Electronic Exchanges: The Global Transformation from Pits to Bits (He Elsevier and Iit Stuart Center for Financial Markets Press)

Cover Page\r......Page 1
Copyright page......Page 2
Dedications......Page 3
Acknowledgments......Page 4
Introduction......Page 6
Trading: Simple Concept, Complex Process......Page 7
The Birth of Exchanges......Page 8
Open Outcry Trading......Page 10
The Clearing and Settlement Process......Page 12
Derivatives......Page 14
Technology and Its Impact on Financial Markets......Page 15
The Decade that Changed the Financial World......Page 17
The First Electronic Market......Page 18
Electronic Communication Networks and U.S. Equity Markets......Page 19
Technology Advances in the Financial Industry......Page 20
Outsourcing......Page 25
The Transformation of Exchanges: Basic Themes......Page 26
Private Club to Public Company......Page 27
Smaller to Larger......Page 28
Implications of the Transformation......Page 29
Endnotes......Page 30
The Four Basic Transformations......Page 32
Introduction......Page 34
INTEX: The Forgotten First Electronic Derivatives Exchange2......Page 35
New Zealand and the Wool Guys6......Page 39
OM: The First Successful Screen-Based Exchange......Page 40
SOFFEX: Unexpectedly Electronic......Page 42
DTB: The Other Half of the World’s Biggest Exchange......Page 43
SOFFEX + DTB = Eurex......Page 46
SAFEX: An Electronic Success from an Unexpected Corner of the World19......Page 47
Japan......Page 48
China as an Early Adopter21......Page 49
Endnotes......Page 51
Introduction......Page 53
MATIF......Page 54
The Glitch that Wasn’t......Page 55
LIFFE......Page 58
The After-Hours Approach......Page 59
GLOBEX......Page 61
CBOT Can’t Make Up Its Mind......Page 64
Chicago: The Final Push......Page 66
New York: The Final Push......Page 67
Stock Exchanges Move to Screens......Page 70
Nasdaq: Early, But Not All the Way......Page 75
Toronto......Page 78
Australia......Page 79
Conclusion......Page 80
Endnotes......Page 81
The Financial Trade Cycle......Page 83
Back Office......Page 84
Electronic Trading Architecture......Page 85
The CBOE’s Hybrid System6......Page 91
Endnotes......Page 94
The Member-Owned Exchange: The Good, the Bad, and the Ugly......Page 96
Good for the Members......Page 97
Managing Regulators......Page 100
Jawboning Liquidity for New Markets......Page 102
Was It Good for the Customers?......Page 103
Problems with Mutual Exchanges in India: The Government Creates a Demutualized Competitor......Page 104
Cracks in the System: Drivers of Demutualization......Page 105
First Step: Demutualization......Page 107
What Is an Exchange Membership?......Page 111
Demutualization and the Transformation of a Membership......Page 112
Case Study: CME Demutualizes......Page 113
The Economic Value of Demutualized Membership......Page 115
CBOE: An Interesting Speed Bump......Page 118
CBOT......Page 120
The NYSE Buys Public Company Status......Page 121
The Last Step: The IPO......Page 122
Endnotes......Page 123
From National to Global Competition......Page 127
Securities vs. Derivatives Exchanges: Fees and Revenues......Page 132
Local to Regional Competition......Page 133
Competition and Clearing......Page 134
Competition in Options......Page 137
Enter the ISE......Page 138
SIMEX Was Born Global......Page 140
Global Competition in Equities Via the Depository Receipt......Page 144
Eurex Tries to Kill the Chicago Exchanges......Page 146
ICE Tries to Kill NYMEX......Page 150
The New Global Competition in Equities......Page 152
Endnotes......Page 154
Organic Growth: New Contracts......Page 157
Organic Growth: New Users......Page 162
Growth via Mergers and Acquisitions......Page 163
The New Era of Exchange M&A......Page 168
The Merger-Driven Transformation of the NYSE......Page 170
The LSE: The Exchange That Couldn’t Say Yes......Page 174
Nasdaq and the Scandinavians......Page 176
The CME and the CBOT......Page 177
The Future......Page 179
