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The Highest Price Ever: The Great NYSE Seat Sale of 1928–1929 and Capacity Constraints

Published online by Cambridge University Press:  10 September 2007

Lance E. Davis ,
Larry Neal  and
Eugene White
Lance E. Davis
Affiliation:
Professor Emeritus, Humanities and Social Sciences, California Institute of Technology, Pasadena, CA 91125, and Research Associate, NBER. E-mail: led@hss.caltech.edu.
Larry Neal
Affiliation:
Professor Emeritus, Department of Economics, University of Illinois, Urbana, IL 61801, and Research Associate, NBER. E-mail: lneal@uiuc.edu.
Eugene White
Affiliation:
Professor, Department of Economics, Rutgers University, New Brunswick, New Jersey 08901, and Research Associate, NBER. E-mail: white@economics.rutgers.edu.
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Abstract

During the 1920s the New York Stock Exchange's position as the dominant American exchange was eroding. Costs to customers, measured as bid-ask spreads, spiked when surging inflows of orders collided with the constraint created by a fixed number of brokers. The NYSE's management proposed and the membership approved a 25 percent increase in the number of seats by issuing a quarter-seat dividend to all members. An event study reveals that the aggregate value of the NYSE rose in anticipation of improved competitiveness. These expectations were justified as bid-ask spreads became less sensitive to peak volume days.

Type
ARTICLES
Information
The Journal of Economic History , Volume 67 , Issue 3 , September 2007 , pp. 705 - 739
Copyright
© 2007 The Economic History Association

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