Chicago Stock Exchange - Explained
What is the Chicago Stock Exchange?
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Table of ContentsWhat is the Chicago Stock Exchange?How Does the Chicago Stock Exchange Work?Academic Research for Chicago Stock Exchange (CHX)
What is the Chicago Stock Exchange?
The Chicago Stock Exchange is a national securities exchange in Chicago which regulates itself and functions under the watch of the U.S. Securities and Exchange Commission (SEC). As we speak, The Chicago Stock Exchange is based in FOUR40 South LaSalle Street.
How Does the Chicago Stock Exchange Work?
The Chicago Stock Exchange was established on March 21, 1882, and later in 1949, it combined with stock exchanges in the region like Cleveland Stock Exchange St. Louis Stock Exchange, and Minneapolis-St. Paul Stock Exchange resulting in Midwest Stock exchange. In 1959 the New Orleans Stock Exchange joined with Midwest Stock Exchange to form the Midwest Stock Exchange Service Corporation in the 1960s. Its purpose was to consolidate accounting for organizations that are members. Later in 1993, it resorted to converting its name back to Chicago Stock Exchange. The Chicago Stock Exchange was established on March 21, 1882, with Mr. Charles Henrotin being appointed the president and the chairman. In April the same year, they contracted a lease at 115 Dearborn Street for the business set up and during this period they sold memberships amounting to 750. The Chicago Stock Exchange officially became a national property on May 15, 1882, where it came up with its offices. Henrotin was the pioneering individual to market the concept together with a number of business partners. The Chicago Stock Exchange shifted its office to old CHX block in 1894 designed by firms of Adler and Sullivan situated in Washington and LaSalle streets. The former building had been destroyed in 1972 but the pioneer business floor is currently located at the Art Institute of Chicago. The exchange gained growth meaningfully in the 1880s accompanied by bond and stock increase. This enabled them to realize huge returns. In July 1941 World War I made the Exchange shut down its operations and was not functional until December 11. On October 1915 the method of listing and doing business in stocks moved from percent to par value to dollars. Chicago Stock Clearing Corporation was developed on April 26, 1920 while on October 29, 1929, there was a crash in the stock market. This led to a hard economic period in Chicago and the stock market. Later in 1949 the CHX joined with the exchanges of St. Louis, Cleveland and Minneapolis resulting in the Midwest Stock Exchange. In 1959 the New Orleans Stock Exchange combined with Midwest Stock exchange leading to the formation of the Midwest Stock Exchange Service Corporation in the 1960s. Its objective was to provide accounting and finance services to its partner organizations. The CHX would later in 1978 come up with Intermarket Trading System (ITS), which enhanced the transfer of orders to various exchanges so that customers get the most perfect deal.CHX improved on its technological capabilities in the 1980s so as to enhance business. In 1982, the CHX developed the MAX system that enabled CHX to be amongst the pioneer stock exchanges providing fully automated services. Lastly, in 1987, CHX put down programs that could allow trading in the securities of Nasdaq. During the 1990s the Exchange was reformed and converted its name in 1993 back to Chicago Stock Exchange portraying its identity and roots within the Chicago financial environment. In 1997 CHX started doing business in Exchange- Traded Funds (ETFs). Many changes were experienced during the start of the new millennium. In 2005, SEC validated a shift of the structure from a nonprofit member-owned firm to the profit-making corporation of the stockholders. Currently, it functions as it belongs to CHX Holdings, a Delaware corporation. In 2005, the CHX introduced an electronic avenue of doing business. In 2006, the Exchange revealed the decision of shareholders and laws confirming investment in CHX by Bank of America Corporation, Bear Stearns, E*TRADE Financial Corporation, and Goldman Sachs & Co.CHX in the same year reported that it had finished migrating to the NEW Trading Model platform (the CHX Matching System). On 30 May 2014, The National Stock Exchange stopped trading reducing the number of active stocks in the USA to 11. Wrote Bloomberg, abandoned "just one public exchange, Chicago Stock Exchange Inc., that isn't owned Bats, Nasdaq OMX Group or Intercontinental Exchange Group Inc." On February 2016 a Chinese led investment firm called Chongqing Casin Enterprise Group approved an understanding to take over CHX Holdings, INC., the major firm of the Chicago Stock Exchange for unstated amount subject to regulatory confirmation. This Casin group was established in 1997. Some little ownership is controlled by Bank of America, E-Trade, Goldman Sachs and JPMorgan Chase. The buying price is said to be below $100M.This deal was however interrogated by the 2016 US presidential aspirant one Mr. Donald Trump in his campaigns. Besides this, Congressman Robert Pittenger encouraged the United States Department of the Treasury to investigate the background of this Casin Group. By August 2017, this deal was still hanging with the U.S. Securities and Exchange Commission holding reservations. The government blocked its sale in February 2018.
