Automated Trading Systems and the Concept of an "exchange" in an International Context Proprietary Systems: a Regulatory

In the age of rapidly evolving computer technology, the trading of securities and commodities, which traditionally has occurred on exchanges and commodity markets, is now also done on electronic systems. The degree of automation varies from system to system.' The speed and degree of automation is largely dependent on historical factors, such as the existence of a highly successful stock exchange and a highly organized securities industry. Automation is also dependent on the regulatory environment' and on cultural differences.' Until now, equity markets have tended to be more automated than derivative markets. Within the equity market, there are three major types of trading systems: order driven (e.g., the CATS system); quote-driven (e.g., the NASDAQ system, also called a dealer market); and the specialist system of the NYSE which falls somewhere in between as an auction market. The first two types are largely automated. By contrast, the futures markets are essentially "open-outcry," although fully automated systems such as the Swiss Options and Financial Futures Exchange ("SOFFEX") exist.