I start by referencing an important White Paper written in 1970 by a young graduate student in economics at UC Berkeley. That White Paper, entitled, “Preliminary Design for an Electronic Market,” written for the Pacific Commodity Exchange, was the world’s first written conceptualization of a fully electronic, for-profit futures exchange.
The White Paper was written by Dr. Richard Sandor. That White Paper has now been republished in a new book by Dr. Sandor. In it, he recounts how his idea lay mostly dormant through the 1970s to mid-1980s before being slowly developed, in fits and starts, first in Europe in the 1990s and then in the United States in the 2000s. His book notes that electronic execution of futures products with continuous liquidity has become almost ubiquitous today, while other exchange traded asset classes with more episodic liquidity, like options and swaps, continue to trade by voice.
What I found fascinating in Dr. Sandor’s recounting of this five-decade long evolution from trading pits to electronic trading of futures was the absence of any grand plan behind the transformation. Instead, it was a series of incremental commercial developments and technology innovations. At all times, the impetus was the demands of market participants and the response of market operators to reduce trading costs and transaction friction. At no time, did government step in and say, “Henceforth, all futures trading shall be on electronic exchanges.” Instead, market evolution happened because a good idea was coupled with capable technology and mutual commercial interest with enough time to catch on and gain traction.
Read more at CFTC