Academic Research for Chicago Stock Exchange (CHX)
- Third market brokerdealers: Cost competitors or cream skimmers?, Battalio, R. H. (1997). The Journal of Finance, 52(1), 341-352. The paper shows a comparison in the bid-ask price for New York Exchange (NYSE). The study indicates that quoted bid-ask spread improves when Madoff/investment securities are in the market. Also, the cost of trading in this situation does not go up. The study concludes that the adverse selection problem linked with agents performing orders related to exchange-quoted securities is not economically significant.
- Nasdaq and the Chicago Stock Exchange: An analysis of multiple market trading, Van Ness, B. F., Van Ness, R. A., & Hsieh, W. L. (1999). Financial Review, 34(4), 145-157. Here, there is an analysis of both Nasdaq and Chicago Stock Exchange to investigate if there is a variance in the trading cost and movement of price amongst these two markets. Finally, the authors find out that trades happening on Chicago Stock Exchange get a lot of improvement in terms of price compared to those happening on Nasdaq.
- The reporting of Island trades on the Cincinnati Stock Exchange, Nguyen, V., Van Ness, B. F., & Van Ness, R. A. (2004). The author is concerned with the impact that reporting of Island trades have on the Cincinnati Stock Exchange.
- Shortand longterm effects of multimarket trading, Nguyen, V., Van Ness, B. F., & Van Ness, R. A. (2007). Financial Review, 42(3), 349-372. The article investigates short and long term impacts of conducting business in several markets in three major traded Exchange Trade Funds (DIA, QQQ, and SPY). The author reveals that large scale entities like NYSE enhance the general quality of the market as opposed to small scale entities with ambiguous influence. We investigate both short term and long term impacts of carrying out business in many markets. By use of time series analysis, market evolution of EFTs is followed with regard to order flow fragmentation, trading cost, price impact, trading cost etc. In general, market fragmentation is linked to reductions in the cost of doing a trade while multimarket does not really affect price efficiency due to the fact that it is not responsible for the increase in price volatility.
- Liquidity measurement problems in fast, competitive markets: Expensive and cheap solutions, Holden, C. W., & Jacobsen, S. (2014). The Journal of Finance, 69(4), 1747-1785. The study focuses on establishing whether competitive markets yield problems that arise as a result of liquidity measurement by use of Monthly Trade and Quote (MTAQ) database in comparison to the expensive Daily Trade and Quote (DTAQ) database. The expensive alternative of solving these problems is DTAQ (first-best) while the cheapest is MTAQ (second-best.)
- Order preferencing and market quality on US equity exchanges, Peterson, M. A., & Sirri, E. R. (2003). The Review of Financial Studies, 16(2), 385-415. The author investigates how order preferencing and market quality affects US equity exchanges. We establish that for market orders, the primary exchange gives the least cost of doing business. On the other hand, preferencing exchanges are better than nonpreferencing regional exchanges while for limit orders, the regions implement them severally compared to the primary market.
- Stock exchanges at the crossroads, Fleckner, A. M. (2005). Fordham L. Rev., 74, 2541. The author in this article is concerned with discussing stock exchange at the crossroads
- After-hours trading of NYSE stocks on the regional stock exchanges, McInish, T. H., Van Ness, B. F., & Van Ness, R. A. (2002). Review of Financial Economics, 11(4), 287-297. This paper is concerned with the impact in the trading of New York Securities exchange on the regional stock exchanges.
- Trading of NASDAQ stocks on the Chicago Stock Exchange, Lau, S. T., McCorry, M. S., McInish, T. H., & Van Ness, R. A. (1996). Journal of Financial Research, 19(4), 579-584. This article focuses on how doing business on NASDAQ affects the Chicago Stock Exchange.
- An analysis of the opening mechanisms of Exchange Traded Fund markets, Nguyen, V., & Phengpis, C. (2009). The Quarterly Review of Economics and Finance, 49(2), 562-577. The article investigates the opening of the Exchange Traded Fund (ETF) markets in an environment with many markets, for instance, the American Stock Exchange (AMEX) which is the most expensive stock exchange market. The paper further reveals how the New York Stock Exchange (NYSE) and Electronic Communication Networks (ECNs) encourage the efficient discovery of prices. This result indicates that market power is dominated by the transparency effect.
- Inter-market competition for exchange traded funds, Nguyen, V., Van Ness, B. F., & Van Ness, R. R. (2007). Journal of Economics and Finance, 31(2), 251-267. The author here evaluates how various liquidity trading in the exchange market for ETFs influence the kind of competitions in the inter-market. It is established that structures and security features of the competing markets influence the kind of inter-market competition. Anonymous exchange platforms like ECNs tend to be attractive to both informed traders and liquidity. In addition to this, we find out that quote based competition is very common in ETFs market.