Last week, on the floor of the New York Stock Exchange, only days after NYSE Euronext announced its planned merger with the Deutsche Boerse, three Green Bay Packers on a post-Super Bowl press junket arrived to ring the closing bell. The football players entered in suits and ties, dwarfing those around them in stature and giving All-American toothpaste grins. Posing for photographers, they acted out the role of frenzied floor specialists at a bank of telephones in the middle of the floor. When asked about the phones and whether they really worked, a female floor trader lounging against the counter of her booth looked bored. “Those are for show,” she said.
A lot feels like it’s for show on the trading floor these days: The blue jackets with mesh backs recall an age of sweaty frenzy that’s since been replaced by automated calm; the bits of paper, empty Splenda packets and peanut shells strewn across the floor are tiny remnants of the mountains of paper from earlier days. Instead of running around yelling at each other, most traders quietly recline in chairs. Like the blocked-off streets around Wall Street itself, the trading floor is eerily subdued and depopulated. It feels more like a weekday morning in an empty casino than the hotbed of American capitalism.
At 3:59 p.m., the football players ascended to the podium and burst into applause. To ring the closing bell—or, as it’s now called, The Closing Bell®—does not actually involve ringing a bell, just pressing a button. A sustained noise between a school bell and a car alarm rang out, while the football players continued clapping. After descending from the podium, Ryan Grant, a Packers running back who had visited the NYSE when he was in high school, looked a tiny bit disappointed. “There were more people here 10 years ago!” he said.
Since 2005, when the NYSE ceased to be the financial equivalent of a public utility, few people outside of Wall Street have grasped the difference between the New York Stock Exchange as it actually is today and “the New York Stock Exchange” we think we are watching when some people in blazers rush around holding papers behind Maria Bartiromo. Take Senator Charles Schumer, who recently initiated a campaign to ensure that the new German-American company continues to have “New York Stock Exchange” in its name. Despite holding a seat on the Senate Finance Committee, Mr. Schumer recently called the NYSE “the cradle of American capitalism” and “a national treasure.”
“In America,” he lamentably continued, “we start each day in our Congress and in our classrooms with the Pledge of Allegiance, and we also start it with the ringing of the bell on the floor of the stock exchange.”
But while Mr. Schumer gets mileage by evoking the NYSE’s glory days, the reason that it is merging with the German Deutsche Boerse is because neither one actually makes a lot of money through trading stocks anymore.
“If you think of the New York Stock Exchange, you think of it trading stocks in New York and in the U.S.,” said Bernard Donefer, a professor of finance at Baruch College. “That’s the smallest part of its revenue.”
Mr. Schumer is not the only one confused, however. At the ringing of the bell, Green Bay cornerback Charles Woodson had his own share of soaring rhetoric: “We had about 11 million viewers in the Super Bowl,” he said with emotion. “But for a minute, we just controlled the world.”
In fact, when he ran the closing bell last week, Charles Woodson controlled only about 27 percent of the world. That’s what the New York Stock Exchange’s market share of the American equities trade is today—a marked drop from the 48 percent share it had five years ago. NASDAQ, the other American stock exchange most people know, has dropped from a market share of 26 percent to 19 percent, but it still has a famous bell and a commonly known brand name.
As for the third- and fourth-largest American stock exchanges, few people outside the industry have even heard of them, probably because they are both completely automated and became exchanges less than two years ago. One is based in New Jersey and called Direct Edge (“America’s newest stock exchange”), and one is based in Kansas City and called BATS. While each respectively has a 10 percent share in the U.S. equities market—and they will probably continue to grow—it’s unlikely their computer warehouses will ever be the backdrop for CNBC.
When asked if Direct Edge might ever get its own bell, one equities analyst just laughed. “Maybe a virtual bell, or some kind of high-frequency bell?” he said, giggling.
To understand what happened to the NYSE we all learned about in high school, one must go back in the very distant past, all the way to 2005. Before then, for the previous 213 years, the NYSE was a member-run institution, essentially a private club whose members paid dues for the right to broker trades on the exchange.
Like a utility, it enjoyed status as a practical monopoly. As recently as 2004, some 80 percent of NYSE-listed stocks were traded on the exchange itself. That’s the NYSE that Mr. Schumer is trying to “protect.” But in 2005, after some high-profile proprietary-trading scandals, and a growing realization that concentrating all trading in one place was not the most efficient way to do things anymore, the S.E.C. ended the NYSE’s dominance.
“These guys were basically running it to make money themselves at the expense of the overall exchange,” said Charles Jones, a professor of finance at Columbia Business School. “They were doing their job as they had done it for the past 30 years—for the past 200 years, really.”
When the NYSE suddenly faced competition, its very reason for existence was quickly imperiled. Unlike the NYSE, which had thousands of employees left over from its legacy days, the new guys—like BATS and Direct Edge—just needed to set up some computers; with very low overhead, it could quickly undercut the incumbents. “They’re just like a little mushroom that shot up one night after a rainstorm,” said Mr. Jones.
In the years that followed, the NYSE-listed stocks actually trading on the exchange itself has more than halved. For the NYSE floor traders, still trapped in the cradle of capitalism, the past five years have been grim, as lost market share was accompanied by a race to the bottom in the fees traders charge—and diminished need for humans in what increasingly became a technology business.
“As far as how we do our jobs, the market has become a lot more fragmented,” said James Matthews, a broker with the Perdiue Group who has worked on the floor of the NYSE for 20 years. “There have been a lot of layoffs down here, because the margins are so thin now.”
The merger will do little to ease their predicament. Under the new combined company (as yet unnamed), the largest chunk of revenue, an estimated 37 percent, will come from trading and clearing derivatives, particularly European futures.
So what is it that we’re watching on CNBC these days? It’s basically an advertisement-a way for companies going public to debut themselves to millions of investors watching daytime television. The NYSE still has a thriving listing business. As Michael Wong, an equity analyst at Morningstar, put it, “To an extent, just having that floor open, that’s however many free million dollars in free advertising every year.”