History Podcasts

New York Stock Exchange resumes bond trading

New York Stock Exchange resumes bond trading

On November 28, 1914, the New York Stock Exchange (NYSE) reopens for bond trading after nearly four months, the longest stoppage in the exchange’s history.

The outbreak of World War I in Europe forced the NYSE to shut its doors on July 31, 1914, after large numbers of foreign investors began selling their holdings in hopes of raising money for the war effort. All of the world’s financial markets followed suit and closed their doors by August 1.

By the end of November, however, American officials had decided to reopen the NYSE because it was thought that bond trading, albeit with a set of restrictions designed to safeguard the American economy, could help prevent the financial ruin of the belligerent countries by raising money for the war effort. Trading of stocks didn’t resume until December 12, 1914, when the Dow Jones Industrial Average (DJIA)—the most important of various stock indices used to gauge market performance—suffered its worst percentage drop (24.39 percent) since it was first published in 1896. This precipitous fall underlined the risky nature of business during the first months of the war, when nobody knew exactly how long the conflict would last or exactly what role the then-neutral U.S. would eventually end up playing.

Although the stock market would remain volatile–including a 40-percent drop in the DJIA from late 1916 to early 1917–World War I was a clear turning point in the realm of international finance. In its wake, New York would replace London as the top investment capital and the NYSE would become, for better or worse, the undisputed barometer of the world’s economies. The NYSE did not close its doors for any extended period of time again until the terrorist attacks in New York and Washington on September 11, 2001, when trading was suspended for three days.

READ MORE: Wall Street Timeline


Historical Data

NYSE TAQ products provide a comprehensive historical end of day record of all data that was published by the NYSE Group Exchanges' real-time data feeds, including:

  • Depth of book: All bid and offer prices and sizes.
  • Top of book: Information on orders, prices and completed trades.
  • Auction: Details about opening and closing auctions.

NYSE TAQ products are delivered at the end of the trading day or on a T+1 basis. NYSE TAQ Sample Data and Client Specifications are available for review.


Stocks and Bonds

Much of the world's business activity would be impossible without stocks and bonds. Stocks and bonds are certificates that are sold to raise money for starting a new company or for expanding an existing company. Stocks and bonds are also called securities, and people who buy them are called investors.

Stocks

Stocks are certificates of ownership. A person who buys stock in a company becomes one of the company's owners. As an owner, the stockholder is eligible to receive a dividend, or share of the company's profits. The amount of this dividend may change from year to year depending on the company's performance. Well-established companies try to pay stockholders as high a dividend as possible.

There are two types of stock: common stock and preferred stock. Owners of common stock may vote for company directors and attend annual stockholders' meetings. At these meetings they have the chance to review the company's yearly performance and its future plans, and to present their own ideas. Owners of preferred stock do not usually have voting rights or the right to attend stockholders' meetings. They do, however, have priority when dividends are paid. The dividends on preferred stocks are paid according to a set rate, while the dividends on common stocks fluctuate according to the company's performance. If the company does well, however, preferred stocks do not usually gain in value as much as common stocks. If a company goes out of business, preferred stockholders are paid off first.

Bonds

Bonds are certificates that promise to pay a fixed rate of interest. A person who buys a bond is not buying ownership in a company but is lending the company money. The bond is the company's promise to repay that money at the end of a certain time, such as ten, fifteen, or twenty years. In return for lending the company money, the bondholder is paid interest at regular intervals. The interest rate is based on general interest rates in effect at the time the bonds are issued, as well as on the company's financial strength. Bonds generally pay more money than preferred stocks do, and they are usually considered a safer investment. If a company goes bankrupt, bondholders are paid before both preferred and common stockholders.

Local, state, and national governments also issue bonds to help pay for various projects, such as roads or schools. The interest the bondholder receives from state and local bonds&mdashalso called municipal bonds&mdashis usually exempt from taxes.

History of Stocks and Bonds

The trading of goods began in the earliest civilizations. Early merchants combined their money to outfit ships and caravans to take goods to faraway countries. Some of these merchants organized into trading groups. For thousands of years, trade was conducted either by these groups or by individual traders.

During the Middle Ages, merchants began to gather at annual town fairs where goods from many countries were displayed and traded. Some of these fairs became permanent, year-round events. With merchants from many countries trading at these fairs, it became necessary to establish a money exchange, or bourse, to handle financial transactions. (Bourse is a French word meaning "purse.")

One important annual fair took place in the city of Antwerp, in present-day Belgium. By the end of the 1400's, this city had become a center for international trade. A variety of financial activities took place there. Many merchants speculated&mdashthat is, they bought goods for certain prices and hoped that the prices would rise later so they could make profits when they sold the goods. Wealthy merchants or moneylenders also lent money at high rates of interest to people who needed to borrow it. They then sold bonds backed by these loans and paid interest to the people who bought them.

The Beginning of Modern Stocks

The real history of modern-day stocks began in Amsterdam in the 1600's. In 1602, the Dutch East India Company was formed there. This company, which was made up of merchants competing for trade in Asia, was given power to take full control of the spice trade. To raise money, the company sold shares of stock and paid dividends on them. In 1611 the Amsterdam Stock Exchange was set up, and trading in Dutch East India Company shares was the main activity there for many years.

