What Is a Seat?
A seat refers to membership on a stock exchange, which enables a person to trade on the floor of the exchange either as an agent for someone else, called a floor broker, or for their own personal account, called a floor trader.
In the finance industry, owning a seat on an exchange has long been considered a prestigious position, open only to a lucky and wealthy few. The term is most commonly used to refer to membership on the New York Stock Exchange (NYSE).
The NYSE ceased selling seats in 2006 when it became a for-profit company, however, membership is still sold via one-year licenses, which is still a difficult process to obtain.
- The term "seat" is a reference to a seat on a stock exchange from which a person can trade, either as a floor broker or a floor trader.
- Historically, owning a seat was possible only for the wealthy and the lucky as there were a limited amount of seats.
- The term seat was most commonly used in the context of the NYSE.
- Seats ceased to exist on the NYSE in 2006 when the exchange became a for-profit public company.
- Membership is still sold on the NYSE but through one-year membership licenses.
- Due to the advent of electronic trading, floor trading has become a relic of the past, and as such, the need for a seat is much less.
Understanding a Seat
A seat is an expression that came into use with respect to NYSE membership. When the NYSE first started, each trader or broker was assigned a chair in the hall where trading took place with each stock individually called to trade. The exchange moved to a system of continuous trading in 1871. As trading boomed in the years following the Civil War, the term ceased to have the literal meaning of a chair from which to trade.
The history of the NYSE dates back to 1792 when 24 businessmen signed the Buttonwood Agreement under a tree on Wall Street in Manhattan. The men agreed on basic ground rules for trading stocks. The NYSE Board was formed in 1817. In 1868, the exchange fixed the number of seats at 1,060, which was later increased to 1,366.
In 1868, a seat became a property that could be bought and sold. Prices were as low as $4,000 at the time. The price of a seat in mid-1929 hit $625,000 shortly before the stock market crash. The price fell to $68,000 in 1932 and then to $17,000 in 1942. In the late 1970s, the NYSE began allowing members to lease their seats to qualified nonmembers. The price of a seat reached its highest point in 2005, selling for $3.575 million.
Purpose and Power of a Seat
Owning a seat was a matter of prestige as it indicated power, wealth, and influence, to be able to purchase and achieve access to such a coveted item. Being a seat holder meant that you were either a floor broker or trader and able to buy and sell securities listed on the exchange. It also came with the responsibility of maintaining order on the exchange's trading floor.
Today, because of electronic trading, anyone can log in to their computer and brokerage account and buy or sell shares of a company. But before the advent of electronic trading, if you wanted to buy or sell shares of a company, you would have to contact a floor broker who would be able to execute your trade. This meant floor brokers were the middle-man/woman, the contact point, for anyone wanting to trade in the stock market; a very important position.
The Ending of Seats
The NYSE became a public company in 2006 and became a for-profit organization and ended its private membership structure. At that time, the NYSE structure that allowed for seats changed. The 1,366 seat owners received 80,177 shares of the newly public company, plus $300,000 in cash and $70,571 in dividends.
At that point, the concept of a seat ceased to exist, and the right to trade on the exchange requires only a one-year license. The license cannot be resold, but ownership of the license can be transferred if the company that owns it is sold.
The NYSE was bought by the Intercontinental Exchange, known as ICE, in 2013 for $10.9 billion. With virtually all trading done via computer, the floor of the exchange has become a relic, with only a few remaining traders working on the exchange floor.