NYSE's Brash Traders Could Be Floored

The adrenaline-pumping, testosterone-fuelled, high energy trading floor of the New York Stock Exchange is a phenomenal spectacle in full cry.

Surrounded by a bewildering array of screens and stands, traders in bold-coloured, air-vented jackets shout orders, scrawl prices on scraps of paper and hurry between five conjoined rooms of 36,000 square feet.

To dampen the sound of thundering shoes, the floorboards are made from a special material used in basketball courts.

As they match buyers and sellers, market specialists' fingers work at a seemingly impossible fast rate - between them, the 3,000 people who work on the floor make 45 million keystrokes a day and errors are remarkably rare.

For well over a century, the trading floor, where 80% of participants are male, has been a symbol of New York's brash brand of capitalism. But questions are being asked about the future of the landmark rooms.

On Friday, the NYSE began introducing a hybrid system allowing its members to choose an electronic system in which deals are struck at the touch of a button without the participation of those on the floor. This will mean that instead of taking nine seconds, a deal can be completed in 290 milliseconds.

The exchange's chief executive, John Thain, insists he remains committed to the trading floor because it engenders lower volatility. He points out that intra-day volatility typically drops by 40% to 50% when a company switches its listing to the NYSE from the hi-tech exchange Nasdaq, which is entirely electronic.

The reason, he says, is the intervention of floor specialists who smooth prices - a technique particularly necessary among smaller, less liquid, stocks.

But it is not at all clear why a physical trading floor is necessary for specialists to work their magic. The London Stock Exchange still has its version of intermediaries, market makers, even though it abolished its trading floor in 1987.

Some wonder whether the NYSE is merely keeping a cosmetic floor to appease New York's city fathers and to keep up traditions such as the daily ringing of the bell - typically carried out by a celebrity or by an excitable chief executive celebrating a flotation.

One trader said: "It's a local landmark, it's basically the centre of downtown Manhattan and it's a symbol of New York and capitalism. If the physical trading floor were to shut under his watch, he [Thain] is not going to be a popular guy."

Open outcry floors are becoming a rarity in a global financial industry where deals are more likely to be struck on-line by calm, suited brokers in modern, air conditioned tower blocks.

In London, computerised dealing began with the Big Bang in 1986 - a move copied by most European stock markets.

The futures and options exchange, Liffe, went all-electronic in 1999. The NYSE's hi-tech rival, Nasdaq, never bothered with a floor in the first place.

Apart from the NYSE, just a few outriders remain - including the Chicago Mercantile Exchange and the smaller American Stock and Options Exchange.

Of the 40 million buy or sell orders placed daily on the NYSE, some 80% are cancelled before execution. Many are computer-generated algorithmic trades which are placed in the hope of a sudden, tiny price movement sufficient to make a quick buck.

Lou Pastina, head of the execution team for the NYSE's electronic system, expects more of these algorithmic orders. He points out that some experts predict a doubling or tripling in order flow with the NYSE's new electronic capabilities. That will leave manual deals placed by human beings in an ever decreasing minority.

The opening and closing bells on the NYSE are televised daily with terrific fanfare. The cyclist Lance Armstrong, Sex in the City star Sarah Jessica Parker, New York's widely lauded firefighters and a robot manufactured by Honda have all had the honour. They attract an enthusiastic following on CNN, CNBC and Bloomberg television - but could it soon become a meaningless stageshow?