Trying to make sense of the spate of recent business news about the New York Stock Exchange, we turned to a great financial historian, Ron Chernow, who will be among those honored May 5 at the Manhattan Institute’s annual Alexander Hamilton Award Dinner. Mr. Chernow’s 2004 biography of Hamilton offers a brief account of the exchange’s founding back in 1792: “To provide more orderly markets, two dozen brokers gathered on May 17 under the shade of a buttonwood tree at 68 Wall Street and drew up rules to govern securities trading. This historic Buttonwood Agreement set a minimum for brokers’ commissions and laid the foundations for what became the New York Stock Exchange.”

The point we take away is that the exchange was created by an agreement of brokers – not by an act of the Securities and Exchange Commission or by the attorney general of the state of New York, but by private businessmen aiming to make a profit. More than 200 years later, a wide variety of constituencies can be pleased that, for the most part, despite the attempted government interference, the exchange remains under the control of private, profit-seeking owners. While the NYSE has been structured technically as a not-for-profit, it is the seat-holders – today’s equivalent of the 24 brokers under the buttonwood tree – who are now in control as the Big Board proposes to merge with the Internet-based Archipelago Exchange and as it weighs a rival offer from Kenneth Langone.

The recent events also underscore that the exchange business, far from being a monopoly, is highly competitive. Nasdaq responded to the news of the NYSE-Archipelago deal by announcing its own merger with an Internet-based exchange, Instinet. The winners in this kind of competition are almost certainly going to be the stock-trading public and companies listed on the exchanges. For just as the existence of both Borders and Barnes & Noble makes book stores better, or the existence of Burger King, Wendy’s, and McDonald’s makes fast food better, a competitive market in the world of stock exchanges is forcing trading costs lower for consumers and could even put a premium on integrity as the exchanges compete to be the most prestigious place for a company to list itself.

While the competition by the exchanges is for revenue and profit, the competition between the SEC and Attorney General Spitzer seems focused mainly on headline-grabbing. The healthiest thing for the exchanges at this point would be for the regulators to step back and let the market in markets work. This goes, too, for another would-be regulator of the stock markets, a Democratic mayoral candidate in New York, Fernando Ferrer, who wants to revive a poisonous tax on the transfer of stocks.

There will be some job losses as exchanges emphasize electronic trading over that of the old-fashioned, in-person variety. But all indications so far are that New York will remain, in important ways, the home of these markets even as some of the actual trading activity moves into cyberspace. More than 200 years later, the same street in New York where the brokers once gathered under the buttonwood tree is still America’s financial center. It is so mainly because of the initiative and creativity of individual bankers and brokers and traders and investors who call this city home. But also because, at important junctures, the city and state and even federal authorities realized that New York, too, is competing with other cities and states and countries as a site in the market for markets, and that it’s crucial for the city to make sure that it is a place where brokers can organize their own markets with a minimum of government interference.