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U.S. stock exchanges are constantly innovating, and this evolution shifts the world of finance at large.

The U.S. financial exchanges have long been the world’s largest: every single day, hundreds of billions of dollars change hands through the NYSE, Nasdaq ($NDAQ), Intercontinental Exchange’s ($ICE) and other smaller players in the country – there’s even a new platform on the cards for Texas. And for the past century, investors have been rewarded for backing U.S.-listed companies.

Returns, however, only tell part of the story. One of the key elements that allowed American exchanges to take such a prevalent role on the global stage was the evolution of financial products to cater to new trends, ideas and demands. 

These developments weren’t always straightforward though – innovations were sometimes met with suspicion. Futures contracts were viewed as blurring the lines between hedging risk and speculation for many decades. The methods behind options pricing were seen as vague and required the work of Nobel prize-winning economists to be made clearer. Despite occasional false starts, the growth of more complex instruments and services impacts the whole economy, including many businesses beyond the financial industry. 

Today there are no signs of a slowdown for this evolution. The U.S. Commodity Futures Trading Commission was just recently discussing the legal status of prediction markets, ultimately advised against it. The ongoing debate about how to safely provide access to Bitcoin, Ethereum and other cryptocurrencies also shows that American regulators and exchanges are keen to continue innovating and remaining worldwide industry leaders. 

Keep in mind that exchanges are businesses that need to consider their customers, market demands and pressure from regulators. The likes of the Chicago Mercantile Exchange ($CME) and Chicago Board Options Exchange ($CBOE) are even listed companies themselves. 

Their trading floors have also changed significantly from the chaotic arenas seen in films, with employees using hand signals, yelling and darting about to communicate. Technological advancements resulted in high amounts of automation (cut to last month and Wall Street could even reduce the settlement time for trades from two days to one).

This digital shift is what really opened the doors to retail investors, for whom there was little room before. The launch of online trading by Charles Schwab ($SCHW) in 1996 was a game changer, even if a small step compared to the opportunities offered via today’s mobile apps. Some 25 years later, individuals could make a real impact on the stock market from the comfort of their homes, as we’ve seen from the meme stock phenomenon during the pandemic (and beyond). 

Retail investors accounted for a record 23% of volumes in late January 2023, which suggests their presence – our presence – isn’t a fad. But it’s thanks to a constant evolution of the system, and it’s exciting to see where things might be headed next.


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