There are thousands of stocks, but shares of the largest, best-known, and most actively traded
corporations generally are listed on the New York Stock Exchange (NYSE). The exchange dates its origin back to
1792, when a group of stockbrokers gathered under a buttonwood tree on Wall Street in New York City to make some
rules to govern stock buying and selling. By the late 1990s, the NYSE listed some 3,600 different stocks. The
exchange has 1,366 members, or "seats," which are bought by brokerage houses at hefty prices and are used for
buying and selling stocks for the public. Information travels electronically between brokerage offices and the
exchange, which requires 200 miles (320 kilometers) of fiber-optic cable and 8,000 phone connections to handle
quotes and orders.
How are stocks traded? Suppose a schoolteacher in California wants to take an ocean
cruise. To finance the trip, she decides to sell 100 shares of stock she owns in General Motors Corporation. So she
calls her broker and directs him to sell the shares at the best price he can get. At the same time, an engineer in
Florida decides to use some of his savings to buy 100 GM shares, so he calls his broker and places a "buy" order
for 100 shares at the market price. Both brokers wire their orders to the NYSE, where their representatives
negotiate the transaction. All this can occur in less than a minute. In the end, the schoolteacher gets her cash
and the engineer gets his stock, and both pay their brokers a commission. The transaction, like all others handled
on the exchange, is carried out in public, and the results are sent electronically to every brokerage office in the
nation. Stock exchange "specialists" play a crucial role in the
process, helping to keep an orderly market by deftly matching buy and sell orders. If necessary, specialists buy or
sell stock themselves when there is a paucity of either buyers or sellers. The smaller American Stock
Exchange, which lists numerous energy industry-related stocks, operates in much the same way and is located in the
same Wall Street area as the New York exchange. Other large U.S. cities host smaller, regional stock
The largest number of different stocks and bonds traded are traded on
the National Association of Securities Dealers Automated Quotation system, or Nasdaq. This so-called
over-the-counter exchange, which handles trading in about 5,240 stocks, is not located in any one place; rather,
it is an electronic communications network of stock and bond dealers.
The National Association of Securities Dealers, which oversees the
over-the-counter market, has the power to expel companies or dealers that it determines are dishonest or
insolvent. Because many of the stocks traded in this market are from smaller and less stable companies, the
Nasdaq is considered a riskier market than either of the major stock exchanges. But it offers many opportunities
for investors. By the 1990s, many of the fastest growing high-technology stocks were traded on the Nasdaq.
A Nation of
An unprecedented boom in the stock market, combined with the ease of investing in stocks, led to a
sharp increase in public participation in securities markets during the 1990s. The annual trading volume on the New
York Stock Exchange, or "Big Board," soared from 11,400 million shares in 1980 to 169,000 million shares in 1998.
Between 1989 and 1995, the portion of all U.S. households owning stocks, directly or through intermediaries like
pension funds, rose from 31 percent to 41 percent.
Public participation in the market has been greatly facilitated by mutual funds,
which collect money from individuals and invest it on their behalf in varied portfolios of stocks. Mutual funds
enable small investors, who may not feel qualified or have the time to choose among thousands of individual stocks,
to have their money invested by professionals. And because mutual funds hold diversified groups of stocks, they
shelter investors somewhat from the sharp swings that can occur in the value of individual shares.
There are dozens of kinds of mutual funds, each designed to meet the needs and
preferences of different kinds of investors. Some funds seek to realize current income, while others aim for
long-term capital appreciation. Some invest conservatively, while others take bigger chances in hopes of realizing
greater gains. Some deal only with stocks of specific industries or stocks of foreign companies, and others pursue
varying market strategies. Overall, the number of funds jumped from 524 in 1980 to 7,300 by late 1998.
Attracted by healthy returns and the wide array of choices, Americans invested
substantial sums in mutual funds during the 1980s and 1990s. At the end of the 1990s, they held $5.4 trillion in
mutual funds, and the portion of U.S. households holding mutual fund shares had increased to 37 percent in 1997
from 6 percent in 1979.