SIC 6231

This category includes establishments primarily engaged in furnishing space and other facilities to members for the purpose of buying, selling, or otherwise trading in stocks, stock options, bonds, or commodity contracts.

NAICS Code(s)

523210 (Securities and Commodity Exchanges)

Industry Snapshot

This classification is divided into two distinct industries: stock exchanges and commodities exchanges. Each of these industries has its own structure, history, and participants. Modern securities exchanges in the United States are voluntary entities organized for centralized trading. These organizations' constitutions, bylaws, rules, and regulations govern the members and the trading of issues listed by the exchange. These organizations do not trade the listed securities themselves; rather, they provide the facilities required for organized trading. Stock exchanges also aid the marketability of their listed issues by providing the facilities required for high-volume trade and by requiring the firms listed on the exchange to observe standards in accounting and reporting. These functions make the issues accessible and enhance public confidence in the exchange and its listed securities.

The Securities Exchange Act of 1934 regulates the trade of securities in the United States. This act created the Securities Exchange Commission (SEC) and required any brokers or dealers engaged in the exchange of securities to report these transactions to the SEC, unless the exchange was registered as a national securities exchange, was specifically exempted, or was not practicable and necessary or in the public interest for the protection of the investors to require such registration.

In addition to these formal exchanges, the over-the counter market is also very significant. Over-the-counter transactions do not have a central market in which they are executed. Instead, they are negotiated over the phone or, more commonly, electronically. The NASDAQ (National Association of Securities Dealers Automated Quotation), in particular, has grown in importance, gaining market share of stock listings over the regular exchanges.

Bonds, too, are an exception. Although various stock exchanges list bonds, they are traded primarily by bond houses and major commercial banks. The bond market is primarily institutional, with commercial banks as the primary investors. It is not heavily regulated, and there is no federal agency dedicated to overseeing the bond market other than the SEC.

Commodities exchanges are typically organizations that are owned by trading members and are organized to facilitate transactions between buyers and sellers of various commodities. These exchanges are regulated by three different acts. First, the Commodity Exchange Act of 1922 established the Commodity Exchange Commission, which consisted of the U.S. Secretary of Commerce, Secretary of Agriculture, and Attorney General. Second, the Commodity Exchange Act of 1936 attempted to limit fraud, manipulation, and excessive speculation. Finally, the Commodities Futures Trading Commission Act of 1974 created the Commodities Futures Trading Commission, which succeeded the Commodity Exchange Commission.

Organization and Structure

Securities exchanges are governed by the Securities Exchange Act of 1934 and regulated by the SEC. The SEC has three major responsibilities: ensuring the provision of full and fair disclosure of all material facts concerning securities offered for public investment, pursuing litigation for fraud when detected, and registering securities offered for public investment. The SEC's activities are similar to judicial proceedings, and appeals from its decisions are taken to the U.S. Court of Appeals. Structurally, the SEC is composed of five commissioners appointed by the president for five-year terms. No more than three of these commissioners may be from the same political party. The chairperson is also designated by the president.

Commodities exchanges are regulated by the Commodities Futures Trading Commission subject to the Commodities Exchange Act of 1922. This act, along with its later amendments in 1936 and 1975, subjects commodities, commodity futures, and option trading to federal supervision and restricts trading to futures exchanges designated and licensed by the commission. The Commodity Exchange Commission was originally established by the Security Exchange Act of 1922 to supervise commodity exchange, but the commission was succeeded by the Commodity Futures Trading Commission upon the passage of the Commodity Futures Trading Act of 1974.

In general, both the stock and commodities exchanges are governed by a board of directors who are elected from the membership of the exchange. In some cases board members are also selected from outside the exchange's membership to represent the public. The members are individuals or other legal entities who own a "seat" on the exchange. Seats are generally acquired by purchasing existing seats from previous members. The individual exchanges derive their income from membership dues, listing fees, and specialized services. This income is used to cover the operational expenses of the exchange.

