What Was the Pacific Exchange (PCX)?

The Pacific Exchange (PCX) was a California regional stock exchange in existence from 1882 to 2005 (2002, in physical form). It now exists primarily as an electronic trading program that operates through the New York Stock Exchange's Arca platform, NYSE Arca.

Key Takeaways

  • The Pacific Exchange (PCX) was a California regional stock exchange in existence from 1882 to 2005 (2002, in physical form).
  • For much of its history, the PCX hosted robust equity trading activity in Los Angeles and San Francisco, becoming the nation's third-largest options market by the mid-1980s.
  • PCX was one of only four U.S. exchanges to trade equity options and was the first to develop and implement an electronic trading system.
  • PCX now exists primarily as an electronic trading options trading program that operates through NYSE Arca.

Understanding the Pacific Exchange (PCX)

For much of its history, the PCX hosted robust equity trading activity, becoming the nation's third-largest options market by the mid-1980s. It was one of only four U.S. exchanges to trade equity options and was the first to develop and implement an electronic trading system. During its heyday, the PCX held operations in both Los Angeles and San Francisco, with two trading floors in the latter city.

However, the Los Angeles and the Pine Street, San Francisco trading floors closed in the early 2000s when the PCX sold its stock trading operations to the Archipelago Exchange (ArcaEx), Archipelago Holdings, a leading electronic-trading firm based in Chicago.

The exchange continued to exist in digital form: In 2003, it launched an electronic options platform, the PCX-Plus, which allowed options market-makers to make trades–either from its floor or electronically, from remote locations. In 2005, though, its parent firm, PCX Holdings, agreed to sell this operation to Archipelago as well. It was at this point at the Pacific Exchange ceased to exist as a separate entity.

Archipelago also acquired Pacific's self-regulatory license, which allows Pacific to act as the compliance watchdog over ArcaEx.

PCX Today

A year later, in 2006, Archipelago merged with the New York Stock Exchange; consequently, the NYSE Arca platform now conducts all PCX transactions.

But while equity trading on the Pacific Exchange takes place only through NYSE ARCA, the Pacific Exchange continues to run its options business out of the Mills Building, its historic Montgomery Street HQ, in San Franciso. To this day, local firms such as Casey Securities and Student Options maintain a presence on the options floor, as do major sell-side investors such as Goldman Sachs.

History of the Pacific Exchange (PCX)

Early Days

The Pacific Exchange evolved from two late 19th-century financial markets originating in California.

The first was the San Francisco Stock and Bond Exchange, founded in 1882. Its original purpose was to facilitate financial trades associated with the large amounts of silver found in the Comstock Lode of Nevada—and the fortunes made from it.

Four men, in particular, became millionaires from the Comstock Lode discovery, and bastions of the young San Francisco exchange: James Graham Fair, John William Mackay, William S. O'Brien, and James Claire Flood, for whom San Francisco's iconic Flood Building on Market Street is named.

While mining money was shaping the San Francisco Stock and Bond Exchange, another commodity was funding a financial market to the south. The Los Angeles Oil Exchange opened in 1889, led by oil tycoons such as Wallace Libby Hardison, a founder of Union Oil, which later merged into Chevron.

In 1957, the two exchanges merged, officially creating the Pacific Stock Exchange or PCX. The name was shortened to the Pacific Exchange 40 years later, in 1997.

For years, the PCX was a mainstay in San Francisco's financial district. It functioned during some of the country’s most impactful economic events, including the California Gold Rush and the Great Depression. At its height, the Pacific Exchange was trading more than 2,700 stocks, bonds, and other securities on trading floors in San Francisco and Los Angeles. A record 3.3 billion shares changed hands there in 1997. It also traded options on more than 800 stocks on its San Francisco options trading floor, handling 46.7 million options contracts that year.

Later Years

When computers started becoming a fact of business—and financial industry—life, the PCX was among the first exchanges to automate in 1969 by using computers on the floor to complete some trades.

However, PCX's trade floors and open outcry system of stock buying and selling became archaic with the advent of electronic trading. In an effort to stay profitable, PCX Holdings, the exchange's owner, decided to demutualize in 1999, making PCX the first U.S. stock exchange to do so.

With the onset of the 21st century, PCX began to dismantle. The exchange sold its equity trading business to Archipelago in 2000. As a result, the PCX trading floor in Los Angeles closed in 2001, with San Francisco Pine Street floor closing the year later.

The San Francisco Pacific Exchange building, located at 301 Pine Street, in San Francisco was sold to private developers and subsequently converted into a fitness center.

When Archipelago Holdings Inc. absorbed PCX totally in 2005, Arca agreed to pay PCX’s parent company, PCX Holdings, $50.7 million to acquire its two key assets: its electronic system used for trading stock options, and the self-regulatory license that has allowed the exchange to self-police its operations. PCX shareholders received 20% of the purchase price in Archipelago stock, giving shareholders a substantial stake in the entity.

Today equity trading on the Pacific Exchange takes place only through the electronic communications network NYSE ARCA.

Special Considerations

The PCX wasn’t the only exchange whose fate was altered by advances in trading technology. The Cincinnati Stock Exchange, founded in 1885, closed its floor and went nearly entirely electronic in 1980 being renamed the National Stock Exchange (NSE). Similarly, The Boston Stock Exchange, now Nasdaq, launched in 1830, is a founding member of the all-electronic Boston Options Exchange. The Chicago Stock Exchange (CHX), established in 1882, absorbed several of its competitors in Cleveland, St. Louis, Minneapolis, and even New Orleans over the years.