Similar companies were soon established in other countries. The excitement over these new companies made many investors foolhardy. They bought shares in any company that came on the market, and few bothered to investigate the companies in which they were investing. The result was financial instability. In 1720, financial panic struck in France when, after a rush of buying and selling, stockholders became frightened and tried to sell their stocks. With everyone trying to sell and no one buying, the market crashed.

In England, a financial scandal known as the South Sea Bubble took place a few months later. The South Sea Company had been set up in 1710 to trade with Spanish South America. The proposed size of company profits was exaggerated, and the value of its stocks rose very high. These high stock prices encouraged the formation of other companies, many of which promoted farfetched schemes. In September 1720, South Sea stockholders lost faith in the company and began to sell their shares. Stockholders of other companies began to do the same, and the market crashed as it had in France. These companies became known as "bubble companies" because their stock was often as empty and worthless as a bubble and the companies collapsed like burst bubbles.

Even though the fall of bubble companies made investors wary, investing had become an established idea. The French stock market, the Paris Bourse, was set up in 1724, and the English stock market was established in 1773. In the 1800's, the rapid industrial growth that accompanied the Industrial Revolution helped stimulate stock markets everywhere. By investing in new companies or inventions, some people made and lost huge fortunes.

Rise of the Small Investor

For many years, the main buying and selling of stocks was done by a few wealthy individuals. It was not until after World War I that increasing numbers of small investors began to invest in the stock market. There was a huge rise in speculative stock trading during the 1920's, and many people made fortunes. However, the Roaring Twenties came to an abrupt end in October 1929, when stock markets crashed and fortunes were wiped out overnight. The crash was followed by the Great Depression of the 1930's, a period of severe economic crisis throughout much of the world.

Since the end of World War II, small investors have begun investing again in stocks, and stock markets have been relatively stable. A sharp fall in prices in 1987 led to another stock market crash. Initially, this frightened many people away from stock investments. But within a few months the market recovered and investor confidence returned.

Stock Exchanges Today

Today, the largest and most important stock exchanges are the New York Stock Exchange, the London Stock Exchange, and the Tokyo Stock Exchange. These exchanges act as marketplaces for the buying and selling of stocks. Another important source of stock transactions is the NASDAQ system. NASDAQ, which stands for National Association of Securities Dealers Automated Quotations, allows stock transactions to be made over computer terminals simultaneously in many cities around the world. Thousands of stocks are now traded over the NASDAQ system.

The New York Stock Exchange

In colonial America there were no stock exchanges. People who wanted to buy and sell securities met in auction rooms, coffeehouses, or even on street corners. Stock trading was unorganized, and people were reluctant to invest because they could not be sure they would be able to resell their securities.

In 1792, a small group of merchants made a pact that became known as the Buttonwood Tree Agreement. These men decided to meet daily to buy and sell stocks and bonds. This was the origin of America's first organized stock market, the New York Stock Exchange (NYSE).

Today there are more than 1,000 members of the New York Stock Exchange. Each of these members "owns a seat" on the exchange. This term comes from early years, when members had to stay seated while the exchange's president called out the list of securities to be traded. Despite the change and growth of the New York Stock Exchange over the years, its basic purpose has remained much the same&mdashto allow companies to raise money and to allow the public to invest and make their money grow.

The New York Stock Exchange operates under a constitution and a set of rules that govern the conduct of members and the handling of transactions. The members elect a board of directors that decides policies and handles any discipline problems. The exchange is controlled by its own rules and by federal regulations set up by the Securities and Exchange Commission, which was established by the U.S. government in 1934 under the Securities and Exchange Act.

Until 1869 it was easy for a company to have its securities listed on the exchange. A broker simply had to propose that a certain security be traded and get the consent of a majority of the other members. As business expanded, however, greater regulation became necessary, and the exchange established its first requirement for listing a company&mdashthat it be notified of all stock issued and valid for trading. In the years that followed, the exchange added more requirements, including company reports on earnings and other financial information. This helps potential investors make investment decisions more wisely.

To qualify for a listing on the exchange today, a company must be in operation and have substantial assets and earning power. The exchange considers a company's permanence and position in its industry as well. All common stocks listed on the exchange must have voting power, and companies must issue important news in such a way that all investors have equal and prompt access to it.

In addition to the New York Stock Exchange, which is the largest exchange in the United States, investors can also buy and sell stocks on the American Stock Exchange and several regional exchanges. The American Stock Exchange, also located in New York, trades stocks of small and medium-sized companies that do not meet the requirements for listing on the NYSE. Regional exchanges in Boston, Philadelphia, San Francisco, and other U.S. cities handle stocks listed on the NYSE as well as local securities.

How the Stock Exchange Works

The New York Stock Exchange itself neither buys, sells, nor sets prices of any securities that are listed. It simply provides the marketplace in which stocks and bonds are bought and sold.

