The internationalization of financial markets and the increasing demand for riskmanagement products have fueled the growth of derivatives markets. While mostexchanges have experienced increasing volumes over recent years, the pace of growthvaries widely across exchanges, and the established marketplaces face increasingcompetitive pressures. In this paper, we investigate whether the trading mechanismoffered to derivatives investors influences growth in market volumes. In particular,we distinguish between manual open outcry and electronic trading. In a floor market,traders gather in a pit and announce their orders. They complete trades using acombination of hand signals and eye contact. In an electronic market, orders aresubmitted to a central order book, and trades are created according to a matchingalgorithm. Using volume data from 1990-1994 for futures and options exchangesworldwide, we compute growth rates for the largest contracts and find that contractstraded in screen-based exchanges have experienced faster growth than those traded inmanual markets. We discuss several interpretations of the data, but conclude thatelectronic exchanges are developing a competitive advantage.
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