Long before the United States even declared its independence, then-Philadelphia mayor James Hamilton had made provisions in 1746 for the establishment of a stock exchange.

From its debut in the London Coffee House, the Philadelphia Stock Exchange (PHLX) appreciated the importance of trading innovations. Aware of the benefit tied to the information advantage, Philadelphia speculators set up signal relays to quickly get the latest news and rumors from New York, a system that remained in place until the invention of the telegraph in 1846.

From early on as well, investors realized the importance of market data. A stock broker named Samuel Anderson published the first list of stock prices “Price Current of Stocks,” just two years after the PHLX made its debut. The New York Stock and Exchange Board, the ancestor of the Big Board, copied the Philadelphia charter to write its own rules.

In 1870, Philadelphia set up the first U.S. clearing house to settle trades and help delivery and quickly adopted the ticker, when it was created in 1884.

Consolidation was the dominant trend among U.S. exchanges following the market crash of 1929 and World War II. Philadelphia merged with the Baltimore Stock Exchange in 1949 and with the Washington Stock Exchange in 1953.

Technology was another major force affecting markets in the 1970s, which market NASDAQ’s debut. The PHLX introduced its small order routing and auto-execution system, PACE or Philadelphia Automated Communication and Execution System, in 1975. That same year, Philadelphia entered equity options trading, a market in which the exchange is still an active participant today. In 1982, Philadelphia introduced currency options.

Philadelphia also introduced its Automated Options Market system or AUTOM for electronic delivery and auto-execution for options in 1988.

As competition heats up, Philadelphia is embracing a hybrid model, which combines the benefits of open-outcry and electronic trading. PHLX XL is a new electronic options trading system that seeks to boost liquidity, foster price competition and provides certainty of execution.

The exchange also owns a futures market, the Philadelphia Board of Trade, which recently became active with futures contracts on foreign exchange.

Chicago Board of Trade (CBOT), the founder of futures trading

The Chicago Board of Trade, organized by 82 Chicago merchants as a grain cash market in 1848, is the oldest organized futures exchange.

Although experts may argue about the exact birth date of futures trading, the CBOT was already very active during the Civil War—even financing Union regiments—and trading “to-arrive” or forward contracts in agricultural commodities including wheat, corn and oats.

The official birth date of the CBOT may be 1859, when the market was granted a charter by the Illinois legislature to standardize grades of grain traded on the exchange. Futures contracts made their official debut in 1865 when the CBOT introduced standards for margin and delivery.

While the stock market crashed in 1873, futures trading continued to boom, which led to a series of innovations at the CBOT, such as publishing futures prices starting in 1877 and setting up the first clearing organization in 1883.

When the CBOE erected new headquarters to accommodate its expansion in 1885, the building was the first to use electrical lighting. By 1922, the growth in commodity futures trading was such that the U.S. government felt the need to create a regulator, the Grain Futures Administration.

Major CBOT innovations included the creation of a separate exchange to trade options, the Chicago Board Options Exchange (CBOE), in 1973, and diversification into non-commodities contracts: futures on mortgaged-backed securities in 1975 and on U.S. Treasuries in 1977, while options on futures were created in 1982.

The CBOT celebrated its 150th anniversary with the launch of side-by-side trading of open-outcry and electronic trading on its Project A platform in 1998, paving the way for a move toward electronic trading for financial products.

In 2000, the CBOT is incorporated as a not-for-profit non-stock corporation and launches a new trading platform, a/c/e, in a partnership with German derivatives giant Eurex. This will help the exchange further diversify its lines of products, including mini-Dow futures and interest rate swaps and swap options.

Three years later, the CBOT announced it was switching to a new platform, Euronext’s Liffe Connect, which marked the end of its partnership with Eurex. In 2004, the exchange partnered with the Chicago Mercantile Exchange which agreed to clear all CBOT products on a new CME/CBOT Common Clearing Link.

The CBOT is a leading market for contracts based on four groups of products: agricultural commodities; interest rates, including Treasuries and German debt; the Dow Jones Industrial Average index; and gold and silver

New York Stock Exchange (NYSE), the world’s largest equity market

Exchanges have been part of the fabric of the American economy and history since the 18th century.

