What it means
Investopedia says the term started with the New York Stock Exchange, where early brokers were given a chair in the hall. The chairs went away after continuous trading began in 1871, but the word stayed.
A seat became a membership that could be traded. The supply was fixed: in 1868 the NYSE set the number of seats at 1,060 and it later reached 1,366, and Allan Sloan wrote in the Washington Post that the exchange still had 1,366 seats in 2006.
A fixed supply meant the price moved with demand for floor access. Seat prices tracked the fortunes of Wall Street, with Investopedia giving about $4,000 in 1868 and $625,000 in mid-1929, just before the crash, and then $68,000 in 1932 and $17,000 in 1942, which shows how far a seat could fall.
Owners were not only traders, since a seat holder could execute orders for clients, trade for their own account and take on duties for order on the floor, and in the late 1970s the NYSE let members lease seats to qualified non-members. The model ended with the exchange's change of status.
When the NYSE became a for-profit public company in 2006, owners of seats received shares and cash for them. Investopedia gives 80,177 shares plus $300,000 in cash and some dividends for the owner of each of the 1,366 seats.
Sloan described each seat as turning into a package worth almost $6 million, mostly stock. Today a firm needs a one-year trading licence rather than a seat.
Investopedia notes that the licence cannot be resold, although ownership can pass if the firm that holds it is sold. Electronic trading means most investors never need a floor member.
The word still appears in older books and in other markets, where membership structures differ by exchange and country. Anyone using an older source should check the date and the exchange before relying on a price or a rule.
A price quoted in an old source also reflects the market of its day, so it should not be compared directly with present-day trading costs.
In practice
Real-world examples.
Example
A fictional seat sold for $625,000 in 1929 and for $68,000 in 1932. The price fell $557,000, or 89%. By 1942 at $17,000 it was 97% below the peak, which shows how far a limited right could fall when trading slumped.
Example
A fictional broker bought a seat for $975,000 at the low and sold it for $3,575,000 at the 2005 high. The gain is $2,600,000, which is 267% of the purchase price. The high came just before the exchange became a public company.
Example
A fictional member owns a seat valued at $3,000,000 and leases it to a trader for $100,000 a year. The lease income is 3.3% of the seat value. The lessee gets floor access without buying the seat, and the owner keeps the capital value.
Formula
Calculation
Price change = (New price - Old price) / Old price. With ($68,000 - $625,000) / $625,000 = -89.1%.
Gain = (Sale price - Purchase price) / Purchase price. With ($3,575,000 - $975,000) / $975,000 = 266.7%.
Lease yield = Annual lease / Seat value. With $100,000 / $3,000,000 = 3.3%.
Seat value per share received = Package value / Shares received. A seat turned into 80,177 shares plus $300,000 in cash; if the package was worth almost $6,000,000, the stock part was about $5,700,000, roughly 95% of the total, which is why Sloan called it mostly stock.Case study
Seen in the real world.
This case study is fictional and illustrative. Henry, 61, retired from a floor brokerage in Chicago and is reading about his father's career at an exchange. His father bought a membership in the 1970s and later leased it. Henry finds that the price rose with trading volume and fell during slumps.
He also learns that membership rules differ by exchange and that many exchanges moved to licences. He sees that a seat was both a right to trade and an asset. When the exchange changed its ownership, the value became shares and cash. He concludes that the old numbers show how a limited right can gain value, and how a change of technology can remove it.
Henry writes a short note for his family. It lists the price swings from the old records, the lease income his father earned and the way the seat finally converted into shares and cash. He adds that every figure is tied to its date and exchange, because a price from one era says little about trading costs today.
Watch out
Common mistakes.
- Thinking you can buy a seat on the NYSE today, when trading rights are now sold as one-year licenses.
- Treating a seat as a share of the exchange, when it was a membership that later converted into shares.
- Assuming a seat price always rose, when the 1929 to 1942 figures show deep falls.
Questions
People also ask.
What is a seat on an exchange?
It is a membership that gave the right to trade on the exchange floor. It could be bought, sold and later leased.
Do seats still exist?
At the NYSE they were replaced by one-year trading licenses in 2006. The word is still used in older sources and some markets.
How much did a seat cost?
Prices ranged from about 4,000 in 1868 to 3,575,000 in 2005, according to Investopedia.
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