Commentary

Jared Dillian
Traders Magazine Online News

Was it Worth It?

In this piece from 10th Man, author Jared Dillian discusses how the ETF revolution is less about ETFs and more about indexing; about how people have come to view stocks less as stocks and more as blobs of stocks.

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Would you feel better if the Chicago Stock Exchange were purchased by U.S. firm or consortium rather than a foreign one?

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73%

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Doesn't matter to me

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August 31, 2002

Disaster Recovery for the NYSE

By Robert A. Schwartz

Also in this article

  • Disaster Recovery for the NYSE

The New York Stock Exchange, a crucial part of the financial system, must be able to survive a disaster. That includes damage to the exchange trading floor at 11 Wall Street. The tight security at the exchange - one of the most powerful symbols of our market-based economy - has become even tighter since September 11 last year. However, the guards, barricades, checkpoints, and surveillance equipment are not enough.

The Big Board, recognizing this, has been making plans to develop an off-site trading floor. It could also count on Nasdaq and the regional exchanges to help out at a time of crisis. However, storing a second trading floor in mothballs may not be the only answer. An adequate backup must satisfy three criteria. First, the system must be electronic and not present a physical target. Second, traders both on and off the floor must be thoroughly familiar with the system. This requires that it is used on a daily basis under normal conditions. Third, the system must not interfere with the daily operations of the NYSE's regular market.

Is there a trading facility that could satisfy all three of these criteria? Yes, there is. An excellent backup would be an electronic call auction, a facility that is being used to open and to close markets by many exchanges around the world, including the exchanges in London, Paris, and Frankfurt. The NYSE does open trading with a call auction, but its call is not fully electronic. The exchange uses no formal call procedure at the close of its trading day.

The electronic calls are floorless, and thus provide no physical target. The NYSE could run these electronic auctions on a daily basis to open and to close the markets for its listed securities, and thus participants would remain familiar with the procedure. And, with its use restricted to the open and the close, the calls would not interfere with the operations of the exchange's regular market.

Call auctions are commonly used elsewhere in the U.S. For instance, at art auctions buyers and sellers come together at pre-announced times to establish prices and to trade. Let the item auctioned be shares of XYZ stock. Assume you want to buy 100 shares of XYZ at any price up to $50 a share; that I want to sell 200 shares of XYZ at any price down to $49 and that, shortly before 9:30 a.m., we both submit our orders to the opening call. In the auction, our orders are pooled together with those of others for a multilateral execution, at a single price, at this predetermined point in time.