We’ve all watched on television when a celebrity rings the opening bell of the New York Stock Exchange and the floor fills with people running and shouting as the prices of the exchange’s 2,800 stocks start to rise and fall. But what looks like a daily burst of barely contained chaos is just the surface view. A day at the NYSE, the world’s largest stock exchange, actually begins long before that bell rings. The trading floor’s bustle is just the external manifestation of a furious planning, communicating, and testing that goes on behind the scenes.
Traders, bristling with an unusual amount of energy for this early in the day, start streaming into the NYSE building at the corner of Wall and Broad streets, past large concrete planters that serve as security barricades. Although this building opened in 1903, the New York Stock Exchange as an organization dates back to a 1792 pact among 24 stockbrokers. Boy, have times changed. Nowadays, roughly 850 brokers buy and sell stocks on the exchange’s huge floor.
Orders to buy and sell stocks are already flowing in, but most brokers stop at their offices first, some as early as 7 a.m., for staff meetings where they discuss trends and the outlook for the day. Once at the NYSE, they go to their broker booths, wire-strewn cubicles not much bigger than phone booths, that line the outer rim of the trading floor and hold phones and computers. The stock market has been mostly down since 2000, so although everyone is friendly, the mood isn’t as cheery as it was a few years ago.
Floor brokers go over the previous trading day’s records to make sure there are no loose ends. Then they read the latest news for any merger announcements or quarterly earnings reports, and check messages from clients. These aren’t small investors, like the nurse buying 50 shares of General Electric or the electrician selling 100 shares of AT&T. Those small trades are routed to the exchange electronically and executed by computers that match the best buy offers with the best sell offers. Whether working for large firms like Merrill Lynch or small firms like The Griswold Co., the floor brokers spend their time handling big trades for institutional clients like mutual-fund companies or pension plans.
While more than 90 percent of NYSE orders are filled electronically, the orders handled by floor brokers represent half of the exchange’s trading volume, because institutions buy and sell such large amounts of stock with each order. With institutions trading hundreds of thousands of shares each day, the floor brokers are under pressure to make sure they’re getting the best prices on an exchange where stocks trade in one-cent increments. Save three cents per share on 50,000 shares on one trade, two cents on another, four cents somewhere else, and the difference adds up quickly. “Our institutional clients trust us to be their agents at the point of sale,” explains Robert McCooey Jr., president and CEO of The Griswold Co. and a floor broker for 15 years.
The specialists arrive. The NYSE is an auction market, which means stocks get sold to the highest bidders, and the exchange’s 443 specialists serve as auctioneers (and part air-traffic controllers). Specialists work in the center of each trading floor (there are five at the NYSE), standing at any of 20 stations that look like upside-down lunar modules festooned with computer screens carrying stock prices and scrolling headlines. Each specialist works for a bank or investment firm, but their principal job is matching buyers with sellers, and making sure there’s an orderly flow of trading in the stocks each oversees. Most oversee a few stocks, but some handle just one very busy stock, such as IBM. They negotiate large trades with floor brokers and use their firms’ money to keep trading going when there’s an imbalance between buyers and sellers.
What brokers call “crunch time” begins. Brokers plan their tactics based on the latest orders from clients. By 9:20, specialists have a good idea of what buyers and sellers are thinking about their stocks. The specialists can already see the full “book” of early orders on their stocks: 2,000 shares offered to sell at $10.25, 5,000 shares offered to sell at $10.27, 8,000 shares offered at $10.28, and so on. Actual orders aren’t sent in to the specialists until maybe 9:25, because none of the floor brokers wants to tip his hand.
On a balcony overlooking the trading floor, a special guest flips a toggle switch to ring the brass bell that opens the market. Often, the bell-ringer is the CEO of a company making its debut on the NYSE. But with only about 150 companies a year debuting here, the exchange comes up with other alternatives. This morning, rapper LL Cool J does the honors because his record label is owned by Vivendi Universal, an NYSE-listed company.
This scene is often broadcast on TV, but the floor you see is only the main trading room. There are five trading rooms in all, with a combined area equivalent to three and a half football fields. Large electronic tickers, displaying stock prices whizzing by, seem to hold up the ceilings, and below them the trading floors are chock-full of computer screens, roughly 5,000 in all. No wonder the NYSE’s nickname is “the Big Board.” But those screens are just monitors; the computers and servers that store and crunch the data are all safely off-site at various locations in the greater New York area, connected by high-speed communications lines.
It’s extremely busy by now, but forget your image of men shouting out orders, brandishing slips of paper overhead. Instead, brokers talk to clients on the phone, run around the trading floor to check with clerks and specialists, and punch information into handheld computers called eBrokers. The vast majority of floor brokers use eBroker, an NYSE system that allows them to communicate wirelessly with their clients and with the specialists. Brokers can send orders to specialist posts via eBroker (which also alerts the broker when the trade is executed), and the system captures every trade electronically so the records can be stored and verified.
While all-electronic exchanges like the rival Nasdaq stock market caught people’s fancy in the late ’90s, the NYSE pushed ahead with innovations such as eBroker, which combines technology and people, enabling the traders, specialists, and clerks on the floor to handle twice as much daily trading as they did five years ago. Of course, many brokers also keep notes on scraps of paper, and many need to talk — or shout — to specialists to ask about back-logged orders, unusual trading patterns, and anything else that computers can’t handle.
It’s still frenzied. On a typical day, most of the action happens in the first few hours of trading and in the hour or two before close. Griswold’s McCooey, for example, is talking to a client about a clothing maker’s stock that’s higher on news of a merger.
