NYSE comes under fire for not closing its trading floor as coronavirus spreads

Quick Take

  • New York Stock Exchange (NYSE) has come under fire from some of its rivals for not closing its historic trading floor in lower Manhattan
  • Market structure specialists weighed in on the decision
  • Some say there is a patriotic, symbolic reason for its staying open, adding that a closure could put into question its long-standing market model of electronic trading with a human touch.

UPDATE 4:46 p.m. ET: ICE has announced that the NYSE will temporarily close its trading floors and move to fully electronic trading starting on March 23. 

"All-electronic trading will begin with Monday’s market open. The facilities to be closed comprise the NYSE equities trading floor in New York, NYSE American Options trading floor in New York, and NYSE Arca Options trading floor in San Francisco," the firm said in a statement. "The decision to temporarily close the trading floors represents a precautionary step to protect the health and well-being of employees and the floor community in response to COVID-19."

Teddy Fusaro, the chief operating officer (COO) of fund manager Bitwise Asset Management, was early in bringing attention to the mounting health and financial crisis tied to Covid-19. 

The Rhode Island-native has hunkered down with his family in Northeastern, Connecticut. He's stopped traveling for business, and when he's not working or dealing with his three sons, he is tweeting, some might say incessantly, about the threat posed by the coronavirus. However, when asked about whether the New York Stock Exchange (NYSE) should shut its trading floor on lower Manhattan, the former co-head of trading at Direxion offered a surprising answer:

"It's a symbol of national strength so I am glad they are keeping it open," Fusaro noted in a message to The Block. 

The NYSE is perhaps one of the most recognizable financial-institutions in the world, known for the shrinking number of vested men who trade on its iconic floor. Over the course of the last week, CME Group, Cboe Global Markets and Nasdaq PHLX have shut down their open outcry pits. In recent days, the NYSE has come under fire from some of its rivals, including Nasdaq and CME Group, for not doing the same. 

Rival backlash

"We believe all exchanges should be able to run electronically in this day and age, thereby not unnecessarily putting people at risk in this environment," Tal Cohen, head of U.S. markets at Nasdaq Inc, told The Wall Street Journal's Alex Osipovich in an interview Tuesday. CME's Terry Duffy expressed a similar sentiment, adding he found it "kind of amazing that the NYSE trading floor is still open."

On Tuesday, NYSE told Dow Jones that it is working closely with all levels of government to implement the necessary procedures to keep its traders safe. 

"Members of the NYSE trading floor community are choosing to come into the Exchange because they believe in our mission to serve issuers and investors during all market conditions," NYSE's chief operating officer Michael Blaugrund said in a statement to The Block. "To keep the market open and safe, the NYSE has worked closely with local, state and federal authorities to develop and implement an extraordinary set of protocols, which include social distancing, deep cleaning, travel screening, mandatory temperature checks and symptom scans, for everyone entering our building."

New York City banned gatherings of 50 people or more yesterday. Meanwhile, President Donald Trump has warned against crowds of more than 10 people. Coronavirus, which originated in Wuhan, China, is highly contagious and is said to stay on infected surfaces for days. The virus can also easily spread from infected individuals who don't show symptoms, as reported by The Washington Post

"They have 400 people on that trading floor and if you are watching any part of the news you would think it is inappropriate and doesn't make sense," one executive at a competing exchange said in an interview about NYSE's decision.

Dennis Porto, a physician and Harvard-trained public health practitioner, said in an interview with The Block that the floor traders are at a heightened level of risk. 

"They have a number of unique risk factors: these are older men," Porto said. "We know people who are more at risk are older and male."

"These are all things stacked against them and sometimes these half measures are not enough."

American pride

Historically, New York has sparingly closed the floor. Indeed, following 9/11, then NYSE president Dick Grasso was adamant about reopening quickly to convey a message of American resilience, according to sources. The NYSE reopened the trading floor the next Monday after the crisis. When most Americans think about the stock market, they think about NYSE's floor. To Fusaro's point, a shutdown could have more of a symbolic impact versus a market structure one. 

Joe Saluzzi, the cofounder of Themis Trading, has gone head to head with the NYSE in the past over market structure debates like high-speed trading and rebates, but he agreed with Fusaro. 

"Most Americans still think that's where the trading happens," Saluzzi noted. "Keeping it open does have a symbolic effect."

However, Porto said the symbolism of NYSE floor traders becoming infected could be even more impactful. 

"What if these people start getting sick," he said. "What symbolism is that? It must have some symbolic weight as well."

To be sure, while many market observers view the floor as being symbolic, it does serve an important purpose to NYSE's market model, according to the firm. Floor traders have enhanced capabilities, such as the D-quote, which gives traders an additional 15-minutes to place a stock order at the end of the trading day, as noted by Quartz. The addition of "human judgment" paired with electronic trading translates into better price discovery and stability, according to the firm. Ensuring a smooth open and close process is another reason for the floor, said Larry Tabb, who ran consultancy Tabb Group. 

"It is nice to have that moderating force to support that supply and demand," Tabb said. 

Could closing hurt the brand?

"This 'high touch' approach is important for discovering and improving prices, dampening volatility, adding liquidity and enhancing value," as noted on NYSE's website

Yet, the reality is that most NYSE trading happens electronically, as noted by Greenwich Associates' Shane Swanson. 

"It's been a slow evolution," Swanson said in an interview. He estimates about 90% of NYSE trading is automated. 

That said, the floor is a powerful part of the NYSE's brand, distinguishing it from its main competitors, including Nasdaq, IEX and Cboe. 

"If they went fully electronic it could reveal that the emperor has no clothes and that they can operate without the floor," one industry source noted. That is to say, it could show that humans don't add a noticeable difference to NYSE's ability to operate an orderly market. 

Indeed, Swanson said a closure of the floor for an extended period could "change the mental calculus."

"No one on their side would like to see that happen," Swanson said. 

The exchange might end up having no choice if the coronavirus spread worsens. At last check, the number of cases had spread to more than 2,382 confirmed individuals in New York. 

“She’s going to have to shut it down,” Jamie Selway, a market structure expert and former executive at ITG, said in an interview, referring to NYSE President Stacey Cunningham.

"Closing the floor on your terms in an orderly way versus some rushed way imposed by the government is the way to go," he added. 

While he notes the marketing costs associated with closing the floor would be high, Selway isn't too sure that it would be a boon for its crosstown rival.

"I don't think Nasdaq would gain a single listing," he said. "People have gotten around to the idea that the main part of the floor is the open and the close."

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