The Slow Death of an Icon
New York City. It’s a place so great that Buzzfeed lists couldn’t possibly contain it: the world’s largest fashion shows; the top high-class restaurants this side of anywhere; and the unique blend of rustic, Revolutionary War-age buildings and gleaming skyscrapers. Among those marvels of the architectural world sits a structure, built in 1865, which brings awe to more than just history buffs. The New York Stock Exchange’s main building on 18 Broad Street (formerly 11 Wall St) serves as an attraction for both tourists and young ‘Wall Street’ hopefuls as a beacon of American capitalism, but what is it, and why is it even still important?
As much of a staple in our lives as the Exchange is today, it didn’t start off as such an awe-inspiring destination, in fact, it started as a lonesome tree on the dirt roads of Manhattan. In 1792, much before the days of Facetime, Snapchat, or even texting (say it ain’t so!), there was still a great need to be in immediate and direct contact with others, especially in such vitally important functions like the purchase and sale of commodities, like tobacco, government bonds, and non-government companies, like the Bank of New York. But with a very disjointed market, and no way to quickly contact other investors in far-away places, a group of 24 investment firms came together to create the early form of the Exchange, which traded just 30 securities. As the Exchange grew over time to include more and more companies, they too, increased their membership to allow for a greater number of shares to be traded. It wasn’t until nearly 100 years later, in 1867, that the first electronic ticker, which displays companies and their corresponding stock prices, was introduced. Gone were the days of calling out prices of each stock individually (paving the way for tickers on cellphones or computer screens, which make everyone look like they know what they’re doing). Then, in 1878, the first telephones were installed in the exchange, allowing retail brokerage offices a direct, and immediate, link to the trading floor.
Looking at the operation from 30,000 feet, the next major innovation to really strike the financial industry is the advent, and integration, of the computer and the internet. It goes without saying that this industry, and every other aspect of our lives, was forever transformed by the so-called ‘disruptive innovation’. If you’ve seen any movie about Wall Street (like the movie Wall Street, for an easy example), you’ll see trading floors filled with hundreds of people, dozens of desks, and more screens than you ever thought necessary, topped-off with the noise of voices screaming out ticker names and prices in what sounds like a disorganized mess. This is the Wall Street of the 1980s and 1990s, but by the 2000s, the trading floors and exchanges were transformed by the internet, cutting the time needed to execute trades, as well as the number of people needed to make them. Naturally, this has had an effect on the New York Stock Exchange (NYSE). In fact, Kenneth Langone, a former director of the NYSE even said that “you could throw a bowling ball down the trading floor and not hit anybody.”
Even in the 21st Century, not everything had been looked at through a modern lens. With a full-time tailor, single-malt whiskey, and a barber in the basement named Jerry, the NYSE was the “embodiment of American capitalism,” but it couldn’t survive.
It was in 2004, however, that Goldman Sach alumnus John Thain was brought in to transform this ailing monument, too ill-equipped to fend off the wave of electronic exchanges. Thain stripped away the tailor (yes, pun intended) and Jerry–leaving the members in baggy suits and bushy beards–and closed the Stock Exchange Luncheon Club, the once prestigious, members-only dining facility on the seventh floor. Thain also brought the exchange public, under the name NYSE Group, Inc. and expanded the number of European exchanges that operated within the building, but, even so, he wasn’t able to bring about the change that was desperately needed.
In 2013 the Intercontinental Exchange (ICE) bought the NYSE for $8.2 billion and created a new plan (which started by reversing nearly everything Thain had done–except bringing back Jerry) to turn the whole operation on its head. Jeffery Sprecherm of ICE sought to bring simplicity to the exchange and focus on what it does best: helping companies raise capital. However, in an effort to make the markets more beneficial to companies and the average investor, they did a great job of alienating high frequency traders, whose large trading volume brings equally large revenues. By adding ‘speed bumps’ to slow down high frequency traders, they drove those traders away from the NYSE and into friendlier waters.
With the exchange handling 80% of all stocks traded in the US back in 2004, to merely 20% in 2014, how will it ever match up against competing exchanges and alternative trading venues (i.e.- dark pools–everyone’s secret favorite)? The turnaround has yet to be seen, and with ICE giving the NYSE only one more year to rise to the occasion: will we see a return to greatness, or will we find ourselves buying tickets to “The Wonderful World of Stocks: A Tour of the Defunct NYSE“?