Placing an Order. Suppose an investor in Iowa decides to buy 2,000 shares of XYZ Corporation. The investor calls a stockbroker&mdasha registered representative of a stock exchange member&mdashwhose job is to provide investors with information and carry out investors' orders to buy and sell. The investor asks the broker the price of XYZ stock. The broker checks the price on a computer terminal and learns that XYZ Corporation is quoted at 25 to a quarter. This means that, at the moment, the highest bid to buy XYZ is $25 a share and the lowest offer to sell is $25.25 a share. The investor tells the broker to buy "at the market," which means to buy shares at the best available price at the time the order reaches the stock exchange. If the investor sets an exact price he or she is willing to pay, the order is called a "limit order," and no sale can take place unless another stockholder wants to buy or sell at that price.

By telephone or computer, the broker in Iowa sends the investor's order through a trading desk at his or her firm's main office to a clerk on the floor of the stock exchange in New York. The clerk alerts the firm's floor broker by putting the broker's call number on two boards, one on each side of the trading floor. These boards are visible no matter where the floor broker is standing. The broker sees the call number and immediately goes to take the order.

Trading Stock. Small orders, such as those under 1,000 shares, often are executed automatically by computer at the best possible price at the time. Larger orders, however, are traded on the floor of the exchange, with a floor broker bargaining on the investor's behalf. This is the case with the Iowa investor's order of 2,000 shares of XYZ Corporation stock.

After receiving the order, the floor broker hurries to the place, called the trading post, where XYZ Corporation shares are traded. Other brokers with orders to buy or sell stocks will also be gathered there. Each trading post handles about 85 different stocks. This is where the exchange's member-brokers make transactions for investors.

At the trading post, the floor broker looks up at a video monitor above the post to see the current buy and sell prices for XYZ stock. Or he asks loudly, "How's XYZ?" and a specialist in that stock answers, "Twenty-five to a quarter." This means that the order could be filled immediately at a price of 25 [frac14], or $25.25. It is the broker's job, however, to get the best possible price for an investor. he broker believes that a bid of 25 [frac18]will be accepted, so he loudly makes that bid. Another broker who has an order to sell 2,000 shares of XYZ at 25[frac18] accepts the bid and says, "Sold." A trade has taken place at 25[frac18].

Completing a Trade. Each broker completes the agreement by writing the price and the name of the other broker's firm on an order slip. The brokers report the transaction to their telephone clerks, so that the investors can be notified. Meanwhile, a record of the transaction is entered into the exchange's huge computer. This allows the transaction to be displayed, with all others, on thousands of computer terminals throughout the United States and around the world.

Specialists. Specialists are stock exchange members who help maintain an orderly market in the stocks for which they are registered. They do this by buying and selling for their own accounts whenever there is a temporary gap between supply and demand. In this way, they smooth the way for investors, allowing them to sell when there are few buyers or to buy when there are few sellers.

Specialists also act as brokers. A floor broker may choose to leave an order with a specialist, to be carried out when the stock reaches a certain price. Specialists are especially helpful with limit orders (orders with set prices). The price on a limit order may not come up for a week or longer, or not at all. It would be impractical for a floor broker to wait until a matching bid was made.

Odd Lots. Although a few stocks are sold in lots of 10 shares, most are sold in lots of 100. Many people, however, may want to buy only a few shares of stock rather than a complete lot. Shares sold in lots other than 10 or 100 are called odd lots. Orders in odd lots are not matched against other orders. They are carried out by specialists or by brokerage firms for their own accounts. The odd-lot system makes it possible for people with limited incomes to invest in the stock market.

Buying on Margin. Sometimes investors may wish to buy stocks but would prefer not to pay the total market price at the time of purchase. In such cases, the investors may buy on margin&mdashthat is, they pay only part of the price (usually at least half) when the stocks are purchased, and get credit for the rest from the brokerage firm. Buying on margin is very risky because the loan must be repaid to the broker, with interest, even if the price of the stock falls. To protect buyers and sellers, therefore, the federal government and the stock exchange regulate the buying of stocks on margin.

Bulls and Bears. Bulls and bears refer to investors. A bull is someone who believes the market will rise a bear anticipates a market decline. Bulls and bears buy or sell hoping that the market will follow the pattern they predict. As optimists, bulls generally buy stocks expecting the value to rise, at which point they can sell and make a profit. As pessimists, bears sell stocks at a high price because they anticipate a market decline.

Selling Short. Investors who can satisfy certain securities regulations may sell short, or sell shares of stock they do not actually own. In selling short, an investor borrows shares from a broker who is willing to lend stock. The investor finds a buyer for the stock at the current market price, and then hopes that the price drops. When the price drops low enough, the investor buys the shares needed to complete the short sale and returns the borrowed shares to the lender. Selling short is risky. If the price drops, investors can make a profit on the difference between the high selling price and the low buying price. But if the price does not drop as expected, the investor not only does not make a profit, but can lose money buying shares at a higher price in order to return them to the lender.

Making Investments

Before investing money in securities, people should have a basic financial plan and understand the risks as well as the rewards of investing. Investors should make certain that, in addition to their regular income, they have money set aside for personal emergencies. Investments often require time to increase in value. A careful study of the products, financial histories, and future plans of companies can help investors choose stocks that will allow their wealth to grow over time. Investors who prefer less risk might consider a money market fund where their original investment is safe and earns current rates of interest.

