Why Does The Stock Exchange Need A Trading Floor?

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The New York Stock Exchange was closed Monday and Tuesday because of Sandy. The CEO of the Exchange says everyone's pushing to reopen stock markets no later than Wednesday. Which raises the question — why do we need a physical trading floor to conduct business? Robert Siegel asks that question of Professor Jeremy Siegel of the Wharton School at the University of Pennsylvania.


Two straight days makes this the worst weather-related closure of the New York Stock Exchange since 1888. There was a monstrous snowstorm in March of that year, drifts of over 40 feet. You know what was also happening right about the same time? The American Arithmometer Company started up in St. Louis. It went on to sell the device that its founding Vice President William Seward Burroughs invented - the adding machine, which raises this question for me.

OK, in the old days, the Stock Exchange didn't have a decent business machine to its name. But today, transactions are not just conducted via computer, computers actually do buying and selling. Why do we need a place where celebrities ring a bell and guys on the floor wear funny jackets and execute orders?

I asked Professor Jeremy Siegel of the Wharton School for his thoughts. Is he an advocate of having a physical stock market? And did this storm alter his opinion?

JEREMY SIEGEL: I was shocked when I heard that they were going to close for two days. And given that about 80 percent of the trading is done electronically now, I don't think it should have been closed.

SIEGEL: Well, what's so important about it being open since you can do all those trades by computer?

SIEGEL: Well, what I meant is the market is being closed, I didn't think that they should close the markets just because the floor of the New York Stock Exchange couldn't execute its trade. I mean, we've had some major markets in the world today, you know, foreign exchange who don't even have a floor anymore. You know, we wonder whether five or 10 years from now we will still have a floor. I tend to doubt it.

SIEGEL: If, in fact, the days of the physical exchange with the floor are numbered, does that mean that the days of a financial district - where lots of different banks and brokerages have their headquarters, and people converge to go to work there - that their days, whether it's Wall Street or the city of London, are also numbered?

SIEGEL: You know, that's a very good question. And I wondered, as well as others after 9/11, you know, whether Wall Street would ever get it back because with electronic communication, you didn't need to be together anymore. But yet, that proximity for lunches, for coffee breaks, or whatever, seems to be extremely important. And Wall Street has most certainly come back.

SIEGEL: But just as a physical possibility, could the New York Stock Exchange say, there will be trading tomorrow but the floor will be closed?

SIEGEL: I think so. You know, the official reason that's given by the New York Stock Exchange is even electronic trading involves people. I question whether that's really the reason. I think that New York felt, hey, we can't get our guys here, we're going to be at a big disadvantage relative to the rest of the country. Let's close it down until everyone is on a level playing field. And I guess right now we're almost 100 percent that it will be Wednesday morning.

SIEGEL: And we should note, Jeremy Siegel, that you're saying this from Philadelphia.

SIEGEL: Correct.

SIEGEL: Jeremy Siegel, professor of finance at the Wharton School, speaking with us about closure at the New York Stock Exchange.



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