Similarly, the oft-criticized political nature of exchange governance reflects the diversity of exchange members. Member ownership and nonprofit status have their limitations. A member-owned exchange cannot rely on outside equity to finance new technology. Historically, this has not proved disabling, so the traditional ways have survived. Today, however, technology is changing everything.
Electronic trading reduces the benefits and raises the costs of member ownership and nonprofit form.
On the benefit side, electronic trading dispenses with floor brokers and the need for specialized liquidity suppliers tied to a specific exchange. Brokerage firms or large customers can route orders directly to the trading system for execution. Moreover, anyone with a computer and cash can provide liquidity in the electronic marketplace. Indeed, day traders are supplanting traditional liquidity suppliers in OTC stocks and will do so in other markets when they go electronic. This undercuts the need for member ownership and nonprofit status, and facilitates the transformation of exchanges to for-profit entities with traded shares.