Many investors today choose to invest in mutual funds&mdashpools of money (from thousands of investors) that are invested in a variety of stocks or bonds by professional managers. By having a professional buy and sell for them, investors benefit from that person's expertise and constant monitoring of the portfolio. In addition, a mutual fund offers a diversified group of stocks or bonds, which means that a single investor can own pieces of many companies with a relatively small monetary investment. Such diversification also means that fund shareholders, unlike owners of individual stocks, are at less risk when a single stock drops sharply in value. Because of these desirable features, mutual funds have become a popular investment alternative for many investors.

Jordan E. Goodman
Senior Reporter, Money Coauthor, Barron's Dictionary of Finance and Investment Terms


Dealer vs. Auction Market

The fundamental difference between the NYSE and Nasdaq is in the way securities are transacted between buyers and sellers. The Nasdaq is a dealer market. Market participants do not buy and sell to one another directly. Transactions go through a dealer which, in the case of the Nasdaq, is a market maker.  

The NYSE differs in that, at market open and close, the auction method is how NYSE stock prices are set. Before the market's 9:30 a.m. official opening time, market participants can enter buy and sell orders starting at 6:30 a.m. These orders are matched, with the highest bidding price paired with the lowest asking price. Orders for the closing auction are accepted until 3:50 p.m., and orders can be cancelled up until 3:58 p.m.  


Contents

Established in 1973, The Depository Trust Company (DTC) was created to alleviate the rising volumes of paperwork and the lack of security that developed after rapid growth in the volume of transactions in the U.S. securities industry in the late 1960s. [8]

1960s Wall Street paperwork crisis Edit

Before DTC and NSCC were formed, brokers physically exchanged certificates, employing hundreds of messengers to carry certificates and checks. The mechanisms brokers used to transfer securities and keep records relied heavily on pen and paper. The exchange of physical stock certificates was difficult, inefficient, and increasingly expensive.

In the late 1960s, with an unprecedented surge in trading leading to volumes of nearly 15 million shares a day on the NYSE in April 1968 (as opposed to 5 million a day just three years earlier, which at the time had been considered overwhelming), the paperwork burden became enormous. [9] [10] Stock certificates were left for weeks piled haphazardly on any level surface, including filing cabinets and tables. Stocks were mailed to wrong addresses, or not mailed at all. Overtime and night work became mandatory. Turnover was 60% a year. [11]

To deal with this large volume, which was overwhelming brokerage firms, the stock exchanges were forced to close every week (they chose every Wednesday), and trading hours were shortened on other days of the week.

Industry response Edit

The first response was to hold all paper stock certificates in one centralized location, and automate the process by keeping electronic records of all certificates and securities clearing and settlement (changes of ownership and other securities transactions). The method was first used in Austria by the Vienna Giro and Depository Association in 1872. [12]

One problem was state laws requiring brokers to deliver certificates to investors. Eventually all the states were convinced that this notion was obsolete and changed their laws. For the most part, investors can still request their certificates, but this has several inconveniences, and most people do not, except for novelty value.

This led the New York Stock Exchange to establish the Central Certificate Service (CCS) in 1968 [13] at 44 Broad Street in New York City. [11] Anthony P. Reres was appointed the head of CCS. NYSE President Robert W. Haack promised: "We are going to automate the stock certificate out of business by substituting a punch card. We just can't keep up with the flood of business unless we do". [14] The CCS transferred securities electronically, eliminating their physical handling for settlement purposes, and kept track of the total number of shares held by NYSE members. [15] This relieved brokerage firms of the work of inspecting, counting, and storing certificates. Haack labeled it "top priority", $5 million was spent on it, [16] and its goal was to eliminate up to 75% of the physical handling of stock certificates traded between brokers. [14] One problem, however, was that it was voluntary, and brokers responsible for two-thirds of all trades refused to use it. [10]

By January 1969, it was transferring 10,000 shares per day, and plans were for it to be handling broker-to-broker transactions in 1,300 issues by March 1969. [17] In 1970 the CCS service was extended to the American Stock Exchange. [18] This led to the development of the Banking and Securities Industry Committee (BASIC), which represented leading U.S. banks and securities exchanges, [12] and was headed by a banker named Herman Beavis, and finally the development of DTC in 1973, [19] which was headed by Bill Dentzer, the former New York State Banking Superintendent. [20] All the top New York banks were represented on the board, usually by their chairman. BASIC and the SEC saw this indirect holding system as a "temporary measure", on the way to a "certificateless society". [12]

Today, all physical shares of paper stock certificates are held by a separate entity, Cede and Company.

The second response involves multilateral netting and led to the formation of the National Securities Clearing Corporation (NSCC) in 1976.