Background and Development

Prior to 1934, the exchange of stocks in the United States was unregulated. The exchanges that existed at the time were only limited by a sense of duty to their members and concern for their reputation. This system was sufficient through the bull market of the 1920s; however, the 1929 stock market crash and resulting Great Depression brought this system under renewed scrutiny.

In 1933, Congress passed the Securities Act, establishing disclosure requirements. This act was followed by the Securities Exchange Act in 1934, which brought stock exchanges under federal regulation. The act created the SEC and required all transactions to be completed on exchanges registered with the SEC. This registration required the exchange to file a registration statement containing various information and documents. Every corporation listed on the exchanges was also required to register with the SEC and to file annual reports and other periodic updates.

In 1975, amendments to the Securities Exchange Act mandated the creation of a National Securities Market by the SEC. This system is composed of automated linking of various stock exchanges. The links were created to stimulate competition in the market. These changes were implemented due to the increased volume of trading, as individual investors were slowly being replaced by institutional investors. The exchanges adjusted to this new market by altering their rules and adopting automation. From 1975 to 1987, the yearly volume of trade on the New York Stock Exchange increased tenfold.

Despite comprehensive automation, the market strained to handle the volume of transactions caused by the market collapse on Black Tuesday, October 19, 1987. That crisis led to the adoption of circuit breaker mechanisms, which halt trade when prices fall too quickly. The exchanges have also increased floor space and computer system capacity, and have raised specialists' capital requirements. Many experts believe that these changes have made the U.S. exchanges more reliable and resilient.

One major development during the 1990s was the advent of communications technology that enabled trading to be conducted off exchange floors. Electronic Communications Networks (ECNs) are alternative trading systems that function much like stock exchanges—collecting, displaying, and automatically executing customer orders. In 1994, charges were made that NASDAQ market makers were charging excessive markups on trades they executed. In response, the SEC effectively forced the adoption of Order Handling Rules in 1997. The rule requires dealers to post customers' orders on NASDAQ's screen or send them to an electronic communications network that would post them for everyone's viewing. ECNs were thus inadvertently allowed into the exchanges.

Day-trading firms, which for years had sought greater market access to NASDAQ, soon rushed in to set up ECNs. The oldest and largest of the ECNs is Reuter Group PLC's Instinet. ECNs, which are regulated by NASDAQ's parent, the National Association of Securities Dealers (NASD), accounted for nearly 30 percent of NASDAQ's share volume in 1999.

Competition from the ECNs also caused the exchanges to expand the hours of trading. Because ECNs are set up to offer round-the-clock trading, exchanges would have to do the same to protect their market from eroding. Most of the world's largest stocks already trade in three major time zones, namely, the United States, London, and Tokyo. Related changes as a result of continuous trading would mean further growth for discount brokers and Internet trading. Newspapers and television networks would adjust their financial reporting to fulfill the demand, and more people would be added to the workforce to cater to the trading activities.

In 1999, a new SEC rule commonly known as "Reg ATS" (Alternative Trading Systems) took effect. This regulation allows ECNs and other electronic trading systems to actually become stock exchanges. ATSs are small, private systems that are lightly regulated and are able to make quick innovations. They serve to drive down the cost of trading and to spur innovations such as extended trading hours and online trading via the Internet.

The rise of the Internet as a revolutionary new form of interactive communication has also affected the delivery of financial information by providing investment tools or executing securities transactions. By the end of 1996, Internet technology had made stock quotes available on dozens of Web sites, and most suppliers were giving the data away. This change in the delivery of securities data has contributed to the boom in online trading.

According to Forrester Research, there were about four million online brokerage accounts at the end of 1998. This number was predicted to rise rapidly. The largest discount brokers, such as Charles Schwab, have witnessed their online account share of their total account base jump from 5 percent to 60 percent by 1999.

Online brokers grew from 1 to 100 in just three years, as reported by Gomez Advisors in 1998. Most Internet brokers are the online offspring of traditional financial service firms. Coupled with the online account growth of traditional service firms offering online access was the growing account base of the predominately online-only brokerage such as E*Trade, Ameritrade, and Datek Online.

