(FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet, a Nomura company.)
While doing some background research for a fall content campaign, we stumbled upon an interesting article from the Traders Magazine archives.
The History: How Nasdaq Was Born, dated February 1, 1999, tells the story of the first electronic stock exchange, starting from its first year of operations in 1971.
It’s notable that the 28-year period between the dawn of Nasdaq and the article publication is about equivalent to the 26.5-year period between the article and the present day. So how did technology advance over the two time periods, and which advance was more dramatic?
Let’s assess.
From the 1999 article:
“In 1971, the Nasdaq Stock Market was broadcast to some 500 market makers across the country, trading nearly two billion shares in about 2,500 securities. The index average at the close of 1971 was just over 100. Nasdaq desktop devices were cathode-ray terminals that provided quotes, market-maker identification numbers, or IDs, and the names of stocks. But little else.
Gordon Macklin, who was president of the National Association of Securities Dealers from 1970 to 1987, recalls those early devices.
“It was an absolute miracle to be able to push a button and pull up on the screen everyone from all over the country, and all of their current bids and offers,” he said.
“It was state of the art, at the time,” Macklin added, “just a huge leap forward. Coming from over the counter to over the computer, even in its most primitive stages, was a thrilling lifetime experience.”
Macklin recalls the shortcomings as well as the benefits.
“The system was programmed so that instead of publishing the absolute best bid and the absolute lowest offering price, it published what was known as the representative bid along with the representative markup,” he explained. “That obviously left room for dealers to make profits on their retail sales of these securities.”
So that was 1971.
How about 1999?
From the article:
“Nasdaq is arguably the most liquid electronic trading environment in the world.
Nasdaq broadcasts to nearly half-a-million international brokers and dealers trading more than 5,100 stocks, with a 1998 total volume of more than 200 billion shares, and a press-time closing index value of 2408.17
Today’s proprietary Nasdaq network features Unisys 4800 mainframes, which provide stock quotes; Tandem Himalaya K20,000 processors for running Nasdaq’s Small Order Execution System (SOES) and SelectNet trading systems; and desktop Pentium II PCs with Windows 95 and Microsoft NT operating systems. Nasdaq’s network backbone features a quarter-of-a-million miles of leased lines provided by MCI Worldcom. The network’s main computer hub is in Trumbull, Conn. Backup facilities are in Rockville, Md.”
There were some concerns cited about trading delays on Nasdaq in 1999, especially during heavy volumes, but for the most part the user experience was presented positively.
Today, Nasdaq handles more than 13 billion shares per day, or more than 15 times 1998 volumes, and the index value is about 21,600, up ninefold. Key technology includes INET technology for high-speed trade execution, cloud infrastructure to manage and analyze market data, and matching-engine technology utilizing algorithms.
The unscientific, Traders Magazine-decided verdict (which was 1-0) for which time period had a more dramatic technological advance goes to 1999-present, as there’s just more whiz-bang versus 1971-1999. (Plus, any tech setup that highlights Windows 95 and MCI Worldcom just sounds ancient.)
One final note: the 1999 article offered a forward spin that now seems quaint, as it predicted “a gradual shift towards utilizing the Internet, particularly for market data and perhaps even for full-fledged market making.”
Safe to say the “perhaps even” was understated wording.
