April 1, 2013

20/20 Hindsight

By Tom Steinert-Threlkeld

When Alan Rubenfeld chronicled "The Super Traders" in 1992, the New York Stock Exchange was celebrating its 200th anniversary.

Back then, it handled 82 percent of the volume in this nation's equities trading, when 407 million shares was an average day. Its chairman and chief executive was William H. Donaldson, a co-founder of Donaldson, Lufkin, Jenrette. That is one of many investment banks that has passed from the scene today.

In the intervening two decades, Regulation National Market System and Regulation Alternative Trading System have taken root.

The NYSE is now just one of 13 national exchanges, handling just 11 percent of all equities trading in February.

The biggest exchange? The Nasdaq Stock Market, started in 1971 by the National Association of Securities Dealers as an automated system for handling quotes. The successor to the over-the-counter system of trading stocks now handles 15.8 percent of trading.

But there are 11 other national exchanges now, and one that is not yet eight years old, the BATS Exchange, is close to the NYSE. The infant electronic exchange handles more than 9 percent of all trading.

This is not all that has changed, of course. Now part of the everyday lexicon and market reality are dark pools, internalization of orders by brokers, something called the Volatility Index, algorithms, microseconds, low latency.

Back then, the Dow Jones Industrial Average was pushing 3,300. Now, it's past 14,400. The S&P500? 435 then, now past 1,500. The value of trading? $10 billion a day then, $114 billion a day now. And 33 percent or so of all trading happens off exchanges.

So, in this issue, we've gone back to check in with the Super Traders profiled by Rubenfeld two decades ago. You will get their individual perspectives on the changes wrought by the intervening two decades.

Sure, as Jay Mangan, then head of equity trading at Citibank, puts it, "once a trader, always a trader."

Now, technology has led to the kind of "high-volume trading" that former Bear Stearns chairman Alan C. "Ace" Greenberg says means "I can get in and out of positions with unbelievable ease."

Even if what Joseph Schumpeter used to call "creative destruction" and other factors mean that Bear Stearns, Lehman Brothers, Smith Barney and other names from 20 years ago are also gone.

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