Happy birthday, New York Stock Exchange. You don’t look a day over 221 years old.
On this day in 1792, 24 stockbrokers signed the Buttonwood Agreement to form what later became the New York Stock Exchange. The enterprising brokers agreed on a set of basic rules of trading under a buttonwood tree on New York's Wall Street - and the rest is history. The first proper exchange opened at 40 Wall Street and according to trading technology pioneer and author of Nerds on the Street David Leinweber, it had a technological innovation that allowed members to trade even in terrible weather - a roof.
[Wary of new, the-party's-over rules, HFT firms are flooding Washington DC with donor dollars.]
The exchange burned down in 1830 and the later iteration of the exchange that we know now - diagonally from Federal Hall where the statue of George Washington stands as he is about the take the oath of office - did not open until 1903.
If you're an exchange geek like myself, check out this charming slideshow from Business Insider. You can smell the tickertape and cracked leather volumes.
With every birthday it's a good time to reflect on where you've been and where you’re headed so let’s see what's in store for the NYSE. It still remains one of the leading global exchanges and with its merger with Euronext it has a solid footing on the continent. Sadly, this merger came just in time for a grinding global recession that continues to keep Europe in its grip.
The 1990s saw the advent of new technology that connected different exchanges, trading venues, markets with clients, traders and brokers. And with these innovations - paper orders zooming through pneumatic tubes were high tech for decades - came a more level playing field. With Reg NMS, newer markets could play a role in answering the needs of clients who were once reliant on one exchange provider.
And then came electronic trading and with it, dark pools. The need for orders on sheets of paper and dealers shouting at the top of their lungs and using hand signals that would have confounded veteran third-base coaches soon shrank. The hustle and bustle of the old NYSE trading floor is now quieter. The shouts have been replaced with a steady hum as market makers look at their screens and the floors are no longer littered with cancelled orders. As more than a few mordant observers have noted, the real trading goes on at the data centers in Mahwah, New Jersey and not in lower Manhattan.
But who wants to see a business reporter stand in front of a row of servers?
At a recent visit to the NYSE last fall, I saw a place that was still alive even if it looked like it was trying to stay relevant. Market makers had their high-tech stations watching order flow and making sure that the deals being done by the computers made sense. (Maybe they should be called Rogue Algo Lookouts? Flash Crash Traffic Cops?) Half of the floor was under construction and the new tech in the areas where the makeover was complete looked high-tech enough. I wish I could see the faces of the Silicon Valley elites who visited the exchange before the makeover to see the expression on their faces. "This is where we’re going to go public? In a place that looks like a Catholic school gymnaseum from 1955?"
The NYSE has some other challenges. While they were the subject of a quasi-hostile takeover in 2010 from Deutsche Borse, the survival of the NYSE and its compatriots CME Group and Nasdaq OMX depends on what lawmakers and regulators decide about their current threat. Dark Pools are gaining more and more trading volumes and despite some concerns in the market, they are a fact of life. This is one reason the heads of the major US exchanges visited regulators at the SEC to discuss the impact the dark pools are having on their markets. It’s a matter of their survival.
[Big Brother or Big Data: Is your Bloomberg terminal spying on you and your traders?]
After the attacks of September 11, 2001, many political and market observers suggested that the NYSE move away from the center of the terrorists’ bulls eye. There was talk of moving operations further afield into New Jersey and even Pennsylvania. But with the advent of high speed trading, faster networks and co-location services, investment firms needed to be as close to the action as possible. And that’s not too far from where a few ambitious stockbrokers gather on a tree in the early days of our nation.
Some things were meant to stick around.
Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio