Buttonwood Agreement

What Is the Buttonwood Agreement?

The Buttonwood Agreement was a written compact made in 1792 between 24 stockbrokers and dealers on Wall Street in New York City. Reputed to have been made under a buttonwood tree (subsequently the name), the agreement denoted the beginning of an official stock exchange for the youthful United States and the starting points of an American investment community that would come to be known as "Wall Street."

Understanding the Buttonwood Agreement

The Buttonwood Agreement happened in response to the Financial Panic of 1792: a serious, two-month period encouraged by a liberal loan policy with respect to the new Bank of the United States as well as endeavors by deceitful speculators to corner the debt securities market. At the point when they failed, defaulting on their loans, it caused a run on the banks and a panicked selling of securities.

By stretching out credit and cash to nearby banks, Secretary of the Treasury Alexander Hamilton managed to contain the crisis by May. However, the youthful U.S. what's more, its financial system had been severely shaken, and numerous in the investment community felt there was a need to restore trust in the marketplace, and to protect financial backers' interests.

With that in mind, two dozen shippers and brokers — the creme de la creme of the New York business/financial community — accumulated on May 17, 1792, reputedly at what's currently 68 Wall Street, under the shade of a buttonwood (otherwise known as a sycamore) tree to consent to a written arrangement they'd been examining since March. Fundamentally, they shaped a club, consenting to trade straightforwardly and solely with one another under a few common rules and limits.

By closing the system against outside agents and barkers (who had frequently led bond sell-offs and stock trades up to now) the participants would be guaranteed that they could trust one another, that payments would be respected, and investments were authentic. What's more, their clients could have confidence also.

It likewise implied these brokers wouldn't try to undercut each other with lower commissions. "It's productive to be in this club, so you will follow the rules since you need to stay in the club," as economic history specialist Robert E. Wright described the pact. "When all of you know one another, why screw one another?"

What Did the Buttonwood Agreement Say?

The Buttonwood directors put together their securities trading boundaries with respect to existing European trading systems around then. As a matter of fact, the Spanish practice of isolating the silver dollar into eighths was largely responsible for the commonness of parts while describing stock values.

The Agreement itself was short — two sentences, with two provisions:

1. The brokers were to deal just with one another

2. They would charge clients commissions on their trades, at a set rate of 0.25% per exchange

As such, they wouldn't need to be agonizing over selling terrible stock or competition over commission rates, so the prices charged would mirror the value of the stock, not another factor.

The specific text of the Buttonwood Agreement peruses:
**"**We the Subscribers, Brokers for the Purchase and Sale of Public Stock, do thus seriously commitment and pledge ourselves to one another, that we won't buy or sell from this day for any person at all, any sort of Public Stock, at a less rate than one quarter percent Commission on the Specie value and that we will give a preference to one another in our Negotiations. In Testimony whereof we have set our hands this 17th day of May at New York. 1792."

The Button Agreement and the New York Stock Exchange

By making a closed, individuals just financial marketplace, the Buttonwood Agreement set up the underpinnings of what might turn into the New York Stock Exchange (NYSE) — albeit the exchange wouldn't be officially organized and given a constitution for one more quarter of a century.

By 1793, the positions of New York brokers had gotten too big to meet under buttonwood trees, and they made an elaborate coffee house, the Tontine Coffee House, their new center of operations.

More securities-industry growth followed the growth of the U.S., particularly after the finish of The War of 1812. In 1817, as New York outperformed Philadelphia as the country's financial center, the Buttonwood group laid out a few new, more elaborate guidelines and name: the New York Stock and Exchange Board.

In 1863, the organization changed its name to the one it holds today: New York Stock Exchange (NYSE). Also, to oblige its new title, it built its own building at 18 Broad St. following quite a while of possessing floors in different exchanges. Today's currently at that location, presently involving the whole square block.

The fixed commissions that date back to the Buttonwood Agreement stayed a feature of the Wall Street financial market until 1975, when the Securities and Exchange Commission (SEC) canceled them.

Endorsers of the Buttonwood Agreement

The two dozen men who consented to the Buttonwood Arrangement likewise put their addresses alongside their names (or their organizations' names). They were:

• Leonard Bleecker - 16 Wall Street

• Hugh Smith - Tontine Coffee House

• Armstrong and Barnewall - 58 Broad Street

• Samuel March - 243 Queen Street

• Bernard Hart - 55 Broad Street

• Alexander Zuntz - 97 Broad Street

• Andrew D. Barclay - 136 Pearl Street

• Sutton and Hardy - 20 Wall Street

• Benjamin Seixas - 8 Hanover Square

• John Henry - 13 Duke Street

• John A. Hardenbrook - 24 Nassau Street

• Samuel Beebe - 21 Nassau Street

• Benjamin Winthrop - 2 Great Dock Street

• John Ferrers - 205 Water Street

• Ephraim Hart - 74 Broadway

Features

• The agreement was endorsed under a buttonwood tree, as indicated by historical legend.
• The agreement expected to make trust in the system by which the brokers and vendors would just trade with one another and charge a set commission for their services.
• It was written by 24 stockbrokers and vendors on Wall Street in New York City and shaped the groundworks of the New York Stock Exchange.
• The Buttonwood Agreement was endorsed in 1792.
• The rules set under the Buttonwood Agreement depended on existing European trading systems of the time.