Tools of the Trader

Could the NYSE Hold the Key to the Future of Electronic Trading?

But there are those that prefer dramatic measures. "I hope they rip out [the NYSE trading floor] and turn it into a disco club," says day trader Jim Crane-Baker, one of 10 experts featured in the bestseller Electronic Day Traders' Secrets. "Specialists are basically a bunch of demigods in a system that's totally perverse. They have one guy who is controlling all the order flow in his secret book, and you have no idea what kinds of tricks he's pulling. In general, the NYSE is a complete mess— totally inefficient. Who cares about their high-tech gadgetry? They're still using carbon copy receipts! Why throw a lot of money on gadgets and make information pretty when it's all there online? There's no way that [the old] system can survive." Crane-Baker, who has been an independent equity trader since 1995, sees direct investor participation as the way to bring justice back to the market. "It should all be an electronic version of the open outcry system— a place of passions that may be volatile, but the fittest survive."

A pure meritocracy is about as likely to exist as a fairly mediated specialist system. Most big institutions and long-term investors want to trade in a market that feels safer and more controlled— even if the brokers and specialists get exorbitant commissions and have unfair advantages. And not all ECN advocates are sounding the death knell for the NYSE: "There will always be a place in the market for those that commit capital and provide liquidity," says Matt Andresen, president of Datek's Island, which is the second-largest ECN. "The question is to what degree you allow these participants to have temporal and informational advantages over the public as compensation." At Island and other ECNs, "everyone's orders are treated the same, and at the same time."

Andresen argues that all evidence points toward a future without physical trading floors, citing the example of the London International Financial Futures Exchange (LIFFE), which lost most of its volume in deutsche mark futures when the Germans shifted to electronic trading. "This example took weeks, not years. The simple facts are this: computers can match buyers and sellers quicker, more efficiently, fairer, and in greater volumes. That's not to say that humans don't have an important place in providing liquidity when needed."

As exchanges and trading continue to move online and become more and more electronically networked— possibly merging into one common operating system for trading stocks— what most people fear is the lack of order. What the electronic market needs, besides a fair regulatory system, is the ability to map all the activity of an unwieldy online market, an extension of the NYSE's datascaping technology; it needs an orderly, graphical interface, swarming with the life and energy of a real trading floor, but not limited to top-dog transactions.

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