For 15 minutes last week, the New York Stock Exchange was bustling like it was 1999.
There was shouting and jostling. A few traders found themselves picking up the clunky black phones that had been relegated years before to serving as historical set pieces.
FOR THE RECORD:
Stock trading: An article in Saturday’s Business section about the New York Stock Exchange’s loss of stock-market dominance said Fox Business News was one of many news organizations that report from the exchange floor. The name of the cable channel is Fox Business Network. —
The cause of all the excitement was the mysterious “flash crash” that sent the Dow Jones industrial average plunging 700 points in a matter of minutes, prompting the Big Board to stop its computers from automatically executing trades and forcing human traders to step into the breach.
“People were running around like it was old days,” Alan Valdes, the dapper director of floor activities for Kabrick Trading, said wistfully this week as fellow traders, with the panic behind them, stood nearby, reading the newspaper and gossiping.
The irony of last week’s frantic activity is that the frightening dive only highlighted the NYSE’s loss of stock market dominance — a loss that has helped turn the Big Board’s venerable trading floor, once the nerve center of American capitalism, into something often more akin to a TV news studio.
Debates continue about what triggered the sell-off, but regulators suspect, in part, new trading venues that match sellers and buyers at warp speed, and without the human intervention that the Big Board values. The NYSE and Nasdaq — its longtime, all-electronic rival — are increasingly threatened by these upstart exchanges.
Last year, the Big Board was responsible for only a third of all trades in the U.S., down from more than three-quarters four years ago. Nasdaq saw a similar decline in market share.
At the same time, a growing portion of the transactions handled by the Big Board are processed entirely by electronic means. As a result, the NYSE trading floor has been emptying out. About 1,500 people work on the floor today, down from 3,000 a decade ago. The brokers on the floor are left entering trades into their electronic handsets and monitoring the progress while they occasionally wander around the trading floor.
As traders have moved out, the media have moved in.
More than 20 news organizations, including CNN, Bloomberg and even the BBC, use the floor as a backdrop to talk about a stock market that has no real location. Fox Business News operates from a vacant broker’s booth. The last two additions to the floor: AOL’s online news operation and local cable channel NY1, which took up residence in April in a post originally set up for a Big Board “market maker,” or someone who matches buyers and sellers.
The NYSE’s ability to turn to humans in last week’s crisis led some on the floor this week to praise the old way.
“You know, it’s nice to talk about full automation,” said Art Cashin, head of floor operations for UBS Securities, “but the last time I looked, every plane you get into has a human in the front.”
Indeed, share prices didn’t fall as low on the Big Board as they did on Nasdaq and other exchanges, where the stocks of some established companies briefly traded at the improbable price of a penny a share.
On the other hand, some experts say the NYSE’s intentional slowdown during the crash may have exacerbated the collapse and restrained the rebound.
“I’m not sure if the humans were any better equipped to deal with this,” said Menachem Brenner, a finance professor at New York University and a former NYSE trader.
It was a lot more simple when Bernard McSherry, 52, first arrived on the NYSE floor 25 years ago. Brokers like him, with an order to buy or sell shares, would approach the post of the specialist responsible for making a market in the stock. Yelling and waving would ensue as the specialist matched orders and determined the market price.
“You were a trader in the crowd with 30 or 40 people around you shouting, competing physically for it,” said McSherry, a senior vice president at brokerage Cuttone & Co.
Now brokers rarely leave their stations unless there is a big trade. In fact, the exchange just renovated those stations, giving brokers a place to sit down for the first time.
The Big Board hasn’t been standing still. In a defensive move, it acquired the all-electronic Arca exchange in 2006. And on the NYSE itself, an all-electronic trade now takes only 3 milliseconds — three-thousandths of a second — to complete a trade on Arca. That’s down from 300 milliseconds three years ago, but still not enough to keep up with the even newer exchanges that cater to so-called high-frequency traders.
The NYSE also is setting up high-speed data centers in New Jersey and near London to accommodate the high-frequency practitioners, who want to be as close as possible to the trade-executing computer.
Such electronic efforts could pay off for the Big Board — and many on the floor still believe that there will always be a place for some live humans. But Brenner, the trader turned finance professor, said he couldn’t imagine the live floor lasting much longer.
“It’s almost like fighting the Industrial Revolution,” he said. “This is progress. You cannot stop it.”
David Henderson, a floor trader, has no illusions about the glory days returning.
Five generations of Henderson’s family have worked at the Big Board, starting before the Civil War. He sees little chance of the tradition making it to a sixth generation.
“The game has changed,” he said after launching a spitball at a colleague to pass the time. “It’s all gone into that little box, that little computer. You can do this from home. There’s no need to come in here.”