Later developments Edit

In 2008, The Clearing Corporation (CCorp) and The Depository Trust & Clearing Corporation announced CCorp members will benefit from CCorp's netting and risk management processes, and will leverage the asset servicing capabilities of DTCC's Trade Information Warehouse for credit default swaps (CDS). [21] [22] [23] [24]

On 1 July 2010, it was announced that DTCC had acquired all of the shares of Avox Limited, based in Wrexham, North Wales. Deutsche Börse had previously held over 76% of the shares. On 20 March 2017, it was announced that Thomson Reuters acquired Avox. [25]

DTCC entered into a joint venture with the New York Stock Exchange (NYSE) known as New York Portfolio Clearing, that would allow "investors to combine cash and derivative positions in one clearinghouse to lower margin costs". [26]

DTCC supported the Customer Protection and End User Relief Act (H.R. 4413 113th Congress), arguing that it would "help ensure that regulators and the public continue to have access to a consolidated and accurate view of the global marketplace, including concentrations of risk and market exposure". [27]

Leadership Edit

The architect of the industry response to the 1960s paperwork crisis, and of what is now DTCC, was William (Bill) T. Dentzer Jr., a former US public official and intelligence community member. [28] Dentzer was the founder of DTC, and its Chairman & CEO from 1973 to 1994. [29] [30]

Dentzer was succeeded by William F. Jaenike, who was DTC Chairman & CEO from 1994 to 1999. [30] [31] In 1999, Jill M. Considine became the next Chairman & CEO of the newly-formed DTCC, and its subsidiaries. [32] [33] Donald F. Donahue succeeded Considine as DTCC Chairman & CEO in 2007. [34]

In 2010, Robert Druskin was named DTCC Executive Chairman, and in 2012 Michael Bodson was named its President & CEO. [35] As of 2019, Michael Bodson was CEO [1] under the supervision of an additional 20 members of its board of directors. [36] Two board members are selected by "preferred shareholders" ICE and FINRA, while 14 are from international clearing agencies. [36]

DTC Edit

The Depository Trust Company (DTC) was the original securities depository. [37] [38]

Established in 1973, it was created to reduce costs and provide efficiencies by immobilizing securities and making "book-entry" changes to show ownership of the securities. DTC moves securities for NSCC's net settlements, and settlement for institutional trades (which typically involve money and securities transfers between custodian banks and broker-dealers), as well as money market instruments. In 2007, DTC settled transactions worth $513 trillion, and processed 325 million book-entry deliveries. In addition to settlement services, DTC retains custody of 3.5 million securities issues, worth about $40 trillion, including securities issued in the United States and more than 110 other countries. DTC is a member of the U.S. Federal Reserve System, and a registered clearing agency with the Securities and Exchange Commission.

Most large U.S. broker-dealers and banks are full DTC participants, meaning that they deposit and hold securities at DTC. DTC appears in an issuer's stock records as the sole registered owner of securities deposited at DTC. DTC holds the deposited securities in "fungible bulk", meaning that there are no specifically identifiable shares directly owned by DTC participants. Rather, each participant owns a pro rata interest in the aggregate number of shares of a particular issuer held at DTC. Correspondingly, each customer of a DTC participant, such as an individual investor, owns a pro rata interest in the shares in which the DTC participant has an interest.

Because the securities held by DTC are for the benefit of its participants and their customers (i.e., investors holding their securities at a broker-dealer), frequently the issuer and its transfer agent must interact with DTC in order to facilitate the distribution of dividend payments to investors, to facilitate corporate actions (i.e., mergers, splits, etc.), to effect the transfer of securities, and to accurately record the number of shares actually owned by DTC at all times.

NSCC Edit

The National Securities Clearing Corporation (NSCC) is the original clearing corporation, and provides clearing and serves as the central counterparty for trades in the U.S. securities markets. [39]

Established in 1976, it provides clearing, settlement, risk management, central counterparty services, and a guarantee of completion for certain transactions for virtually all broker-to-broker trades involving equities, corporate and municipal debt, American depositary receipts, exchange-traded funds, and unit investment trusts. NSCC also nets trades and payments among its participants, reducing the value of securities and payments that need to be exchanged by an average of 98% each day. NSCC generally clears and settles trades on a "T+2" basis. NSCC has roughly 4,000 participants, and is regulated by the U.S. Securities and Exchange Commission (SEC).

FICC Edit

The Fixed Income Clearing Corporation (FICC) provides clearing for fixed income securities, including treasury securities and mortgage backed securities [40] [41]

FICC was created in 2003 to handle fixed income transaction processing, integrating the Government Securities Clearing Corporation and the Mortgage-Backed Securities Clearing Corporation. The Government Securities Division (GSD) provides real-time trade matching (RTTM), clearing, risk management, and netting for trades in U.S. government debt issues, including repurchase agreements or repos. Securities transactions processed by FICC's Government Securities Division include Treasury bills, bonds, notes, zero-coupon securities, government agency securities, and inflation-indexed securities. The Mortgage-Backed Securities Division provides real-time automated and trade matching, trade confirmation, risk management, netting, and electronic pool notification to the mortgage-backed securities market. Participants in this market include mortgage originators, government-sponsored enterprises, registered broker-dealers, institutional investors, investment managers, mutual funds, commercial banks, insurance companies, and other financial institutions.

