Thomas Edison is noted in history for his many inventions, including the light bulb. But many people are unaware that he is credited for inventing the ticker tape machine that was used to broadcast the price of stocks in the early part of the 20th century. Because it was too tedious to list the entire name of each company with the price, the company's name was shortened to a short abbreviation - a ticker symbol. Today, the price of stocks and other securities are still listed in this fashion. But the rules pertaining to creation of ticker symbols have changed in recent years, and many companies have elected to use their symbols as marketing tools.
TUTORIAL: Investing 101
History of Ticker Symbols
The modern form of ticker symbols was originally developed by Standard and Poor's and approved by the SEC, NASD and the exchanges. This format dictated that all exchange-traded stock symbols have three letters or less, while those that traded over-the-counter or on the Nasdaq have four or five letters. But in 1997, these rules were abandoned and companies with shorter ticker symbols began to trade in the over-the-counter network as well as on the exchanges. For decades, companies used ticker symbols that suggested the full name of the company, such as MSFT for Microsoft or WMT for Wal-Mart. (For related reading, see Getting To Know The Stock Exchanges.)
Unconventional Ticker Symbols
Although many publicly-traded entities still use abbreviations of their names as ticker symbols, some companies have chosen to use theirs as marketing tools by picking symbols that form a word related to their business or convey an action or idea. For example, Sun Microsystems traded under the symbol JAVA, one of its chief software programs. Other examples of symbols that are used for fun include YUM by a restaurant conglomerate, BUNZ was the symbol for Schlotzky's Corporation, Harley Davidson's (NYSE:HOG) and (NYSE:GRR) is the symbol for the Asia Tiger Fund. Perhaps the ultimate example is (NYSE:FUN), the ticker for Cedar Fair, Inc., an amusement park corporation. Some firms also use symbols that are easy to find, such as (NYSE:MMM) for 3M Co., (NYSE:EBAY) for Ebay.com and (NYSE:GE) for General Electric.
There are also some symbols that have a dubious relationship to their owners, such as (NYSE:KO) of Coca-Cola Company (were CO or COLA taken?) and (NYSE:LUV) for Southwest Airlines (a bit cutesy). Exchange-traded funds (ETFs) with long technical names often use catchy or easy-to-remember symbols in order to bolster their marketability as well as indicate their portfolios. (NYSE:MUNI) is the ticker for Pimco Intermediate Muni Bond Strategy ETF which invests in municipal bonds, while (NYSE:CORN) represents Teucrium Corn Fund ETF that tracks the price of corn. Some ETF tickers even suggest positive aspects of a fund's risk or return, such as the PowerShares High Equity Dividend Achievers, which trades under the symbol (NYSE:PEY) (as in "pay"), and the Pimco Enhanced Short Maturity Strategy Fund that trades under (NYSE:MINT). (This practice may come under regulatory scrutiny at some point.)
Ticker Symbol Applications and Restrictions
The process that determines the ticker symbol for a company is fairly straightforward. Once the financial criteria have been met and the listing application is completed, a company must decide what ticker symbol it wants to use and apply for its use if the company wants to trade on the Nasdaq. Firms applying for a ticker on the NYSE must use their sales representative.
The exchanges are generally disposed to grant the requested symbol as long as it is not already in use and preferably does not closely resemble another symbol (i.e. MMN may be rejected because it is too close to MMM). The symbol must also stay within the bounds of propriety; the exchanges would not permit a pornography conglomerate to use a ticker symbol such as NUDE or an expletive. But virtually anything within these boundaries will generally meet with approval by the exchanges and the SEC.
There are no rules limiting a "type" of symbol to a company, other than that it must be four letters or less. The Options Clearing Corporation maintains a list of unclaimed ticker symbols that companies may be inclined to use; these symbols may be reserved up to 24 months in advance. Of course, companies should usually have at least two or three symbols to choose from in case their first choice is taken or rejected.
TUTORIAL: Stock Basics
The Bottom Line
Although the stock market has changed dramatically since its inception in many respects, the use of ticker symbols has remained largely unchanged. While many firms still use or seek symbols that capture the company name as closely as possible with an abbreviation, some firms have chosen to use their symbols as marketing tools that convey specific concepts, such as profitability or income. The relative freedom that companies have in choosing their symbols allows them to express themselves in a sense and provide investors an indication of what the company stands for. (For related reading, see Who Owns The Stock Exchanges?)