The New York Stock Exchange’s massive post-COVID question

A year ago last week, March 23, 2020 to be exact, as COVID-19 was beginning to ravage America, the New York Stock Exchange closed its trading floor and moved to all electronic trading. It was the first time in 228 years that the floor was closed but markets remained open. (The floor and trading were both shuttered for two days after Hurricane Sandy in October 2012 and four days after 9/11, more on the latter, later.)

The move was said to be temporary and as it turned out the floor was completely shut for the next two months, only to reopen in May at 25% capacity. And that’s more or less where things stood until recently, when, Yahoo Finance has learned, the exchange opened up to 50% capacity, meaning some 160 brokers and traders are working the floor of the biggest stock market in the world, (with listed companies worth some $32 trillion.) Still a small fraction of the thousands who traded there only a few decades ago.

That all-electronic trading at the NYSE went off without a hitch—and during such a wild and crazy 12 months to boot—is both a positive and a negative for the exchange. On the one hand the past year showcased the NYSE’s remarkable technology. Bravo NYSE! On the other hand, it makes us realize once and for all that the guys in the funny jackets—the floor brokers, specialists and traders—were exactly what we thought they were, a colorful anachronism.

I don’t begrudge nor do I mean to disparage the men (and it has been almost entirely men) who worked or still work on the floor of the NYSE. (Full disclosure, one of my grand uncles and a first cousin once removed owned a seat on the exchange and were specialists for Sprint and some other stocks.) What I’m really saying is that middlemen, including those at the NYSE, are a dying breed in our economy, as technology and the internet have no use for them.

And now as the NYSE looks to go back to work, the jobs being brought back to the exchange have been shown to be redundant. As such the positions on the floor of the New York Stock Exchange, this American institution, this epicenter of capitalism, are inexorably going the way of bank tellers, travel agents and newspaper delivery boys. When the NYSE fully acknowledges this, what its plan is, and what becomes of the trading floor are all unknown.

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“There are floor haters,” counters Peter Tuchman, a trader for Quattro Securities. “There are press people who are not happy about the floor — just a stick up their a—. Everybody’s business has been compromised by technology — publishing, news media, technology has come into all of our worlds. I don’t know why everybody thinks the floor is a waste of time. That it’s just a show. I think that’s all horse sh—. What the investment community said to us when we were closed is they were thrilled markets were open and tradeable but volatility and price discovery and liquidity were compromised by the lack of human beings.”

A note about Peter Tuchman who’s been working on the floor since 1985. Peter is known as the most photographed person on Wall Street because, well, with his animated expressions and his distinctive hair styles, he takes a great picture. (He’s not a bad quote either as you can see.) I remember decades ago, before I knew who he was, I just called him Market Dude. Tuchman has become the very personification of the floor, the NYSE, and even stock trading writ large.

When asked about going all electronic last year, NYSE Chief Operating Officer Michael Blaugrund acknowledges it went well but said, “we did miss the human judgment and flexibility when the floor was closed. It saves investors money, providing more accurate prices and lower volatility. We found the floor, when open, saves investors about $10 million a day.”

With all due respect to Peter and Michael, maybe.

If I had a nickel for every time someone at the NYSE, from the CEO down to a junior clerk, explained to me that human trading added an element of fairness and liquidity that machines can’t match, I could have retired long ago. I do remember thinking during the Nasdaq’s botched Facebook IPO in 2012, “hmm, maybe they have a point.” But that was an aberration and furthermore no one really knows if humans could have prevented those problems.

Truth be told, floor trading has been a bit of a buggy whip for quite some time. By 2007 most exchanges around the world had done away with in-person trading and the so-called “open outcry” system (which is exactly what it sounds like it is.) And indeed the NYSE began to pull in its horns around then, closing an additional trading floor that year and the Stock Exchange Lunch Club (infamous for reactionary practices), a year earlier. By 2017, only 10% of the NYSE’s volume was reportedly done in person. I remember someone years ago describing the floor to me as “the world’s longest funeral.”

“The New York Stock Exchange long ago became an electronic market,” said James Angel, associate professor at Georgetown University’s McDonough School of Business focused on markets and financial exchanges. “The New York Stock Exchange floor for many years has been mostly a media presence,” he said. Asked whether human interaction provides value for trading: “You would need a very powerful microscope to see the difference,” Angel responded.

