Terms

Member What It Means How It Works Exchange Membership

Member What It Means How It Works Exchange Membership

Member: What It Means, How It Works, Exchange Membership

What Is a Member?

A member firm refers to a brokerage or financial firm with membership to at least one organized stock exchange, commodities exchange, or another securities exchange. Member firms have the rights and privileges to trade on the exchanges they belong to. Membership is granted to a firm’s professionals individually rather than to the brokerage itself.

A member is usually a trading or brokerage firm that has been granted membership on an organized securities exchange. The number of individual members an exchange may have is often known as the "seats".

Key Takeaways

  • Members are firms or individuals who hold seats in a stock exchange.
  • Membership allows professionals to execute trades on the trading floor.
  • Many securities exchanges are self-regulatory organizations made up of their member firms.
  • Today’s member firms are large financial institutions that act as market makers or trade for their own portfolios.

Understanding a Member

A broker-dealer or broker becomes a member of the NYSE or Nasdaq by filling out forms and sending a check to the organization.

Members and member firms are regulated by the Financial Industry Regulatory Authority (FINRA), an organization that operates independently outside of the government. FINRA writes and enforces rules for broker-dealers, capital acquisition brokers, and funding portals in the United States.

NYSE Membership

A registered U.S.-based broker-dealer that is a member of a self-regulatory organization (SRO) and has a connection to a clearing firm may become an NYSE member. A broker-dealer must send the membership application, agreements, and other forms to client relationship services, purchase a trading license, and mail a signed copy of the applicant firm acknowledgment and the application fee to the NYSE. A broker becomes a member by filling out the appropriate NYSE form and mailing it with a check to the NYSE.

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The NYSE stopped selling seats in 2006 when it became a for-profit company. The 1,366 members at the time received shares of the newly public company, cash, and dividends. Membership is still sold via one-year licenses, which are relatively difficult to obtain.

Nasdaq Member

A firm that is a FINRA, Philadelphia Stock Exchange (PHLX), or Bernie Exchange (BX) member becomes a Nasdaq member by completing the Nasdaq waive-in membership application and agreement, along with the Nasdaq services agreement, and submitting both with a check for $2,000. Proprietary trading firms that are members of another SRO submit a full Nasdaq membership application and agreement, along with a supplemental information document, Nasdaq services agreement, and written supervisory procedures checklist. All documents must be submitted with a check for $2,000 to the Nasdaq.

Changes to Exchange Membership

Owning an exchange membership once indicated financial power, wealth, and influence. Being an exchange member meant being a floor broker or trader who directly bought and sold securities listed on the exchange. It also meant maintaining order on the exchange’s trading floor via market making.

Today, anyone can log in to their computer and brokerage account and buy or sell shares of a company. But before electronic trading, if you wanted to trade shares of a company, you would have to contact a floor broker. Floor brokers were the middlemen for anyone wanting to trade in the stock market.

Due to the increasing globalization of financial markets, both the Nasdaq and NYSE are establishing partnerships with other stock exchanges. The Nasdaq is partnered with the London Stock Exchange (LSE), and the NYSE is partnered with the Tokyo Stock Exchange and Euronext.

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Since a Nasdaq member meets lower minimum requirements to qualify for a listing, smaller companies are listed on a major exchange, adding credibility to their products and services. The Nasdaq also has lower listing fees and features all-electronic trading for faster execution, which is increasingly becoming the norm on worldwide trading exchanges. The NYSE still uses specialists working on the floor for buying and selling stocks.

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