McCooey had sold some shares earlier in the day at $34.35, but now the stock is up to $35.10, so he’s convinced the client to sell more. “We have a lot of latitude to decide how to carry out the trades,” he says. Then he jogs over to the specialist for an energy stock, to see if it has risen and why. His eBroker beeps a message — a client has a question about another stock, so it’s over to that specialist to ask about it. Floor brokers tend to split up their duties by zone, so they only deal with specialists in one trading room, but even that’s a lot. “I’ve got to be constantly moving around, monitoring the situation,” McCooey says.
The pace finally slows from hectic to just busy. Between two of the trading rooms, several NYSE officials congregate at “the ramp,” a recessed area where they monitor all trading via more than 40 computer screens, including a three-dimensional “virtual” trading floor that shows how the servers and networks are operating. Technology is such a large part of the operation that roughly half of the Big Board’s $1 billion annual budget is spent on technology and tech-related personnel, says Lou Pastina, vice president of point of sale technology. The NYSE uses more than 170 different computer systems, and it’s constantly revising its many software programs.
The trading floor technology, computer systems, and communications networks are actually operated by the Securities Industry Automation Corporation (SIAC), a subsidiary two-thirds owned by the NYSE and one-third owned by the much smaller American Stock Exchange. True to its be-more-than-prepared philosophy, the NYSE maintains enough excess technological capacity to trade seven billion shares in one day.
At their stations, specialists watch buy orders and sell orders aggregate on their flat-panel computer screens while talking to floor brokers about the demand for particular stocks. Peter Henderson Jr., a veteran specialist who works for Fleet Specialist, a division of the bank FleetBoston Financial, wears the floor’s standard jacket and tie with black sneakers. “Foot comfort is a huge issue,” he explains. “We’re on the floor from 9 to 4:15.” Surveying the floor brokers crisscrossing his path, he observes, “This is really a young man’s game. I’d say the average age of a floor broker is 37.”
Specialists make money by trading the stocks they oversee for their firms, and Henderson, who oversees three stocks, estimates he spends 15 percent of his time trading for Fleet, and the rest of the time trading for other brokers on the floor. Specialists see all of the buy orders and sell orders before they’re executed, and this helps them orchestrate smooth trading.
But critics of the specialist model claim that this extra information gives specialists an advantage when they trade for their own firms’ accounts, even though the specialists are heavily regulated. At press time, the Securities and Exchange Commission and the NYSE were investigating whether some specialists had generated improper profits by jumping in with trades based on pending customer orders. NYSE President and Co-Chief Operating Officer Catherine Kinney says the probe will be vigorous, and adds, “We have not concluded anything at this moment that makes us question whether our model is the right model.”
Trading has slowed enough that it’s time for lunch. But no one leaves the floor. Brokers, clerks, specialists, and others eat sandwiches while standing at their posts. Meanwhile, the 150 people in the NYSE’s market surveillance division have been hard at work monitoring the day’s trading. Some surveillance staff roam the trading floor to deal with unusual situations, but most of the staff sits up on the 10th and 11th floors in front of computer screens that track trades and look for aberrations in trading patterns.
Hundreds of individual trades each day might be flagged as anomalous, but only a small portion end up as violations, says Regina Mysliwiec, senior vice president of market surveillance. For the most part, she says, “We’re looking for a pattern. We’re not looking for one cent off a 100-share trade. We’re looking, for example, for a specialist who consistently gets one cent off their own trades.”
It’s crunch time again, but with a twist. Now brokers are racing to fill the day’s orders before the close. Gordon Charlop, president of Walter J. Dowd & Co. and an experienced floor broker, will spend the last half hour flitting from one specialist to another, never standing still for long. Today his final minutes are focused on six or seven different stocks with orders that need to be filled that day, but he’s also trying to see if prices are improving as the close approaches. That way, he’ll know whether to suggest that his clients trade more shares.
At this point, 10 minutes before close, most orders are in. “All bets are off,” Charlop says. “You have to be mindful of time running out. But a lot of other guys think the same way, so sometimes it’s a real waiting game.” With so many trades happening at the last minute, Charlop sometimes has to decide whether a client should adjust his wishes based on how the market is moving.
To execute each order, the specialist or his assistant types it into his computer. With a “market” order — an order to be executed at the prevailing market price — the specialist has eight seconds to execute the trade. Brokers can also ask for a “limit order” to be carried out at a specific price or within a specific price range, and specialists have more time to execute this type of trade. Right now, specialists are typing so fast their fingers seem to blur.
The closing bell rings. Brokers check with specialists to confirm that their last trades went through. Most of the brokers leave the trading floor by 4:15, although many go back to their offices to double-check trade tickets and make a few last calls to clients. Brokers like Charlop breathe a sigh of relief. “I love what I do,” he says, “but there can be a lot of frustration.”
The SIAC continues to do its work. All day long, trades are matched up so that buyers’ orders reconcile with sellers’ orders, and all that data is sent to the Depository Trust Corporation, an independent firm that “settles” all trades — in other words, it makes sure investors pay for stocks, and then delivers the stocks into the proper accounts. But with an average of four million trades per day, it often takes the NYSE up to 6 p.m. to finish comparing trades and sending data to Depository Trust for settlement. On average each day, 0.15 percent, or 5,000 to 10,000 trades, don’t match up, due to either computer or human error. These are sent back to brokers to be resolved before the next morning.
Looking ahead to another trading day, NYSE staffers start turning on the computer systems and testing them to make sure they’re ready for the traders who will be arriving in roughly six hours. Then it will be time to do it all again.
scott jones is a new york-based advertising/magazine photographer whose clients include instyle, maxim, new york magazine, people, and time. www.scojophoto.com
at 10:45 a.m.
the pace finally slows from hectic to just busy. between two trading rooms, nyse officials gather at “the ramp,” an area where they monitor all trading via more than 40 computer screens, including a three-dimensional “virtual” trading floor that shows how the servers and networks are operating.