The number of online trading individuals also grew 53 percent to 6.1 million in a year from 1998 to 1999, according to Cybercitizen Finance. Given this lighteningfast growth, the exchanges are confronted with the question of what constitutes an exchange and the role it will play in the future.

Prior to 1922, commodities exchanges were unregulated. In 1922 the Grain Futures Act was passed, beginning the regulation of commodities exchanges. In 1936, this act was amended to include commodities other than grain, and in 1975, an independent federal agency was created to administer the provisions of this act. In addition to the trend toward more regulation, the commodities exchanges have also mirrored the stock exchanges' move towards greater automation.

Early in the 1990s, futures exchanges started to seek alliances to boost business. In 1992, the Chicago Mercantile Exchange (CME) launched Globex, with the Singapore International Monetary Exchange (Simex) and France's Matif as partners. In 1993, the New York Mercantile Exchange (NYMEX) opened its Access system in London, listing its own energy contracts. The quest for listing on international exchanges thus continued.

Setting up global networks to create a globally linked marketplace that provides cross-border opportunities for investors worldwide has become the goal of the exchanges. By 1999, an alliance between Eurex, the all-electronic German/Swiss derivatives exchange, and the Chicago Board of Trade (CBOT) was announced. Soon after, CME and the London International Financial Futures & Options Exchange (Liffe) linked up their electronic platforms, Globex 2 and Liffe Connect, to allow members to trade each other's short-term interest rate contracts electronically. Liffe chairman Brian Williamson believes that the partnership brings to their customers international access to a wide range of products, lower transaction costs, and a more efficient use of capital.

The New York Stock Exchange (NYSE) is the largest equities marketplace in the world, with 3,025 companies worth more than $16 trillion in global market capitalization. As of year-end 1999, the NYSE had 280.9 billion shares worth approximately $12.3 trillion listed and available for trading. Over two-thirds of the roster of NYSE companies has listed with the exchange within the last 12 years.

Since its inception in 1971, NASDAQ has steadily outpaced the other major markets to become the fastest growing stock market in the United States. The NASDAQ difference is in its market structure. In contrast to traditional floor-based stock markets, NASDAQ has no single specialist through which transactions pass. NASDAQ's market structure allows multiple market participants to trade stocks through a sophisticated computer network linking buyers and sellers from around the world. This successful model has pushed other exchanges to reinvent themselves. For instance, the London Stock Exchange, the Singapore Stock Exchange, and Japan's JASDAQ all adopted NASDAQ's screen-based, floorless electronic market system.

As the NYSE continues to face stiff competition from alternative trading systems, it has announced several plans to modernize and transform its operation. The main plan is to list itself as a public company. Like other for-profit companies, the NYSE found that the quickest way to modernize was to find an Internet business partner and, in this case, an ECN. For NYSE, it will set up its own electronic communications network to automatically match small orders of up to 1,000 shares. Coupling with this initiative, the NYSE might also increase the free time that specialists have to give member firms coming over the NYSE's electronic routing system without charging. These initiatives mean less income for its specialists and floor brokers but offer its Wall Street member firms better service at reduced cost. NASD is also planning to spin off the NASDAQ Stock Market as a for-profit entity. The Pacific Exchange has likewise taken action to reinvent itself as the nation's first for-profit stock exchange.

When an exchange goes public, institutional investors are able to buy a large enough stake in it to affect the rules that govern listed companies. The question becomes whether the exchanges can both trade on and regulate the exchanges. The NASD's plan is for the regulatory portion to retain its not-for-profit status. However, there are increasing numbers of shares traded over electronic networks that are not governed by any self-regulating organizations. Of course, one would assume that the institutional investors with equity in the exchange would act in the best interest of the exchange with respect to rules governing it. Otherwise, the listed companies can leave the exchange and take their business elsewhere.

