On Quiet Floor, Brokers Say They Could Have Limited Volatility

Aug. 21, 2007 &#151 -- It used to be that if markets were in trouble, you could tell by looking at the New York Stock Exchange trading floor. It would be a bit more packed and boisterous, with the number of trades up and the brokers all a little more on edge than usual.

That, of course, was before the advent of electronic trading.

"You used to be able to have a feel on the floor" when the economy was on the downturn, said Kevin, who for 13 years has donned the blue jacket that is the uniform for floor specialists for himself. "But now, not so much."

But with the market reeling from the collapse of the subprime market, the NYSE trading floor was mostly quiet Monday. A number of traders and specialists even had time to chat with this reporter about how the floor had changed since the dawn of "Hybrid Trading" last year.

As the traders spoke Monday, the ground around them was littered with more discarded sandwich wrappers than used trading stubs. It's a sign that new technology has rendered obsolete many of the specialists and runners, and perhaps left the remaining ones to actually have time to eat lunch.

The switch to a hybrid market, which combined the traditional floor auction market with automated electronic trading, has had its benefits. Chief among them has been an ability to handle much greater trade volume and allow more players into the trading game. Today floor traders handle less than 20 percent of shares traded each day, down from 86 percent at the start of 2006, according to the exchange.

Floor specialists "really were a bottleneck" under the old system, eroding market share and slowing down trading, NYSE CEO John Thain said at a conference last year. Last month 2.8 trillion shares were traded on the Big Board, up from 1.7 trillion in July 2006 and only 1.4 trillion in July 2005.

But there have been drawbacks, and they are most visible — and detrimental — during market crises, several brokers and specialists on the quiet trading floor said Monday. Most of the traders who talked to ABC News did so only on the condition that their real names were withheld.

If the Big Board was still run under the old auction-based system, the traders contended, we would not see as much market volatility, minimizing the stability that has characterized the market of late. Since mid-July, the market has seen giant swings, up 150 points one day, down 200 or more the next day.