Due to its age and familiarity, the New York Stock Exchange is often regarded as the city’s most important trading institution and its only stock exchange of historic significance. Whatever innovations it brought to the business of securities trading, the NASDAQ is a youngster by comparison, having been established in 1971. However, for a century, the NYSE had a sizeable competitor right on its doorstep. For a few hours each day, six days a week, dozens of traders, brokers, and dealers would trade in an informal market outdoors, initially in completely unorganized fashion. The ‘curb market’ may no longer meet right outside the New York Stock Exchange, but its increasingly forgotten descendent lives on, albeit after having been absorbed by its larger neighbor, the NYSE itself.
The Curb Exchange
The New York Stock Exchange was famously founded under a buttonwood tree on Wall Street in 1792. While it moved indoors soon after, it was not the end for trading and speculation out in the sun. In the mid-1800s, brokers would meet on Broad Street to trade shares, often those of the most speculative companies, outside the institutionalized structure provided by formal stock exchanges. On the so-called ‘curb market,’ anyone could show up and trade whatever shares were available, whether they were listed on other exchanges or not. Such an informal and outdoor arrangement was not unheard of; the oldest venue for trading shares in London were a set of backstreets called Exchange Alley.
In New York, the shares traded on the curb market in the late-1800s and early-1900s were generally those of the most speculative companies, often dealing in booming and risky industries like oil-and-gas. It was the sort of place where shares of a company could jump from 10 cents to 10 dollars in the course of a few weeks and it would be business as usual. Shares that were on nobody’s mind one moment would, at the sound of a mere rumor, see frantic trading. Men would shout their orders to brokers from the windows of nearby buildings. Feeding the frenzy, tiny firms in risky businesses, like small gold mining companies out west, would routinely use the speculation-hungry market to raise money for their operations.
Given the initial lack of any membership requirement and the speculative nature of the stocks traded on the curb market, it picked up a disheveled and frenzied reputation. In an era before televised financial media, flamboyant and enterprising speculators drew attention any way they could. One story of the New York Curb Market, as it would become known, recounted an occasion when an unsuspecting dog was sold curbside. A man sold 40 shares in his cocker spaniel for 10 cents each; prices rose to 23 cents when the pooch was acquired by a specialist in gas companies in an all-cash deal totaling $9.20. Tales of antics like these abound.
“It’s like a madhouse on holiday; crazy actions, crazy hoots, crazy colors. But actually, it’s as sane as sunlight, as orderly and systematic as the calendar. What you have been looking at is the New York Curb Market in full swing … that bunch of gymnasts of incomparable lung power is the incubator of American finance, the hatchery of many, if not most, of our stock companies.” – Edwin Hill, financial journalist, 1920
Wanting to keep the rabble-rousers outside but recognizing their usefulness, the NYSE established a symbiotic relationship with the curbside traders. The Exchange used the curb market as a ‘seasoning market’ where securities could be ‘tested’ before being listed on the more uptight NYSE. Though this relationship remained informal, there was some movement towards formalizing and professionalizing the curb market itself. Much of this was the work of E.S. Mendels Jr., who became known as the ‘father of the curb.’
By the early 1900s, the New York Curb Market had become a haven for swindlers and frauds and Mendels sought to clean up the market by purging it of trading in fraudulent companies’ shares. The time was ripe for some self-regulation as scrutiny of securities trading practices rose after the Panic of 1907. The next year, Mendels organized the New York Curb Market Agency which regulated trading practices and investigated complaints on the outdoor exchange. When the NYSE halted trading of unlisted securities on its own exchange, shares of these firms were not allowed to be traded on the curb until they complied with the Curb Market Agency’s requirements. The curb market was becoming a formal exchange in its own right.
