What's the future of the stock exchange?
Not to sound like a bored teenager lost in a sea of ennui because Justin Bieber cut his hair or that no one will be as fabulous as Beyonce was at the super bowl - except for those half dozen photos her publicist insists you do not use - but stock exchanges: What's the point?
I'm not talking about the exchanges themselves, but the floors. Last fall I took a tour of a small portion of the New York Stock Exchange to see what a certain market maker does all day. It was fascinating. The men in their blue blazers - there was only one woman at the booth - were enthusiastic about their work and the men in charge all seemed to still believe they were Master of the Universe 1980s Edition. The market was slowly rebounding and even though the economy was and is uncertain, the feeling in the air was that the bad times were over.
But are they?
You have to wonder about the state of today's stock exchanges. As the Wall Street Journal reports, "Trading activity on private, U.S. stock markets run by big financial firms hit record levels in January, according to figures tabulated by the NYSE. On Jan. 23, 38% of all Big Board-listed stocks were traded internally by banks and on electronic "dark pool" markets, while trading in shares listed on the NYSE's junior Amex market reached a record 39% on Jan. 28 and the level for Nasdaq-listed securities topped 41%."
Or check out the Irish Stock Exchange. According to the Irish Independent, energy conglomerate DCC cconfirmed that is still considering moving its listing to London and cancelling its Dublin listing. "Such a move would be another nail in the exchange's coffin," the newspaper writes.
This week, Melanie Rodier of Wall Street and Technology reports that a stock exchange which opened before the Civil War is shutting its doors forever. After 156 years of trading, the Kansa City Board of Trade, "where wheat futures and options have traditionally changed hands thanks to traders yelling orders in pits and making wild gestures, will close its trading floor on June 28 following an announcement by parent company CME Group that it will move all wheat trading to Chicago," reports Rodier.
The exchanges appear to be the victim of the technology they deployed in the 1990s when trading went electronic. Now thanks to fast and efficient networks powered by turbo-charged CPUs and server farms that were unimaginable two decades ago, some investment firms are acting as their own exchanges. In fact, one owner of a hedge fund told me that when he sees a trading floor with dozens and hundreds of traders staring at screens, all he sees is waste. Why employ all of these people when algos and analytics can do the same job for them?
If this philosophy spreads from smaller prop trading shops and hedge funds to the larger investment firms, CIOs will have their work cut out for them. In a way, this is a cycle. The first wave of job layoffs in the days after the Crash of 2008 were focussed on the IT and support staffs in the back office. Now, firms are cutting traders and broker-dealers.
It's hard not to smile that the former Masters of the Universe have been brought down to Earth. -Phil