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Tops $1 Million : Cost of NYSE Membership Is Going Up

May 02, 1987|MICHAEL A. HILTZIK | Times Staff Writer

NEW YORK — For more than 20 years, Samuel Weiss has been trading stocks on Wall Street and keeping watch--through rallies and slumps, booms and crashes--on the market in perhaps the single most important commodity sold in the financial district: a seat on the New York Stock Exchange.

Since the end of last year, he has seen that market move almost faster than the eye can follow.

"This is unique," Weiss, 69, said one day recently at his New York office. "There has never been a jump in prices like we're seeing now."

Records Topple

On April 23, a seat on the exchange sold for the first time for $1 million. That broke the previous record, an $850,000 mark that had lasted just three days. The $1-million seat topped the 1986 year-end record price of $600,000 by 40%, and itself was topped one day later, when a seat changed hands for $1.1 million. Stock exchange aficionados say the day of the $1.5-million seat may not be more than a few weeks away.

The rapid appreciation of prices, which has far outstripped the rise in the stock market itself over the same period, has focused new attention on this one linchpin of the entire trading system of the stock market. For without owning a seat, no one may trade a share of stock on the exchange. Instead, one must deal through someone who does own a seat, a process that adds considerably to overhead for any active, professional dealer in securities.

Indispensable Requirement

As the indispensable requirement for doing business on the exchange, the seat has been the symbolic repository of tradition on Wall Street for more than a century, though it has been a long time since any trader on the floor has had the time or the opportunity to actually sit in one. (The term "seat," which now simply denotes exchange membership, derives from the time when exchange members would sit in assigned chairs, waiting for individual stocks to be called for trading.)

The number of available seats has been largely fixed since the 1920s, although one change was made in 1953, when the number was reduced to the current figure of 1,366 from 1,375.

The date and price of one's seat purchase is something that almost every owner remembers, not least because it is a fairly reliable barometer of stock market trading volume, rising when volume rises and falling when volume dwindles. The seat is also an emblem of membership in the exclusive club of floor members of the stock exchange and thus something with tremendous emotional significance.

"My father bought his seat in 1932," recalled Robert Fagenson, a specialist trader, or one charged with supervising the trading in a select group of stocks, "and he paid about the same dollar amount as I paid for mine in 1973--about $85,000. He saw his go up to about a half-million, and while we both owned seats we saw them fall to less than $40,000."

On the other hand, seat prices are by no means a dependable indicator of stock market direction: The price record that stood the longest was the $500,000 price paid for a seat just before October, 1929--the Great Crash.

The rights conferred by seat ownership have been the subjects of some of the bitterest battles fought on the floor. Many traders recall the divisive fights in the late 1970s over whether to allow members to lease their seats to others. The measure finally passed, and about a third of all seats are currently under lease.

A Fixed Scarcity

Moreover, the very process by which seats change hands has been carefully fashioned to parallel that of the exchange's principal business. Among its obvious features is the element of supply and demand, governed by the fact that by limiting the number of seats to 1,366 the exchange maintains the supply at a fixed scarcity.

"It's just like trading stocks," Ira Haupt II, a member of a family that has worked the NYSE floor for four generations, said with a chuckle. (Haupt paid $93,000 for his seat in 1958.) Seats are transferred when a buyer and seller meet through a broker--the exchange itself functions as the broker on all seat sales--and settle on a mutually agreeable price. Before the transfer can actually take place, the exchange subjects the buyer or lessor to a series of background checks covering his or her financial backing and past securities law violations and requires the buyer to pass a test on trading practices and exchange floor rules.

Nominal Considerations

An average of about 100 seats change hands every year, with 25 or so sold in cash transactions between strangers, and the rest trading for nominal considerations within large firms, as one employee of a firm relinquishes his floor job to another.

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