Send us a text Chris Cornette, a longtime securities trader who grew up in the business, reveals how the most important innovation that made US capital markets preeminent in the world was the exchange itself. • Cornette's father worked in the P&S (Purchase and Sales) department on Wall Street, eventually becoming the controller of an American Stock Exchange specialist unit • The original Buttonwood Agreement from 1792 created exclusivity among traders that helped establish trust in the market • Exchange specialists subsidized trading in small-cap stocks using profits they made from large-cap stocks • The phrase "your word is your bond" wasn't just a saying but the foundation of the trading system. Exclusion from the exchange was enough of a threat to discipline bad actors • Specialists would ensure market liquidity and "continuity" in pricing, preventing wild price swings • The transition to electronic trading and decimal pricing in the late 1990s fundamentally changed market dynamics • High-frequency trading firms don't have the same ethical obligations that floor traders did • The number of publicly traded companies has declined significantly since the move to screen-based trading • Self-regulation through the exchange helped create trust that made markets function effectively. Not perfectly, but effectively. If you have questions or comments, or want to suggest a future topic, email the show at
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