The Surprising Origins of the New York Stock Exchange

In May 1792, 24 New York brokers gathered under a buttonwood tree, or American sycamore, in Lower Manhattan to sign a two-sentence agreement, pledging to trade securities with one another at fixed commissions. Known as the “Buttonwood Agreement,” the deal marked the birth of what would eventually become the New York Stock Exchange (NYSE)—one of the world’s largest and most powerful stock exchanges.

Before the Buttonwood Agreement, financial trading typically happened outdoors on the streets. People gathered near Federal Hall in New York, where George Washington had been sworn in as president just years before. They bought and sold government bonds, early bank and insurance stocks as well as commodities like tobacco and beaver skins.

Financial markets grew quickly after Alexander Hamilton's financial revolution. The war for independence left the young nation drowning in debt. Treasury Secretary Hamilton, who had studied financial history and how exchanges had helped the Dutch and then the British become economic powerhouses, introduced a plan that made government bonds reliable and tradable.

“This new country didn't have a very good economy in the beginning,” says Richard Sylla, professor emeritus at NYU’s Stern School of Business. “Hamilton knew if the United States is going to do well, it had to have something like what the Dutch and British did.”

Hamilton's reforms modernized American finance, creating a stable government bond market, a stable dollar—and the country's first (temporary) central bank. Trading and speculation surged.

Soon, however, crisis ensued. In both 1791 and early 1792, the securities market collapsed, with prices of government bonds plummeting as much as 30 percent in just weeks. New York authorities, says Sylla, responded by cracking down. The state banned street trading and speculative practices like options trading by people who didn't actually own the underlying securities.

The brokers' response? If they couldn't trade in public, they'd form a private club. On May 17, 1792, 24 merchants and brokers signed the Buttonwood Agreement under that now-famous tree. The agreement, which aimed to promote confidence in the fledgling markets, ensured that stocks would be traded among trusted parties only—and at established commissions.

“The regional brokers that founded the exchange were not the Founding Fathers,” says Peter Asch, NYSE's historian. "They are, for the most part, merchants representing several different religions, from several different countries of origin.”

The brokers soon moved away from the streets and took their trading activities to the Tontine Coffee House at 82 Wall Street. Later, they bounced between rented spaces for decades.

“Ultimately, the New York Stock Exchange chose to build its home across the street from Federal Hall, the nation’s first capital building,” says Asch. “The area had long been a hub for trade, and the founders had originally located the capital there because they knew they needed to bring the government to the markets.”

New York wasn’t the only market in the young nation. Exchanges also operated in Philadelphia, Boston, Baltimore and Charleston, South Carolina. To communicate between markets, traders used flag signals on hilltops every mile or so between New York and Philadelphia to relay price changes. Stagecoaches and horseback couriers traveled overnight between cities carrying the latest market information.

In 1817, 25 years after the Buttonwood Agreement, the group formalized further as the New York Stock & Exchange Board, drawing up a constitution and establishing rules for membership. Four of the original signers of the Buttonwood Agreement were around to sign the 1817 agreement.

Eventually, technology accelerated the pace of trading. The telegraph appeared in the 1840s, followed in 1867 by the stock ticker—essentially a telegraph dedicated to market information. The latter revolutionized market activity further by streaming prices in near real time.

By the 1870s, another innovation appeared: continuous trading. Instead of calling out one stock at a time, multiple stocks could now trade simultaneously at different podiums on the floor. The stock exchange used a Chinese gong to mark the start of trading. This lasted until 1903, when the exchange moved to its present location at Wall and Broad Streets and the now-iconic bell replaced the gong.

That new location’s building, designed by George B. Post, boasted a much larger trading floor and conspicuously large glass windows. The transparency was by design.

"It was an ode to the fact that the stock market wasn't happening behind closed doors and in smoky rooms," says Asch. "The term 'lit exchange' is the same concept—that trade should be happening for the public to see."

Despite massive technology changes over the last two centuries, the core principles behind the exchange remain the same: to serve as a central marketplace bringing buyers and sellers together, to promote trust between those players and to ensure that trades happen in "a fair and orderly" manner.

As for that original buttonwood tree? It fell during a storm in 1865. Today, a plaque at 68 Wall Street marks where it once stood.