Security and Commodity Exchanges

SIC 6231

Companies in this industry

Industry report:

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.

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.

The mid-2000s were a period of acquisition and expansion for exchanges. In particular, 2006 was a busy year for mergers. That year, NYSE, Inc. and Euronext N.V. agreed to merge the leading U.S. and pan-European securities trading exchanges in a group named NYSE Euronext. Also, the Chicago Mercantile Exchange and the Chicago Board of Trade combined to create the world's largest one-stop futures market, CME Group. In 2008, NASDAQ merged with OMX to create NASDAQ OMX Group and surpass NYSE Euronext as the world's largest exchange. With all the merger activity and global expansion, the SEC began considering regulations to ease U.S. investors' access to non-U.S. securities products and services through cross-border trading for the first time.

During the late 2000s worldwide merger activity continued as intense competition among all the trading platforms heated up as a result of the challenging economic environment. However, the main developments facing the stock exchanges and commodities exchanges centered on government regulation following the near financial collapse. By the time the Dodd-Frank rule takes effect there would be no financial services industry left unchanged.

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 become actual 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 one 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 lightning-fast 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 toward 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, Globex2 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. More than two-thirds of the roster of NYSE companies has listed with the exchange within the previous 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.

With the NYSE continuing to face stiff competition from alternative trading systems, it transformed its operation, most notably listing 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. These initiatives mean less income for its specialists and floor brokers but offer its Wall Street member firms better service at reduced cost. NASD also spun 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.

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.

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 because of 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.

Although the NYSE and NASDAQ both established emergency backup systems after the events of September 11, 2001, 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.

During 2004, NASDAQ's IPOs increased by 174 percent to 148, which represented 61 percent of the total market and raised $15 billion in IPO capital. During that year, NASDAQ traded 455.6 billion in trade share volume, up 7 percent from 2003, valued at $8.8 trillion, equaling a daily volume of $34.8 billion, up 24 percent. Total trades executed equaled 955.2 billion, or 3.8 million daily, up 30 percent from 2003. NASDAQ managed to land several high profile accounts during 2004, including Google's IPO and the transfer of Sears from the NYSE, where it had been listed since 1910, to NASDAQ, as part of the merger with KMart. To upgrade its transaction facilities, NASDAQ purchased the ECN BRUT and launched Market Center, an advanced integrated system, through which 7,800 NASDAQ, NYSE, and American Stock Exchange stocks can be traded. TotalView, a new propriety data product, enhanced the exchange's ability to display in-depth information. According to NASDAQ's 2004 Annual Report, its system can maintain a response time of one-fiftieth of a second and can handle 20,000 transactions per second.

At the end of 2004, the NYSE had 2,768 companies listed for a total global market value of $19.8 trillion, of which $12.8 trillion was from domestic listings and $7 trillion from international listings. During the year, the exchange added 152 new companies, including 69 IPOs. The exchange traded a daily average of 1.46 billion shares, valued at $46.1 billion. The yearly total of 367 billion shares traded set a record for volume, 4 billion shares more than 2003.

In April 2005, the SEC approved the National Market System. Known as Regulation NMS, it is the largest overhaul of the exchange system since 1975. Regulation NMS was intended to provide more transparency and integration to the exchange system as electronic business transactions have become increasingly prevalent. Among the issues addressed are trading prices, market access, revenue models for market data, and the elimination of subpenny quotes.

Of these changes, the elimination of subpenny quotes was the least controversial. Most controversial was the "trade through" proposal, which does not allow the execution of an order in one market at a price that is lower than it is listed in another market.

The most significant segment of Regulation NMS, however, is its attempt to address the growing disparity between floor-based trading models traditionally used by the NYSE and automated electronic models. "The SEC says the most serious shortcoming of the current system is the inability of buyers and sellers to interact directly and efficiently amid a multitude of competing markets," noted Chris Rice of State Street Global Advisors. The 300-page proposal effectively speeds up trade executions by imposing a one-second execution standard.

In response to the need to quickly step up its electronic trade capabilities, the NYSE announced plans to undergo a reverse merger with ECN Archipelago Holdings, which executes 24 percent of the NASDAQ's trades and a much smaller portion of the NYSE's executions. Acquisition of Archipelago jump-started the NYSE's efforts to upgrade its technology and quickly improved trade speed. NASDAQ instigated its own merger deal with ECN Instinet.

As a result, exchange power has centralized into the NASDAQ with SuperMontage, Instinet, Island and Brut, and the NYSE Group with NYSE and Archipelago. Therefore, brokers have turned to buying regional exchanges to give themselves more trading and matching options. In the mid-2000s, Philadelphia (PHILX), Boston (BSE), Chicago, and Cincinnati sold major interests to brokers, hedge funds and technology firms. All the activity has made exchanges a hot commodity in themselves. With the merger of the Chicago Mercantile Exchange and the Chicago Board of Trade, the price of Chicago Mercantile Exchange (CME) quadrupled in a two-year span. The new exchange averages daily trading volume approaching 9 million contracts per day, with a market cap of more than $25 billion. Meanwhile, the price of NASDAQ and NYSE tripled.