Moving Indoors
Perhaps the most significant step in the formalization of the curb market was its relocation into a new building between Greenwich Street and Trinity Place in 1921. Moving indoors was perhaps the final step in formalizing the market. With a building of its own, the market could control entry and thus could enforce formal membership requirements. Though renamed several times, the curb market was rebranded as the American Stock Exchange (AMEX) in 1953, the name it would go by until merging with the NYSE in 2008. Though the Trinity Place building has the name “American Stock Exchange” out front; the old name (New York Curb Market) survives on the rear of the building.
From there, the specialty of the exchange would evolve. Rather than house the trading of speculative small-cap shares alone, the exchange became home to some substantial financial innovation. First, AMEX launched an options market in 1975, just two years after the influential Black-Scholes paper published in 1973 provided a theoretical foundation for pricing options. The innovation didn’t stop there. Perhaps the first exchange traded fund (ETF) was introduced on the American Stock Exchange in 1989; it was designed to track the S&P 500. The wild and frenzied curb market had come a long way.
AMEX Today
After over fifty years in business as the American Stock Exchange, AMEX was acquired by NYSE Euronext, the owner of the New York Stock Exchange in October 2008. Just 10 years earlier, AMEX had merged with the National Association of Securities Dealers (NASD), the entity that founded the NASDAQ in the 1970s. That combination was not fruitful however and in 2004-05, AMEX members bought the exchange back from NASD. The exchange was renamed NYSE American in 2017, the latest in a series of name changes following its purchase by NYSE Euronext.
Initially, NYSE Euronext’s vision for the old curb market revolved around its options and ETF businesses. Listing shares became an afterthought; AMEX’s share of listed public companies had been dwindling. However, perhaps surprisingly, 700 companies still had their shares traded on the AMEX when it was acquired in 2008. These companies were generally small-cap firms and as it happens, despite the potential in housing options and ETF trading, NYSE American has returned to its small-cap equity roots as the NYSE’s own in-house small-cap equity market.
Regardless, the exchange’s record of innovation continues. One of its latest novel practices, albeit one first adopted at another exchange, was the introduction of a 350-microsecond ‘speed bumb’ on all orders and data feeds to curb high-frequency trading. This was designed to protect other investors by limiting front running and other controversial practices. The delay prevents high-frequency traders from seeing an order executed on one exchange and then racing to buy or sell the shares on other exchanges before the original order gets fulfilled. Because such orders may be broken up across various exchanges to get the best price, there would be an obvious negative effect on such an investor. Though its focus on ordinary investors and small-cap issuers has somehow survived, the old curb market has certainly moved on from its humble roadside roots.
Lesson
The legacy of the curb market can be seen elsewhere besides its old exchange on Trinity Place. In fact, the histories of numerous American companies are intertwined with the curb market. Shares in companies ranging from Coca Cola to General Motors started trading on the curb market before they moved onto other exchanges. While it may be exaggerative to call the New York Curb Market the incubator or ‘hatchery’ of these large companies, as the financial journalist Edwin Hill did, it would also be inappropriate to completely disregard its importance. As such an historically significant trading venue, especially for shares in bold and risky companies, the curb market earned its place in accounts of New York’s financial history.
Further Reading
1. Chen, James. “American Stock Exchange (AMEX).” Investopedia, 11 Mar. 2019.
2. Chen, James. “NYSE Amex Equities.” Investopedia, 24 Jan. 2018.
3. Daly, Ann. The New York Curb Market… Which Has No Organization Whatever”: The Enclosure of New York’s Last Outdoor Stock Market, 1900-1921. The Gotham Center for New York City History, 9 Oct. 2018.
4. Gray, Christopher. “When Stock Sellers Left the Curb and Moved Indoors.” The New York Times, 30 Sept. 2010.
5. Hill, Edwin C. “The Strangest Stock-Market in the World.” Munsey’s Magazine, Feb. 1920, pp. 45–54.
6. Jarzemsky, Matt, and Jacob Bunge. “Closing Bell Rings For Exchange’s Name.” The Wall Street Journal, Dow Jones & Company, 10 May 2012.