Tuchman and Blaugrund would tell you if they had a nickel for every time someone told them that the trading floor and the NYSE’s landmark Beaux Arts building at 11 Wall Street and 18 Broad Street (it’s two structures) was nothing more than a very expensive, albeit effective, marketing platform for the exchange, they too could have retired long ago. But it certainly is that, an awesome-looking trading floor with what is essentially an exclusive old-school club upstairs, replete with a stunning board room, a signature antique clock, a secret dining room, an enormous Faberge vase (said to be the largest Faberge piece in the world), framed Civil War bonds, a Warhol, a Led Zeppelin guitar and lord knows what else. Honestly, the whole thing is very cool. People, i.e. CEOs, senators, heads of state and civilians alike all love to see this stuff.

So even if you accept that in-person trading does benefit investors, you also have to accept that it isn’t much, it’s less every year and that most of the value of physical exchange is for marketing.

Recently though, we found out that the NYSE is contemplating leaving the space and in fact leaving New York City altogether, or at least threatening to. In an op-ed piece in the Wall Street Journal, NYSE president Stacey Cunningham warned the exchange might leave over a proposed financial transaction tax.

“The New York Stock Exchange belongs in New York. If Albany lawmakers get their way, however, the center of the global financial industry may need to find a new home…We’ve proved, by pandemic-driven necessity, that we can close the physical trading floor on a moment’s notice and maintain service without missing a beat.”

Cunningham mentioned Florida and Texas as tax-friendly states and lawmakers from both states wasted no time telling Cunningham to come on down, the taxes—and the weather—are fine.

For some more context here, remember that the Intercontinental Exchange bought the NYSE in 2013. (The company’s stock, ticker ICE, has outperformed the S&P 500 over the past five years btw.) ICE’s CEO is billionaire Jeff Sprecher, husband of former Georgia U.S. Senator Kelly Loeffler. It’s been a rocky time for the couple, who came under fire for stock trades made after Loeffler was privately briefed early last year as a government official regarding the dangers of the COVID pandemic. (A Senate Ethics Committee probe later cleared the couple.) Loeffler lost her high profile Senate race to Raphael Warnock, and she sold her WNBA team the Atlanta Dream after clashing with players over their support for Black Lives Matter.

Before I comment more on the disposition of the exchange and its trading floor, I want to go into some NYSE history, by no means all of it, because that could and does fill many books, but just a few interesting bits. You might know how the exchange was founded in 1792 by 24 brokers who gathered underneath a buttonwood tree in downtown Manhattan to hammer out some principles. Fun fact: One of the signers of the Buttonwood Agreement which of course the NYSE displays, was Leonard Bleecker, the namesake of Bleecker Street.

Before its august buildings were constructed, NYSE trading took place in a number of locations, including the Tontine Coffee House, all settings for countless panics, runs, crashes and routes as well as melt-ups, crazy rallies and blow outs. The exchange has been and continues to be a real-time roller coaster scorekeeping mechanism of the American economy. What could possibly be wilder than that?

Besides the market action though, the New York Stock Exchange has witnessed a full assortment of historical drama: A massive unsolved bombing in 1920 nearly in front of the exchange which killed 40 people. (It was a horse-drawn wagon bomb. Can you imagine?) On the other side of things, there was the time Abbie Hoffman and his band of Yippies invaded the gallery of the exchange in 1967 and showered the floor with dollar bills.

And remember the New York Sack Exchange? That was the name given to the New York Jets ferocious defensive line, Gastineau, Klecko, Salaam and Lyons who were invited to ring the opening bell at the NYSE in November 1981.

For the 1987 movie “Wall Street,” Oliver Stone received rare permission to shoot on the NYSE floor during trading hours. (Sidenote: My other favorite Wall Street movie, “Trading Places,” was shot in 1982 in the COMEX at 4 World Trade Center—the filmmakers were first turned down by the Chicago Merc—on a weekend, because Eddie Murphy and Dan Aykroyd were too much of a distraction during market hours.)

On Aug. 4, 1995, Maria Bartiromo (before she went all deep Fox) became the first journalist to report live from the floor of the exchange where she was often bumped and jostled, sometimes intentionally it seemed, in the then mayhem that often consumed the floor. Those were the days my trader friends.

The following decade brought us the Shakespearean mega scandal over the $188 million pay package given to then NYSE CEO Dick Grasso, with billionaire and NYSE director, Ken Langone as Grasso’s ally. Those two warred bitterly against their nemesis, then New York State Attorney General Elliot Spitzer. In the end Grasso won because a judge ruled that when the NYSE went from a nonprofit to for profit corporation, NYSE no longer fell under the state’s purview.

Along the way I had a few NYSE experiences too. I’ve rung the bell there twice, once wearing a top hat. (Of course all kinds of other riffraff besides me have been bell ringers: A few of my favorites: Snoop, Darth Vader and Mr. Potato Head.) But my most memorable NYSE experience actually took place about a mile and a half away from the exchange, at 5 Penn Plaza, on Monday, September 17, 2001, the day the stock exchange resumed trading after 9/11.

