The NYSE is one of the few exchanges to still feature open outcry floor trading - most have shifted to fully-electronic or algorithmic trading.Financial markets have continued to trade throughout the 2020 lockdown, but the exchange's trading floor was closed from 23 March and activity temporarily moved to fully-electronic trading to protect workers. Now it has reopened, but with new social distancing rules, today the exchange looks and feels very different.
New York Governor Andrew Cuomo was on hand to ring the bell that re-started in-person trade, a sign of the symbolic weight attached to the reopening.
Todays video looks at two academic papers with contrasting views as to if pit trading still makes sense in 2020 or are exchanges more efficient when fully electronic?
"Vestigial Tails: Floor Brokers at the Close in Modern Electronic Markets,” by Edwin Hu and Dermot Murphy, found that NYSE’s crucial 4 p.m. auctions, which determine end-of-day prices for thousands of stocks, ran more smoothly after the Big Board closed its floor. NYSE of course has questioned the study’s conclusions.
A second study by Brogaard, Ringgenberg and Rösch argued that markets got worse without floor traders. Using a difference-in-differences analysis, they argue that floor traders are important contributors to market quality, even in the age of algorithmic trading. The suspension of floor trading leads to higher effective spreads, volatility, and pricing errors.
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