In 1790, Philadelphia merchants, who had helped finance the Revolutionary War effort, supported the creation of the first U.S. stock exchange to trade the young federal government’s $80-million debt.

Spurred by the ensuing speculative boom, 24 traders gathered at 68 Wall Street in 1792 and signed the Buttonwood Tree agreement that marks the foundation of the New York Stock Exchange. The agreement sought to regulate commissions to trade war bonds issued by the young U.S. government as well as two banks. One of these, the Bank of New York, is still listed on the NYSE today.

The event that shaped trading on the world’s largest exchange occurred in 1875 when NYSE broker James Boyd hurt his leg. Lacking the mobility to scout the crowd of buyers and sellers in various issues, Boyd sat at a specific spot and handled a single stock, Western Union. Customers quickly found it was more convenient to always trade the same stock from the same place, leading to the creation of the specialist system where supply and demand are matched in an auction process.

Today, much of the NYSE’s order flow still comes via floor brokers who act as agents for a brokerage firm’s customers, bringing buy or sell orders to the specialist post. Floor brokers, if they work for a firm, may also represent proprietary orders. Independent floor brokers perform the same task, except that they do not work for a specific firm but help handle orders.

From his post, the specialist manages the auction process, based on his exclusive knowledge of the buy and sell orders entered in his book by the floor brokers. At times, the specialist himself is the buyer or seller of last resort and will commit his firm’s capital to reestablish an orderly market.

However, the specialist must never use the privileged information contained in his book to step ahead of clients’ orders when a match between buy and sell orders comes naturally.

In the past, NYSE specialists have abused their privileged position to take advantage of customers, resulting in a settlement reached with the SEC in early 2004. This also prompted the SEC to consider broad market reforms to align the U.S. regulatory framework with the advance of new trading technologies.

Competition from efficient electronic trading has intensified as well. As a result, the NYSE is proposing a new hybrid market model, which will offer certainty of execution to investors who choose that model or the opportunity for old-fashioned price improvement to others. The exchange is also considering diversifying its product offering.

But, without waiting for these recent developments, the NYSE had progressively modernized its market. Orders are delivered electronically to the NYSE via SuperDot, an order-routing system that delivers orders straight to the trading post and electronically sends post-trade reports to member firms where the orders originated.

NYSE e-Broker is one example of the use of technology in a manual environment. The wireless handheld order-management tool keeps floor brokers in constant contact with their firm’s trading desks and floor office.

Program-trading also regularly represents about 50 percent of volume on the NYSE. Interactive Brokers, a firm that pioneered the use of trading technology, regularly ranks among the top 15 program-trading firms on the exchange.

Anonymous SuperDot (Adot) allows institutional investors to submit orders directly to the NYSE without any participant knowing their identity. The institutions and their sponsoring brokers must set trading limits.

Some orders sent to the NYSE can be auto-executed on the Direct+ platform, which today handles about 10 percent of the exchange’s volume. Direct+ was designed for small retail orders of up 1,099 shares and had some constraints, such as a 30-second mandatory interval between consecutive orders.

The NYSE is now proposing to boost the functionality of Direct+ by lifting all size and interval restrictions to support its hybrid model. This will have a major impact on the market structure at the NYSE and affect not only the specialists and floor brokers but the global financial industry.

Member firms can also trade during four after-hour crossing sessions between 4:15 p.m. and 6:30 p.m. on the Off-Hours Trading Facility (OFHT).

The NYSE electronic market data service includes NYSE OpenBook, a real-time limit order book that displays the aggregate volume for each price for each NYSE security. LiquidityQuote provides a single price for the cumulative number of shares for large orders on the limit order book, with the specialist maintaining the inside quote.

Besides developing a hybrid model, NYSE CEO John Thain has outlined plans to diversify his exchange’s offering. The NYSE, which once traded options, may venture into derivatives and is expected to broaden its existing offering of government and corporate bonds, which trade electronically on its Automated Bond System or ABS platform.

Another innovation for the NYSE may be to extend its trading hours in a bid to facilitate trading for European participants.

