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As America has grown, so has its economy.  Stock markets have always reflected those changes, from a country struggling for independence to a country leading the world in technological advances. 

In the Beginning

Two hundred  years ago, the hustle and bustle of the New York Stock Exchange was just a dirt path in front of a church called Trinity. Back then, people didn't even use paper money. Local traders gathered by the wall, a barricade built to protect the early settlers from Native Americans.  They exchanged pieces of silver for notes worth a certain amount of the food and products making their way on boats into New York harbor.

During the American Revolution, the new independent government needed to buy supplies for war. It did this by selling bonds. Bonds are loans to the government. People buy them knowing that they can sell them back later for more money.

By 1790, banks and insurance companies entered the market by selling parts of themselves, or "shares," to raise money. Whoever bought a share was a part-owner of the company, and became personally concerned with that company's future. This is the essence of the modern stock market.

In 1792, some of the traders decided to start their own exchange.  At number 40 Wall Street, they opened the New York Stock Exchange (NYSE). Twenty-four men signed an agreement to sell shares or parts of companies (stocks) to each other and charge outsiders commissions, or fees, to buy and sell stocks.

By the 1890s, Wall Street was booming. The Industrial Revolution created many new companies and everyone wanted to get in on the action. Many stocks that were deemed not important enough for the NYSE were traded outside on the side of the street, the curb.

The AMEX floor in 1921

"Curb trading" found a home when a group of investors opened the American Stock Exchange in 1921.   Today, AMEX  is the  second-largest "auction market."  Professionals trade shares on "the floor," a big open space where people shout and gesture to communicate whether they want to buy or sell stock.

A Changing World

Technology has advanced rapidly through the 20th century.  By the 1970s, computers started to play important roles in industry.  Many people thought the new businesses needed a new kind of stock exchange and the NASDAQ, which is pronounced "naz-dak," was born.  (It's easier to say than the National Association of Securities Dealers Automated Quotations.)

NASDAQ trades stock differently than other exchanges. There is no traditional "floor." Buyers and sellers don't yell out their requests or wave little pieces of paper. Instead, a computer network displays trades. Buyers can place bids and sellers can check prices from computer workstations. Many high-tech firms, including Microsoft, Intel, Sun, and Apple, prefer this method. They believe NASDAQ is faster and more flexible.

Unlike other exchanges, NASDAQ is run by dealers, or stock brokers who sell directly and keep the difference between the price you sell and the one someone else buys.  If you sold at $41, for instance, and the next person buys the share at $50, then the dealer bags the $9 for himself. 

But a few years ago, this system landed the NASDAQ in hot water. "Spreads,"  the difference between the selling and buying price, can grow wide.  The Securities and Exchange Commision, the federal agency that regulates stock markets, found that  NASDAQ was unfairly extending spreads through illegal arrangements between dealers.  Since 1996, it has had to limit orders with every trade.

Competing in a Global Market

The AMEX and NASDAQ are important exchanges that serve specific kinds of companies and investors.  But in America, and the world, the New York Stock Exchange (NYSE) controls more of the market because so many of the biggest and most well-known companies are traded on it.

The American Stock Exchange and NASDAQ want to become one company.  They believe they can better challenge the NYSE by pooling their resources.

Joining these two exchanges could blend the best of both worlds. Together, they could sell more shares-- potentially at fairer prices--than either could alone.

American Stock Exchange NASDAQ

Under the proposed merger, the National Association of Securities Dealers would buy all 864 AMEX seats and run both exchanges, adding new electronic features. This would fuse two pricing styles into one company big enough to compete with the New York Stock Exchange (NYSE).                     

"The AMEX-style system, a lot of people believe, provides more efficient pricing," explains TLW Securities Steven Maurer, who develops trading software. "In a dealer market [like NASDAQ], pricing depends more on the number of dealers involved."

The merger promises an "electronic limit order book" to reduce spreads. The new features, plus the auction market's rapid back-and-forth, would improve NASDAQ's credibility and its appeal. Meanwhile, the AMEX hopes to coax investors away from the NYSE -- often called the "Big Board" because of its popularity-- as it did when it first formed in 1921.

What's In A Name?

The floor of the AMEX exchange, 1998

So now, AMEX and NASDAQ are trying to form one company. The National Association of Securities Dealers would own both the NASDAQ system and the American Stock Exchange.

But it's not like a merger where Citicorp and Travelers start putting "Citigroup" on their stationery.  The  American Stock Exchange still will stand on lower Broadway and stocks still will trade on it, but another company will own it.

Under the merger, the AMEX will become a subsidiary of the NASD. In that sense, there will be one name for the company.

But the name for the auction market and the dealer market will both remain in use.  These exchanges survive on member fees rather than the sale of goods, so the name is less of a concern.

Some brand names have a value just because of the name, though. Corporate strategists call this "brand equity" because they have been around for a long time and have a good reputation for quality with customers. Buyers in corporate mergers don't let these brands die. So when Britain's Grand Metropolitan bought Burger King, you didn't start seeing "Grand Metropolitan: Home of the Whopper."

The AMEX brand communicates an affordable, responsive, and responsible auction market, while the NASDAQ represents high technology in stock trading. 

The federal government and two-thirds of each exchange's members still must approve the merger before it becomes official. If it does, the world may trade stocks with prices driven by an auction market's discipline and a high-tech market's speed.