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NYSE's COO explains why the exchange is committed to reopening its iconic trading floor even as Wall Street quickly adapts to remote work

FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) near the close of trading in New York, U.S., March 12, 2020. REUTERS/Brendan McDermid
Traders work on the floor of the New York Stock Exchange (NYSE) near the close of trading in New York Reuters

  • Michael Blaugrund, NYSE's chief operating officer, told Business Insider the exchange is fully committed to reopening its trading floor as soon as it believes it's safe to do so.
  • Some market participants have questioned why exchanges' trading floors would reopen if the markets can continue to operate without issues.
  • Blaugrund said that while NYSE has transitioned seamlessly to an all-electronic environment, there has been a higher level of price dislocation as a result of not having a physical trading floor.
  • Visit BI Prime for more Wall Street stories.
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As more Wall Street firms consider the long-term adoption of changes made due to the spread of the novel coronavirus, one industry staple is eager to return the first chance it gets: the New York Stock Exchange's trading floor.

Michael Blaugrund, NYSE's chief operating officer, told Business Insider the exchange is fully committed to reopening its iconic New York trading floor as soon as it believes it's safe to do so. 

"No matter what, we're going to reopen the trading floor," he said.

Blaugrund said there is no set timeline on when the trading floor could reopen, adding that there isn't even a specific threshold NYSE is following to judge when to make the move. NYSE is working with local, state, and federal authorities, all of whom Blaugrund expected to be supportive of them opening back up the trading floor "at the earliest possible time."

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March 23 marked the first time in the exchange's history it moved entirely electronic. NYSE had been prepared to implement its contingency plan in 2012 during Hurricane Sandy, but the markets shut down completely instead. 

Yet, despite it being NYSE's first go at rolling out all-electronic trading on live markets, the process has gone fairly smoothly. In the face of continued market volatility, NYSE has been able to handle the transition without any noticeable impact. 

As trading continues with no major hiccups, some firms have begun to question if physical trading floors at exchanges are necessary at all. Vlad Khandros, the global head of market structure and liquidity strategy at UBS, said on a media call in March that clients of the Swiss bank have asked if the physical floors are needed.

Keeping trading floors shut for good could also offer some cost savings for exchanges, as one market veteran estimated they could save more than $10 million a year from not having to maintain the physical buildings. 

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However, Blaugrund said that while NYSE has been able to switch to all-electronic trading without much disruption, the physical trading floor still provides real value. He cited data posted to NYSE's website indicating trading was more efficient when the floor was open.

On March 23 and 24, NYSE's opening auction price dislocation was 26% and 34% higher, respectively, than the average from March 1-20. Upticks of 60% and 13%, respectively, were also seen in the closing auction price dislocation for the same time periods.

Blaugrund said the exchange "made a few tactical changes" in an effort to improve trading efficiency, adding it would "likely make further changes." However, even if NYSE is able to close the gap, he remained firm that the exchange will eventually reopen its trading floor. 

He gave examples of how designated market makers, the floor traders that help to manage the liquidity and volatility of stocks listed on NYSE, still play much-needed role, particularly during critical market events.

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"I think what we've seen over the first week really confirms our prior view, which is that pairing human judgment with technology allows for the superior outcome," Blaugrund said. "We are capable of algorithmically closing securities based on our view of electronic order books. That's not a technical problem that is daunting. But acting purely mechanically can result in bad outcomes in certain conditions."

To be sure, NYSE's trading floor value goes beyond just trading. The floor also serves as a marketing tool for trying to attract high-profile IPOs. CNBC typically broadcasts live from the trading floor as well, giving it additional clout and advertising. 

Blaugrund acknowledged the role the trading floor and DMMs play during the IPO process.

"I think listed companies get a real benefit from using the NYSE as a platform both for the media presence as well as the iconography of being at 11 Wall Street for their brands, for their product launches, and for their announcements," he added. "But the reason the floor exists is that it's a working trading floor."

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