What Is Curb Trading?

Curb trading occurs outside of general market operations, commonly through computers or telephones after the official exchanges have closed. As opposed to trading on official exchanges such as the New York Stock Exchange (NYSE) or the NASDAQ Stock Market.

The practice is also known as "kerb trading," and is reminiscent of the early days of stock trading prior to the establishment of licensed stock exchanges where brokers and traders would gather by the curb of a street corner in downtown New York City.

How Curb Trading Works

In the past, stocks that were considered unfit to trade on the New York Stock Exchange were bought and sold on the street curb. This led to the formation of the American Stock Exchange, so curb trading now commonly refers to any trades outside of exchange regulations. The phrase was popularized with the rise of the American Stock Exchange, which was regarded as the second-largest options exchange in the world. The American Stock Exchange was known as the Curb Exchange until 1921. The exchange went on pioneer index options and options on 25 broad-based and sector indices.

Today, curb trading is a catch-all phrase for any trading activity that occurs away from an organized exchange, be it a physical, electronic, centralized or decentralized exchange. For those investors who truly believe, "money never sleeps," waiting for the next financial center to open for trading business does not meet their needs. The proliferation of communications and electronic networks now offers traders with an itch at all hours to find other counterparties in dark pools and over-the-counter markets.

Key Takeaways

  • Curb trading occurs outside of general market operations.
  • The origins of curb trading trace back to curbstone brokers who were known to conduct trading on the actual curbs of streets in certain financial districts, such as in New York City.
  • Today, curb trading is commonly through computers or telephones after the official exchanges have closed.

Origins of Curb Trading

The origins of curb trading trace back to curbstone brokers who were known to conduct trading on the actual curbs of streets in certain financial districts. These brokers were common during the 1800s and early 1900s, with the most famous curb market residing on Broad Street in Manhattan's financial district. Early curbstone brokers were known for dealing in speculative stocks, often in micro and small cap industrial companies benefiting from general trends in industrialization during that period. It's not uncommon for curb trading to be synonymous with pink sheet stocks. As exchanges matured and eventually went electronic, the notion of curb trading isn't as prevalent.

The first stock licensed stock exchange in London was officially formed in 1773, a scant 19 years before the New York Stock Exchange. Whereas the London Stock Exchange (LSE) was handcuffed by the law restricting shares, the New York Stock Exchange has dealt in the trading of stocks, for better or worse, since its inception. The NYSE wasn't the first stock exchange in the U.S. however. That honor goes to the Philadelphia Stock Exchange, but the NYSE quickly became the most powerful.

Formed by brokers under the spreading boughs of a buttonwood tree, the New York Stock Exchange made its home on Wall Street, originally as curb venue. The exchange's location, more than anything else, led to the dominance that the NYSE quickly attained. It was in the heart of all the business and trade coming to and going from the United States, as well as the domestic base for most banks and large corporations. By setting listing requirements and demanding fees, the New York Stock Exchange became a very wealthy institution.