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The Robots Haven’t Taken Over The Stock Market (Yet)

Filed by KOSU News in Business.
November 1, 2012

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. [Copyright 2012 National Public Radio]

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