Financial Information & Innovations Regarding the Stock Market
Since the Philadelphia Stock Exchange was founded in 1790, technological innovation has propelled the financial markets into the 21st century. Consolidation has streamlined the trading process, and the floor trader has given way to computers and electronic trading. The stock market has evolved from a marketplace where five securities traded in 1792 to one where shares of tens of thousands of companies change hands.
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History
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In 1792, Buttonwood Agreement was formed. The pact, signed under a buttonwood tree on Wall Street in New York, was agreed upon by 24 brokers and merchants who wanted to trade securities on a commission basis. In 1814, the group of brokers established a formal organization called the New York Stock & Exchange Board. In 1863, that group was renamed as the New York Stock Exchange (NYSE).
Types
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Some of the largest companies in the world list shares on the NYSE, which is a group of four exchanges: the big board or the NYSE; NYSE Euronext (a result of the NYSE's acquisition of Euronext; NYSE Amex (a result of the NYSE's 2008 acquisition of the American Stock Exchange); and NYSE Alternext (designed to trade shares of small and mid-sized companies.)
In the combined NYSE group, there are about 8,500 companies listed, including up to 100 of the largest global companies. The average daily trading value of stocks listed stocks is $153 billion.
The NASDAQ Stock Market, formed in 1971 as an electronic exchange, is the largest electronic stock market in the U.S. The NASDAQ acquired the oldest U.S. stock exchange, the Philadelphia Stock Exchange, in 2007. More than 3,000 companies from various sectors are listed on the NASDAQ, and daily trading volume on the electronic exchange exceeds that of any other U.S. market.
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Innovation
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The NYSE transitioned to an electronic trading platform in 2005, when it merged with Archipelago Holdings, an all-electronic exchange that was formed in 1997. At 213 years old, the NYSE had held fast to an open outcry system, an environment where specialists carry out trades from the exchange trading floor, longer than most exchanges.
Unlike the NYSE, the NASDAQ was formed as an electronic exchange. Trades on the NASDAQ are executed electronically and there is no physical trading floor for specialists. The electronic market structure is designed for speed and to be a low-cost alternative for companies and investors.
Geography
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The NYSE became the first trans-Atlantic stock exchange upon its acquisition of Euronext, a Paris-based stock exchange, in 2007. The combined exchange, dubbed NYSE Euronext, operates as a hybrid that consists of both an electronic platform and an open outcry system. The NYSE remains in New York, and Euronext maintained its Paris headquarters after the merger.
Later that year, the NASDAQ attempted to create another trans-Atlantic stock exchange through acquisition of the London Stock Exchange (LSE). Following a series of failed bids by the NASDAQ, the LSE merged with Borsa Italiana, creating a leading European diversified exchange. The NASDAQ found a partner in Scandinavian exchange OMX, forming NASDAQ OMX.
Future
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The U.S. Securities and Exchange Commission (SEC), the regulatory body that oversees the financial markets, is considering adding new rules for electronic trading. The new regulations would address how some exchanges allow certain trading firms special access to enhanced trading speed, known as co-location. It allows exchanges to provide select traders with access to an exchanges data center, which speeds up trading times. This could result in unfair trading advantages for some traders, but if the SEC removes this option, trading volumes could drop.
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References
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- Photo Credit Image by Flickr.com, courtesy of Michael
