Although listing mostly smaller and riskier stocks than the larger American stock exchanges, the AMEX has instituted innovative techniques and technologies, such as hand signals and ticker tape machines, that have gone on to influence the other markets.
Originally known as the New York Curb Market, the American Stock Exchange (AMEX) first met outdoors on Broad Street, near Exchange Place, in New York City. The exchange moved indoors to a building at 86 Trinity Place in New York City on June 27, 1921. When the exchange was located outdoors, the noise from traffic, as well as the increasing volume of trading, necessitated the creation of a system of hand signals to allow brokers to communicate with traders despite the noise. These hand signals have remained in use on trading floors around the world.
A curbside trader holding a megaphone signals a trade in New York in about 1920.
The AMEX has never been big enough to rival the New York Stock Exchange (NYSE), known as the “Big Board.” From its beginning, the AMEX specialized in smaller, relatively unknown stocks for which there was no established market. The brokers at the AMEX were often called “two-dollar brokers,” because that was how much money they made on a trade. They were essentially freelance brokers who advertised for companies that needed to raise capital by issuing stocks and for buyers who were willing to invest in highly speculative stocks.
Purchasing stocks that traded on the AMEX was much closer to gambling than investing. Many of the securities were unauthorized and were from unlisted companies. They were not always worth the paper on which they were printed. Many AMEX brokers were part-time or temporary workers. They made money however they could and then moved on, leaving shareholders to fend for themselves. Neither the brokers nor their trading practices were closely regulated. The AMEX had no central clearinghouse to register transactions and deliver stock certificates to purchasers.
The free-for-all atmosphere at the AMEX and the negative publicity it generated embarrassed the much more respectable NYSE. Directors of the NYSE planned to move the AMEX inside the NYSE building, where its operations could be controlled and eventually dismantled. This threat of extinction forced AMEX brokers to find their own building and to institute regulations against the most disreputable brokers and practices. After a series of scandals in 1922-1923, the AMEX helped create a bull market in low-priced securities.
The AMEX created a central clearinghouse for transactions and deposits and invented a network of ticker machines throughout the country to provide prices of securities. By 1930, almost every large city in the United States had at least one ticker machine at a broker and banker’s office. The Great Depression during the 1930’s nearly wiped out the AMEX and its securities, as many undercapitalized companies listed on the exchange went bankrupt. The exchange managed to survive, however.
To remain competitive after World War II, the AMEX continued to employ more lenient listing requirements than did the NYSE. The AMEX also created new financial products for investors, including options, derivatives, and exchange-traded funds (ETFs). The NASDAQ bought the AMEX in 1998, but both exchanges continued to operate separately. The AMEX building was heavily damaged in the World Trade Center attacks on September 11, 2001, and the exchange’s operations were temporarily moved to Philadelphia. In 2003, AMEX Membership Corporation bought the exchange back from NASDAQ. In January, 2008, NYSE Euronext acquired the AMEX for $260 million in stock.
Sobel, Robert. AMEX: A History of the American Stock Exchange, 1921-1971. Reprint. Frederick, Md.: Beard Books, 2000. _______. The Curbstone Brokers: The Origins of the American Stock Exchange. Reprint. Frederick, Md.: Beard Books, 2000.
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