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, 15:33, 19 May 2008Possible Future Of Stock Exchanges - With the electronic age firmly entrenched and the Internet and basic computer usage a fact of life, many people are taking a look at how computers are changing the
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== Possible Future Of Stock Exchanges ==
With the electronic age firmly entrenched and the Internet and basic computer usage a fact of life, many people are taking a look at how computers are changing the workplace. Where most elementary schools may have had one or two computers in an entire school, some schools now have a laptop for every student. And while the average workplace use to have slow and clunky terminals, they have now been replaced with lightning fast machines capable of running a dozen complex programs at once.
One workplace that has been somewhat shielded by this evolution is the floor of the New York Stock Exchange. Some consider this to be highly ironic, since the floor of the exchange is where the shares in the very computer companies that seem like they are taking over the world are traded.
The recent expulsion of Richard Grasso as head of the NYSE was seen as an ominous move by many specialists who work at the exchange. Grasso, while far from an ideal leader, was famous for trying to keep the individual traders employed when they could most likely be replaced by a newly designed computer system.
With the appointment of new exchange boss John Thain, a possible revamping of the entire trading system is expected, but how many jobs will it cost and what will it look like?
A major sign of impending change happened in April of 2005 when a company called Archipelago Holding merged with the New York Stock Exchange and the two became a publicly traded company. Archipelago is an electronic trading network, and it’s thought by many who work on the floor of the NYSE that this merger is the final nail in the coffin for the hundreds of people who carry on the tradition of floor selling that has been going on for over 200 years.
The possible evolution of the NYSE may not even be up to those that run it. As other markets across the world in places like Hong Kong, Frankfurt and London upgrade their trading methods and begin to phase out trading by people in favour of computers, an upgrade may become necessary to just keep up. Since the computer can process trades significantly faster than a human, the NYSE may have to do away with the traditional floor trader just so that the exchange remains competitive and relevant.
While the constant sea of change is inevitable, the future of the floor trader at the NYSE looks bleak. It is not known if there will still need to be traders to input the trades into the computers or if that phase of the trade will somehow be automated, as well. The only thing that is known for sure is that change will continue to happen and unless we learn to anticipate it, those that don’t will be left behind.
== Richard Grasso and the NYSE ==
Richard Grasso was born in New York City in 1946 and was chairman of the New York Stock Exchange for 8 years from 1995 until 2003. His career on Wall Street began in 1968 when he began working as a clerk. Grasso was also president of the exchange during the September 11, 2001 terrorist attacks on the World Trade Center and his leadership was considered to be a major factor in getting the exchange up and working so quickly after the attacks.
Grasso grew up in the city and was raised by his mother. He joined the Army after attending university for two years, and it was upon his exit from the Army that he began working as a floor clerk on Wall Street. The rest, as they say, is history. Grasso worked hard and moved up, through the ranks, and by 1995, he was president. Although his tenure with the NYSE would end in controversy, he was thought to be a major force in keeping the stock exchange one of the top financial markets in the world.
Four years into his reign atop the NYSE, a controversy began when Grasso invited a group of members from the Revolutionary Armed Forces of Columbia (FARC) to the floor of the stock exchange. It is still unknown why Grasso would associate himself with an organization that the United States government considers to be a terrorist group that uses illegal drug sales to fund their war against the Columbia government. During the meeting, Grasso is reported to have said that he was bringing a message of cooperation from United States financial companies, since FARC has been known to preach anti-capitalism ideals. A scene like this today in the post-9/11 world is unfathomable.
Grasso’s downfall was precipitated by his receipt of what is known as a deferred compensation pay package. The reason why this was a problem was because the package was worth 140 million dollars, and the people who agreed to give it to him, the compensation committee, had been hand picked by Grasso and the members were made up of representatives of companies that traded on the New York Stock Exchange. An obvious conflict of interest led to Grasso stepping down as the chair of the exchange on September 17, 2003.
The story of Richard Grasso isn’t over as a lawsuit is still pending to attempt to recover some of the $140 million, as well as a counter lawsuit filed by Gasso.
== NYSE President John Thain ==
John Thain is the current Chief Executive Officer of the New York Stock Exchange. Before coming to the NYSE, Thain was the Chief Operating Officer and President for Goldman Sachs, one of the world’s most prestigious investment banks. During Thain’s tenure with Sachs, he was able to develop a portfolio worth over $300 million dollars in stock.
Thain was chosen for his business acumen, but also for the fact that unlike his predecessor, Dick Grasso, Thain isn’t as much of a showman and enjoys being behind the scenes at the New York Stock Exchange. There are famous stories of Thain while at Goldman Sachs that talk about how he was an important and influential member of their company, people didn’t talk about him because he was so quiet. This demeanor is thought to be a major reason why he was chosen to replace Grasso after the extremely controversial and public way he left the NYSE.