Competition among exchanges has hit new levels. NYSE made the aggressive move of combining with Euronext N.V. to create NYSE Euronext, which lists 80 of the world's largest companies and have a combined market value of more than $28 trillion. Furthermore, NYSE Arca cut fees on options trading in 2006 and eliminated cancellation fees. In a second phase of changes, NYSE Arca incorporated penny trading rather than five-cent increments in 2007.

The SEC has in turn responded to the major changes in the industry with the possibility of regulation to ease U.S. investors' access to non-U.S. securities products and services through cross-border trading. "There is a lot of pressure on the SEC now to accommodate greater integration of markets," Benn Steil, a senior fellow at the Council on Foreign Relations, acknowledged in Traders magazine in August 2007.

With the major changes in global markets, the number of equity transactions boomed by an average increase of 44 percent from 2006 to 2007, according to a Celent report. While half of the top ten exchanges in volume increase are in the Asia-Pacific region, NYSE and NASDAQ were the top exchanges for transaction volume and value. Each handled more than 1.2 billion transactions each in 2006, with NYSE representing 31 percent and NASDAQ 17 percent of the equity value traded worldwide.

Current Conditions

The late 2000s brought increased competition from smaller entrants filtering into the stock exchange, technological advances, merger and acquisition activity, and a new round of regulations for the securities industry following the financial crisis.

Over the past six years the NYSE has seen its market share fall from 80 percent in 2005 to 23 percent in 2011 as smaller exchanges began to surface, thus threatening market share. With roughly 50 venues trading equities in the U.S. compared with fewer than 20 a decade ago, competition has driven down the amount exchanges can charge for executing trades.

In March of 2008, the NYSE Euronext acquired Wombat Financial Software to compliment its technology division. That followed with the world's largest retail electronic payment network, Visa Inc. that began trading on the New York Stock Exchange. Then, in June, brokers on the trading floor were provided with new tools to trade algorithmically and locate large sources of liquidity, as well as the introduction of its SFTI Community Platform. In October the NYSE Euronext acquired the American Stock Exchange, along with its more than 500 Amex-listed companies becoming the third-largest U.S. options market.

"Technology, new pricing models, and Regulation MMS have forever changed the equities market structure, and electronic order books have become dominant", according to a Celent report. According to the report, Nasdaq MC, NYSE ArcaEx, BATS Trading, and Direct Edge, as well as others have steadily gained market share in the U.S. In fact, electronic order books will account for 65 percent of U.S. share volume by 2012, according to Celent.

Meanwhile, exchanges continue to improve on their core technology in an attempt to avert competition. NASDAQ OMX reduced its latency by more than 40 percent enabling its system to accommodate more than one million messages per second with an average speed of below 250 microseconds, which at the time was the world's fastest exchange. While maintaining its competitive advantage, the NYSE announced it will be the first exchange operator to launch "a single-wavelength DWDM, 100-gigabit network in May 2009. The operator planned to have its London operation up and running during the first quarter of 2010 and its New Jersey operations during the next quarter. As high-speed electronic trading becomes more prevalent, market operators need the capacity to deal with glitches that could send markets into a free fall.

Elsewhere, Treasury Secretary Timothy Geithner and other regulators met with the leading securities exchanges that included NYSE, NASDAQ, BATS Global Markets, DirectEdge, International Securities Exchange, and Chicago Board Options Exchange following a massive frenzy that occurred in May of 2010 with the Dow Jones industrials plummeting 1,000 points in less than 30 minutes. At the time of the news release there was no simple explanation, however, some argued the stock market "�is a collection of about 50 competing exchanges and trading networks that work under different rules," cited from The Huffington Post. The six major exchanges agreed "circuit breakers" that would "curb trading when a stock index or individual stock or other security rises or falls to a specific level in the course of a trading day" may prevent the same occurrence.

However, the largest industry development occurred when President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law on July 21, 2010. It will take anywhere from two to five years for about 12 regulatory agencies to enact about 250 new regulations. The Financial Stability Oversight Council (FSOC) was set in place to oversee markets and risk.

While rumors surrounded the possible merger of Deutsche Borse AG and NYSE Euronext over the past few years, the merger did in fact materialize in February 2011 referred to as "�the world's largest exchange operator by revenues and profit," according to Securities Technology Monitor. The combined entity would boast annual trading value of $20 trillion. Another possible merger between BATS Global Markets, the Kansas City exchange operator, and Chi-X Europe was also in the works. At the same time, LSE Group, operator of the London Stock Exchange and Borsa Italiana, announced their intentions to acquire the TMX Group, operator of the Montreal and Toronto stock exchanges.

