The third largest stock exchange in America is a startup
newsweek.com
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No more people picking up on the 'buzz' and trading on their own account either that way.
Of course that would remove all the fee structures that have been created over the years.
I doubt it will happen though.
Market making and such could be done algorithmically.
I'm hoping - perhaps in vain - that BATS will take over the NYSE and with a little luck something similar will happen in other parts of the world.
The stock exchange as we know it should really be retired.
They eliminate counterparty risk. If you sell some shares in exchange for $$, you get $$, period, even if the other party is broke.
They are centralized points at which the market can be regulated. How else can you discover insider trading?
They provide a market for every listed stock, whereas many thinly traded concerns would be essentially unpriceable for much of the day. Imagine what this would do to attempts to calculate risk, etc.
Market making can be and in fact already is done algorithmically, even on the NYSE. That issue is orthogonal to whether a security trades on an exchange or not.
Look to the FX or bond markets to see what happens without good, popular exchanges. These places are widely known to be rife with fraud, counterparty risk, and arbitrariness.
Perhaps there could be some sort of thing that they all connect to? What would we call it?
Of course they charge a fee - there is a cost to running the data centers and ensuring regulatory compliance.
See: http://en.wikipedia.org/wiki/Electronic_Communication_Networ...
Where would people find counterparties in your system?
In what way would price discovery work?
Exchanges in the US are vastly overcomplicated, but that doesn't mean the concept is bad.
A piece of software in the middle matches buyers and sellers according to some public algorithm and takes care of the escrow so that the buyer gets their stock and the seller his money or nothing at all happens.
You would not have an Ebay-like system, because stock is fungible. One share of IBM is exactly like another share of IBM. You don't need reputation, etc, because of the way clearing works.
I don't understand how you are able to think that this is not in some way an exchange.
I figure buildings full of people and rooms full of traders are way past their expiry dates, if there is one thing that you could trade exclusively online it's stocks.
Of course I understand that you do not need reputation and so on, I already made it clear that ebay is a very imperfect analogy.
Currently there is much lack of transparency, stock market data is delayed from many exchanges to the general public, sometimes up to 15 minutes (for nasdaq, nyse and a whole bunch of others), people are riding in the slipstream of big traders because they have access to sensitive data. All that could go out the window (and the brokerage fees as well) by using a relatively simple in concept (but probably extremely complex in scope and execution) system that would take care of these functions automatically.
Redefine the stock market in terms of an API and let users either run software, use a website or have big traders write their own.
All the statistics would be live and available through the API.
Again, I realize that I'm just dreaming here but I'm pretty sure that if the will were there it could be done.
BATS is a (big) step in the right direction.
What you are describing is actually a great deal like how many exchanges work. Open outcry pits or whatever are not the prevailing model. There is NO room with screaming people for NASDAQ.
The pricing data is delayed because it is free. You can buy realtime pricing data. It's hard to support a large infrastructure for free, of course, and you are making money on it.
Big traders, especially block traders, execute at least partially off-exchange anyway.
"All the statistics" are not necessarily stored or generated by the exchange. Other companies do this (Reuters, etc.) We had to calculate "all the statistics" ourselves when we did automated trading systems.
I'm not sure how APIs magically make all fees and costs "go away" in some magical fashion.
No, there is no lack of transparency. You get what you pay for. If you don't pay for anything, don't expect real-time quotes. Wall Street is not Santa Claus.