Thain attended the prestigious Massachusetts Institute of Technology (MIT) and still has very close ties to the school today as a member of the MIT Corporation and with the Dean’s Advisory Council. Thain graduated from Harvard in 1979 with his MBA.
It was thought to be a bit of an upset that Thain would get the job to head the New York Stock Exchange. Many other higher profile business men had been bantered about in the media as possible successors to the tarnished throne of Dick Grasso, but Thain won out.
One of the hopes of Thain’s reign at the NYSE is that he will help to modernize the trading floor. A major criticism of the Dick Grasso era was that he refused to let computers and more efficient systems be installed into the exchange with the rational that since trading had always been done this way, it should always be done this way. One of the possible reasons Thain was chosen is that, while he is by all means an insider to the financial world, he has no particular allegiance to the men and women on the floor who trade stock, and while no one wants to fire people who are doing their jobs, the need to modernize the trading system to match other exchanges around the world is a must.
While no one can predict the future, it is hoped that the tenure of John Thain is just as effective as his predecessor Dick Grasso, just a heck of a lot quieter.
== NYSE During WWI – Why the Shut Down? ==
The history of the New York Stock Exchange is littered with colourful stories that feature soaring stocks and bonds, horrible crashes, as well as ceremonies to mark significant moments in history and even simple holidays.
When World War I broke out in 1914, the governing body of the New York Stock Exchange decided to suspend trading. In retrospect, an initial closing was probably a good idea since holdings in Europe of American securities were more than likely going to be extremely unstable. The shut down was considered to be an emergency measure, but a necessary one to keep the market from crashing altogether.
The market closed on August 1, 1914, but what shocked so many was that the market didn’t just close for a day or two, it closed for four months. While by today’s standards, the idea of no trading for four months seems outrageous and basically impossible, traders in that time felt exactly the same way. The only other time up to that point in the history of the NYSE that there was a closure was during the Panic of 1873, which featured over 30 firms on Wall Street to go out of business. But even then, the exchange only closed for 10 days, not months. So, what was the cause of this extended closure?
One of the major reasons was the president at the time Woodrow Wilson. He felt it was very important for all the Federal Reserve banks to be up and running before the stock market was reopened. But Wilson’s treasury secretary kept the market closed even after those banks were online. Why? The emergence of a secondary and much smaller trading market called the New Street Market had opened, and while it was a far cry from the organization and scope of the NYSE, it did help relieve some of the pressure that not having the NYSE open caused.
The New Street market was never really taken seriously by major business. The New York Times and the NYSE made sure the New Market didn’t gain any traction in the city. The NYSE heavily lobbed the government to reopen so they could put an end to the New Market once and for all.
The NYSE was kept closed for four months mainly out of fear of a crash that would plunge the economy into a recession or an all out depression. The New Market helped to get some trading done and when the proper safeguards were in place, the NYSE reopened.
== Is a Bull Market on its Way? ==
Recently, the Dow Jones industrial average broke an all time high, and recent stock news shows that the index is ready to break through to 12,000, which would also be a record high. Investors all over the world are asking themselves if this means another bull market, meaning a market that is going to be going up and up is about to start? Or is this a short term rise, and a bear market, or a market that is going to be going down, is starting? Investors have argued over the direction of the market for generations, just like sports fans arguing over who has a better defense.
Pessimists of the current markets point to the fact that while the NYSE is way up, the other markets like the Nasdaq and the S&P 500 are far below a possible record high. They also point to the fact that recent economic indicators are showing a downturn in the economy, although optimists argue that any economic downturn will be short-lived.
One of the best bellwethers for the overall economy is real estate. Since the real estate market deals in such “real” terms, meaning that they deal in land, homes and large buildings; things you can see and touch, the real estate market is very stable and not prone to seismic shifts in price and quality.
If you are going to judge the real estate industry on how stocks might do over the next year, than you might want to think about selling off your holdings now. Real estate experts agree that a “housing bubble” is about to burst, sending the price of real estate across the country into the basement, and a good chunk of the economy with it. A real estate bubble is caused when a flurry of investing causes the market to become overvalued. With the 5-year long real estate boom over, prices from California to Arizona to Florida are coming back down to earth, and the economy at large is going to suffer.
Cities like Boston have already been feeling the affects of this burst bubble. The real estate market there has been in decline for months now and the trend is spreading to New York and even out west where the housing market has been red hot for years.
While there is no way to predict what the NYSE and the other stock markets will do over the coming year, if the real estate market is an accurate indicator, than there could be trouble ahead and a bear market might not be far off.
== History of the stock exchange ==
== History of the stock exchange ==