Finally, the securities industry can expect significant changes in the regulatory environment going forward. Besides market transparency and restrictions on proprietary trading, there may likely be other areas in question such as high-frequency trading responsible for two-thirds of all stock trading and derivatives trading. The securities industry's fate lies in the hands of the Commodity Future Trading Commission (CFTC) and SEC who were given the task to set forth their recommendations.

Industry Leaders

Securities Market Centers.
In the mid-2000s, the NYSE and NASDAQ dominated the market, but the industry also included seven regional stock exchanges, including the Boston Cincinnati, Intermountain, (owned by COMEX), Chicago, Pacific, and Philadelphia. The industry also included the Chicago Board Option Exchange, the International Securities Exchange, and the American Stock Exchange (AMEX).

The "Buttonwood Agreement" established the New York Stock Exchange in 1792. In 2007 the NYSE bought Euronext for some $10 billion to create NYSE Euronext, which lists approximately 2,700 companies. NYSE Euronext had 2006 revenues of nearly $2.4 billion. The company reported revenues of $4.4 billion in 2010 with 2,068 employees. Germany-based Deutsche Borse is acquiring NYSE Euronext.

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. In 2008, NASDAQ merged with OMX to form NASDAQ OMX Group, which trades in more than 3,900 companies. NASDAQ OMX reported 2007 revenue of more than $2.4 billion. To increase its presence in the derivatives market, NASDAQ OMX acquired the Philadelphia Stock Exchange, Inc. or PHLX in July 2008. That followed with the acquisition of the Boston Stock Exchange, Inc. or BSX in August 2008, in which NASDAAQ OMX BX was created and launched in January 2009. Also in 2008, NASDAQ OMX acquired a majority interest in the International Derivatives Clearing Group, or IDCG. The company reported revenues of $3.6 billion in 2008 before falling to $3.1 billion in 2009. NASDAQ OMX reported 2,216 employees as of December 31, 2009, of which 978 were based in the U.S. and 1,238 were based outside of the U.S. In 2009, 2,852 companies listed securities on The NASDAQ Stock Market, 1,310 listed companies on The NASDAQ Global Select Market, 1,062 on The NASDAQ Global Market, and 480 on The NASDAQ Capital Market. The NASDAQ Stock Market gained 131 new listings in 2009, in which 24 were derived from NYSE/NYSE Amex.

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.

In the mid-2000s, AMEX continued to undergo financial struggles. In business since 1923, AMEX fell to third among options exchanges behind the Chicago Board of Options and the all-electronic International Securities Exchange.

Commodities Exchanges.
There were 15 major commodities exchanges operating in the United States in the mid-2000s. Of these, four are the most significant. The Chicago Board of Trade (CBOT), founded in 1858, is the most important grain exchange in the United States. A majority 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. In 2005, CBOT became a for-profit company.

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 CME and CBOT each became part of the CME Group in 2007, when a $12 billion deal was finalized. CME Group reported revenues of nearly $1.8 billion 2007 and $2.5 billion in 2008, increasing to $3.0 billion in 2010 with 2,570 employees. Also, during 2010 CME purchased 90 percent of Dow Jones & Company's index business, which included the Dow Jones Industrial Average.

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. NYMEX Holdings reported revenue of $497 million in 2006. In 2008, NYMEX Holdings was acquired by CME Group.


According to the Securities Industry Association, the overall securities industry employed 848,000 people in 2007. After declining significantly during the early 2000s, employment numbers began to edge upward in 2003 through 2005. Increased automation and efficiency led to a decline in administrative support positions, but the outlook for legal and regulatory-related positions was good.

America and the World

One major trend in the securities industry that came to the fore in the late 1990s and early 2000s, was globalization. More than ever before, U.S. investors poured money into foreign stocks during the 1990s, with more than $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. NYSE 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, and by 2004, the NYSE had 460 foreign companies listed from 47 countries, with a global market capitalization valued at $7 trillion. NASDAQ added twenty-five foreign countries to its portfolio in 2004 alone.

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.

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. The opening up of China's robust economy, which was becoming apparent by 2005, was expected to produce a wide range of opportunities in the future for the investment community.

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. Like securities firms, stock markets are faced with an ongoing need to keep technologically current--especially given the rush toward instigating continuous around-the-clock securities trading in a truly global market. Technology has effectively become the biggest challenge, as well as the biggest opportunity, facing the exchanges in the early twenty-first century.

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 mid-2000s, more than 40 percent of all NASDAQ transactions were being handled by ECNs.

NASDAQ has taken several steps to assure that its technological infrastructure will be able to keep up with the demands of the marketplace. In the late 1990s, 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. By the mid-2000s, other technological innovations included the introduction of the e-Broker, a handheld device that can be used by floor brokers to receive and place orders and access industry information.

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 the 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.

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