How to start a real stock exchange?

I am thinking about creating a small stock exchange in my city.

How do you determine if another stock exchange is needed or not? We already have the NYSE, NASDAQ, AMEX. Why create another stock exchange? I was thinking, what if terrorists try to blow up New York. Then the stock market is dead. We need a backup stock exchange in case there is some big trouble in NY.

How do you create a stock exchange? Do you have to have more than a million dollars to start? And do you have to be incorporated in order to start? What kind of computers and programs are needed that make a stock market function? Can you refer me to a book that explains in detail how the NASDAQ or NYSE got started and how it works?
Any information helps! Thank you.

I've read Wall Street, The Story of the Stock Exchange by Dorothy Sterling. But this book was very brief, written for children I guess. ;)

Public Comments

1. You can't start another stock exchange as the regulators wouldn't allow it.

BUT IF IT WAS ALLOWED

It would cost hundreds of millions of dollars to set up an exchange that would compete with the NYSE, or Nasdaq, or Amex

2. Small exchanges do in fact exist, but back up exchanges are not needed. You would likely need a nuclear exchange to wipe out the exchange process in the United States. One of the surprises of 9/11 to many firms was that they didn't actually need their NY office. They functioned fine without it.

You will need several million to start. You should not look at the NYSE or the NASDAQ for cues. They already perfectly cover their markets.

What you need to look at are the ECN's such as Island and how they started and the Arizona Stock Exchange, which recently failed and went out of business. It had a wonderful business model that no one wanted.

If I were you, I would not consider an exchange. You would have to provide something which is not already provided or provide it far more efficiently.

You cannot crack into the NASDAQ market because it is protected by law. It also isn't an exchange but rather a quotation system.

You do not need to be incorporated, per se, but you cannot be a proprietorship either. All of the programs are proprietary so you would need to write your own.

3. Any stock exchange has to be controlled not by a single indiviaul or small group, but by a mutual group of investors and/or business people who have a goal and a need.

A stock exchange in the US has to be approved by the SEC (Securities and Exchange Commission) and actually operates on a phone and paper system. Computers are a new technology to most stock exchanges.

Stock Exchanges work by companies wanting to list themselves and sell a portion of their value on the open market for other people (public) to invest.

The exchange works by each investor having a broker, who will give instructions to a trader who is on the floor of the exchange. As an investor makes an offer to buy or swell, the trader physically walks over to another trader who holds the stock, and they negotiate a price based on the ask price and the buy price.

Because of the complexity of how a Stock Exchange works and the regulations that govern it, unless you have a large group of investors or companies wanting to set up a 'micro-exchange' you would be unlikely to make this happen by yourself.

4. You can bet for a certainty that after 9/11 the American Exchanges and other world markets took this as a shot across the bow and have by now taken precautions against this and have more than likely set up secondary operating locations. Considering the great importance and necessity of the global economy each one of these institutions would have to be complete idiots IF they have not yet done so and in effect no lesson was learned to protect against another attack.

5. There is no need, actually there are too many world wide exchanges and they are consolidating at the moment.

The NASDAQ is an all electronic exchange, there is no physical location. The NYSE is going all electronic. They are not tied to NYC.