famous tree, and it came to be known as the Buttonwood Agreement.
Despite several other exchanges popping up along the way, the sheer dominance of the NYSE continued unchallenged for several decades since its inception. That is, until the year 1971. At this point in time came another challenger in the American markets - the National Association of Securities Dealers Automated Quotation System (Nasdaq). Since its introduction, Nasdaq has grown tremendously and is now considered to be a worthy competitor to the NYSE.
Major stock exchanges in America
Now, enough with the history. Let’s fast-forward a bit to the present. Currently, there are two major stock exchanges in America and you’ve been introduced to both of them - the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotation System (Nasdaq). Here’s some more information on the two.
New York Stock Exchange (NYSE)
As you’ve already read before, the New York Stock Exchange (NYSE) is the largest stock exchange not only in the U.S.A, but also the world. The total market capitalization of the exchange currently stands at $26.23 trillion as of February, 2021. Here’s another interesting tidbit. The total market cap of NYSE is so high that it exceeds the market cap of London, Tokyo, and the Nasdaq exchanges combined.
When the NYSE was first founded, it followed the open outcry system. However, to keep up with the times, the exchange transitioned to the electronic system of trading. And now, although more than 80% of the total transactions through the NYSE happen via the electronic mode, the exchange still keeps its floor open for physical trading. As a matter of fact, the NYSE’s physical trading floor still sees a lot of action even today, with a lot of bulk trades and institutional trading taking place there.
As with the Indian stock exchanges, the NYSE also operates from Monday to Friday. The exchange opens up for trading at 9.30 AM (EST) and closes up at 4.00 AM (EST), which effectively translates to 8.00 PM (IST) and 2.30 AM (IST).
National Association of Securities Dealers Automated Quotation System (Nasdaq)
While the NYSE is more like the American counterpart of the Bombay Stock Exchange (BSE), the Nasdaq has a lot of similarities with our very own National Stock Exchange (NSE). Unlike the NYSE, the Nasdaq doesn’t have a physical trading floor and is completely electronic, just like the NSE.
Although the NYSE has a larger market capitalization, the Nasdaq has the distinction of having more number of companies listed on it. In addition to that, the exchange also has the honour of being the largest completely electronic stock market in the world. The relatively modern infrastructure, its proprietary electronic systems, and lower listing fees are some of the key things that make Nasdaq widely popular amongst both the investors as well as companies listed on the exchange.
Created by the National Association of Securities Dealers (NASD), the Nasdaq has more relaxed listing requirements and regulations. This makes the exchange a very favourable destination for startups and other nascent companies to gain access to capital. The Nasdaq also follows the same opening and closing times as the NYSE.
Other stock exchanges in America
The NYSE and the Nasdaq are far from the only stock exchanges available in the U.S.A. Although these two are the primary ones that you should concern yourself with as an Indian investor looking to invest in the American stock markets, there are several other smaller exchanges as well that you should know about. Check these out below.
- Philadelphia Stock Exchange (PHLX)
- Boston Stock Exchange (BSE) - includes both the Boston Equities Exchange (BEX) and the Boston Options Exchange (BOX)
- Chicago Stock Exchange (CHX)
- Chicago Mercantile Exchange (CME) - world’s largest commodity derivatives exchange
- Chicago Board Options Exchange (CBOE)
- Chicago Board of Trade (CBOT)
- International Securities Exchange (ISE) - includes both the ISE Options Exchange and the ISE Stock Exchange
- Miami Stock Exchange (MS4X)
- National Stock Exchange (NSX)
Wrapping up
Hope you’ve gotten more than a fair idea of the different stock exchanges in America. In the next chapter, we’ll be focusing on the different American stock indices and their significance. Till then, stay tuned!
A quick recap
- The Philadelphia Stock Exchange (PHLX), set up in the year 1790, was the first stock exchange in America.
- This was quickly followed up by a second exchange - the New York Stock Exchange (NYSE) - in the year 1792.
- Though the Philadelphia Stock Exchange was the first, the New York Stock Exchange managed to surpass it within a few years.
- Despite several other exchanges popping up along the way, the sheer dominance of the NYSE continued unchallenged for several decades since its inception. That is, until the year 1971, when the National Association of Securities Dealers Automated Quotation System (Nasdaq) was launched.
- The New York Stock Exchange (NYSE) is the largest stock exchange not only in the U.S.A, but also the world.
- As with the Indian stock exchanges, the NYSE also operates from Monday to Friday. The exchange opens up for trading at 9.30 AM (EST) and closes up at 4.00 AM (EST), which effectively translates to 8.00 PM (IST) and 2.30 AM (IST).
- Unlike the NYSE, the Nasdaq doesn’t have a physical trading floor and is completely electronic, just like the NSE.
- Although the NYSE has a larger market capitalization, the Nasdaq has the distinction of having more number of companies listed on it.
- In addition to that, the exchange also has the honour of being the largest completely electronic stock market in the world.
- Created by the National Association of Securities Dealers (NASD), the Nasdaq also follows the same opening and closing times as the NYSE.
