What Is Pacific Exchange (PCX)

Now defunct in name, Pacific Exchange (PCX) was one of four U.S. exchanges to trade equity options and was the first to develop and implement an electronic trading system. At one time, the PCX held operations in both Los Angeles and San Francisco. However, both closed in early 2000 when the PCX partnered with the Archipelago Exchange (ArcaEx), which later merged with the New York Stock Exchange. Consequently, the NYSE Arca platform now conducts all PCX transactions.

The Pacific Exchange continues to run its options business and acts as a regulatory service to ArcaEx. PCX also embraces the idea of a hybrid model. In 2003, it launched the PCX-Plus, which allows options market-makers to make trades–either from its floor or electronically, from remote locations.

Key Takeaways

  • The Pacific Exchange (PCX) is a stock and options exchange located in San Francisco, CA.
  • It was the first to implement a full-fledged electronic trading system in the U.S.
  • To this day, local firms such as Casey Securities and Student Options maintain a presence on the options floor. Major sell-side investors such as Goldman Sachs, likewise hold a presence on the options floor.

Early Origins of Pacific Exchange (PCX)

Initially, PCX formed in San Francisco in 1882 as the "Stock and Bond Exchange." The exchange saw use by both institutional and individual investors alike. Its original purpose was to facilitate stock trades associated with large amounts of silver found in Nevada. The formation came after the discovery of the silver-rich Comstock Lode sparked a frenzied silver rush into the area. Many men became millionaires from the Comstock Lode discovery, including a foursome known as the "Bonanza Kings." This foursome comprised of James Graham Fair, John William Mackay, William S. O'Brien and James Claire Flood. San Francisco's iconic Flood Building on Market Street receives its name from James Flood of the Bonanza Kings.

In 1957, the exchange officially renamed as PCX after the merger of the San Francisco and Los Angeles stock exchanges. For years, the PCX was a mainstay in the San Francisco's financial district. However, its open outcry system of trading became archaic with the advent of computers and electronic trading. PCX ceased operations in 2005. But before shuttering, it saw robust trading activity, becoming the nation's third-largest market by the mid-1980s

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.

During its 124-year run, the PCX functioned during some of the country’s most impactful economic events. These events include the California Gold Rush, the Great Depression, and the early use of computers, to trade stocks.

The PCX wasn’t the only exchange whose fate was altered by advances of trading technology. The Cincinnati Stock Exchange, founded in 1885, closed its floor and went nearly entirely electronic in 1980 renaming as 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.

Real World Example

When Archipelago Holdings Inc. absorbed PCX, 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.