Quora Question: What Do People at the Stock Exchange Actually Do?

A trader works on the floor of the New York Stock Exchange in New York on January 2. Carlo Allegri/Reuters

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Answer from David S. Rose, serial entrepreneur and active angel investor.

There are two different questions that make up this question:

1) What traditionally were the functions carried out by the people who I see moving around the floor of the New York Stock Exchange?

For more than a century, the stock exchange was exactly that: a place where people came together to exchange shares of stock. Because it would be impractical for everyone who wanted to buy or sell stock to personally come to the exchange, the profession of stock brokerage emerged to represent the actual share owner in completing the transaction. You would tell your broker what you wanted to buy or sell, the broker would go to the exchange and execute the transaction. Over time, the process was streamlined such that your broker had a colleague who was permanently stationed on the floor of the exchange, and when you gave instructions to your broker, he would call his floor colleague to place the order.

But how would the broker representing you know where to find a broker representing someone else who wanted to buy or sell (as appropriate) the shares you wanted to trade? Well, for every company listed on the exchange, there would be a designated specialist who was responsible for "making a market" in that particular stock. So your broker's rep (whose desk and telephone was at the sides of the trading floor) would go onto the floor and walk over to the station of the specialist (those free-standing towers in the middle) where he would find a counterparty to complete the transaction. Once completed, a runner would then take the record of the trade to a clerk who would enter it into the system, where it would eventually show up on the ticker.

So, all those folks on the floor consisted of the floor representatives of the brokers (along the edges), the specialists in each stock (at the kiosks in the middle), and the various runners and clerks shuttling information and trades back and forth among them.

As you might imagine, the exponentially advancing pace of technological change has had a slight impact on these traditional practices [he says, trying to keep a straight face]. Which leads us to the second question, which is what the original question meant:

2) What actually are the functions carried out by the people who I see moving around the floor of the New York Stock Exchange?

Nothing. The deep, dark, not-so-secret of the New York Stock Exchange is that in 2016, the "floor" of the exchange is actually completely superfluous. It is all for show. ALL of it. The NYSE building at Broad and Wall streets is actually a venue for functions that hosts more than 1,500 photogenic events every year! The whole purpose of the floor of the exchange is to serve as a backdrop for the reporters you see on Bloomberg/CNBC. Nothing really happens on the floor. If a bomb were to take out the entire building, the immense harm would be symbolic, not practical.

Given the work I do, I'm invited to events at NYSE almost weekly. One fun thing was when we got to play a 'trading game' on the floor after the exchange closed for the day. I happened to ask one of the gray-jacketed specialists on the floor exactly what he did, and he proudly told me that he was responsible for setting the opening price of his stock. Suitably impressed, I asked how he determined that. He equally proudly told me that the NYSE was very efficient and computerized now, and he had a handheld terminal that told him what the opening price should be! Seriously.

Interesting footnote:

Do not underestimate the power of symbolism. One of the true, major reasons that a company often elects to list on the NYSE as opposed to NASDAQ is because at their IPO they get to ring the bell to open the trading day.

In fact, that symbolism is so important, and NASDAQ was losing so many companies to the NYSE, that NASDAQ spent a fortune to open their own 'faux trading center' in the middle of Times Square, for the sole purpose of providing a photogenic backdrop for news reporters, and and a fake 'button' that people could be photographed in front of to 'open' and 'close' the market!

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Quora Question: What Do People at the Stock Exchange Actually Do? | Business