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An exchange is either a physical or virtual marketplace where members buy and sell the securities or futures listed for trading there, either for their own accounts or for customers, as opposed to making a private OTC transaction. Exchanges that previously dealt securities/futures only on the trading floor through specialists/member firms have mostly given way to electronic trading platforms that connect buyers and sellers directly, either over the Internet or via a private trading network.

Members Only?

Major public stock and derivatives exchanges like the New York Stock Exchange and the Chicago Mercantile Exchange, where boards of governors set stringent criteria for listing, deal mostly in the larger and better-known publicly traded securities. Such exchanges often still conduct most of their business as marketplaces for transacting listed securities by the floor traders employed by seat-holding members of the exchange. Membership, which can cost upwards of $2.5 million annually on the NYSE, allows seat-holders to trade proprietary accounts or broker customer transactions directly with other exchange members.

India's exchange traders were cheered in 2008 by a Supreme Court ruling that such membership could not be inherited.[1]

Since the expansion of the Internet in the 1990s, traditional exchange models have been undermined by several developments. Electronic OTC exchanges like NASDAQ list securities that don't necessarily make the NYSE cut, giving investors access to growth opportunities,[2] while electronic communciation networks (ECNs) like Instinet and its predecessor Island ECN allow traders and investors to bypass the specialists and trade publicly-listed securities directly. These developments have in turn led to the rise of market phenomona like round-the-clock trading, any-market trading and day trading.


In July 2008, America's equity and derivatives exchanges asked their regulator, the U.S. Securities and Exchange Commission (SEC), to exempt their market maker members from a new rule banning investors from trading naked shorts in troubled mortgage-broking giants Fannie Mae and Freddie Mac plus 11 other publicly-traded brokerages.[3] The exchanges argued that restricting market makers in this way could hinder their ability to keep transactions flowing and could negatively affect liquidity.

In May 2012, the Commodities Futures Trading Commission (CFTC) finalized new risk controls for larger exchanges, and set standards for exchanges offering swaps contracts. One rule that was delayed at this time, however, was the "85 percent rule," under which CME Group and other large exchanges would have to delist derivatives if less than 85 percent of the contracts were exchange traded.[4]


  1. Stock exchange membership not inheritable: apex court. Financial Express.
  2. Stock Exchange. Columbia Electronic Encyclopedia, 6th ed..
  3. U.S. exchanges may ask SEC for a break. Bloomberg via Chicago Tribune.
  4. Regulator Approves New Exchange Rules, but Delays Others. New York Times.