Wall Street: A Guide to the Core of the US Financial Industry
For historical reasons, many cities around the world have clusters of different industries in different parts of the city. New York has other examples besides Wall Street. Recall the Meatpacking District, an area adjacent to the Hudson River, where since the 19th century they have been cutting and selling meat, and although now it has almost completely lost its industrial significance, the name remains. An equally striking example is the Diamond District, through which almost 90% of diamonds from all over the world pass.
There is a City in London - the historical center of London, which at this stage is also a financial center, most of the city's business activity is concentrated in it. Let's also think about Fleet Street - once the center of the main judicial institutions of Great Britain, but subsequently gained a reputation as a stronghold of the British press.
Where is Wall street: Early history
The southern part of Manhattan Island, now New York, was colonized by the Dutch in the 17th century. In order to protect the settlement from the British and the natives of America, the Dutch built a defensive wall, along which they laid a road in the future, which they called Wall Street, literally “wall street”.
It had a rather convenient location - it ran between the docks on the East River and the Hudson and became an important place for trading, and, of course, stocks and bonds were among the goods.
In May 1792, sellers and speculators of securities gathered at the head of the street under a plane tree and signed the so-called "Plane Agreement", which listed a set of rules for commissions, and which was to regulate all transactions concluded here. It is believed that this agreement was the beginning of the New York Stock Exchange (NYSE).
Wall Street: Exchanges
Before digital documents were firmly established in our lives, the most effective way to trade financial instruments was to be directly next to people who were also interested in trading these instruments. Gradually, such places began to become exchanges, each of which specialized in trading certain physical goods or securities.
Among the financial exchanges still on Wall Street are the two largest stock exchanges in the world by market capitalization: the NYSE and the NASDAQ. It also houses the New York Mercantile Exchange (commodity futures trading), the New York Futures Exchange (futures and options), and the New York Chamber of Commerce (commodity derivatives).
The location of these exchanges is one of the main reasons why banks, brokers and other financial players have located their offices in the Wall Street area.
If you hear the name of Wall Street and one image comes to mind, it's the famous Doric columns in front of the New York Stock Exchange. But, curiously, the facade of the New York Stock Exchange building is actually not on Wall Street, but on Broad Street.
Trading and investing on Wall Street
Any time someone trades in a US financial asset, such as stocks or bonds, it is highly likely that at least part of the trade will be handled by an entity located in New York City's financial district or on Wall Street.
But how can you trade or invest directly in the US financial industry? Can you really own a piece of the Wall Street machine and profit from its success?
In the next few sections, we'll look at some of the ideas. None of the firms mentioned are recommendations, they are merely examples of stocks and CFDs you might trade.
Wall street: Financial supermarkets
One obvious way to invest in Wall Street's core industry is to buy shares in "financial supermarkets," a small number of large firms that operate in many areas of banking and financial markets. The six biggest names in this category are:
- Goldman Sachs Group Inc.
- JP Morgan Chase & Co
- Morgan Stanley Inc.
- Bank of America
- Wells Fargo & Co.
Wall Street: Alternatives
If you prefer to trade with less well-known companies in the market, you can pay attention to such names:
- Apollo Global Management
- Ares Management
- The Blackstone Group
These firms are described as "alternative asset management companies". While all of them now provide a wide range of investment services, they all started life as niche players, targeting specific areas of the financial industry, such as non-performing loans.
KKR, or Kohlberg Kravis Roberts by its full name, was one of the pioneers in the modern private equity industry. Although the company completed its first buyout in 1976, KKR rose to fame with the book (and later film) Barbarians at the Gates, which documented a hostile takeover of RJR-Nabisco in 1989. It was the largest leveraged buyout at the time and another 17 years later.
Wall street: Traditional fund managers
Fund managers pool the money of individual investors before investing. In doing so, they create economies of scale and make it easier for individual investors to diversify their investment portfolios.
With $7.43 trillion in assets under management at the end of 2019, BlackRock Inc. is the largest fund manager in the world.
The other top 10 global fund managers are either not publicly listed (eg Vanguard and Fidelity), part of another financial institution (eg State Street and Goldman Sachs), or non-US (eg Allianz and Amundi).
Incredibly, BlackRock was founded only in 1988, which makes it much younger than all its peers. The company has a short but interesting history, sharing roots with Blackstone, which helped with the initial funding and at one point owned 50% of the company.
In order to buy or sell shares on a stock exchange such as the NYSE, you need to be listed on or a member of the stock exchange. You also need to comply with the rules and regulations, which sometimes come from the exchange and sometimes from the relevant regulatory authorities.
As a result, when individuals and investment professionals want to buy or sell shares, they almost always turn to a stockbroker.
The three major US stockbrokers are:
- Charles Schwab Corp.
- Interactive Brokers Group
- T. Rowe Price
Those who analyze the financial industry often overlook the insurance industry. However, their work includes:
- Collect payments from clients in the form of premiums; as well as
- Make sure they have enough capital to pay for any valid insurance claims filed by their clients.
And insurance companies often invest their profits - they are among the largest and most important investors in the world.
Here are some of the US insurance companies that have their shares:
- American International Group, or AIG
- Hanover Insurance Group
You can also trade them with CFDs.
Wall street: Special class
The legendary investment firm Berkshire Hathaway, led by Warren Buffett and Charlie Munger, is a class apart.
Although technically a conglomerate, Berkshire Hathaway runs the insurance business through about 70 subsidiaries, including General Re, GEICO and NRG. Like other insurers, it uses the proceeds from insurance premiums to invest.
Berkshire Hathaway has grown into a large and diversified investor with $817 billion under management in a wide portfolio of public and private companies, both financial (American Express, Bank of America, Wells Fargo) and non-financial (Coca-Cola, American Airlines, Apple , IBM), selected by the two biggest investors of all time.
Despite the history of the company and the fact that its shares are listed on the New York Stock Exchange, it is noteworthy that the headquarters of Berkshire Hathaway is located far from Wall Street, in Omaha, Nebraska.
Wall Street: Turnaround in insurance
If you need a reliable way to trade in the insurance field, you can turn to insurance brokers, these companies help corporate clients choose the best insurance for their needs. Two such firms listed on the NYSE are:
- Brown & Brown Inc.
- Marsh & McLennan Cos
Marsh & McLennan is one of the world's largest players in the insurance brokerage industry and has also diversified into other service areas such as specialist consulting.
Wall Street: Financial Infrastructure
If you are interested in acquiring (or selling) a share of Wall Street's infrastructure, you can consider any of these four groups:
- Intercontinental Exchange (ICE), which owns 12 exchanges, including the NYSE, the world's largest stock exchange, measured by the market capitalization of its listed companies. ICE also owns 6 central clearinghouses around the world.
- NASDAQ Inc., owner of the second largest stock exchange in the world and small subsidiaries in Northern Europe.
- CBOE Global Markets, which owns and operates four options exchanges, seven stock exchanges, one futures exchange and one currency exchange, and the CBOE Volatility Index.
- CME Group Inc, the world's largest group of derivatives exchanges; owns the Chicago Mercantile Exchange, the Chicago Mercantile Exchange, the New York Mercantile Exchange and others. The group owns other technology and information products and 27% of the S&P and Dow Jones indices, is the owner and supplier of the S&P 500 and the DJIA.