New York Stock Exchange floor traders already are an endangered species. But with the “ICE” age approaching, they worry about extinction.
After the energy and commodities futures exchange upstart IntercontinentalExchange, or ICE, based in Atlanta, made its $8.2 billion bid to buy the venerable institution at 11 Wall St. last month, the traders spent the holidays pondering their futures. And it’s not very bright.
“Trading will go to the venue with the lowest frictional costs — and the venue with the lowest frictional cost is the one where there are no humans. The human is too slow to work in this electronic world,” said Diego Perfumo, of Equity Research.
The latest numbers of floor traders by the NYSE bear him out.
In 2007, there were 3,000 market makers and traders working the floor, but now, according to the NYSE, that number has fallen to 300. The introduction of computer trading systems has eliminated the need for human personnel.
But others see a possible bright spot for the human personnel because of increased government scrutiny.
The NYSE has been lobbying lawmakers to level the playing field with controversial high-speed trading platforms, which have sharply squeezed the Big Board’s market share in stock trading. Rival high-frequency trading platforms, called “dark pools,” have been eating its lunch, because the pools offer reduced trading fees and rebates to large trading firms. Many of these firms also have an ownership stake in the electronic platforms.
When ICE takes over, it will continue that political effort.
Perfumo said one proposal to emerge out of Washington hearings favors the elimination of rebates paid by electronic brokerages, which could result in some volume returning to the NYSE.
“I think this merger may further ignite that conversation down in Washington about the pendulum coming back into the middle,” Kenny Polcari, a veteran trader on the floor of the NYSE and a director at O’Neil Securities, told The Post. “Do you need 80-plus venues to trade a stock? I would argue that you absolutely do not. Half a dozen? Probably. More than that and it gets to be stupid.”
“The floor is already extremely electronic,” Polcari points out. “I don’t think the floor is going away. Certainly you will get people who would argue that the floor should go away and become a museum. I don’t subscribe to that thought process at all.”
But there’s no bucking history, the NYSE’s business has been shrinking for the past decade as rivals grab market share.
The Big Board’s one-time monopoly in stock trading has dwindled to some 20 percent of overall industry volume today due to the dark pool trading.
“There is always the possibility — and I underscore possibility — that the NYSE itself might end up on the market a few years from now as they rationalize their operations,” said Thomas Caldwell, a major NYSE and ICE shareholder.
Nevertheless, ICE will look to Washington for new regulations more favorable to the NYSE than upstart high-frequency rivals, experts say.
“The battle for the NYSE is a battle taking place in Washington and not anywhere else,” Caldwell said.