First, remember the exchange never opened on Tuesday 9/11 and then was closed the rest of the week because of the immediate dangers from the site of the terrorist attack just blocks away, as well as for Americans and the economy to get their bearings. And so reopening the exchange was the stuff of the highest drama—and it happened to be my very first day working for CNN.

At around 8:45 a.m., I entered the building which was near Madison Square Garden and was directed up to a floor with a terrace facing south overlooking the still smoldering ruin of what used to be the Twin Towers. I was shown over to two directors’ chairs, one occupied by the anchor Paula Zahn. We were introduced and Paula asked me, “Do you know about the stock market and all that, because it’s not my area of expertise.” Affirmative, I answered. “Oh,” she added, “we’re going to Lou Dobbs, who’s on the floor of the exchange. Are you good with that?” Also affirmative. (This was before Dobbs went all deep Fox.) Paula and I chatted a bit (we would work together for a number of years after) until the director counted us in to the market open at 9:30 a.m. I knew it was going to be a bloodbath and it was. And Paula, Lou and I covered it live. The Dow fell 684 points, a 7.1% decline, (airlines and insurance stocks fared even worse) a record at the time for biggest one session loss.

It was a day I will never forget. But I know that a million other people have a million other powerful memories of the NYSE too. That’s why, the physical NYSE and its trading floor really are a thing.

And it can’t just disappear. So says the exchange at least.

First, the NYSE’s Blaugrund confirmed that the exchange was looking to go back to full capacity. “We certainly intend to, but we don’t have a timeline.” he said. “Hopefully, we can get back to an ordinary course of business sometime this year.”

What about the future?

“Unequivocally, we’re going to continue to have an active robust floor as part of the NYSE,” Blaugrund said. “The floor itself adds a lot of value to issuers and investors. It is a core part of our DNA.”

Really? But how can the exchange justify the expense of the process of human interaction, never mind maintaining the building (which it owns, but still?) Blaugrund hints at something in the works: “We’re investing in a new generation of technology for the floor brokers and for our options trading floor,” he said. “All will come online over the next 24 months. This is something that’s part of our past and present but also part of our future.”

Hmm, I’m intrigued.

Fifty years ago, February 8, 1971, to be exact, the Nasdaq began operations as the world’s first electronic stock market. Yep, the Nasdaq kind of figured it out from the get go. Tellingly, it’s even not apparent who the key personalities were in creating the exchange. (It appears Gordon Macklin for one was instrumental.) Contrast that with the 24 signers of the Buttonwood Agreement from the 18th century. That contrast speaks volumes to the different paths the NYSE and Nasdaq have taken.

Of course the NYSE has now gone whole hog following Nasdaq’s technology lead. But even as the Nasdaq has pooh-poohed the NYSE as an in-person dinosaur, the all-tech exchange has added more pizazz and real-time features to its Times Square MarketSite headquarters over the years. With the giant neon video billboard, the bell-ringing, the meeting rooms, the huge new cocktail space and terrace, Nasdaq spends a fortune on in-person New York City marketing too. So what does that tell you?

Kenny Polcari, chief executive of Kace Capital Advisors, who worked on the floor of the NYSE for 38 years until he left in 2019, reminisced a bit about his time on the floor: “I was there during what I would consider the greatest period for markets: The 80s and 90s and early part of the 21st century because it was energetic, exciting. It was 5,500 type-A personalities in the place. It was everything you could possibly imagine about being at the heart of capitalism.

“Could you make the argument it’s all electronic and we don’t need it? Of course you could,” Polcari said. “People can say [the exchange] doesn’t matter; it does matter. [Executives from] a listed company whose market is the New York Stock Exchange still absolutely love to go there. They love to bring their business there, their company there to show it off. It says something about who you are as a company when you are listed at the New York Stock Exchange. It’s part of the fabric of the nation and it’s got this presence that people around the world are just amazed with. It is an incredible American institution.”

But will there be people on the floor of the New York Stock Exchange in 20 years Kenny? “No, I don’t think so,” he said. “I’m not sure there will be people on the floor in five years.”

Then what will be there? Though the NYSE is loath to admit it, the exchange does need the physical presence for…gulp…marketing. Will the exchange ever own up to the floor just being that? And would that make the floor, less of a thing?

As the NYSE now returns to work from its COVID winter, this is its $32 trillion problem to figure out.

This article was featured in a Saturday edition of the Morning Brief on April 3, 2021. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Andy Serwer is editor-in-chief of Yahoo Finance. Follow him on Twitter: @serwer

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