Endnotes......Page 180
Implications of the Four Basic Transformations......Page 182
A New Wave of Product Innovation......Page 184
Innovation Acceleration in Futures Products......Page 186
The Old World: Launching New Products on Trading Floors......Page 187
The New World: Launching New Products on Electronic Exchanges......Page 190
Some Things Haven’t Changed......Page 193
Regulatory Change Drives Product Innovation......Page 194
The Rest of the World......Page 198
A Note on Innovations in Equities......Page 201
Conclusion......Page 203
Endnotes......Page 204
Building Modular Exchanges via Partnerships and Outsourcing......Page 206
Modular Exchange: Building Blocks......Page 207
CBOT: Cautious Migration by Outsourcing Technology......Page 209
Partnership with Eurex: First Alliance......Page 210
Partnership with LIFFE......Page 211
The Rise and Fall of Eurex Us: Outsourcing Technology and Services......Page 213
Battle in the Energy Markets......Page 216
Leasing Technology......Page 218
Collaboration: Blurring the Lines between Exchanges......Page 219
Leasing Clearing Services......Page 221
Collocation......Page 222
CME and LNET......Page 224
Endnotes......Page 225
Regulators: Leadership and Reaction......Page 227
Introduction......Page 228
The Electronic Driver and Overall Regulatory Design......Page 230
Screen-Based Trading and the Concept of Regulation by Principle......Page 231
Regulation and the Evolving Architecture of Markets......Page 234
Proliferation of Platforms......Page 235
Tiering......Page 236
Private Club to Public Company......Page 239
Ownership and Governance of For-Profit, Demutualized Markets......Page 240
Globalization and the Accelerating Effect of Electronic Technology......Page 245
The Attraction of the Federal Model......Page 249
Implications of Market Conglomerates for Further Regulatory Integration......Page 250
National Interests......Page 251
A Word about Regulatory Structure and Philosophy......Page 252
Endnotes......Page 254
Electronic Exchanges and Trading: Benefits......Page 260
Globalization: Bringing the World Closer Together......Page 261
CME: Expansion through Global Marketplace and Acquisition......Page 262
Surge in Volume......Page 264
Volume Growth around the World......Page 266
Data, Data, and More Data......Page 269
One Screen: So Much Data......Page 270
Greater Oversight of Trading Activity......Page 272
Regulators......Page 273
Risk Management......Page 274
Competition......Page 275
Direct Market Access (DMA)......Page 276
Shifting the Balance of Power......Page 277
Automated Trading: Replacing Humans......Page 279
New Trading Styles......Page 280
Conclusion......Page 283
Endnotes......Page 284
Electronic Exchanges and Trading: Challenges......Page 286
Technology Glitches......Page 287
Exchange Outages......Page 288
Seven-Hour Outage at LSE......Page 290
CBOE: Floor-Trading Continues Amid System Issues15......Page 292
The Impact of Real-Time Data Availability......Page 293
Market Volatility......Page 294
Sell-Off due to System Issues......Page 295
Another Erroneous Trade, Another Volatile Trading Session......Page 296
Inefficiency: Out-Trades in the Electronic Trading World......Page 297
“Fat Fingers”: A $331 Million Mistake30......Page 298
Endnotes......Page 301
Exchange Consolidation......Page 303
In Response to Exchange Consolidation......Page 305
Transparency and Speed......Page 306
Partnership and Alliances......Page 308
Clearing: Next Transformation......Page 309
Global Financial Market for the Next Century......Page 310
Common Platforms......Page 311
Looking Ahead......Page 312
Endnotes......Page 313
Appendix A Abbreviations Used......Page 315
Appendix B Technology Terminology......Page 319
Appendix C Markets Glossary......Page 321
C......Page 325
D......Page 327
E......Page 328
F......Page 329
I......Page 330
M......Page 331
N......Page 332
P......Page 333
S......Page 334
T......Page 335
Z......Page 336