The NYSE: if you’re not first, you’re last
// Posted by Sam on 03/03/2013 (10:49 PM)
This week’s blog theme is “High Speed Money;” I really think this might be the best theme yet! Much of the way we live our lives is dictated by the economy/means that we live within, and much of that economy is dictated by digitally mediated forms of financial transactions. The New York Stock Exchange is one of the largest of these digitally run financial institutions, and this post will look into how the “NYSE” runs.
The worlds largest stock exchange by market capitalization of its listed companies (about $14.2 trillion), the NYSE averages a daily trading value (that is, how much money exchanges hands per diem) of hundreds of billions of dollars. While the NYSE itself is a physical building where trading happens, the trading floors are operated by the company NYSE Euronext, which was formed in 2007 when the NYSE merged with the fully electronic trading company Euronext.
The NYSE works by providing a means for buyers and sellers to trade shares of stock in companies registered for public trading. The NYSE is open for trading Monday through Friday from 9:30 am – 4:00 pm.On the trading floor, the NYSE trades in a continuous auction format, where traders can execute stock transactions on behalf of investors.
1995 marked the beginning of a digital trade process being used by the NYSE, through the use of wireless hand held computers. The system enabled traders to receive and execute orders electronically via wireless transmission. On September 25, 1995, NYSE member Michael Einersen, who designed and developed this system, executed 1000 shares of IBM through this HHC ending a 203 year process of paper transactions and ushering in an era of automated trading. *
According to this 2007 news article , as of January 24, 2007, all NYSE stocks could be traded via its electronic Hybrid Market (a combination of human and computer-driven trading). Customers could now send orders for immediate electronic execution, or route orders to the floor for trade in the auction market. In the first three months of 2007, in excess of 82% of all order volume was delivered to the floor electronically as opposed to just 19% before the induction of the Hybrid Market. The article goes on to say that “this is the harsh new reality on Wall Street, a world dominated by computers that execute trades not in seconds, but in thousandths of a second, or milliseconds…Speed has become the holy grail on Wall Street.”
Today, the NYSE (and thus much of our economy) is dictated by transactions that occur within the blink of an eye. Its merger with the all-online trading platform Euronext has broadened the importance and relevance of digital trading systems to the NYSE. This form of financial trading has never existed before, and has been found to create its own sets of issues. Now, the trader with the biggest technological advantage may be most likely to make money by being the first one to broker a deal within the four milliseconds instead of five. Is that fair? If so, is that the best method of trading? Should technological advantage really directly correlate with one’s ability to make money? In the NYSE? In life outside economic terms?