1 - An Era of Creative Destruction

Abstract

This chapter reviews history of exchanges, their purpose, and development. It delves into the process of floor-based trading; the system used for well over a century on exchanges, such as the New York Stock Exchange (NYSE) and the Chicago Board of Trade (CBOT). It discusses the technological innovations that lead to the development of electronic exchanges and provides an overview of its process and implications for the future. This chapter has two purposes: primary and secondary. The primary purpose is to tell the fascinating and important story of how and why those institutions call exchanges have begun to bear no resemblance to their former selves. And how the stock and derivatives exchanges of the world are being rapidly transformed into institutions that are much more accessible and efficient than their predecessors of the recent past. The secondary purpose is hidden in the primary one. The exchange was a novel idea introduced to address some of the inefficiencies in early trading and to protect brokers and dealers who were professionally engaged in handling these assets. It provided people a designated place to meet and trade a suite of products with each other. There were specific exchanges to trade agricultural products, others for trading metals, and still more were formed to trade stocks. The formation of exchanges all across the globe has a very interesting and colorful history.