At the same time the exchanges were protecting their stakes, the SEC was completing Market 2000 in 1993, its first review of the U.S. equity market for 20 years. This SEC paper asked respondents to identify regulatory anachronisms and called for comments on Rules 390 and 500. Rule 390 bans member firms from trading issues listed on the exchange prior to 1979 off the exchange's floor while it is open. Rule 500 requires a two-thirds majority vote of shareholders in favor to de-list a company. By the end of 1999, the board of the New York Stock Exchange voted to repeal Rule 390, moving into line with the wishes of the SEC. With the rule eliminated, firms could transfer more of their customers' orders from public markets into their own trading rooms.

In the options market, the exchanges are competing to list big companies. The Chicago Board Options Exchange (CBOE) listed Dell Computer Corp. in August 1999, a major contract that before had been listed solely by the Philadelphia Stock Exchange (PHLX). The unwritten rule was that certain marquee contracts are listed by one single exchange. Because CBOE ignored this agreement, PHLX listed CBOE's Coca-Cola and Amex's Apple Computer Inc. to position themselves accordingly. By September, CBOE listed 29 other previously single-listed contracts, notably Microsoft Corp., Sun Microsystems Inc., and 3Com Corp.

The competition is favored by the SEC and the Commodities Futures Trading Commission (CFTC), which have taken steps to encourage multiple listing of equity options and approve the applications of screen-based systems as contract markets.

The growth of information technology and the rise of NASDAQ and Internet trading have changed the landscape of the securities industry. The information that was once privileged to bankers and Wall Street elites is now at everyone's fingertips. More changes will occur as the Internet matures.

Current Conditions

During a time of economic prosperity, unprecedented stock trading volume and IPOs, and the dot-com boom of the late 1990s, U.S. markets peaked in March 2000. Beginning with the failure of many of the new high-tech darlings after that date, markets began a decline that continued and worsened with various economic factors, including the events of September 11, 2001, which destroyed the World Trade Center and shut down NYSE operations for four days due to damage to telecommunications and computer systems. Other factors accounting for the slide in markets included ongoing terrorist fears, military action in Afghanistan, and the war with Iraq in early 2003. By mid-2002, the market had lost an estimated $7 trillion since its peak in 2000. The NASDAQ dropped to 1997 levels, and Standard & Poor's 500-stock index lost more than 40 percent of its value. Corporate accounting scandals falsifying companies' earnings, including Enron and WorldCom, also shook investor confidence, and markets were not quick to rebound.

Securities industry personnel manage the accounts of nearly 93 million investors directly and indirectly through corporate, thrift, and pension plans. In 2002, the industry generated $214 billion in U.S. revenue and $285 billion in revenues worldwide. As of year-end 2002, the NYSE listed nearly 2,800 companies and had 363.1 billion shares, an 18.1 percent increase from 307.5 billion shares in 2001. The dollar value of those shares was worth approximately $10.28 trillion, a decrease of 2 percent from 2001. The average share price in 2002 was $28.30, down $5.80 per share from $34.10 registered in 2001. As 2002 ended, the NYSE's market share of listed securities dropped below 80 percent for the first time in its history, illustrating the increasing competition from the NASDAQ as well as regional exchanges and electronic communications networks. In January 2003, however, the NYSE's market share topped 80 percent once again. The 80 percent figure represents a commonly accepted resistance level, and a drop below that level causes many analysts to revise ratings of specialist firms.

By 2002, NASDAQ, the leading electronic stock market worldwide, was also the second leading market in the United States, trading approximately 3,600 companies on its floorless market. In 2001, NASDAQ handled 471.2 billion shares—more share volume than all other major U.S. stock markets combined—and its listings' market value was nearly $2.9 trillion, a 470 percent increase over the last decade. Former parent NASD spun NASDAQ off in a string of private sales, while retaining about 55 percent of its stock. NASDAQ common stock now trades OTC. The exchange hoped to become a completely public, for-profit entity in 2003 with a proposed initial public offering that year, but some analysts were skeptical about the feasibility of the plan in such a short amount of time.

