Dallas Needs a Stock Exchange

Naively, you might think that a stock exchange is a place where people meet to trade stocks, and that everyone would want to meet where everyone else meets. If everybody is trading stocks under one particular buttonwood tree in lower Manhattan, and you would prefer to trade stocks under an elm tree in midtown, you can go to some other traders and say “hey isn’t this elm tree nice and shady, let’s trade there,” but it will be hard to get any of them to move. They have stock to sell, and they want to sell it where the buyers are; they have stock to buy, and they want to buy it where the sellers are. Even if your elm tree offers better shade and lower fees, they’ll be inclined to stick with the buttonwood. Liquidity begets liquidity, and it is hard for a small upstart exchange to compete with the incumbents.

But the actual US equity market in 2024 doesn’t really work like that. There are more than a dozen stock exchanges, plus various other trading venues, and all of them are actually computers. So if you are a stock trader, your calculation is not “I’m going to walk over to one particular place and stand there trading stocks all day, so it’d better be the place with the most people.” Your calculation is more like “I am going to connect my computer to 37 other computers, all of which will sell me stock, and trade on all of them simultaneously.” The default approach is to connect to many different trading venues and send each order to whichever venue has the best price at any particular second.