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When most people think about what a Wall Street trader looks like, they probably picture a suited man holding two phones in his hand yelling “buy” or “sell.”
But that’s not what trading looks like – anymore at least.
Paul Russo, global co-COO of the equities franchise in the securities division at Goldman Sachs, the financial services giant, recently outlined the evolution of trading in the latest episode of “Exchanges at Goldman Sachs.”
Russo told host Jake Siewert that technology has completely changed trading.
“It is true going way back in time, people used to have two headsets, they’d be yelling in one, yelling in another, screaming across the floor,” Russo said.
Today, trading is a lot quieter.
“Messages are all electronically communicated back and forth,” Russo said. “So, people won’t even accept orders in the way they would have naturally done it 15, 20 years ago”
The electronification of exchanges, the central places where buyers meet sellers, played a big role in the transformation of trading. Back in the day, buyers and sellers would meet in the pit of the exchange. Sometimes you would have one trader tap another on the shoulder to execute an order. Today they meet in virtual places, according to Russo.
Here’s how that happened, according to Russo:
“I think basically it’s a combination of the regulatory environment making some significant changes on the market structure, really three landmark things occurred starting in the late ’90s, something called Regulation ATS, which put competition into the exchange system. Decimalization, meaning narrowing spreads, Regulation NMS, which really got the markets to be faster, that cocktail of regulatory change, which was meant to improve competitiveness of pricing, and frankly, did an excellent job of that, combined with technology invading the industry and exchanges going for-profit models.”
“What’s happened is we’ve had this proliferation of exchanges in an all for-profit model. They’re public companies themselves, many of them. And as a result of that, we have seen enormous competition. But it’s allowed these central places where things used to happen to be now virtual central places. They’re really technology-enabled central limit books as opposed to a physical place you go to.”
The end of the exchange floor
“So, when you look on CNBC in the morning and you see the “floor,” quote, unquote of things, you know, the New York Stock Exchange floor used to have swarms of people running around doing functions, now it’s a TV studio with a bunch of things and that opens. There might be a lot of activity for an IPO, but other than that, it’s really all technology, as well. So, that’s the change.”