Although the NYSE and NASDAQ both established emergency backup systems after the events of 9/11 to ensure there was no disruption in trading if a terrorist attack should occur, the Bush administration announced in March 2003 that it had also acted to upgrade the security of U.S. financial markets against possible future attacks. Due to security reasons, not all the steps taken by the government could be revealed, but they included beefing up physical protection of important financial institutions, as well as secured communication lines among financial regulators in times of crisis.

In May 2003, the NASDAQ petitioned the SEC to repeal the NYSE's Rule 500, nicknamed the "Roach Motel," that makes it nearly impossible for companies listed with NYSE to move to the electronic stock market. NASDAQ argued that the rule was anticompetitive and that no other exchanges have such limitations on delisting. Indeed, NASDAQ itself saw many companies move to the NYSE after the tech bubble burst in 2000.

Industry Leaders

Securities Market Centers. At the end of 1999 there were eight major stock markets operating in the United States, including seven stock exchanges and NASDAQ, the first floorless, screen-based market center in the world. The two largest of these market centers by far are the New York Stock Exchange (NYSE) and the NASDAQ stock market. Other major exchanges include: Boston Stock Exchange, Chicago Stock Exchange, Chicago Board of Options, Cincinnati Stock Exchange, Pacific Stock Exchange, and Philadelphia Stock Exchange.

The "Buttonwood Agreement" established the New York Stock Exchange in 1792. Today the NYSE is generally recognized as the world's most prestigious and influential stock exchange, although beginning in 1994 the NASDAQ has regularly surpassed it in annual trading volume. More than 3,000 companies are traded on the NYSE, and the aggregate market value of these companies was approximately $9.4 trillion at the end of 1997.

The NASDAQ stock market was created in 1971 as the world's first electronic market listing small companies. In the 1980s, NASDAQ experienced substantial growth as hundreds of new technology firms rushed to have their shares listed in this high-tech marketplace.

Even as NASDAQ enjoyed almost uninterrupted growth, however, the American Stock Exchange (Amex) suffered from a steady decline in its company listings and trading volume. At the end of 1997, more than 5,400 hundred companies were listed on NASDAQ, compared to 771 for the Amex. Although finding itself unable to compete effectively with NASDAQ's tech-heavy appeal or the Big Board's blue chip prestige, the Amex did develop into the country's second-largest options market behind the Chicago Board Options Exchange.

The National Association of Securities Dealers, Inc. (NASD) and the American Stock Exchange merged at the end of 1998 to maximize the efficiencies of both organizations. NASDAQ and the Amex continue to operate as separate markets under the NASDAQ-Amex Market Group, a subsidiary of the NASD that oversees both market systems and explores technological efficiencies and international opportunities. Since the merger, one area of growth for the Amex has been in the area of Index-Based Products or Exchange Trade Funds (ETFs), such as Standard & Poor's Depositary Receipts (SPDRs), World Equity Benchmark Shares (WEBs), and NASDAQ-100 Index Trading Stock (QQQ or "Cube"). These increasingly popular investment instruments provide investors with an alternative to index-based mutual funds as a way to achieve "instant" diversification in the stock market.

The United States' third largest exchange, the financially struggling Amex was back up for sale in 2001. Other exchanges considered purchasing it, including the NYSE, Hong Kong Stock Exchange, and Eurex, as well as several investment and venture capital firms, but they ultimately lost interest. Once the second leading exchange in options market making, the Amex was surpassed for the first time in April 2003 by the International Securities Exchange, an all-electronic exchange. Its decision to trade NASDAQ stocks also fell flat, with trading volume of those stocks under 1 percent. One of the exchange's biggest drawbacks is the inability to execute orders automatically, and although Amex executives plan to implement immediate execution in the near future, some industry insiders argue that until then, growth cannot occur.

