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Trading Suspension Highlights New York Stock Exchange's Shrinking Influence


Things were back to normal at the New York Stock Exchange today. Yesterday, a faulty software upgrade forced the nation's oldest stock exchange to suspend trading for nearly four hours. The explanation is that a technical glitch made it hard for the trading software to communicate with other systems, so orders couldn't be processed. The incident is a big embarrassment even though it didn't cause much of a problem for most investors. NPR's Jim Zarroli reports.

JIM ZARROLI, BYLINE: In the eyes of most people, the floor of the New York Stock Exchange is synonymous with the stock market, and so much about the exchange, from the busy trading pits to the closing bell, have become fixtures of American life. But the NYSE has changed dramatically in just the past 10 years, and it's likely to keep changing, says Robert Battalio, professor of finance at Notre Dame.

ROBERT BATTALIO: At least for my generation, it symbolizes capitalism and all, right? But I think, you know, in 20, 30 years, it's not going to have the same meaning, is my guess.

ZARROLI: The past few years have seen a proliferation of new electronic markets that compete with the NYSE, and federal regulations require each trade to be executed on the market that provides the best price. JJ Kinahan is chief market strategist at TD Ameritrade.

JJ KINAHAN: If you look at 20 years ago where the only place to really trade was the New York Stock Exchange, there are multiple venues now to go to with your orders. So there may be a better bid or a better offer at another venue.

ZARROLI: The spread of these new trading venues has made the market a lot more complex, but Kinahan says it's also made stock trading less vulnerable to technical problems.

KINAHAN: And I think people lose sight of this. If you think about 20 years ago, if the phone system went down, trading would have stopped 'cause there was only one venue.

ZARROLI: Today, when one market experiences a glitch, trades can quickly be routed to competing exchanges, says Robert Battalio.

BATTALIO: The idea was, if one goes down, that market just pulls away, and trading continues, which is kind of what you saw yesterday.

ZARROLI: The NYSE's parent company has struggled to compete by opening new electronic exchanges of its own, but by some estimates, only about a fifth of stock trades now go through the NYSE. Again, Robert Battalio.

BATTALIO: If you're a retail investor, that order gets routed to either Citadel or Susquehanna, and it trades instantaneously at the best quote. It doesn't even make it to the New York Stock Exchange.

ZARROLI: But the New York Stock Exchange does play a unique role in some ways. For one thing, both the NYSE and NASDAQ have strict standards about what companies they'll list. They have to follow certain governance rules. A lot of big institutional investors like mutual funds won't buy shares that aren't listed. Chester Spatt is a former economist at the Securities and Exchange Commission who now teaches at Carnegie Mellon University.

CHESTER SPATT: It's not so much, I think, that investors now care as much about what platform they do their execution on, but I still think having an NYSE listing is powerful branding.

ZARROLI: The NYSE also is responsible for setting the opening and closing prices of stocks, and these prices are widely used throughout the financial markets. But much of what made the NYSE dominate stock trading for so long is gone. I asked Robert Battalio whether the NYSE is even necessary anymore.

BATTALIO: That's a fantastic question, and I guess the answer would be, is, if they disappeared, I think somebody else would come in to fill the void, almost for sure.

ZARROLI: The NYSE has history and tradition on its side, but as yesterday's outage showed, it's also having to compete in a world where the rules have very much changed. Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.

Jim Zarroli is an NPR correspondent based in New York. He covers economics and business news.