In 1790, Philadelphia merchants, who had helped finance the Revolutionary War effort, supported the creation of the first U.S. stock exchange to trade the young federal government’s $80-million debt.

Spurred by the ensuing speculative boom, 24 traders gathered at 68 Wall Street in 1792 and signed the Buttonwood Tree agreement that marks the foundation of the New York Stock Exchange. The agreement sought to regulate commissions to trade war bonds issued by the young U.S. government as well as two banks. One of these, the Bank of New York, is still listed on the NYSE today.

The event that shaped trading on the world’s largest exchange occurred in 1875 when NYSE broker James Boyd hurt his leg. Lacking the mobility to scout the crowd of buyers and sellers in various issues, Boyd sat at a specific spot and handled a single stock, Western Union. Customers quickly found it was more convenient to always trade the same stock from the same place, leading to the creation of the specialist system where supply and demand are matched in an auction process.

Today, much of the NYSE’s order flow still comes via floor brokers who act as agents for a brokerage firm’s customers, bringing buy or sell orders to the specialist post. Floor brokers, if they work for a firm, may also represent proprietary orders. Independent floor brokers perform the same task, except that they do not work for a specific firm but help handle orders.

From his post, the specialist manages the auction process, based on his exclusive knowledge of the buy and sell orders entered in his book by the floor brokers. At times, the specialist himself is the buyer or seller of last resort and will commit his firm’s capital to reestablish an orderly market.

However, the specialist must never use the privileged information contained in his book to step ahead of clients’ orders when a match between buy and sell orders comes naturally.

In the past, NYSE specialists have abused their privileged position to take advantage of customers, resulting in a settlement reached with the SEC in early 2004. This also prompted the SEC to consider broad market reforms to align the U.S. regulatory framework with the advance of new trading technologies.

Competition from efficient electronic trading has intensified as well. As a result, the NYSE is proposing a new hybrid market model, which will offer certainty of execution to investors who choose that model or the opportunity for old-fashioned price improvement to others. The exchange is also considering diversifying its product offering.

But, without waiting for these recent developments, the NYSE had progressively modernized its market. Orders are delivered electronically to the NYSE via SuperDot, an order-routing system that delivers orders straight to the trading post and electronically sends post-trade reports to member firms where the orders originated.

NYSE e-Broker is one example of the use of technology in a manual environment. The wireless handheld order-management tool keeps floor brokers in constant contact with their firm’s trading desks and floor office.

Program-trading also regularly represents about 50 percent of volume on the NYSE. Interactive Brokers, a firm that pioneered the use of trading technology, regularly ranks among the top 15 program-trading firms on the exchange.

Anonymous SuperDot (Adot) allows institutional investors to submit orders directly to the NYSE without any participant knowing their identity. The institutions and their sponsoring brokers must set trading limits.

Some orders sent to the NYSE can be auto-executed on the Direct+ platform, which today handles about 10 percent of the exchange’s volume. Direct+ was designed for small retail orders of up 1,099 shares and had some constraints, such as a 30-second mandatory interval between consecutive orders.

The NYSE is now proposing to boost the functionality of Direct+ by lifting all size and interval restrictions to support its hybrid model. This will have a major impact on the market structure at the NYSE and affect not only the specialists and floor brokers but the global financial industry.

Member firms can also trade during four after-hour crossing sessions between 4:15 p.m. and 6:30 p.m. on the Off-Hours Trading Facility (OFHT).

The NYSE electronic market data service includes NYSE OpenBook, a real-time limit order book that displays the aggregate volume for each price for each NYSE security. LiquidityQuote provides a single price for the cumulative number of shares for large orders on the limit order book, with the specialist maintaining the inside quote.

Besides developing a hybrid model, NYSE CEO John Thain has outlined plans to diversify his exchange’s offering. The NYSE, which once traded options, may venture into derivatives and is expected to broaden its existing offering of government and corporate bonds, which trade electronically on its Automated Bond System or ABS platform.

Another innovation for the NYSE may be to extend its trading hours in a bid to facilitate trading for European participants.

European Exchanges