Commodities Exchanges. There are 13 major commodities exchanges currently operating in the United States. Of the 13, four are the most significant. The Chicago Board of Trade (CBOT), founded in 1858, is the most important grain exchange in the United States. Approximately 90 percent of the world's grain futures are traded on its floors. In addition to commodities, CBOT is also involved in the financial futures and options markets as well as precious metals. CBOT is regulated by the Commodities Futures Trading Commission subject to the Commodities Exchange Act.

The Chicago Mercantile Exchange (CME), founded in 1919, provides a national market for transactions in spot and futures contracts for commodities. The CME is also a leading exchange for futures trading in financial instruments and foreign currencies. The CME was regulated by the Commodities Futures Trading Commission subject to the Commodities Exchange Act. In 2002, the CME demutualized, becoming a holding company, and went public.

The Commodity Exchange (COMEX), created by the post-Depression merger in 1933 of four exchanges, is one of the largest and most active commodities exchanges in the world. COMEX provides an organized, centralized market where commodities contracts of precious metals are traded. In 1994, COMEX was bought by the New York Mercantile Exchange (NYMEX), which trades futures in precious metals, oil, and gas. COMEX maintains its name as a division of NYMEX.

Commodities exchanges of lesser importance include: Amex Commodities Exchanges, Inc., Chicago Rice and Cotton Exchange (CRCE), Coffee, Sugar & Cocoa Exchange (CSCE), Kansas City Board of Trade (KCBOT), Mid-America Commodity Exchange (MACE), Minneapolis Grain Exchange (MGE), New York Cotton Exchange (CTN), New York Futures Exchange (NYFE), and the Philadelphia Board of Trade (PBOT).


According to the Securities Industry Association, the securities industry employed more than 612,000 people in 1997. This figure represents a 36 percent increase in five years, reflecting the growth in investment activities that began in the earlier part of the decade. According to the Bureau of Labor Statistics, by 2002 the U.S. securities industry employed more than 700,000 individuals.

America and the World

One major trend in the securities industry that came to the fore in the 1990s and 2000s is globalization. More than ever before, U.S. investors poured money into foreign stocks during the 1990s, with over $1.4 trillion worth of foreign stocks being traded in 1997 alone. Similarly, foreign investors found much to attract them in the U.S. stock market.

The continued strength of the U.S. equity market, and global mergers and acquisitions, have attracted international companies to list their stocks on the U.S. exchanges. About 200 foreign companies per year list in the United States, and the number has been rising. NYSE has experienced substantial growth in this sector over the years since 1985. As of July 1999, 382 non-U.S. companies were listed, more than triple the number in 1994.

At the end of 2002, NASDAQ listed well over 400 foreign companies of its nearly 4,000 total companies. Overseas, the London Stock Exchange listed more than 500 foreign companies (85 of which were U.S. firms), to go along with the 2,400 British firms included on the exchange. Foreign companies were also particularly well represented on the exchanges in Switzerland, Amsterdam, and Brussels.

The most compelling globalization trend for the past few years, however, is the move toward cooperative undertaking among exchanges both regionally and worldwide, and the related move toward 24-hour continuous trading of stocks.

NASDAQ has ambitious plans for global expansion, with plans to set up a European equity exchange that eventually will be electronically linked both with its established U.S. market and with NASDAQ-Japan. The latter was scheduled to be launched in late 2000, to be co-run by the NASD and Japan's Softbank. In 2001, the exchange opened a liaison office in Bangalore, India, and acquired Easdaq to create NASDAQ Europe. Also that year, NASDAQ and the London International Financial Futures and Options Exchange (LIFFE), one of the leading electronic derivatives exchanges in the world, began a joint venture to list futures on single stocks, narrow and broad-based indices, and other futures products. The joint exchange, NASDAQ Liffe Markets, began trading in 2002 and listed 91 products.

Along with NASDAQ's plans there is a drive toward the creation of a pan-European stock market that was launched in early 1999—spearheaded by the London Stock Exchange and the Deutsche Borse. Of course, even prior to the emergence of true worldwide markets and platforms for stocks and derivatives, most of the world's largest stocks already trade in a nearly full-day environment, as they are listed on exchanges in the United States, Europe, Japan, and elsewhere in Asia.

