NYSE Reverses Decision to Fold Bond System

The New York Stock Exchange decided Wednesday to keep its automated bond trading system, just hours after announcing the system would cease operations.

The decision to keep the system running was based on demand from exchange members and their customers, NYSE spokesman Rich Adamonis said. There will be no interruption in bond trading operations, he said.

The exchange had announced Wednesday morning that it was pulling the plug on the system, ending a bond trading tradition that dates to 1792 but whose volume has slowed to a trickle.

The NYSE said it would close the system by the end of the month, “unless the operations are transferred to another entity.” Talks had been underway on the possibility of a transfer, the NYSE said.

Facing growing competition from online brokerages, bond trading volume at the exchange has dropped 82%, to $2.3 billion in bonds last year, from a peak of $12.7 billion in 1991, according to information from the exchange. Even at its peak, the NYSE’s volume was only a fraction of the overall bond market, analysts said.

Corporate bonds alone see about $10 billion in trading volume a day on average in a mostly over-the-counter market.

The first securities traded by the exchange after it opened in 1792 were three federal bond issues. The NYSE opened its first separate bond trading room in 1928. Before that, bond trading was done on a portion of the equities trading floor.

The exchange trades mostly retail orders involving odd lots of bonds, said Andy Nybo, senior analyst for TowerGroup, a research firm specializing in financial services technology. In contrast, many newer electronic systems are targeting wholesale orders in larger blocks and also provide access to commingled inventory of multiple dealers, he said.

TradeWeb, another electronic system, trades about $15 billion in bonds a day on average, mostly in Treasury and agency bonds, according to figures from TowerGroup.

The NYSE had 156 municipal bonds and 786 corporate bonds listed at last count, a spokesman said. By comparison, there are about 1.5 million municipal bonds outstanding and 400,000 corporate bonds, according to the Bond Market Assn.

Nybo said the NYSE system would have limited appeal to any buyers because of its older technology.

“It’s a private network, where most bond trading systems now are using the Internet for connectivity,” Nybo said.