he New York Stock Exchange is no stranger to trouble.
Over its 209-year history, the Big Board has weathered a civil
war, two world wars, the Depression, and even a bombing in 1920 to
become the world's largest and most prestigious stock market.
But after Sept. 11, the exchange confronted a threat unlike any
it had faced before. The Big Board's headquarters and computer
systems survived the destruction of the World Trade Center
unscathed, but the attacks shut the exchange by crippling the
financial district's communications network.
The exchange reopened only six days later, thanks to the
determined leadership of Richard A. Grasso, its chairman, and a
herculean effort to repair the communications grid. But the attacks
exposed the Big Board's vulnerability to terrorism. With a single
physical floor where traders meet to negotiate stock prices, the
exchange can be disrupted more easily than computer- based markets
like Nasdaq. And the Big Board's columned fašade is one of
capitalism's best-known symbols.
Now Mr. Grasso must figure out how to make the Big Board less
vulnerable, even as the exchange faces growing competition from
Nasdaq and other new trading systems. Already, the exchange says
that it may postpone building a long-planned new trading floor and
900-foot tower across the street from its current headquarters. In
addition, the Big Board is considering building a secondary trading
site outside Lower Manhattan, a plan that could cost tens or even
hundreds of millions of dollars.
The health of the Big Board is crucial not just for its members,
but for all of New York, said Charles R. Geisst, a finance professor
at Manhattan College and author of "Wall Street: A History" (Oxford
University Press, 1997). Over the last two centuries, the exchange
has become "inextricably intertwined into New York's economy," Mr.
Mr. Grasso, who never wavered in his resolution to reopen the
market as quickly as possible after the attacks, said on Wednesday
that the exchange planned to remain a vital part of New York, with
its primary trading floor in Lower Manhattan. The exchange could
even become part of a broad redevelopment plan including the rebuilt
Trade Center site.
To limit disruption in case of future attacks, the exchange will
rely on a combination of contingency measures, he said. The most
important of those will probably be a second trading floor. The
backup site would be on a different power and communications grid
than the exchange's main floor, although it might still be in New
York City. Most trading would remain at the Big Board's
headquarters, but some stocks would trade full-time at the backup
Contingency plans might also include agreements to move trading
in Big Board stocks to exchanges in Toronto or Chicago. Even the
trading floors of major securities firms might work as substitute
sites, Mr. Grasso said.
"We are absolutely committed to New York," he said.
But some academics and competitors said Mr. Grasso should rethink
his plans. Even before Sept. 11, the exchange's physical floor faced
criticism within the industry as an anachronism that benefited the
Big Board's members at the expense of other traders and
Instead of building a second floor, said Ananth Madhavan,
managing director of ITG, which operates a computerized trading
system that competes with the Big Board, the stock exchange should
follow the lead of foreign competitors and move trading to an
electronic network that would be essentially impervious to physical
"If you were going to reinvent the N.Y.S.E. itself, you would not
start with a floor," said Mr. Madhavan, who in 1993 served for a
year as a visiting economist at the exchange. "You would do it
electronically. The floor is sort of a historical accident."
By moving to a fully electronic network, the exchange would
increase the speed of trades and give more investors access to
information that now belongs to a privileged few, Mr. Madhavan said.
On an average day, more shares are traded on the Nasdaq stock
market, which exists only on computer systems and the screens of its
dealers, than on the Big Board.
David Colker, chief executive of the Cincinnati Stock Exchange,
an all-electronic market that competes with the N.Y.S.E., said
physical trading floors are inherently slower and more expensive
than electronic markets. With faster computers and data
transmission, traders no longer have to meet in person to buy and
sell shares, he said.
"With or without this event, our belief is that the world is
Mr. Grasso strongly disagrees, and in the last year he has
quieted other critics of the exchange. The Big Board already uses
computers to process smaller orders, which represent about half of
all the shares traded on the exchange. But large orders require
human intervention to ensure that they do not cause wild swings in
prices, Mr. Grasso said.
"A blending of human and technology in terms of providing
services to customers, that's what this is about," he said in an
interview last month. "Our model works. No alternative model
Investors and companies have voted for the Big Board's structure
with their dollars, Mr. Grasso argues. Of the 25 most highly valued
companies in the United States, 22 are listed on the exchange. Over
the last decade, the Big Board has also become the premier address
for international companies that want to sell shares directly to
American investors. Nine of the 10 most valued European companies
are traded on the Big Board in addition to their home exchanges.
Last year, the Big Board faced pressure to make it easier for
other electronic networks and markets to trade its stocks. At a
February 2000 hearing of the Senate Banking Committee, the chairmen
of Goldman, Sachs and other major securities firms argued that the
Securities and Exchange Commission should force the Big Board to
give competitors a better chance to trade its stocks.
But Mr. Grasso argued that the commission should proceed
carefully, and momentum for radical changes ebbed. Only seven months
later, Goldman bought Spear, Leeds & Kellogg, which handles more
trading on the Big Board than any other firm, for $7.4 billion.
Now Goldman executives say they are happy with the exchange's
current structure. Any backup to the Big Board's current trading
floor should be a physical site, not a computer simulation, said
Andrew Cader, a managing director at Goldman who is co-chief
executive of Spear, Leeds.
Joseph Dellarosa, head of equity trading for Goldman, Sachs, said
that the increased threat of terrorism had not taken away the basic
strengths of the exchange. "You can talk about a perfect
marketplace, but it's hard to fashion one in the real world, and the
reality is the markets operate quite well," Mr. Dellarosa said.
Traders on the exchange floor have an advantage over those
outside the exchange, because they can see more quickly than anyone
else whether stocks are under buying or selling pressure, Mr.
Madhavan said. That information is valuable, and if the exchange
switched to a simulated floor it would face pressure to give all
traders the same access.
"Outside the United States, floors are disappearing really
quickly, and automated auctions are the wave of the future," Mr.
Madhavan said. "The United States is the lone holdout, and it's the
holdout because it has a strong group of dealers who are politically
But Mr. Madhavan said the exchange had adapted to challenges
before and would remain strong in the future, whether as a
traditional exchange or an electronic network. The Big Board "is a
pretty robust organization," he said. "It has survived a long time
for good reason."