Increasingly, Asian stock markets are tied to the U.S. stock market as American investors make up a large part of Asian stocks. While U.S. markets struggled in 2002, Asian stock markets managed to remain strong, although the struggling U.S. economy eventually had negative affects in the Asian markets as well.

Talk of a worldwide exchange—in which investors might buy shares of American or European companies—increased by industry insiders in 2002. Facing regulatory problems, however, insiders speculated that an alliance between a European and American exchange would ultimately result in separate entities allied more strategically than economically. Speculation especially centered around the popular London Stock Exchange as a possible participant in such an alliance.

Research and Technology

In a world of ECNs, discount brokers, and instantaneous online access to investment information and trading opportunities (and the resultant growth of day trading), the North American securities industry as a whole spends billions of dollars per year on information technology. Eleven-and-a-half billion dollars were spent in 1996 alone. Like securities firms, stock markets are faced with an ongoing need to keep themselves technologically current—especially given the rush toward instigating continuous around-the-clock securities trading in a truly global market.

NASDAQ, which is already an electronic trading system, is in many respects best positioned to respond to current trends in technological change. Indeed, by the end of 1999, fully 30 percent of all NASDAQ transactions were being handled by ECNs.

NASDAQ has taken several steps to assure its technological infrastructure will be able to keep up with the demands of the marketplace. In late 1997, NASDAQ and MCI began working to develop a new telecommunications infrastructure for the stock market. The system is designed to be able to handle up to 8 billion shares traded per day. Also in 1997, NASDAQ introduced a trio of new Web sites: NASDAQ Online, NASDAQ Newsroom, and NASDAQ Trader. Following the merger with the Amex in 1998, NASDAQ Online—designed to provide executives of NASDAQ-listed companies with up-to-the-minute market intelligence—was renamed NASDAQ Amex Online. The merger between the two also provided Amex with access to a new electronic limit order book, order routing, and transaction system, intended to allow investors and market professionals to electronically execute orders from both on and off the trading floor.

The NYSE spent $2 billion on new technologies during the 1990s. By the end of 1999, the NYSE's communications system had been upgraded so that it could handle systemic traffic of up to 1,000 messages per second—double the capacity of just two years earlier.

In a move to enhance productivity, the NYSE rolled out Smart Report in 1998, a new feature of its specialist display book designed to help free up specialists to focus on maintaining an orderly market. Another recent focus of technological improvements by the NYSE has been its Broker Booth Support System (BBSS), which provides member firms with direct electronic links from upstairs desks to the trading floor, to points of sales, and ultimately to the customer. Begun in 1993 with 16 terminals in use, the BBSS had grown by 1998 to more than 700 terminals in use.

As a result of new post-9/11 resiliency standards, it was announced in April 2003 that NYSE members must completely integrate with the Internet by the end of that year, by adopting IP-only linkages to the Big Board. First announced by the exchange the previous year without any specific instructions or deadline, the move was intended to modernize NYSE stock trades outside of the exchange's floor and also make communication with members less expensive and more secure while providing greater flexibility. The NYSE found in studies related to 9/11 that NYSE member firms using IP links had faster recoveries after the attacks than members using legacy systems. Although the development suggested the NYSE was moving closer to adopting electronic trades, the exchange would still function as a traditional floor-based business.

The NYSE made further headway into current technology in 2003 when the SEC approved a request to allow the use of cell phones on the floor of the exchange for off-floor communications. Floor brokers had been required to communicate to off-floor locations using a telephone at a broker's booth. Although cell phones had been in use at the exchange since 1994, they were not permissible for external calls due to regulatory issues over floor brokers taking orders from customers without an accurate record. The NYSE paved the way for expanded cell phone use by introducing a system to ensure a proper trail of orders. Customers now are able to speak directly to a floor broker to place orders.

