While most of today's soaring stock-trading business is executed on the New York Stock Exchange or the NASDAQ market, brokers still turn to Chicago's two tiny exchanges for quality niche services such as speed of execution, anonymity and lower prices, so they're booming, too, just not as much.

In September, the New York Stock Exchange reported, it enjoyed its "most active month, week and days in history, including an all-time trading record of 7.3 billion shares handled on Sept. 18.”

Similarly, the Chicago Stock Exchange (CHX) and the National Stock Exchange (NSX) also experienced volume highs. The CHX set trading records in September and October, with Oct. 28 being its peak day as more than 80 million shares were traded, said CEO David Herron.

Before the turbulence in the markets began, only 30 million to 50 million shares were being traded daily, he said.

“We are probably up 20 percent because of the volatility and volume,” Herron said. “We’ve been adding customers at the same time that we’ve seen increased volume.”

Up much more, the NYSE reported an increase of 71.5 percent in average daily volume to 4.4 billion shares during September, compared with the same month last year. For October the NYSE reported an increase of 78.5 percent in average daily volume to 4.8 billion shares compared with the 2007 month.

Herron said three new customers from local and East Coast trading firms contributed to the CHX’s record growth.

The Chicago Stock Exchange’s clients include E*TRADE Financial Corp., JPMorgan Chase & Co., Goldman Sachs Group Inc., and Bank of America Corp. William Blair & Co., Chicago’s leading private investment firm, is also a client of the exchange.

“Obviously the Chicago Stock Exchange, being in our hometown, is one that we’ve done business with forever,” said E. David Coolidge III, vice chairman of William Blair.

The majority of William Blair’s trading is handled on the New York Stock Exchange. Although the exchanges in Chicago trade the same stocks as the NYSE, Coolidge said there are advantages to trading locally.

“Sometimes it is cheaper to trade on the Chicago Stock Exchange,” Coolidge said. “Sometimes it is more convenient because of the size of the order.”

William Blair is able to get “human intervention” and “better execution” on smaller orders at the Chicago Stock Exchange compared to the NYSE, Coolidge said.

“You have a market maker that will work the order for you instead of just sticking it in a machine,” Coolidge said.

Adolfo Laurenti, senior economist for Mesirow Financial Holdings Inc. in Chicago, agreed that there are differences in the quality of services that exchanges provide such as speed of execution, anonymity or price discovery mechanisms.

“I am not surprised that many of the local exchanges have really been able to find their market niche so that they can make their clients happy and stay in business and prosper,” he said.

Laurenti noted that there was a hypothesis that concentrating liquidity in one place would probably allow only the larger exchanges such as the New York Stock Exchange to survive.

“That seems not to be the case,” he said. “Actually, there seems to be a lot of opportunity for these smaller exchanges to stay in business making their clients happy.”

As for the Chicago Stock Exchange’s current record highs, Herron was eager to downplay its success.

“Nobody wants to thump their chest about increased volume at a time when people are seeing the value of their holdings go down,” he said. “We are sensitive of that. What we really want to highlight is that we have been handling this increase volume and volatility very well and growing as the market grows.

“When the value of the overall market falls like this, it creates incredible opportunities to buy stock,” he said. “People are constantly moving out of positions either out of fear or greed. It adds a lot of trading activity.”

Herron noted that every exchange faces the task of storing data and trade activity on servers and market data storage facilities for five to seven years. With the increased activity, that could be a challenge, but CHX is keeping up so far. 

“Some exchanges have had glitches,” he said. “I wouldn’t say we never will because we are all seeing unprecedented volume. We are actually very proud of the way the markets have handled this incredible volume and volatility without missing a beat in unprecedented times.”

He added: “Are we NASDAQ or New York? No, but I think we fill a strong place in the marketplace.”

Chicago-based National Stock Exchange, the renamed Cincinnati Stock Exchange, also enjoyed higher trading volume in September and October, said CEO Joseph Rizzello.

During those months the NSX traded approximately 200 million shares a day, at its peak handling 362 million shares on Oct. 10, he said. Through Oct. 31, the NSX average shares traded daily were 150.2 million compared with just 32.3 million in the 2007 period.

"I would rather have avoided the recent market crisis and have stability in the marketplace,” said Rizzello. “The silver lining is that the transparency of the cash equities market allowed transactions to be handled extremely well in this volatile market."  He contrasted the openness of equities trading with the private transactions in such securities as credit default swaps, saying , "If debt and credit markets were structured and handled the same way, perhaps the recent market crisis could have been avoided due to the fact that there is full transparency in the cash equity markets."

Rizzello believes that a low-cost transaction model NSX implemented two years ago enables it to "compete with the big dogs." The model is a fully electronic matching engine that posts and executes orders of broker/dealers in milliseconds, he stated. In the future, NSX will continue to compete for market share and liquidity in the marketplace, Rizzello said.

"This is an unprecedented time we are going through as an industry and as country," he said. "However, I have faith in the free market system and believe that the financial markets will once again find their balance."

In contrast to the record trading at the two local stock exchanges, there's been no bulge at OneChicago, the single- stock futures exchange, said CEO David Downey.

“There have been slight upticks as people try to refinance their positions, but we have not seen any jump in volume at all,” he stated.

In fact, OneChicago's business is decidedly slower. This year, average daily volume is 16,422 compared with 32,295 in 2007. Volume year-to-date is 3,612,845 compared with 8,105,963 last year.

Downey attributes the declines to federal funds rate decreases and to one large customer that's no longer conducting big transactions as in late 2007.

“We have not been a participant in the increase in volume,” he said. “Single-stock futures are a financing tool and as the interest rates have collapsed this year with all of the cuts, it becomes less and less needed at that level.”

There have been “upticks” in the number of new customers trading and indications of incoming new market makers, Downey said. He credits these increases to educating individual, hedge fund, pension and institutional customers “that there is another way for them to transact on the capital markets that is very cost efficient and that will save them time and money.”

He went on: “We are very optimistic that these institutions that still want to participate in the market will find that single-stock futures are a wonderful surrogate to doing business."