Electronic trading likely to wipe NYSE floor of unique character

"This is a symbol of US markets, a symbol of stock markets all over the world. If we are all replaced with a bank of machines, it will be terribly sad." Jeffrey Frankel is surveying the bustle of the New York Stock Exchange floor, one of the great sights of capitalism.

Above the din of the traders this self-employed broker is musing on what the future may hold.

He talks bravely of the need to "grasp change", but everyone is fearful for their jobs. The dawn of electronic trading in NYSE stocks is nigh, and even those high up in the exchange think it plausible that two-thirds of the people here won't be around for long.

The specialists, charged with making a smooth and liquid market for NYSE stocks may have to swap their coloured jackets for a suit and desk at their firm's head office.

Last week London marked the 20th anniversary of Big Bang, which introduced electronic trading to the London Stock Exchange and wiped out the floor in six months.

Could the ritual of the NYSE's opening bell, rung at 9.30am to summon the hubbub of trading, soon be confined to the past as well?

By the end of this month, 340 stocks out of the 2700 listed on the NYSE will be trading under a new hybrid system that allows brokers for fund managers and hedge funds to bypass the floor and connect directly with the NYSE's computers.

As of Friday, 80 stocks were already changing hands in this way, and more than 90 per cent of the trades were being routed through the electronic system.

The shouting around the trading posts has been replaced by a quiet chatter as all but the biggest trades click through silently on the screens above.

This is great for the hedge funds and their computer programs, for which every nano-second counts. But for long-term investors most interested in getting a decent price, there could still be a benefit in the gruff but precise exchange of information between brokers and specialists on the floor.

At least that is the hope of veterans like Doreen Mogavero, who heads Mogavero Lee, an independent broker. After 27 years on the floor, she plans to be "the last person left".

She points to the wireless gadgets carried by today's brokers, priming them instantly with news of the latest orders.

"If they'd had the technology that we have today back at the time of Big Bang, maybe the brokers would not have gone away. There are pessimists who say we will go the way of London, but there are optimists who point instead to the Chicago Mercantile Exchange."

The CME, set to be the world's biggest futures exchange after its US$25 billion ($37.4 billion) merger with the Chicago Board of Trade, has both a cutting-edge electronic trading platform and a vibrant trading floor.

The optimists are not in the majority, though. The key statistic monitored by the NYSE executives in charge of the hybrid system is "keystrokes" - the number of keys that specialists enter to execute trades routed through them.

Previously, the exchange could register 45 million keystrokes on the average day - a mind-boggling two to three per second per specialist.

John Thelen, of the specialist firm Bear Wagner, must be up there in the keystrokes premiership. As he taps in prices and executes trades, it is hard to believe he can hold all that information in his head, let alone find the time to chat. "Luckily, I grew up at the start of the video game craze," he says, "so when I was skipping Spanish tutoring to hang out at the video arcade and making my mother mad, I was in fact setting myself up for a bright career at the NYSE."

In hybrid stocks, however, where trading now largely bypasses the specialist on the floor, keystrokes have fallen by 65 per cent.

Louis Pastina, who runs the hybrid project at the NYSE, accepts the logic that this could mean a two-thirds cut in the number of specialists required, and a similar decrease in floor space for trading. But he adds that it will be brokers and their customers who ultimately decide whether the floor withers.

LaBranche, one of the seven firms of specialists, said last week that it was already planning job cuts. And within the past few days, Credit Suisse is believed to have axed almost a third of its staff on the floor.

Thelen is hoping against hope that the floor remains. "This place has the atmosphere of a sports locker room. The people you work with for a long time, you can fool around with them when it is quieter - they can pick you up when it has been a hard day."

But if New York does follow in London's footsteps, all that could be lost for good.

- INDEPENDENT