For its part, NASDAQ unveiled its SuperMontage in October 2002, a high-tech platform that would enable firm quote delivery and millisecond execution, support complex trading strategies, and offer unprecedented amounts of information to stock brokers. The implementation of SuperMontage came after three years of development and a $1 million investment. One of the highlights of the system was its ability of users to enter and protect multiple orders. NASDAQ hoped the system would bring back users of ECNs, which have gained 48 percent of trading of stocks placed on NASDAQ compared to 22 percent performed on NASDAQ's systems.

Further Reading

"The Angry Market." Business Week, 29 July 2002.

Barrett, William P. "End of an Era." Forbes, 11 October 1999.

"Big Board Volume Dips Below Longstanding Threshold." Wall Street Letter, 10 February 2003.

"A Case of American Flu." Business Week, 19 August 2002.

Cavanaugh, Katherine. "NASDAQ Chief Reveals His Global Plan." Wall Street and Technology, December 1999.

Codding, Jamey. "Exchanges Break Unwritten Rule." Futures, October 1999.

"Financial Markets Get Security Upgrade; Treasury Department Officials Say Arrangements Have Been Made for Increased Protection to Counter Possible Terrorist Threats." Information Week, 18 March 2003.

Garrity, Brian. "Global M&A Boom Creates Glut of U.S. Listing Hopefuls." The Investment Dealers' Digest: IDD, 6 September 1999.

"HighTech Trading: the Market's New Landscape." Wall Street Journal Europe, 28 July 1999.

"Index Shares." 2000. Available from .

"Key Statistics 1998." London Stock Exchange Web Site. 1999. Available from .

Kolman, Joe. "The Coming Global Stock Market." Traders Magazine, 1 August 2002.

"Long Road Ahead for NASDAQ IPO." Securities Industry News, 6 January 2003.

"A Magic Bullet for NASDAQ." Business Week, 30 September 2002.

Mosser, Mike. "Liffe and CME Form Partnership." Futures, September 1999.

"NASDAQ Rolls the Dice as SuperMontage Set to Go." Securities Industry News, 14 October 2002.

"NASDAQ Wants Big Board to Close Down 'Roach Motel.' " Securities Industry News, 19 May 2003.

NASDAQ Web Site. 2003. Available from .

New York Stock Exchange Web Site, 2003. Available from .

"NYSE Floor Brokers Get OK To Use Cell Phones." Securities Industry News, 19 May 2003.

"NYSE IPO Threatens Corporate Governance of Listed Companies." Investor Relations Business, 6 September 1999.

"NYSE Offers Guidelines for Move to IP." Securities Industry News, 28 April 2003.

Schack, Justin. "After the Fall." Institutional Investor Americas, September 2002.

Securities Industry Association. "Securities Industry Trends," 6 May 1998.

——. "Securities Industry Trends." 12 May 1999.

Securities Industry Association Web Site. May 2003. Available from .

"Stock and Derivatives Exchanges." Financial Times, 23 March 1999.

"U.S. Market Size for Internet Usage with Number of Online Consumers, Purchasers and Users by Financial Function at July 1998 vs. July 1999." 1999. Available from .

Vinzant, Carol. "Do We Need a Stock Exchange?" Fortune, 22 November 1999.

"Why Won't Someone Buy the Amex?" Wall Street Letter, 3 March 2003.

Wipperfurth, Heike. "Beset by Rivals, the NYSE Considers Two Broad Electronic Trading Counterattacks: One Could Cost Specialists up to $100 Million in Lost Commissions." The Investment Dealers' Digest: IDD, 8 November 1999.

——. "Pacific Exchange Tours New York in Search of Partners." The Investment Dealers' Digest: IDD, 18 October 1999.

Wolf, Barnet D. "Extra Dividends: Expanded Trading Hours Will Continue to Change Landscape; Does a Longer Trading Day Mean Companies Will Start Making Big Announcements at 1 a.m.?" The Columbus (OH) Dispatch, 6 June 1999.

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