Chapter: 3 How Securities are Traded?

Section: 3 Stock Brokers

An exchange provides a facility for its members to trade securities, and only members of the exchange may trade there. Therefore, memberships or Seats on the exchange are valuable assets. The majority of the seats are commission broker seats, most of which are owned by the large full-service brokerage firms. The seat entitles the brokerage firm to place one of its brokers on the floor of the exchange where he or she can execute trades. The exchange members charge investors for executing trades on their behalf. The commissions that members can earn through this activity determine the market value of a seat. For example, a seat on the NYSE has sold over the years for as little as US$ 4,000 in 1878 and as much as US$ 2,600,000 in 1999.