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2000 – 2011
April, 2011
EVOLUTION OF
U.S. FINANCIAL MARKETS
Evolution of U.S. Financial Markets 2
How Do You Navigate Today’s Markets?
• Confused about how the U.S. markets work? • If you did not have a solid grasp of the U.S. market
structure in 2000 (prior to Reg. NMS), you will probably have a tough time navigating the various players and their value proposition today
• The markets have evolved:– Exchanges’ M&A– Continued market fragmentation– Introduction of new players
• Totally lost? See the next page …
Today’s Market Landscape
Evolution of U.S. Financial Markets 3
• Growth of electronic trading / contraction of open outcry: equities, options and futures; spread compression
• Growth and sophistication of the buy side• The Internet has matured, so has trading technology• Demutualization and for-profit business models• Evolution of exchange revenue models, market makers,
payment for order flow (maker-taker, taker-maker)• Exchange mergers and acquisitions, continued
globalization.
Evolution of U.S. Financial Markets 4
Trends and Background
• Maturity of prime brokerage business model• De-leveraging and impact of global financial crisis post
Lehman Bros.• Introduction of new broker-sponsored exchanges,
clearing houses• Continued market fragmentation – equities and options• Regulatory evolution:
– Commodity Futures Modernization Act (2000)– S.E.C. Reg. NMS, demise of InterMarket Trading
System for equities (2005)– Dodd-Frank Act regulations
Evolution of U.S. Financial Markets 5
Trends and Background (Cont’d) …
• Inter-relationship of asset classes, markets; portfolio margining
• Growth of algorithmic and high-frequency trading• Madoff.
Evolution of U.S. Financial Markets 6
Trends and Background (Cont’d) …
U.S. Equities Markets
2000 2011
Evolution of U.S. Financial Markets 7
NYSE
Nasdaq
BSE
PHLX
CHX
NSX
PSX
Arca
Brut
Redi
Instinet
Island
Attain
Nextrade
Strike
Bloomberg Tradebook
ITG Posit
Latice Trading
Inter-market Trading System [ITS]
EXCHANGES REGIONALS ECNs ATS
NYSE Euronext
Nasdaq OMX
CHX
NSX
SIGMA X
Instinet - Newport
GETCO - GES
CSFB - Crossfinder
EXCHANGES ATS / DARK POOLS
Direct Edge
Convergex
Knight Link
UBS - PIN
CitiMatch
BlockCross
Fidelity - CrossStream
BIDS
Level
Pipeline
Liquidnet
BATS
• Implementation of SEC Reg. NMS, demise of the Inter-market Trading System
• Exchanges demutualized, went for-profit and public• Exchange consolidation, continued globalization• Evolution of NYSE, NASDAQ duopoly, internalization of
order flow, rise of new, more nimble ATS • Growth of algorithmic trading, new order types, high
frequency trading and proximity hosting as differentiators.
Evolution of U.S. Financial Markets 8
What Happened ?
U.S. Options Markets
2000 2011
Evolution of U.S. Financial Markets 9
AMEX
EXCHANGES
CBOE
ISE
PHLX
PSE
Options Linkage
NYSE- AMEX
EXCHANGES
CBOE
ISE
NASDAQ OMX - PHLX
NYSE – ARCA Options
BATS Options
BOX
C2
• Growth of electronic trading / consolidation of open outcry trading
• Decimalization, penny quoting, spread compression• Payment for order flow, growth of electronic market
makers• Continued market fragmentation• Exchange acquisitions• Algorithmic and high frequency trading• New order types• Evolution of new players - 5 markets are now 8!
Evolution of U.S. Financial Markets 10
What Happened ?
U.S. Futures Markets
2000 2011
Evolution of U.S. Financial Markets 11
CME
EXCHANGES
CBOT
NYMEX
NYBOT
MGEX
KCBOT
BTEX
NASDAQ LIFFE
OneChicago
CME Group CME CBOT NYMEX
EXCHANGES
ICE NYBOT
ICE OTC WCE
KCBOT
MGEX
NYSE LIFFE US
OneChicago
CBOE Futures Exchange
• Growth of electronic trading / consolidation of open outcry trading
• Exchanges demutualized, went for-profit and public• Exchange consolidation and globalization• Demise of Enron• Introduction of new players - some came, some went,
some stayed• New products that align risk to users needs• Convergence of OTC and ETD products - rise of OTC
clearing, futures look-alikes.
Evolution of U.S. Financial Markets 12
What Happened ?
U.S. Clearing Houses
2000 2011
Evolution of U.S. Financial Markets 13
EQUITIES OPTIONS FUTURES FIXED INCOME
NSCCOptions Clearing
Corp
New York Clearing Corp DTCC
NYMEXClearing
CME Clearing
BOTCC
KCBTCC
EQUITIES OPTIONS FUTURES FIXED INCOME
DTCC OCCDTCC / FICC
OCC
CME Clearing
ICE Clear US
KCBTCC
New York Portfolio Clearing
International Derivatives
Clearing Group
• Exchange consolidation, clearing member consolidation (Bear Stearns, Lehman Bros., Refco)
• Exchanges demutualized, went for-profit and public• Member-controlled versus exchange-owned clearing
houses• Clearing house “silos” versus non-profit, industry utilities• New products / convergence of OTC and ETD products• Futures look-alikes, cleared OTC products as new
revenue streams• Introduction of new clearing houses.
Evolution of U.S. Financial Markets 14
What Happened ?
Need to Navigate Today’s Landscape?
Evolution of U.S. Financial Markets 15
Tellefsen and Company, L.LC.1-212 809 3800
Evolution of U.S. Financial Markets 16
Call Us for the Roadmap
