Buttonwood Agreement → NYSE, May 17 1792

.17th May 1792: Buttonwood Agreement → New York Stock Exchange - HiPo > .

In March and April 1792, barely a year after the creation of the Bank of the United States, a financial panic rocked confidence in the fledging American economy. Easy credit, combined with rampant speculation by bankers such as William Duer and Alexander Macomb, led to an unsustainable rise in the price of securities that inevitably plummeted. Without any safeguards in place, and at a time when securities were often bought and sold in auction houses with unpredictable prices and high commissions, public confidence in the market plummeted.

In the midst of the panic of 1792, a group of 24 brokers and merchants met to discuss possible regulations in an attempt to restore trust in the securities business. On 17 May they met again to sign the Buttonwood Agreement, named after the buttonwood tree in New York City’s Wall Street where they traditionally met to conduct their trades.

The Buttonwood Agreement was significant for two regulatory reasons. Firstly, the brokers guaranteed that they would not try to undercut each other by setting a fixed floor commission rate of 0.25%. This reduced the risk of manipulative pricing and competition between brokers. Secondly, the signatories agreed to only ever trade with each other, closing the system to outsiders who might be less scrupulous. With the knowledge that every broker operated by the same rules, they could trust that the market prices were fair and that deals would be honored. These original New York stockbrokers traded from the Tontine Coffee House at 82 Wall Street before moving to their first dedicated trading space in 1817.