NYSE Seat Prices: A Lesson In Indexing

January 03, 2006

The last seat ever to sell on the NYSE goes for $3.575 million. Meanwhile, the NYSE Group sets circuit breakers for 2005.

The last seat ever to sell on the New York Stock Exchange (NYSE) traded hands for $3.575 million on Friday, December 30, as the Big Board ended its 213-year history as a private "members" club and began the transition to for-profit status. The NYSE is expected to complete its acquisition of Archipelago in January, and emerge as a publicly-traded, for-profit institution called the "NYSE Group." 

Seat holders will receive about $5 million for each seat - $300,000 in cash and the rest in shares of the new firm.  That full value isn't reflected in recent seat sales because seat holders are restricted from selling their shares in the new firm for up to three years.

On January 4, the NYSE will hold a "Dutch Auction" for trading licenses granting the right to trade stocks on the NYSE floor: prices are collared between $49,290 to $73,935. In a fit of nostalgia, the licenses will be called "SEATS" - for Stock Exchange Auction Trading System.

Better Off With Indexes

Seat prices soared more than 200 percent in 2005, making them one of the best investments of 2005.  But over the long-haul, seat holders would have been better off buying a stock market index - even if they got in at the very bottom floor.  Here's why.

Seat prices began trading in 1869, when the price ranged from $3,000 to $7,000.  Assuming you bought at the mid-point that year, paying $5,000, and held on until the bitter end - December 30, 2005 - you would have enjoyed a compounding annual return of 4.95 percent.  That's well below the long-term historical return of stocks, which hovers around 10 percent.

Things get worse when you consider inflation. Using the nifty "historical value calculator" from Economic History Services, you find that $5,000 in 1869 was worth $68,879.27 in 2004 dollars.  So your real return on the seat, after inflation, is just 2.95 percent. The real return on your index is about 7 percent, or more than double.

The cheapest seat ever sold in 1871 for $2,750; the most expensive came in 2005, for an even $4 million.  But when adjusting for inflation, the poor nob who shelled out $625,000 for a seat in 1929 wins the award - he paid more than $6 million in 2005 dollars, and is still underwater.

NYSE Sets Circuit Breakers for 2006, Record for 2005

If 2005 was its last year as a private club, the NYSE certainly went out with a bang. The NYSE set records for trading volume (1.6 billion shares), gathered more than 90 percent of the total initial public offerings for domestic shares (by dollars), and saw its New York Composite Index - a measure of all the shares on the NYSE - post the best returns of any major market index in 2005, rising 7.8 percent to a new all-time high.

The NYSE uses the New York Composite Index for its "trading collars" program, which restricts index arbitrage trading when the markets are selling off aggressively.  The NYSE will implement the collars it the Composite moves 50 points in a single day.

The NYSE also set the values for its "circuit breaker" program, which shutters the market if the Dow Jones Industrial Average (DJIA) falls dramatically in a single day.  The NYSE has three levels of circuit breakers:

Level 1 Halt
A 1,100-point drop in the DJIA before 2 p.m. will halt trading for one hour; for 30 minutes if between 2 p.m. and 2:30 p.m.; and have no effect if at 2:30 p.m. or later unless there is a level 2 halt.

Level 2 Halt
A 2,150-point drop in the DJIA before 1:00 p.m. will halt trading for two hours; for one hour if between 1:00 p.m. and 2:00 p.m.; and for the remainder of the day if at 2:00 p.m. or later.

Level 3 Halt (aka Defcon 1)
A 3,250-point drop will halt trading for the remainder of the day regardless of when the decline occurs.

Let's just hope we never reach Level 3…


Find your next ETF

Reset All