Chapter 2

The Growth of Exchanges around the Globe and the Development of Screen-Based Trading

In analyzing the media markets, Marshall McCluhan observed, “The Medium is The Message.” The same can be said of exchanges where the medium—electronic trading—is the message. Not unlike the development of new institutions for the clearance and settlement of securities trades discussed in Chapter 3, the seeds for electronic, or screen-based, trading were planted in the 1960s—first with Instinet (founded in 1967) and then with Nasdaq. With the advent of Nasdaq's electronic, screen-based system in 1971, which linked multiple market makers ready to deal at quoted bids and offers, the “technological barrier was broken” and trading was lifted away from the physical confines of a trading floor. London, Singapore, Japan, and various European countries adopted the model in the coming decades. Accelerating as trading technology advanced and the Berlin Wall fell, there has been a proliferation of new exchanges—electronic exchanges—since the late 1980s.1

Although this book is not about advocating the relative merits of investing in developed markets, emerging markets or so-called “Frontier Markets,” it is worth noting that the relative market share of the U.S. stock market has been steadily declining over recent years. Presently U.S. stock market shares accounts for roughly 40 percent of world capitalization down from a high of 53 percent as recently as 2004.

Market share is typically measured as ...

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