Inside the Exchange: Chaos on the Floor

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Trading is conducted speedily and efficiently in an air of unutterable confusion. The floor may be occupied at any moment by some 1,500 individuals moving from post to post, clustering, breaking up, and moving on. Pages, clerks, and other attendants scurry about; running is prohibited, so the pace varies from a languid, aimless walk to a high-tailed, stiff-legged one-step, like a trotter about to break stride.

The floor is littered with ticker tape, note paper, etc. But not cigarettes. No smoking is permitted on the floor. The gray heights of the room dim the atmosphere, and over all is the ceaseless hum of the crowd, the nervous click of the annunciator board, an occasional roar at exciting news from the ticker tape.

Only brokers may trade. These are the owners of "seats"— a term dating from the days when brokers in fact had chairs. Actually, a seat is a New York Stock Exchange membership which must be purchased, and which is today, one of a total of 1,354. The highest price ever paid for a seat, at the 1929 crest, was $625,000. The lowest, in this century, was $17,000 in 1942. As these prices suggest, an active market increases the value of a seat, an inactive one decreases it. Activity, of course, means more commissions, or more advantageous trading for one's own account through the privilege of being present to observe hour by hour, minute by minute changes in the market tide.

Members pay an initation fee, annual dues, and 1 percent of net commissions from trades made on the floor. It is this income that pays for the supervision and administration of the Exchange.

On the floor at any one time are several kinds of brokers, traders, or dealers capable of transacting business. Most numerous is the commission broker. He is your man, the representative—usually a partner or officer—of the firm through which you place your order. He may also buy or sell for his firm, but his primary function is to act on behalf of public customers whose orders are channeled in to him.

What happens when your man gets orders simultaneously to buy IBM and sell U. S. Steel? He cannot be at Post 11 and Post 2 at the same time, so he enlists the aid of a two-dollar broker, who will execute one of the orders for him for a commission. This commission is deducted from the commission your broker charges you. Although the commission now exceeds the implied $2 per 100 shares, the name has stuck. The two-dollar broker may also be called on to execute a limit order—a purchase or sale at a specified price—when the time required for the market to rise or fall to that price is more than the commission broker can spare. In both instances, the two-dollar broker performs a most important function in helping members to keep abreast of the flow of business.

There are also floor traders, who buy and sell exclusively for themselves. These are the freelancers of the brokerage business. Because they pay no commissions, the floor traders can turn themselves a profit on a very narrow margin. By paying close attention to the trends of the market, they are able to move in and out of opportunities as they appear. Theoretically the floor trader, too, performs a necessary function. His presence on the floor, and his readiness to buy or sell, helps create a liquid market, narrow the range between bid and asked prices, and steady prices throughout the day.

This glimpse into a day at the stock exchange might give pause, but amidst all the chaos business gets done. It might seem a crazy system, but for nearly 100 years it's worked, and with a few updates thanks to technology, the NYSE has largely said, "If it ain't broke, why fix it?"

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