The New York Stock Exchange Masters
In-Your-Face Technology

By Mitchell Moss

The essence of the New York Stock Exchange lies in its capacity to harness information technology to financial acumen in order to sustain an open auction system in which exchange members, acting on behalf of their customers, buy and sell stock on the trading floor. Specialists on the floor brokers who controls the volume of trading in particular stocks maintain stability even in volatile markets. With private citizens increasingly turning to the public stock markets for investment, the most important building in New York City is not the United Nations headquarters, the Empire State Building, or even Carnegie Hall; it's the New York Stock Exchange.

Each night, more than a dozen television networks broadcast news direct from the floor of the NYSE, telling millions of people whether they are richer or poorer, how many shares were traded, what the Dow Jones Industrial average closed at, and how their favorite stocks performed. The NYSE is more than just a place to buy and sell stocks; it has emerged as the symbol of global finance, the safe haven for money from all parts of the world, and one of the city's oldest and most successful institutions. And it has achieved that success by never turning its back on the human face of technology.

Now, with a vaunted new building complex, worth nearly $1 billion, in preparation for increasing pressure from the technology-rich NASD market (National Association of Securities Dealers), that formula will be put to its toughest test yet.

Founded more than 200 years ago as The New York Stock and Exchange Board (its name was shortened in 1863 to the New York Stock Exchange), the NYSE was initially a group of 24 stock brokers who agreed to buy and sell stock, currency, and other financial paper according to specified rules; it has been based in lower Manhattan since its birth when it began trading in a room at 55 Wall Street. Since 1903, the NYSE has been housed in a magnificent classical-revival building at the corner of Wall and Broad Streets in lower Manhattan. The NYSE trading floor, a spectacular interior space with 79-foot-high ceilings, is one of the city's most popular tourist sites as well as the workplace for 3,500 brokers, specialists, and support staff crowded into a 37,000-square-foot trading floor, tiny by today's standards.

But after nearly a century at one location, the NYSE has outgrown its home and is preparing to move across the street to a new site bounded by Wall Street on the north, Broad Street on the west, Williams Street on the east, and Exchange Place on the south. During the past decade, the Exchange's daily volume has more than quadrupled and the number of listed firms has doubled, generating intense demand for more space and advanced computer systems. The current record for peak daily volume, reached on Sept. 1, 1998, is 1.2 billion shares, is sure to be exceeded by the end of the century.

With financial support from New York City and State, the NYSE will move into a new 500,000-square-foot building, which will include two state-of-the-art 50,000-square-foot trading floors, plus space for back-office and computer operations. Using the air rights above the new NYSE building, the city and state intend to construct a I million-square-foot office tower on Wall Street, the first new office building in the financial district in more than a decade. New York State will acquire the full block across from the Exchange, which currently includes the historic headquarters of J.P Morgan at 23 Wall Street, the landmarked facade of which will be preserved and incorporated into the new structure. The block also includes another Morgan building and a converted office-to-residential tower at 45 Wall. An estimated $450 million will be spent by the city and state to acquire the land and erect the new building for the NYSE.

The NYSE is expected to invest approximately $350 million for computers and other information infrastructure in the new facility and will also pay $10 million a year in rent plus a 15 percent inflation escalator every 10 years throughout a 60-year lease. Approximately $160 million in tax relief, such as sales tax exemptions and low-cost electricity will be provided to the NYSE. The NYSE will continue to use its old headquarters for administrative and executive offices.

The huge new office building is to be built by a developer selected through a bid process overseen by the city and state.

Ever since the telegraph was invented, the NYSE has been a leader in deploying technology to serve customers and expand its geographic reach. In 1867, the stock ticker, which reported purchases and sales of stock over the wire, transformed trading by providing timely and reliable information directly from the floor of the Exchange. Shortly thereafter, the telephone was invented, allowing brokers to be directly connected to the Exchange rather than relying on messengers to carry their orders to and from the NYSE trading floor.

Today, 90 percent of the trades are delivered electronically to the floor of the NYSE and 10 percent are delivered face-to-face, but all are executed through a central auction market. In addition, stock brokers and clerks communicate on and off the floor of the Exchange with the latest hand-held computers and wireless phones as well as advanced telecommunication systems linked to offices around the world. Through the use of a wireless data system, it is possible for brokers to be completely mobile on the floor of the Exchange and to receive orders, disseminate reports, and send and receive information about market conditions around the world from anywhere on the floor of the Exchange. By merging face-to-face communications with telecommunications technology, the NYSE has been able to maintain its hegemony in the world of finance despite the growth of electronic trading systems. The floor of the exchange has even become a venue for sales and promotion as demonstrated when Gap launched a new line of casual clothing, "Gap at Work," on the floor of the NYSE.

The staying power of the NYSE is especially striking, when one considers how many investment banks and stock brokerages have been taken over or merged into other companies. Firms that were once household names such as Goodbody & Co.; Hornblower & Weeks; Loeb, Rhodes, & Co., and Hayden Stone are now part of our history. But the New York Stock Exchange has endured and flourished. In 1968, 10 million shares were traded on a good day on the NYSE; today, the average daily volume is 800 million shares. In an age when many regional stock exchanges' have had to close down or, as in the case of the Philadelphia and American exchanges, been subsumed into the voracious NASDAQ and other exchanges have gone from floor-based to electronic systems, the NYSE has thrived by embracing technology and adapting to global economic trends.

Currently, the NYSE is experimenting with a new voice-based recognition system that combines voice transmission with handheld devices on the trading floor.

The planned NYSE building is part of a series of initiatives designed to improve the capacity of the NYSE to serve firms and customers around the world. For example, NYSE Chairman Richard Grasso has proposed that the Exchange greatly extend its trading hours to run from 5:00 a.m. to midnight in order to accommodate growing international markets. From 1987 to 1997, the number of non-US, firms listed on the NYSE soared from 67 to 346, and the NYSE expects trading in foreign firms to continue to expand dramatically in the years ahead. Last year, the Exchange opened a marketing office in Tokyo to help in attracting top quality Asian firms. Foreign firms now account for more than 10 percent of the NYSE's daily trading volume. There are 72 firms listed on the NYSE that are from Euroland, the II countries of the European Monetary Union that have agreed to create a new currency, the euro, from their II eleven different currencies. As of January 1, 1999, all stock prices have been quoted in euros in order to overcome concerns about currency fluctuations.

Clearly, the NYSE needs to be in larger and more technologically sophisticated facilities if it is to serve the global financial markets of the 21st century. The history of the NYSE suggests that it has always succeeded through a unique blend of self-regulation and technological innovation. The striking success of the NYSE has been due to its capacity to use new information technology to reinforce the central auction market that has been its hallmark ever since its formation more than two centuries ago. The proposed new trading facilities represent more than new space; they demonstrate how much the public sector recognizes the vital role of the NYSE in downtown Manhattan, in the economic life of this city. and in the global marketplace of the future.

 

Originally published in GRID New York
Volume 1, number 2. Spring, 1999