Page 52 - THE MARKET WHISPERER

50 PART 1 - Allow Me To Introduce You… To The Stock Exchange

The unavoidable is happening to the biggest stock exchange in the
world, too. Computers are slowly taking over all processes, despite
strong opposition by the traders. Computerized trading brings greater
competition, fewer commissions, greater transparency for the public,
and higher execution speed: exactly what the public wants, and precisely
what the companies that employ floor traders don’t want. It started small.
NASDAQ, the United States’ first computerized stock exchange, became
the model. The NYSE was then forced to respond to public pressure and
incorporate automatic systems which initially managed only a small part
of the turnover of high-volume stock trading. Over the years, this was used
to silence the public. Political pressures were handled on the quiet through
phone calls between CEOs of the mega-corporations and the appropriate
politician. Despite the opposition, the revolution was actually completed
over the past few years, and currently most of the NYSE operations are
computerized. Now, when I buy or sell a stock at the speed of a nanosecond,
I remember a distant bad dream of just a few years ago, when I taught
Tradenet students that the execution time of a NYSE transaction could
take up to two minutes from the time the button is pressed!

The AMEX Stock Exchange

The American Stock Exchange (www.amex.com) was established in New
York in 1842. AMEX is the third-largest stock exchange in the US, after the
NYSE and NASDAQ. Trade there focuses mainly on stocks of small to mid-
size companies and a range of ETFs, Exchange Traded Funds, about which
we will learn more later. AMEX operates similarly to the NYSE, using the
tender method of their market makers (we’ll learn more about them later,
too). AMEX belongs to NASDAQ and its volume of activities is relatively low.
AMEX, like NYSE, has also moved most of its processes to quick, effective
computerized execution.

Founding NASDAQ

1971 saw an important change take place. The NASDAQ stock exchange
was established, and unlike the NYSE, NASDAQ computerized all its trade
processes. The NASDAQ computers are in Connecticut and link to more
than 500 market makers’ computers, allowing electronic trade in one
click. From that point on, market makers no longer needed to compete
over each other’s shouts on the trading floor. Everything was push-button.
The result: commissions slowly dropped, the quality of service improved,
competition grew, and companies of a new type issued stocks and raised