Global Trade Repository Edit

DTCC created Deriv/SERV LLC In 2003 to help resolve over the counter (OTC) derivatives challenges of the time. It provides automated matching and confirmation services for derivatives trades, including credit, equity, and interest rate derivatives. It also provides related matching of payment flows and bilateral netting services. Deriv/SERV's customers include dealers and buy-side firms from 30 countries. In 2006, Deriv/SERV processed 2.6 million transactions.

From 2006 this service was complemented by the Trade Information Warehouse (TIW), an infrastructure that records all Credit derivatives transactions, such as Credit default swaps. This proved specifically useful in September 2008 by helping authorities and market participants understand exposures to failing or fragile counterparties such as Lehman Brothers or AIG. [42] Partly based on that experience, the G20 in 2009 decided to mandate derivatives trade reporting across all derivatives asset classes (interest rates, currencies, equity, credit, and commodities), with the reports collected by regulated Trade Repositories. The reporting mandate was subsequently enshrined in legislation in the respective jurisdictions, e.g. the Dodd–Frank Act in the U.S. and EMIR in the European Union.

In May 2011, the International Swaps and Derivatives Association selected DTCC to build up a global industry-wide infrastructure to comply with the G20 mandate, and the service was started in December 2011. [43] The trade repository service was branded Global Trade Repository (GTR) in 2012. It was deployed that year in the U.S. under CFTC supervision, and in 2013 in Australia under ASIC supervision, Hong Kong as an agent of HKMA, Japan under FSA supervision, and Singapore under MAS supervision. In November 2013, DTCC obtained a license from ESMA to operate its trade repository in the European Union, based in London and starting in February 2014, [44] and in 2019 that service was extended to Switzerland under FINMA supervision. From 2018, DTCC built up its GTR infrastructure to also support securities financing transaction reporting in the European Union under the EU Securities Financing Transactions Regulation (SFTR). In the wake of Brexit, DTCC created an EU entity based in Dublin, which ESMA registered as an EU trade repository in late 2020, [45] which on 1 January 2021 took over part of the activity previously reported to the UK trade repository. In compliance with legislation in the individual jurisdictions, DTCC operates trade repositories under several legal entities across the world, but keeps the original vision of a globally integrated reporting utility. [46]

In 2019, DTCC rebranded its derivatives and trade repository businesses, including the GTR and TIW, as Repository and Derivatives Services (RDS).

Other operations Edit

DTCC Solutions is DTCC's subsidiary, formerly named Global Asset Solutions, delivering information-based and business processing solutions relative to securities and securities transactions to financial intermediaries globally, such as Global Corporation Action Validation Service (GCA VS) and Managed Accounts Service. [47]

GCA VS simplifies announcement processing by providing a centralized source of "scrubbed" information about corporate actions, including tender offers, conversions, stock splits, and nearly 100 other types of events for equities and fixed-income instruments traded in Europe, Asia Pacific, and the Americas. In 2006, GCA VS processed 899,000 corporate actions from 160 countries. Managed Accounts Service, introduced in 2006, standardizes the exchange of account and investment information through a central gateway.

DTCC Learning provides financial, technology, and career training and educational services to the global financial industry. [48]

Loan/SERV provides services to loan syndicates and agents.

Omgeo is a central information management and processing hub for broker-dealers, investment managers, and custodian banks. It provides post-trade, pre-settlement institutional trade management solutions for the securities clearance and settlement industry, processes over one million trades per day, and serves 6,000 investment managers, broker/dealers, and custodians in 42 countries. [49] Omgeo was formed in 2001 as a joint venture between DTCC and Thomson Reuters combining various trade services previously provided by each of these organizations. [49] [50] In November 2013 DTCC bought back Thomson Reuters' interest in the firm, so it is now wholly owned by DTCC.

EuroCCP Edit

European Central Counterparty Limited (EuroCCP) used to be a European subsidiary of DTCC. It provides equities clearing services on a pan-European basis. Headquartered in London, EuroCCP is a UK-incorporated Recognised Clearing House regulated by the UK's Financial Services Authority (FSA). In December 2019, EuroCCP announced it would be purchased by Cboe Global Markets. [51]

EuroCCP began operations in August 2008, initially clearing for the pan-European trading platform Turquoise. EuroCCP has subsequently secured appointments from additional trading platforms and now provides central counterparty services for equity trades to Turquoise, SmartPool, NYSE Arca Europe and Pipeline Financial Group Limited. EuroCCP clears trades in more than 6,000 equities issues for these trading venues. In October 2009, EuroCCP began clearing and settling trades made on the Turquoise platform in 120 of the most heavily traded listed Depositary Receipts. [ citation needed ]


The Bond Market

The bond market is where investors go to trade (buy and sell) debt securities, prominently bonds, which may be issued by corporations or governments. The bond market is also known as the debt or the credit market. Securities sold on the bond market are all various forms of debt. By buying a bond, credit, or debt security, you are lending money for a set period and charging interest—the same way a bank does to its debtors.

The bond market provides investors with a steady, albeit nominal, source of regular income. In some cases, such as Treasury bonds issued by the federal government, investors receive biannual interest payments.   Many investors choose to hold bonds in their portfolios as a way to save for retirement, for their children's education, or other long-term needs.

