NYSE's Trading Floor to Shrink Further
New York Stock Exchange employees will soon find their trading floor, a series of cavernous rooms which once thronged with traders but where activity has been reduced to a murmur, reduced to about half its current size.
NYSE Euronext President and co-Chief Operating Officer Duncan Niederauer said Wednesday that the exchange operator will close down two of the four existing trading rooms on the floor by Nov 1. A fifth room was closed last year.
"It should make the floor considerably more efficient," Niederauer said at a financial services conference.
The move came as little surprise to traders and specialists, whose ranks have already been thinned by automation in recent years.
"If anything, it makes the floor look busier because it consolidates it, instead of having people spread over a lot of space," said Dave Humphreville, president of the NYSE Specialist Association.
For Theodore Weisberg, a 38-year floor broker at Seaport Securities, the shrinking floor is like coming full circle.
"When I started in 1969, there were only two rooms, so it's just not that dramatic," he said.
The "blue room" and the "extended blue room" -- known for their deep blue walls -- will be closed down, NYSE spokesman Christiaan Brakman said.
Floor brokers and specialists will move into the remaining two rooms -- the "garage" and the "main room," but there will be no job losses, Brakman said.
Hurt by trading share losses to electronic competitors, the Big Board has increased the use of automated trading. Last year, it introduced a hybrid model that combines traditional open outcry trading with electronic trading, and reduces the need for people on the floor.
Specialists, who are charged with maintaining liquid and orderly markets in particular stocks, have lost revenue as a result and significantly reduced floor headcount. LaBranche &
Co, one of the largest floor trading shops, has fewer than 80 people on the floor now -- a more than 50% cut since last year.
Brakman declined to comment on how the empty rooms will be used.
A Place for NYMEX?
But Pat Healy, a former specialist and chief executive offer of IPO consulting firm Issuer Advisory Group, wondered if NYMEX Holdings, owner of the New York Mercantile Exchange could be a future tenant.
"Has anyone measured the square footage of the NYMEX recently to see if it will fit into the vacated space?," he asked.
The futures exchange recently said it was in merger talks with unnamed parties. NYSE Euronext, which is interested in expanding its U.S. derivatives business, might be interested in buying the exchange, according to press reports.
Nymex's own lower Manhattan headquarters -- the sale of which could potentially bring $500 million, according to the company -- has been the topic of speculation about whether it will be abandoned for a smaller space as automation thins out open outcry trading activity on its floor as well.
Many traders and analysts see NYSE eventually shutting down its trading floor, following similar moves by other exchanges as electronic trading takes over.
NYSE management insists that it will retain the floor -- even in a smaller form -- because human intervention can help detect erroneous trades, reduce volatility and facilitate trading in less liquid stocks.
Niederauer has tried to make floor trading more efficient and improve market quality to stem losses to established electronic competitors like Nasdaq as well as upstarts like BATS Trading.
Healy said the Big Board may hold on to the floor because it is tied to the NYSE brand.
"It's more a management of perception, because the overwhelming majority of trading is electronic," he said.
Despite higher trading volume in August, NYSE's matched market share -- the share of trades in NYSE-listed stocks actually executed on its systems -- fell to 60.4% from 70% the previous year.
Nasdaq said on Tuesday it matched 19.3% of trades in NYSE-listed stocks, the highest ever in the past year.
NYSE Wednesday reduced several fees on trades executed on its electronic Arca platform to fend off the competition.
"The NYSE has been under intense competitive pressure as other exchanges and ATSs (alternative trading systems) continue to chip away at its once dominant market share," said Sang Lee of financial consulting firm Aite Group.