Traders say automated trading systems are more fair, more efficient and cheaper to operate than floor-based systems. Then why is the NYSE building more trading floors?

Illustration by Chris Lacson

Introduction
This summer, the Bangladeshi Stock Exchange replaced its trading floor with a new fully automatic computerized trading system. At the same time, the New York Stock Exchange considered locations to build a new trading floor.

The continued commitment of the New York Stock Exchange to its trading floor may be its most important decision of the 20th century. The men and women who are making this decision are fully aware of its significance. They believe that the tremendous success of the NYSE is due in large part to its floor-based market structure. They also know that they may lose much, if not all, of their franchise if they are wrong.

The New York Stock Exchange is the world's most liquid stock market. If the liquidity comes from its floor-based market structure, eliminating the floor would be foolish. However, if the liquidity is due to some other factor, a switch to electronic trading may be feasible and perhaps even desirable.

Are automated trading systems better than floor-based trading systems? Traders widely perceive them to be more fair, more efficient and cheaper to operate than floor-based systems. Why then would the New York Stock Exchange consider building a new trading floor?

This article examines the arguments for and against these two trading systems considering aspects of fairness, convenience, capacity, exchange of information and cost.

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