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The Big Board Starts To Face Reality



Traditions die hard at the New York Stock Exchange. For years, the trading floor persisted with archaic manual systems. Even when it belatedly admitted the computer, it protected the functions and livelihood of members who worked on the floor. The NYSE continued to insist that specialists, who are supposed to maintain a fair and orderly market in their assigned stocks and who account for a quarter of the Big Board's membership, were crucial to its functioning. Yet in recent years, as competing electronic trading systems siphoned away volume, the exchange has installed several automated systems that have reduced the specialists' role. Specialists are involved in only 20% of the volume. But the exchange's trading role has continued to shrink. More than 40% of the trading in NYSE-listed securities is now being conducted in other markets.

To combat that decline, the exchange has set in motion a reform that will reduce the specialists' role even further (page 32). It recently requested--and received--permission from the Securities & Exchange Commission for a two-year pilot project to trade stocks for up to 75 minutes after its normal 4 p.m. closing time. Significantly, the after-hours trading will be totally electronic and without specialists. The exchange is studying the possibility of 24-hour trading.

The Big Board is finally facing competitive reality. But as it moves further toward round-the-clock operations, it will meet growing pressure from specialists and other floor members to preserve antiquated procedures. The exchange must resist that pressure. Electronic trading has proved itself in other markets, and if the Big Board doesn't keep up technologically, the lights at 11 Wall Street may be turned out a long time before 4 p.m. rolls around.

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