The Robots Haven't Taken Over The Stock Market (Yet)
Note: This story was originally published on Oct. 30. It was updated on Nov. 1 to include a radio version of the story.
The stock market, according to a popular narrative, is now just computers making superfast trades with other computers. Those pictures of traders getting emotional on the floor of the New York Stock Exchange are an anachronism. The real action flashes through fiber-optic cables headed for servers in places like Kansas City. It's algorithms all the way down.
In keeping with this theme, as the storm approached Sunday night, the New York Stock Exchange decided to close its trading floor Monday — but to keep the market open as a purely electronic exchange.
This decision caused "a revolt," Reuters reports. The revolt came from financial firms that:
did not want their employees to have to report to work in the midst of the worst storm to hit New York City since at least 1938, a storm that was forecast to bring flooding, punishing winds and widespread power outages.
"It was, 'Please don't do this. The market is not ready'," one of the sources said.
So the NYSE, in conjunction with NASDAQ and other all-electronic exchanges, reversed itself and decided to shut down entirely Monday. The market remains closed today, and is likely to re-open Wednesday.
There is a lot of truth to the narrative about computers taking over the market. Most trades do indeed occur on all-electronic exchanges. Computers do indeed make superfast trades with other computers.
But the NYSE still plays a critical role by holding auctions at the beginning and end of the trading day to determine the opening and closing prices of major stocks, the WSJ notes. They are testing out a way to do this electronically, but for now, it's done by those guys on the trading floor you see in the pictures.
U.S. bond trading also stopped early on Monday, and has yet to resume. An industry group that represents trading firms and banks called for the shutdown. Bonds don't get as much coverage as stocks in the popular press, but they play an even bigger role than stocks for financial firms.
All this is a useful reminder that "Wall Street" is not just a metaphor. It's an actual street that sits at the center of a financial district where tens of thousands of people go to work every day. For now, anyway, if those people can't get to work, the financial system can't function.
RENEE MONTAGNE, HOST:
And after the longest weather-related closure in more than a century, the New York Stock Exchange reopened to cheers yesterday, running on generator power.
(SOUNDBITE OF BELL, CHEERING)
MONTAGNE: As Jacob Goldstein of our Planet Money team explains, the market's two-day shutdown was a reminder that the financial world is not yet an entirely digital realm.
JACOB GOLDSTEIN, BYLINE: There's this narrative you hear a lot these days about how the stock market now is just computers making automated trades with other computers, about how the new Wall Street is a bundle of fiber optic cables headed for a server in, say, Kansas City. And so as the storm headed for the East Coast on Sunday, New York Stock Exchange officials made a decision: The trading floor would be closed Monday, but the market would be open as an electronic exchange - no traders in bright-colored vests waving their arms around in a big room, just computers talking to each other.
Other big stock exchanges always operate this way, but financial firms did not like this decision. For one thing, the New York Stock Exchange has never operated as an electronic-only exchange. Tom Price is the head of operations at SIFMA, a financial services trade group. He says there's an even more important reason financial firms wanted the market to be closed.
TOM PRICE: I think absolutely, unequivocally the major concern was about safety for individuals coming into Downtown Manhattan and the potential for them to be in harm's way.
GOLDSTEIN: So, Sunday night, officials at the New York Stock Exchange changed their minds. Along with the leaders of the other major U.S. exchanges, they shut down all stock trading on Monday and Tuesday. There is a lot of truth to that narrative about computers taking over the market. Most trades do occur on all electronic exchanges. Computers do make lots of super-fast trades with other computers.
But this week's shutdown is a reminder that Wall Street is not just a metaphor. It's an actual street that sits in the center of a financial district where tens of thousands of people go to work every day. And for now, anyway, if those people can't get to work, the financial system can't function. Jacob Goldstein, NPR News. Transcript provided by NPR, Copyright National Public Radio.