Investors have a wide range of research and analysis tools to get more information on bonds. Investopedia is one source, breaking down the basics of the market and the different types of securities available. Other resources include Yahoo! Finance's Bond Center and Morningstar. They provide up-to-date data, news, analysis, and research. Investors can also get more specific details about bond offerings through their brokerage accounts.

A mortgage bond is a type of security backed by pooled mortgages, paying interest to the holder monthly, quarterly, or semi-annually.

Where Bonds Are Traded

The bond market does not have a centralized location to trade, meaning bonds mainly sell over the counter (OTC). As such, individual investors do not typically participate in the bond market.   Those who do, include large institutional investors like pension funds foundations, and endowments, as well as investment banks, hedge funds, and asset management firms. Individual investors who wish to invest in bonds may do so through a bond fund managed by an asset manager. Many brokerages now also allow individual investors direct access to corporate bond issues, Treasuries, munis, and CDs.

New securities are put up for sale on the primary market, and any subsequent trading takes place on the secondary market, where investors buy and sell securities they already own. These fixed-income securities range from bonds to bills to notes. By providing these securities on the bond market, issuers can get the funding they need for projects or other expenses needed.

For investors without access directly to bond markets, you can still get access to bonds through bond-focused mutual funds and ETFs.

Who Participates in the Bond Market?

The three main groups involved in the bond market include:

  • Issuers: These are the entities that develop, register, and sell instruments on the bond market, whether they're corporations or different levels of government. For example, the U.S. Treasury issues Treasury bonds, which are long-term securities that provide bi-annual interest payments for investors and mature after 10 years.   Investing in certain sectors of the bond market, such as U.S. Treasury securities, is said to be less risky than investing in stock markets, which are prone to greater volatility.
  • Underwriters: Underwriters usually evaluate risks in the financial world. In the bond market, an underwriter buys securities from the issuers and resells them for a profit.
  • Participants: These entities buy and sell bonds and other related securities. By buying bonds, the participant issues a loan for the length of the security and receives interest in return. Once it matures, the face value of the bond is paid back to the participant.

Bond Ratings

Bonds are normally given an investment grade by a bond rating agency like Standard & Poor's and Moody's. This rating—expressed through a letter grade—tells investors how much risk a bond has of defaulting. A bond with a "AAA" or "A" rating is high-quality, while an "A"- or "BBB"-rated bond is medium risk. Bonds with a BB rating or lower are considered to be high-risk.    


The hidden links between slavery and Wall Street

This month marks 400 years since enslaved Africans were first brought to what is now the United States of America. Slavery was officially abolished in the US in 1865, but historians say the legacy of slavery cannot be untangled from its economic impact.

On a hot August day, 25 people are gathered around a small commemorative sign in New York's financial district. Their tour guide explains that this was the site of one of the US' largest slave markets.

Just two streets away from the current site of the New York Stock Exchange, men, women and children were bought and sold.

"This is not black history," says Damaris Obi who leads the tour. "This is not New York City or American history. This is world history."

It is also economic history.

Stacey Toussaint, the boss of Inside Out Tours, which runs the NYC Slavery and Underground Railroad tour, says people are often surprised by how important slavery was to New York City.

"They don't realise that enslaved people built the wall after which Wall Street is named," she says.

By some estimates, New York received 40% of US cotton revenue through money its financial firms, shipping businesses and insurance companies earned.

But scholars differ on just how direct a line can be drawn between slavery and modern economic practices in the US.

"People in non-slave areas - Britain and free US states - routinely did business with slave owners and slave commerce," says Gavin Wright, professor emeritus of economic history at Stanford University. But he says the "uniqueness" of slavery's economic contribution has been "exaggerated" by some.

Slavery thrived under colonial rule. British and Dutch settlers relied on enslaved people to help establish farms and build the new towns and cities that would eventually become the United States.

Enslaved people were brought to work on the cotton, sugar and tobacco plantations. The crops they grew were sent to Europe or to the northern colonies, to be turned into finished products. Those finished goods were used to fund trips to Africa to obtain more slaves who were then trafficked back to America.

This triangular trading route was profitable for investors.

To raise the money to start many future plantation owners turned to capital markets in London - selling debt that was used to purchase boats, goods and eventually people.

Later in the 19th Century, US banks and southern states would sell securities that helped fund the expansion of slave run plantations.

To balance the risk that came with forcibly bringing humans from Africa to America insurance policies were purchased.

These policies protected against the risk of a boat sinking, and the risks of losing individual slaves once they made it to America.

Some of the largest insurance firms in the US - New York Life, AIG and Aetna - sold policies that insured slave owners would be compensated if the slaves they owned were injured or killed.

By the mid 19th Century, exports of raw cotton accounted for more than half of US oversees shipments. What wasn't sold abroad was sent to mills in northern states including Massachusetts and Rhode Island to be turned into fabric.

The money southern plantation owners earned couldn't be kept under mattresses or behind loose floorboards.

American banks accepted their deposits and counted enslaved people as assets when assessing a person's wealth.

In recent years, US banks have made public apologies for the role they played in slavery.

In 2005, JP Morgan Chase, currently the biggest bank in the US, admitted that two of its subsidiaries - Citizens' Bank and Canal Bank in Louisiana - accepted enslaved people as collateral for loans. If plantation owners defaulted on loan payment the banks took ownership of these slaves.

