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Historically, organized exchanges for common stock, futures, and option contracts have evolved as increasingly elaborate and specialized places for making deals. But they were simple in the beginning. The London Stock Exchange grew out of a coffeehouse where traders could meet. And in Vicenza on Tuesday mornings, in the old basilica that Palladio wrapped with his magical loggia, you can still see how modern commodity markets began: buyers and sellers still transact their business in little wooden cubicles as they have for centuries.

When James Peacock designed a new building for the London Stock Exchange in 1801-2, European exchanges had evolved into voluntary associations of members who came together to trade securities in auction markets. A member would acquire the right to trade on the exchange by buying a "seat." The great exchanges of the nineteenth and twentieth centuries, like H. P. Berlage's monumental brick pile in Amsterdam, were organized around trading floors where the action took place. On Wall Street the floor of the New York Stock Exchange was planned with dumbbell-shaped "trading posts" for member firms in the center, telephone booths around the periphery, and plenty of room for pages to scurry back and forth with orders. The great boards flashed, the brokers shouted their bids and acceptances, and it was the very stuff of capitalist romance.

The telegraph and the telephone gradually began to change all that, of course. Geographically distributed over-the-counter (OTC) markets such as NASD (National Association of Securities Dealers) now bring together dealers who quote prices to buy and sell. They are not located on a trading floor somewhere; they might be anywhere. Seats become virtual.

The computer takes that process a big step further. By the early 1990s, trading floors everywhere were tumbling into obsolescence: the British and French stock markets had transformed into almost entirely computerized operations, the Toronto exchange was planning to shut down its floor, and the Korean and German exchanges were moving in the same direction. ⁴⁶ Many stock transactions-perhaps the majority of them-had become computer-to-computer rather than person-to-person affairs. The US Treasury announced plans to introduce electronic bond auctions, in which Wall Street dealers would submit bids electronically instead of phoning them in to government clerks, who scribbled them down. ⁴⁷

In 1992 Reuters, the Chicago Mercantile Exchange, and the Chicago Board of Trade opened Globex, a very ambitious twenty-four-hour electronic trading system for futures and options contracts. It took about as long to design and build (four years), and cost about as much ($70 million) as a major new trading building. But it has no floor; buy and sell orders are entered electronically into the system, prices are set by a process of computer matching with incoming orders, participants in the trade are properly notified, verification is sent to the Chicago exchange clearing center, and buyers' and sellers' accounts are adjusted-all in a few seconds. Its chairman claims, "This is a way to extend our market around the globe across all borders and time zones."

Globex has had its teething troubles, but it clearly shows us the financial future. Commentators on the financial markets (generally a pretty buttoned-down bunch) can now see a whole new world coming:

The globalization of financial markets simultaneously fragments traditional financial transactions marketplaces and integrates them via electronic means. Physical marketplaces (the trading floors) are becoming obsolete, while "virtual" marketplacesnetworks of computers and computer terminals-are emerging as the "site" for transactions. The new technology is diminishing the role for human participants in the market mechanism. Stock-exchange specialists are being displaced by the new systems, which by and large are designed to handle the demands of institutional investors, who increasingly dominate transactions. Futures and options floor traders also face having their jobs coded into computer algorithms, which automatically match orders and clear trades or emulate open-outcry trading itself. ⁴⁸

This shift of financial markets to cyberspace has changed what is being traded. The 1990s saw the emergence on a huge scale of lightning-fast electronic trading in derivatives-sophisticated, computer-generated financial instruments that would be impossible without networks to move financial data around almost instantaneously and powerful workstations to perform the complex computations on which derivative transactions depend. ⁴⁹ These pure creations of cyberspace -forwards, caps, collars, swaps, options, swaptions, and more -are essentially carefully calculated side bets on more traditional stock and bond investments. By 1994 the monthly volume of derivative trading on the New York Stock Exchange was running at twice the US gross domestic product.

Once, the canyon of Wall Street at the tip of Manhattan really was the place where stocks and bonds were traded-truly the capital of capital. Now (though the old thoroughfare remains and has become increasingly dense with electronics) it is the name of a flourishing region of cyberspace.

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