What did traders use before electronic trading platforms?

Trade execution is now fully automated, using the latest in cutting-edge technology and highly efficient trading platforms. Whether a short-term trader or long-term investor, it is easy to take what we have today compared to years gone by for granted. Original trading systems were the exact opposite of low latency execution and low touch execution. Oh, how times have changed!

Sometimes it is helpful to look back and see how stock markets, trading systems and investor options have changed over the years. Where markets started and where they are today - akin to night and day.
 

Open outcry

The open outcry system of trading stocks and shares is often used in financial movies to demonstrate the organised chaos and controlled pandemonium that existed. You have seen the scenario, hundreds of people crammed onto a trading floor, hand gestures used to communicate across the room and shouting, lots of shouting. This type of trading system, carried out in what is known as a "trading pit", can be traced back to the 17th century.

The deregulation of investment markets in 1986, commonly referred to as the "Big Bang”, sounded the death knell for open outcry systems on the London Stock Exchange. However, it is still in use with some commodities markets, although there is a growing pull towards electronic trading. Stockbroking activities are based on a simple saying; my word is my bond, which would have been critical back in the open outcry and ticker tape days. 

Looking back, “Big Bang” changed the way the London Stock Exchange operated, opened markets to private investors and removed some of the mystery and intrigue of previous years. This prompted one of the most extensive privatisation programmes undertaken by any UK government.

 

Ticker tape

At the time, ticker tape was a revolutionary development, transmitting stock prices and trade details over telegraph lines. The system was central to stock markets (and commodity markets) worldwide between 1870 and 1970, before the onset of electronic trading. You will still see “ticker tapes” in dealing rooms which circulate prices during trading hours. The main difference today, these ticker tapes are electronic, but this is one area of history the financial industry has retained.

The term ticker tape relates to the noise made by the original analogue machines printing continuous narrow pieces of paper showing stock prices and trade details. Very different to trade execution today, each ticker tape trade report included:-
 

• Stock symbol
• Number of shares traded
• Trade price
• Price direction
• Price change on the previous close

While today we are used to low latency execution-only services, it is interesting to hark back to the first telegraphic ticker tape created by Edward Calahan in 1867. A revolution at the time!

 

Electronic trading

While 1986 was the pivotal moment for the London Stock Exchange, the timing of the introduction of electronic trading varied across the world. The ongoing development of low latency execution only services now facilitates global trade execution at the touch of a button. Described as low touch execution, i.e. the involvement of very few people, trade execution services have effectively brought global markets under one investment/trading umbrella. 

We have recently seen the introduction of Direct Market Access (DMA) trading services, touch button dealing, and instant reporting. While speed was the main focus in recent years, ongoing developments today include the introduction of artificial intelligence, together with global clearing and custodial services. This is all carried out under stringent regulations which continue to adapt to the modern world. 

While the original stock trader's promise, my word is my bond, still applies, electronic trade execution today is in a different league.

 

Nostalgia and new technologies

It is good to hark back to the old days, the days of open outcry, ticker tapes and a more personal feel to national and international trading. Before the enormous advances in electronic trading, telephone services also played a crucial role and instigated significant global interaction. Over the last hundred years, we have seen massive changes; what does the future hold?



 

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