do_we_need_a_stock_exchange (1)

do_we_need_a_stock_exchange (1) - 1/22/2011 Do We Need A...

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Search Fortune Enter quotes RSS Newsletters Video Home Fortune 500 Technology Investing Management Rankings More from Fortune 2011 buzzword alert: Rebalancing Is Google really interested in ridding its results of spam? Immelt joins Obama's kitchen-CEO cabinet FORTUNE 500 Current Issue Subscribe to Fortune Do We Need A Stock Exchange? People have predicted for 25 years that the exchange will give way to some kind of electronic trading system. ECNs could make that come true. By Carol Vinzant November 22, 1999 (FORTUNE Magazine) – American stock exchanges are now in one of those "In the future, everyone will ride to work on monorails" phases. That's the stage institutions pass through whenever a major shift in the business environment leaves everyone uncertain how the future will work out and scrambling to inject themselves into it somehow. Today's stock market events certainly qualify as a major shift. Electronic communications networks, or ECNs, are stealing market share from the established exchanges; the exchanges, in turn, propose to go public; Nasdaq and the ECNs threaten to become exchanges; everyone wants to trade all night on the Internet; and while we're at it, let's banish those funny fraction prices. Behind all of this is a classic market share battle between a group of technologically advanced upstarts (led by the ECNs) and established brands like the New York Stock Exchange years ago, and you'll be close--although in this battle, regulation plays as big a part as technology. The outcome is likely to be what it usually is whenever competition intensifies: Profit margins will shrink (at least at first), new alliances will be made, and customers will reap lower prices and wider choice. But there is also a more fundamental power struggle being played out here. The same forces that gave rise to ECNs-- regulation, new technology, and old-fashioned entrepreneurship--are slowly dragging the center of the securities industry from the floor of the New York Stock Exchange to an as-yet-unshaped electronic marketplace. That's not going to happen tomorrow, it won't wipe out the NYSE, and it those concerned about the long-term fairness and stability of the market, this is the battleground. To understand what turf is being contested here, let's review some market basics. The stock exchange business, for all its jargon-riddled, acronym-happy complexity, amounts to a simple matchmaking enterprise. Trading is like dancing: You need to find yourself a partner. To draw people in, the NYSE and Nasdaq have allowed matchmakers to set up shop on their dance floors. If these matchmakers can't set you up with another client, no problem. They have the capital to hire
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This note was uploaded on 02/17/2012 for the course FIN 4504 taught by Professor Banko during the Spring '08 term at University of Florida.

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do_we_need_a_stock_exchange (1) - 1/22/2011 Do We Need A...

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