The New York Stock Exchange (NYSE) announced a few days ago that its trading floor is reopening, following its temporary closure two months ago in the early days of the COVID-19 pandemic. While the stock markets rallied in response to this news, my initial reaction was: What? There’s actually still a physical trading floor on NYSE!
NYSE still has a physical trading floor. It’s great for marketing and PR. Public domain photo by Jean Beaufort
Everybody knows that almost all equity, bond, and derivatives trading is done electronically and by algos in particular. Therefore, from a trading, pricing, and market liquidity perspective, the role of a trading floor on any exchange must be miniscule. In fact, we just heard from Nasdaq CEO Adena Friedman on the Exponential View Podcast that Nasdaq hasn’t had a physical trading floor for a long time. It’s all just computers, data, and algorithms combined with ultra-fast connections.
However, in a letter accompanying the reopening of the floor, Stacey Cunningham President of NYSE, claims that stocks trade better when the floor is open:
Bringing our physical trading floor back online will begin the process of returning the NYSE to the highest level of service for investors and listed companies. This is important because stocks trade better when the floor is open, with reduced volatility and fairer prices. Recent data demonstrate that our trading floor saves investors millions of dollars each day by making transactions more efficient.
I’d really like to understand how the floor makes transactions more efficient, as the vast majority of transactions are handled by computers and algos who don’t give a damn about the floor. Perhaps there’s some psychological aspect to all of this? Could it be that images of the iconic trading floor reopening give comfort and reassurance to humans, who – at least last time I checked – are still in control of the machines?
No, I think the main reason for NYSE having a trading floor is purely because of marketing and PR. The floor provides a great backdrop for MSNBC interviews, and video footage of happy people “ringing the bell” makes NYSE look more human, interesting, and approachable. I bet that all NYSE visitors are taken on “a tour”, which includes experiencing the buzz of the trading floor and ringing the bell. Probably not the real bell, but a replica in some conference room.
The trading floor really is a great marketing gimmick and we’re probably going to have it around for as long as there’s a stock exchange in New York.