What it is:
A seat is a license to trade on the floor of the New York
How it works/Example:
The New York stock exchange in the world. It was created in 1792 when two dozen stockbrokers and merchants signed the Buttonwood Agreement. Stocks, bonds, mutual , exchange-traded funds, and derivatives all trade on the NYSE.
The NYSE is an auction market where and specialists buy and sell securities for people by matching the highest bidding price with the lowest selling price. When an investor wishes to buy or sell a security listed on the NYSE, he or she "places a trade" or an "order" by calling her or going to her online trading account. In either case, the order goes to a broker, who can get the order to the exchange several ways -- through a regional exchange, electronic communications network or directly to the NYSE. No matter how, the order eventually reaches the floor of the NYSE where floor brokers and specialists handle transactions.
Floor brokers execute buy and sell orders on behalf of their clients or the firms they work for. If you wanted to sell some of Company XYZ, for example, you might your broker down the street and place a sell order. Your broker might in turn route the order to one of his firm's floor brokers who are actually on the floor of the exchange. The approaches the Company XYZ specialist (see below) and executes the trade. Some floor brokers are independent, meaning that they are not employed by any brokerage firm, but provide services to brokerage firms (that is, they work for themselves). In either case, floor brokers are the people doing most of the shouting on the trading floor.
Being a floor broker requires owning a seat on the NYSE.
Why it matters:
Seat holders help ensure an orderly Wall Street. It is the place where fortunes are made and lost, and where the free market can be seen in its most tangible form. The NYSE manages the transfer of trading seats and determines which companies qualify for listing on the exchange. It also investigates and prosecutes violations of NYSE and federal securities regulations and can censure, fine, suspend, expel or bar members.
Although the NYSE expends considerable effort monitoring seat holders, they are also subject to a considerable amount of regulation from several federal agencies, such as the Federal Reserve, and from a host of laws, such as the Securities Exchange Act of 1934.