They say communication is the key to a successful relationship. At Cuttone & Co., an institutional brokerage with one of the largest staffs on the floor of the New York Stock Exchange, that old maxim is gospel. If the firm isn’t communicating well with its customers, it’s not doing its job.
And that’s a big reason why Cuttone plans to consolidate all of its trading on the Big Board floor once the exchange completes an overhaul of the broker booths that ring its two trading floors. By merging its upstairs desk with its floor operation, the firm hopes to eliminate any miscommunications between the two groups as well, as with its buyside customers.
"If you’re not standing next to the guy, sometimes there is a breakdown in communication that will prevent you from doing what’s best for your customer," said Keith Bliss, Cuttone’s director of sales and marketing. "Putting our two main offices into the same location will enhance that communication."
The problem, Cuttone execs explain, is that a piece of information that emanates from the floor can pass through too many hands on its way to a buyside trader or portfolio manager. Along the way, the information runs the risk of being garbled.
"Somebody goes out to speak to the specialist and gets some information," said Bernie McSherry, Cuttone’s senior vice president for strategic initiatives, "and they call it back to the booth. And the booth calls the desk. And the desk calls the trader. So by the time it reaches the portfolio manager, five people have touched it."
In May 2008, Cuttone hired veteran trading executive Richard Christ chiefly to manage and improve the flow of trade information between the floor and Cuttone’s upstairs desk.
McSherry notes that such communication problems are not just limited to Cuttone, but affect all firms, including the brokerage where he spent most of his career, Prudential Securities.
As Traders Magazine first reported in July, NYSE Euronext, which operates the New York Stock Exchange, plans to demolish all of the standard booths in the Main Room to make way for new trading "pods."
The project will cost $5 million and take 18 months, ending sometime in the spring of 2011. Behind the renovation is a desire to bring more traders to the floor by creating a more attractive and efficient working environment.
That, the exchange hopes, will engender more trading. It should also make for a more attractive backdrop for media reports, which help cement the NYSE’s brand in the mind of the public (see photo page 8).
Today, Cuttone has 23 people in its booth and plans to move another 10 down from its upstairs desk when the renovation is complete.
Despite, the NYSE’s hopes, however, Cuttone executives say the consolidation probably won’t lead to an increase in the amount of trading they do on the floor. They will, however, be able to trade any security they wish from the floor, as they are "Blue Line Qualified."
In fact, they will be able to do everything from the floor that they now do upstairs, plus tap into the activity of the crowd.
Besides the predicted improvements in their communications, Cuttone executives also expect to benefit from the exchange’s investment in technology. "They have brought a lot of technology up to speed," McSherry said, " and have made sure the brokers are equipped to compete. That wasn’t always the case."
The firm sees its future and the future of the floor in the handling of trades for small- and mid-cap stocks. "I don’t think you will get the volume of market share back in stocks like GE or GM," Bliss said. "But if you slice away the Top 100 layer, you’ll find the NYSE’s market share is still pretty large for most of the stocks."
Indeed, on a recent day in October the NYSE was trading about 25 percent of the volume in its own stocks. That figure is unchanged from a year ago and makes the NYSE floor the single largest marketplace for NYSE-listed names.
Joe Burrello, director of global trading at IronBridge Capital Management in Oakbrook Terrace, Ill, said he sees value in a brokerage firm having a floor presence. That is particularly true at the close. Before joining IronBridge, which manages $7.5 billion, Burrello was a Nasdaq market maker at William Blair & Co., for 10 years. Yet, despite his preference for electronic markets, he said you can get a fuller picture of what’s happening at the close on the floor.
That’s particularly important for iceberg orders, Burrello said. If the broker he’s using for an order works it from his desk, there’s a chance he can get cut out of a closing cross because he can’t see the entire picture from upstairs.
"He can get cut out of a closing cross, because he wasn’t down there," Burrello said. "And a big print will go up away from where we might have interest that’s being shown on a different marketplace–through the electronic markets–and they’ll blast right through you."
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