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Chris Cornette, a longtime securities trader who grew up in the business, reveals how the most important innovation that made US capital markets preeminent in the world was the exchange itself.

• Cornette's father worked in the P&S (Purchase and Sales) department on Wall Street, eventually becoming the controller of an American Stock Exchange specialist unit
• The original Buttonwood Agreement from 1792 created exclusivity among traders that helped establish trust in the market
• Exchange specialists subsidized trading in small-cap stocks using profits they made from large-cap stocks
• The phrase "your word is your bond" wasn't just a saying but the foundation of the trading system. Exclusion from the exchange was enough of a threat to discipline bad actors
• Specialists would ensure market liquidity and "continuity" in pricing, preventing wild price swings
• The transition to electronic trading and decimal pricing in the late 1990s fundamentally changed market dynamics
• High-frequency trading firms don't have the same ethical obligations that floor traders did
• The number of publicly traded companies has declined significantly since the move to screen-based trading
• Self-regulation through the exchange helped create trust that made markets function effectively. Not perfectly, but effectively.

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