Technology's place in the stock market is a fascinating reflection of the way in which computers, market participants, and new investment strategies have dramatically transformed Wall Street. The advances in electronic-technology are drastically reshaping the way stocks are traded in the United States and around the world.
The growth in institutional ownership and trading put tremendous pressure on the existing market structure. The problems concerning fixed commissions, perceived liquidity, and market fragmentation attracted the attention of the Securities and Exchange Commission (SEC) and Congress.
SEC studies of the market's problems laid the groundwork for the most far-reaching piece of securities legislation in the last 40 years, the Securities Acts Amendments of 1975. The 1975 law encouraged nationwide competition in securities trading by developing a National Market System (NMS). At the time, the NMS was generally expected to include the following: 1) abolition of minimum fixed brokerage commissions; 2) central reporting of stock price quotations and transactions; 3) a central order routing system; and 4) national protection of limit orders. In effect, the NMS was conceived as a computerized network of stock traders who freely compete for the best price available. The goal of the legislation was to foster efficiency, reduce trading costs, and enhance competition.
One benchmark of institutional activity is the number of block trades (defined as transactions of 10,000 shares or more), because block trades are primarily executed by institutions rather than individuals. In 1965, block trades made up only 3 percent of NYSE-reported share volume; currently, block trades make up the majority of the volume.