These days, Corpina still wears his suit. But he is sitting stock-still in front of his terminals at his home office in Westchester County, N.Y. — without his trusty handheld. He is trying to shape a market without one of his most critical assets: human intelligence.
“I have a lot of the same equipment,” the 48-year-old said in a phone interview, “but none of the same tools.”
Unlike many other global investment exchanges, the NYSE still uses floor traders. Familiar to many consumers only as television color, the floor is in fact more than just a hollow B-roll opportunity. It’s where a select group of people enter trades manually, in moves some experts say optimize prices and prevent investors from running stocks up and down based on context-less electronic information.
On Monday, March 23, NYSE leadership indefinitely closed the socially active floor after multiple positive tests for covid-19. What has been lost might be experienced not as changes to traders’ routines but in the movement of the larger market.
The traders provide a key temperature-regulation system. If that system is offline, people who do business on the NYSE say, it could lead to an increase in market volatility, a reduction in trading volume, a diminishing of initial public offerings and a limit on the futures-trading known as options.
“People think this is all cosmetic,” said Kenny Polcari, chief executive of Kace Capital Advisors, who spent some four decades on the trading floor. “But the floor traders are a chance to make the market better — and we don’t have that right now."
One simple example would work like this: An investor wants to buy a stock at $30 before the market opens, hazarding that is a fair price. Under an electronic system, the investor’s broker would simply find a seller willing to provide the desired number of shares at that price and execute the trade.
But a trader on the floor would take another step first — they would seek out a human counterpart. That could prove pivotal. If the trader found a lot of sellers willing to sell at $30, they might wait, pushing the stock down to a more “natural” price of $29.
Conversely, if the seller sees a lot of buyers at $30, he or she might hold back and sell the stock at $31, returning a more accurate value for the share. Since share prices are determined by thousands of such trades every hour, the stock’s listed price could ultimately be more reflective of actual supply and demand — and thus limit volatility and bubbles.
“You could try to do this electronically, but you’re just not going to find as many pools of liquidity,” said Steve Grasso, using the industry term for the intersection of buyers and sellers. Grasso, a floor trader and managing director of institutional trading at Stuart Frankel, said an all-electronic system thus allows stocks to be sold at the “wrong” prices, which can be corrected only with whiplashing volatility.
The floor has been one place concerned about the coronavirus spread, with a number of traders testing positive, including Peter Tuchman, whose white mustache, goatee and expressive face have made him perhaps the most photographed floor trader. The floor is not the only New York financial coronavirus hotspot: JP Morgan has become embroiled in controversy after a Wall Street Journal story reported at least 20 people tested positive when the company pressured employees to come to the office in March as the virus spread.
In-person trading by New York stockbrokers can be traced to the early 1800s, beginning at a downtown Manhattan venue known as the Tontine Coffee House. (Tontine was a type of investment, not latte.) Other markets, such as the Nasdaq, don’t use it, though some have created media centers to provide similar visuals for the public.
Floor trading in New York, on what would eventually become the NYSE, would gain in importance through much of the 19th and 20th centuries, through the low-point Black Thursday crash of October 1929 and many boom and bust cycles since.
Trading began to change in 1995, with a new automated system that allowed electronic transactions, and its role continued to fade in the 21st century as high processing power and abundant mobile devices made remote trading a snap. The NYSE revised its rules in 2007 to allow nearly all stocks to be traded electronically, and the floor’s influence has waned in turn.
Traders acknowledge the floor has a smaller impact over intraday trading — trading outside the opening and close, when prices are already more established. But they point to other ways the floor matters — with options trades, for instance, which can require human intervention because of their complexity. Initial public offerings could diminish without the floor, as much because companies like the visuals on their ceremonial day as anything else.
Some note that reducing volatility isn’t the only benefit floor traders provide. Grasso says without him and his colleagues volume could drop as some investors, worried about the lack of human intelligence, hold back.
“It’s the difference between delivery and going to a restaurant where you can look at the menu and talk to the waiter about the specials,” Grasso said. “You get your food either way. But you get an inferior experience if you don’t go to the restaurant.”
Not all experts are convinced of the floor’s impact. They note how many trades are done off the floor and say that even on the floor, humans aren’t interacting all that much.
“Most of the traders are just tending to computers, and they can do that from anywhere,” said James Angel, associate professor at Georgetown University’s McDonough School of Business who has extensively studied markets and financial exchanges. “Honestly, the biggest impact will be on the media showcase, which can help a premiere stock exchange."
Asked about expert skepticism, Michael Blaugrund, NYSE chief operating officer, said: “I don’t want to say that when the floor is closed the markets are ineffective. But it is diminished. This is more than a soundstage or a colorful backdrop for TV. These people are interacting to provide price discovery,” he added. “And the net impact of their work saves all investors money.”
Blaugrund said there was no thought of conducting trades virtually on a permanent basis. “We’re extremely eager to reopen the trading floor as soon as possible,” he said.
It remains hard to measure the impact of a closed floor. The market’s volatility during this time — on the second day of the closure the Dow Jones saw a gain of 11.4 percent, compensating for a 13 percent drop the previous Monday — almost certainly is a function of the coronavirus.
The VIX, the Chicago Board Option’s Exchange index, or Volatility Index, which measures fears about the market, has been off the charts since the virus concerns intensified. It hit an all-time high of 83 on March 16 as mass shutdowns rolled out. It has since settled to a 40-50 range (at midday Wednesday it was just above 43) but that still remains high — in all of 2019 it never exceeded 25.
But traders say that doesn’t mean the closure won’t take a toll later.
“I think the larger volatility is masking the impact,” said Corpina. “When the market settles down and the floor is still closed, I think you’ll be able to see the difference."
Corpina noted the effect it could particularly have on end-of-day trading, known as the close.
Normally as 4 p.m. approaches, Corpina is scurrying around the floor gathering information to determine how to best use the last opportunity to buy and sell. On a Friday in mid-March, President Trump said a little before the close he would direct the Department of Energy to purchase oil for the Strategic Petroleum Reserve. The news prompted a wave of buying of energy stocks. Corpina and other floor-traders ran around talking to each other to find the right value and avoid price dislocation — essentially an irrational jump that could result in a crash later.
If such an announcement happened now, Corpina said, matters would look very different. “I couldn’t provide that clarity.” Clients would stay away or get caught in a risky swing, he said.
“And all I could do,” he added, “is turn off my machines and go to the rest of the house.”