Recovering the Promise of the Orderly and Fair Stock Exchange

Abstract

U.S. stock exchanges do not exist in the form they historically took and our equity markets are no longer orderly or fair. In the place of the traditional stock exchange, which was oriented around human beings and featured single-venue floor trading, an array of fully-automated trading platforms across multiple venues has arisen. Some of these have been formally designated as stock exchanges for legal purposes, while others operate as trading platforms. Almost all facilitate high frequency trading. We believe that radical change is required to address the pathologies of inefficiency and unfairness that characterize the current structure of U.S. trading markets. Our proposal is to create multiple trading venues and then to allow trading in particular securities on only one of these venues. For the approximately 6,000 companies whose shares trade publicly in the United States, we propose licensing ten stock exchanges, each of which would provide a centralized-and exclusive-forum for trading approximately 600 stocks. Organizing our markets in this way would create exchanges that are large enough to benefit from scale, yet numerous enough to compete for listings.