My baby just wrote me a letter

By: Ray Pellecchia

File Under: NYSE

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Well, she wrote me a letter
Said she couldn't live without me no mo'
Listen mister can't you see I got to get back
To my blog once mo'
Anyway-ay...

Apologies to the Boxtops. And in truth, neither my baby nor anyone else wrote me that they couldn't live without me no mo'. My baby does occasionally e-mail me that I forgot to close the garage door or failed to clean out the downstairs closet, and I'd better not do those things no mo'. Or some other similar love note.

Anyway-ay, after a week-plus off, I'm catching up on some interesting comments that have come in about the future of the trading floor, the erroneous-orders episode and other stuff.

Did you miss me?

Even notice I wasn't around? The dearth of bad jokes and rock trivia?

. . .

[sound of crickets chirping]

. . .

Sorry to be out of touch for so long, my friends. Meant to dive right back into the blog, but every day this week, it's been one of those days. Digging out now and will try to get the conversation going again.

I did post some good mail over the last week or so, and I wanted to highlight some of the comments. I sometimes worry that those who follow the blog via RSS or e-mail and don't look at the actual site might miss the subsequent comments, so I'm going to try to get back to turning feedback-and-forth threads into new posts.

The post 'The floor is not going away. OK?' drew these in reaction:

Great Post Ray. I am honestly thinking about buying NYX stock for my kids after reading that. Here is why: I believe that the Exchange as well as Duncan are in a great position to make history. Everyone has an electronic exchange that offers a very limited way of executing its customers orders but the NYX/Euronext has the opportunity to create something truly dynamic and special. If they can achieve the blend of instant execution as well as the added value of price discovery through price improvement & matching then i think the NYX will once again regain their place as the premier exchange in the world. Your customers want the ability to execute blocks, be price improved, and not be charged an arm and a leg to do it. We also want the specialists to create a better quality market to trade on and giving them incentives to add value is a great idea. As Duncan said, we don't want another NASDAQ. Thanks again.
-- tony dey

Tony -- Thanks for the comment. I agree that there's a place for a differentiated market model, and that's what we're aiming to provide.

Ray, Thought you might be interested in the following blog from a FinExtra contributor.
-- Kevin Davis
http://www.finextra.com:80/community/fullblog.aspx?id=353

Voice trading and best execution
06/07/2007 10:49:11

I remember seeing a study a few years back that said that buy-side firms didn't always want immediate trading. One of the arguments was that if you've spent months researching and defining the investment strategy for a new fund, it would seem a bit irrational to then expect all of the constituents to be traded in milliseconds. The study graphed how long fund managers would prefer to wait to get a better deal, and they were prepared to wait days -- not seconds.

The more commoditised the item that you're trading, the more it lends itself to automated trading. Spot FX has three dimensions -- what currency, what volume and what price. Equities are similar -- which issuer, what volume, what price. Bonds are more complex and have more dimensions -- maturity, interest rate basis, etc. And then there are the really "complex instruments" and structured products.

The more complex the instrument, the more the dealer can negotiate. Immediacy generally means "non-negotiable" -- you get the price and size that�s available in the market at the time. Immediacy doesn't necessarily mean "best", as reflected in the buy-side study mentioned above. So immediacy doesn't necessarily mean "best execution."

The idea of "dark pools of liquidity" has always been here -- it's the basis of OTC trading. OTC trading has always been mainly voice trading. One big reason is that voice trading gives you the ability to negotiate the deal in the best interest of your client. Computers don't give you that ability.

Technology has changed, but the clients' expectations and the market regulators' expectations haven't. If you can't get best execution for your client using computers, then they expect you to go to voice and start negotiating.

Kevin -- Appreciate the link. A very good reminder of the importance of price, and a good addition to this discussion.

Will post additional conversation on this subject very shortly.

But first...

...you know I can't resist...

...a little trivia trip:

Today in NYSE History: 12 Jul 1943 -- Women went to work as pages and reporters on the trading floor for the first time, due to a wartime shortage of male employees. (NYSE.com)

Oh, I see: due to a wartime shortage of men, not due to a recognition that women deserved an opportunity to work or that they might actually contribute something valuable to the place or that there was absolutely no good reason to keep them out of the arena from 1792 until 1943. And on top of that, to not allow a woman into membership until Muriel Siebert in 1967. That's one sorry history, and today we've moved past it, though not far enough past it on the trading floor, and you know I'm a fan of the floor. I hope that as the floor continues to go through its current radical transformation it will not lose sight of the value of expanding opportunities for women and people of color. As we look to build competitive strength, diversity can be a key contributor.

Tags: New York Stock Exchange, Hybrid Market, NYSE, NYSE Euronext, NYX, trading, stock market, trading floor, specialists, brokers, diversity, stock market history