The US financial markets have evolved significantly from 2000 to 2014. Exchanges consolidated through mergers and acquisitions, leading to a duopoly of NYSE and NASDAQ. Electronic trading replaced much of the open-outcry model. New entrants like dark pools and alternative trading systems fragmented the markets. Regulation increased with rules like Reg NMS and Dodd-Frank. Technological advances enabled high-frequency and algorithmic trading. Clearing houses also consolidated while taking on more product types like OTC derivatives. The financial crisis of 2008 further accelerated these trends of consolidation, electronic trading, and increased regulation of the US markets.

1. 2000 – 2014
July 2014
EVOLUTION OF
U.S. FINANCIAL MARKETS

2. Evolution of U.S. Financial Markets 2
How Do You Navigate
Today’s Markets?
• Confused about how the U.S. markets work?
• If you did not have a solid grasp of the U.S. market
structure in 2000 (prior to Reg. NMS), you will probably
have a tough time navigating the various players and
their value proposition today
• The markets have evolved:
– Exchanges’ M&A
– Continued market fragmentation
– Introduction of new players
• What does it look like today?

3. Today’s Market Landscape
Evolution of U.S. Financial Markets 3

4. • Growth of electronic trading / contraction of open outcry:
equities, options and futures; spread compression
• Growth and sophistication of the buy side
• The Internet has matured, so has trading technology
• Demutualization and for-profit business models
• Evolution of exchange revenue models, market makers,
payment for order flow (maker-taker, taker-maker)
• Exchange mergers and acquisitions, continued
globalization.
Evolution of U.S. Financial Markets 4
Global Trends / Background

5. • Maturity of prime brokerage business model
• De-leveraging and impact of global financial crisis post
Lehman Bros.
• Introduction of new broker-sponsored exchanges,
clearing houses
• Continued market fragmentation – equities and options
• Regulatory evolution:
– Commodity Futures Modernization Act (2000)
– SEC Reg. NMS, demise of the InterMarket Trading
System for equities (2005)
– Dodd-Frank Act regulations
– EMIR - EU
Evolution of U.S. Financial Markets 5
Global Trends / Background (Cont’d) …

6. • Inter-relationship of asset classes, markets; portfolio
margining
• Growth of algorithmic and high-frequency trading
• Madoff
• MF Global
• The market is evolutionary, not (necessarily)
revolutionary!
Evolution of U.S. Financial Markets 6
Global Trends / Background (Cont’d) …

7. U.S. Equities Markets
2000 2014
Evolution of U.S. Financial Markets 7
NYSE
Nasdaq
BSE
PHLX
CHX
NSX
PSX
Arca
Brut
Redi
Instinet
Island
Attain
Nextrade
Strike
Bloomberg
Tradebook
ITG Posit
Latice
Trading
Inter-market Trading System [ITS]
EXCHANGES REGIONALS ECNs ATS
AMEX
NYSE
NASDAQ
NASDAQ PSX
CHX
SIGMA X
Instinet –
VWAP Cross
Barclays LX
CSFB -
Crossfinder
EXCHANGES ATS / DARK POOLS
Direct Edge
Convergex
Knight Link
UBS - PIN
CitiMatch
LavaFlow
ECN
MS Pool
BIDS
Level
Liquidnet
BATS
NYSE Arca
Citadel
Connect
IEX
Deutsche
Bank SuperX

8. • Implementation of SEC Reg. NMS, demise of the Inter-
market Trading System
• Exchanges demutualized, went for-profit and public
• Exchange consolidation, continued globalization
• Evolution of NYSE, NASDAQ duopoly
• Internalization of order flow, rise of new, more nimble
ATS/Dark Pools
• Growth of algorithmic trading, new order types, high
frequency trading and proximity hosting as
differentiators.
Evolution of U.S. Financial Markets 8
What Happened ?

9. U.S. Options Markets
2000 2014
Evolution of U.S. Financial Markets 9
AMEX
EXCHANGES
CBOE
ISE
PHLX
PSE
Options Linkage
NYSE- AMEX
EXCHANGES
CBOE
ISE
NASDAQ
PHLX
NYSE –
ARCA Options
BATS
BOX
C2
ISE Gemini
Miax
NASDAQ
BX

10. • Growth of electronic trading / consolidation of open
outcry trading
• Decimalization, penny quoting, spread compression
• Payment for order flow, growth of electronic market
makers
• Continued market fragmentation
• Exchange acquisitions
• Algorithmic and high frequency trading
• New order types
• Evolution of new players - 5 markets are now 11!
Evolution of U.S. Financial Markets 10
What Happened ?

11. U.S. Futures Markets
2000 2014
Evolution of U.S. Financial Markets 11
CME
EXCHANGES
CBOT
NYMEX
NYBOT
MGEX
KCBOT
BTEX
NASDAQ
LIFFE
OneChicago
CME Group
CME
CBOT
NYMEX
KCBOT
EXCHANGES
ICE
NYBOT
ICE OTC
WCE
Eris
MGEX
NADEX
OneChicago
CBOE Futures
Exchange
trueEX

12. • Growth of electronic trading / consolidation of open
outcry trading
• Exchanges demutualized, went for-profit and public
• Exchange consolidation and globalization
• Demise of Enron
• Introduction of new players - some came, some went,
some stayed
• New products that align risk to users needs
• Convergence of OTC and ETD products - rise of OTC
clearing, futures look-alikes
• Collapses of MF Global, Peregrine Financial
Evolution of U.S. Financial Markets 12
What Happened ?

13. U.S. Clearing Houses
2000 2014
Evolution of U.S. Financial Markets 13
EQUITIES OPTIONS FUTURES FIXED INCOME
NSCC
Options
Clearing
Corp
New York
Clearing Corp DTCC
NYMEX
Clearing
CME Clearing
BOTCC
KCBTCC
EQUITIES OPTIONS FUTURES FIXED INCOME
DTCC OCC
DTCC /
FICC
OCC
CME
Clearing
ICE Clear
US
LCH
ClearNet

14. • Exchange consolidation, clearing member consolidation
(Bear Stearns, Lehman Bros., Refco, MF Global)
• Exchanges demutualized, went for-profit and public
• Member-controlled versus exchange-owned clearing
houses
• Clearing house “silos” versus non-profit, industry utilities
• New products / convergence of OTC and ETD products
• Futures look-alikes, cleared OTC products as new
revenue streams
• Introduction of new clearing houses.
Evolution of U.S. Financial Markets 14
What Happened ?

15. Conclusions
• US market structure is evolutionary
• Players need to be faster, cheaper, better…
• Greatest regulatory changes in 75 years
• Continued need for technology investments – capacity,
compliance, productivity, competitive edge
Evolution of U.S. Financial Markets 15