2.1. Exchanges and Floor Markets
  •
  The Securities and Exchange Act of 1934 defined an exchange to be:
    any organization, association, or group of persons, whether incorporated or 
    unincorporated, which constitutes, maintains, or provides a market place or 
    facilities for bringing together purchasers and sellers of securities or for 
    otherwise performing with respect to securities the functions commonly 
    performed by a stock exchange as that term is generally understood, and 
    includes the market place and the market facilities maintained by such 
    exchange.
  •
  An exchange is a physical or virtual meeting place drawing together 
  brokers, dealers and traders to facilitate the buying and selling of 
  securities. 
  •
  Exchanges include the floor-based markets as well as many virtual 
  meeting sites and screen-based systems provided by Electronic 
  Communications Networks (ECNs).
         Exchange Functions
   • Exchanges are intended to provide for orderly, liquid 
    and continuous markets for the securities they trade. 
   • A continuous market provides for transactions that can 
    be executed at any time for a price that might be 
    expected to differ little from the prior transaction price 
    for the same security. 
   • In addition, exchanges traditionally serve as self-
    regulatory organizations (SROs) for their members, 
    regulating and policing their behavior with respect to a 
    variety of rules and requirements.
         2.2. The Way it Was
  • Precursors to modern stock exchanges might have existed in 
   Egypt as early as the 11th century, where it is believed that 
   Jewish and Islamic brokers traded a variety of credit-related 
   instruments.
  •  13th century Bruges (Belgium) commodity traders assembled 
   in the van der Beurse family home (and inn), ultimately 
   becoming the “Brugse Beurse.” 
  • The Amsterdam Stock Exchange opened in the early 17th 
   century, trading shares of the Dutch East India Company. The 
   exchange continues to operate as a unit of Euronext, and as the 
   world's longest continuously operated exchange.
  • Several older exchanges began in coffee houses and taverns, 
   where brokers and dealers would meet to trade securities. 
      Early U.S. Exchanges
 • The first securities exchange to operate in the United 
  States was in Philadelphia. 
 • The New York Stock Exchange began operations 
  outdoors after the 1792 signing of the “Buttonwood 
  Agreement.” 
 • Exchanges often operated outdoors so that brokers 
  could call out their orders from their office windows to 
  the street where transactions actually took place. 
 • The American Stock Exchange, known as the New 
  York Curb Exchange until 1953, did not move indoors 
  until 1921. 
          Traditional NYSE Structure
   • Until 2006, the NYSE was a hybrid corporation/partnership whose 
    members faced unlimited liability. 
   • Only members who owned or leased seats had trading privileges 
    and there were four types of members: 
     –House Broker:  Executed orders on behalf of clients submitting orders 
      through brokerage firms. This and other broker roles have been taken over 
      by "Trading Floor Brokers."
     –Independent Broker: Also called a two-dollar broker, executed orders on 
      behalf of commission brokers when activity was high. This type of 
      distinct membership no longer exists.
     –Floor Trader: Executed orders on their own trading accounts. The NYSE 
      has created the "Supplemental Liquidity Provider" role, which is intended 
      to enhance market liquidity by allowing for proprietary trading.
     –Specialist: Responsible for maintaining a continuous, liquid, orderly 
      market for the securities in which he specializes. The specialist has been 
      replaced by the Designated Market Maker (DMM).