What it means
In the nineteenth and early twentieth centuries, brokers who could not or would not join the main New York exchange traded shares on the pavement and kerb nearby. They dealt mostly in newer or smaller companies that the main exchange did not list, and many of those companies later grew large enough to move to the main exchange.
Crowds of traders used hand signals and shouted orders because of the noise in the street. Because there were few formal rules, curb trading was risky.
Prices could differ from one corner to the next, settlement relied on trust, and rumours spread fast. Dishonest traders could exploit the lack of oversight, which created pressure for better regulation, and bad weather also made trading uncomfortable and added to the case for a proper building.
Over time the curb brokers organised themselves, adopted written rules and moved indoors. The market eventually became the American Stock Exchange, which later became part of the group that owns the New York Stock Exchange and now trades under the name NYSE American.
The term curb trading today is used more loosely. It can refer to informal trading outside regulated venues, such as dealings between individuals or on unofficial markets, where the buyer carries a higher risk that the other side will not deliver or pay.
Informal trading of this kind is sometimes called a grey market. For finance professionals, the idea is a useful reminder of why regulated exchanges exist.
A central, supervised market gives investors transparent prices, trading rules and a clearing process that guarantees settlement. Informal markets often lack all three.
When you see the word in a business setting, treat it as a signal to ask three questions. Who is the counterparty, how will the trade settle, and which regulator supervises it?
The answers show how much risk is being taken.
In practice
Real-world examples.
Example
A history lecturer on financial markets explains how brokers traded on the street to show how exchanges developed. Students compare the old open-air market with today's electronic systems. They then list the protections that regulation now provides, such as public prices, trade reporting and a clearing house that guarantees settlement.
Example
A small company with shares that are not listed on any exchange is approached by an investor who offers to buy 10% of the shares directly from existing owners. The company's lawyer warns that such a private deal has no exchange to guarantee price or settlement. The parties agree to use an escrow agent (a neutral third party who holds the funds) to reduce the risk.
Example
A compliance officer at a brokerage hears that a client is trading shares through an unofficial online forum. She reminds the client that these trades are outside the regulated market and carry the risk of fraud. The brokerage records the warning in the client file. It also offers to execute the trades on a regulated venue instead.
Case study
Seen in the real world.
This fictional story is illustrative only. Quayside Mining is an invented company whose shares are not listed on any exchange, and some early investors want to sell.
A fictional broker offers to find buyers through a network of private contacts, and a buyer agrees to purchase 50,000 shares for $200,000. There is no exchange to publish a price, so the buyer relies on a verbal agreement and a bank transfer. When the shares do not arrive for three weeks, the buyer starts to worry.
The company's finance manager steps in, confirms the transfer in the share register and explains that the delay was caused by paperwork. After the episode, the company introduces a transfer procedure with written agreements and a standard timetable, and the board considers applying for a formal listing so that investors can trade with more protection. The finance manager estimates that a listing would cost about $150,000 in the first year for advisers, audit work and filing fees. The board decides that the cost is justified if it gives investors a regulated market, a visible share price and an easier route to raise new money.
Watch out
Common mistakes.
- Thinking curb trading is the same as modern after-hours trading. Modern after-hours trading takes place on regulated systems.
- Assuming informal trades carry the same protection. Without an exchange or clearing house, there is often no guarantee of payment or delivery.
- Believing the curb market was illegal. It was an open market that operated without a formal exchange, and it later became an organised and regulated exchange.
Questions
People also ask.
Where did the term come from?
It came from brokers who traded on the kerb outside the main exchange building in New York.
What became of the New York curb market?
It grew into the American Stock Exchange, which is now part of the group that operates the New York Stock Exchange.
Is curb trading still used as a term?
Yes, but mostly in historical writing or as a loose label for informal trading outside regulated markets.
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