JP Morgan was not alone. The predecessors that made up Citibank, Bank of America and Wells Fargo are among a list of well-known US financial firms that benefited from the slave trade.

"Slavery was an overwhelmingly important fact of the American economy," explains Sven Beckert, Laird Bell Professor of American History at Harvard University.

Prof Beckert points out that while cities like Boston never played a large role in the slave trade, they benefited from the connections to slave driven economies. New England merchants made money selling timber and ice to the south and the Caribbean. In turn, northern merchants bought raw cotton and sugar.

New England's fabric mills played a key role in the US industrial revolution, but their supply of cotton came from the slave-reliant south.

Brands like Brooks Brothers, the oldest men's clothier in the US, turned southern cotton into high-end fashion. Domino's Sugar, once the largest sugar refiner in the US, processed slave-grown sugar cane.

America's railroads also benefited from money earned through slave businesses. In the south, trains were built specifically to move agricultural goods farmed by enslaved people, and slaves were also used as labour to build the lines.

Some scholars even argue the use of slavery shaped modern accounting. Historian Caitlin Rosenthal points to enslavers who depreciated or lowered the recorded value of slaves over time as a way to keep track of costs.


Airlines and Insurers Take a Hit

So, how did airline stocks that were directly impacted by 9/11 respond? American Airlines (AAL) stock dropped from a $29.70 per share close of September 11 to $18.00 per share close on September 17, a 39% decline. United Airlines (UAL) dropped from $30.82 per share close to $17.50 per share on the close on September 17, a 42% decline.

Insurance firms reportedly eventually paid out some $40 billion in 9/11 related claims.   Among the biggest losers was Warren Buffet's Berkshire Hathaway.   Most insurance firms subsequently dropped terrorist coverage. Most insurers survived the 9/11 fallout since they held adequate cash reserves to cover these obligations.


Major Stock Exchanges in the U.S.

The two major U.S. financial securities markets are the New York Stock Exchange and Nasdaq.

New York Stock Exchange (NYSE)

The NYSE is a stock exchange based in New York, founded in 1790.   In April 2007, the New York Stock Exchange merged with a European stock exchange known as Euronext to form what is currently NYSE Euronext.   NYSE Euronext also owns NYSE Arca (formerly the Pacific Exchange).   In order to be listed on the New York Stock Exchange, a company must have upwards of $4 million in shareholder's equity.   Locals and visitors can also see the exchange's building on Wall Street in New York City--although more than 80% of trading is now done electronically.

The American Stock Exchange (AMEX) was also a popular New York-based stock exchange, which was acquired in 2008. Unlike the Nasdaq and NYSE, AMEX focused on exchange-traded funds (ETFs).  

National Association of Securities Dealers Automated Quotation System (Nasdaq)

Unlike AMEX, the Nasdaq is the largest electronic screen-based market. Created by the National Association of Securities Dealers (NASD) in 1971, it is popular because of its computerized system and relatively modern, as compared to the New York Stock Exchange. It currently offers lower listing fees than NYSE and includes some of the largest companies, such as technology giants Apple, Google, Amazon, and Microsoft.  


Catch up: Here’s what else is happening.

JPMorgan Chase told employees on Wednesday it would close a fifth of its retail bank branches, send financial and small business advisers home to work, and operate the remaining 4,000 branches with reduced hours. The bank did not say how long the temporary closures would last. Wells Fargo also said it was also temporarily closing some branches, but a spokesman did not provide details.

Intercontinental Exchange said that the New York Stock Exchange would close its trading floor temporarily on Monday and move to fully electronic trading. The company did not indicate when the floor would open again, but said trading and regulatory oversight would continue without interruption.

ConocoPhillips said on Wednesday that it would cut its 2020 capital spending by $700 million, or about 10 percent. Late Tuesday, Halliburton, which provides drilling and related services to oil producers, said it would furlough 3,500 workers for 60 days.

Delta Air Lines told employees on Wednesday that it would slash 70 percent of its flights until further notice in an effort to save more than $4 billion, according to a memo sent by the company’s chief executive, Ed Bastian. About 10,000 employees have already taken voluntary leave, he said, urging more to consider joining them.

Verizon, AT&T and T-Mobile have all shut hundreds of stores, while keeping some open, in attempt to halt the spread of the coronavirus. All companies have cut back on retail hours with limited staffing. AT&T and T-Mobile said they would continue to pay their retail workers. Verizon did not comment on its employees.

Reporting and research were contributed by Neal Boudette, Jack Ewing, Ana Swanson, David McCabe, Cecilia Kang, Alan Rappeport, Ben Casselman, Davey Alba, Clifford Krauss, Sapna Maheshwari, Nicholas Fandos, Jim Tankersley, Amie Tsang, Kate Conger, Adam Satariano, Matthew Goldstein, Mike Isaac, Jason Gutierrez, Edmund Lee, Carlos Tejada, Kevin Granville, Daniel Victor and Nelson Schwartz.


Watch the video: Trading resumes on the New York Stock Exchange (January 2022).