It's the way a market has looked since time immemorial: noisy, busy little crowds of people - loitering, chatting, browsing, haggling crowds of people. Competitive bidding for everything from pita bread to gold ingots began in such markets, and it isn't much of a stretch to see that the traditional stock exchange comes from these same deep roots. Anyone who has watched the 6 o'clock news when Wall Street has had a busy day has seen floor traders milling about; whipping themselves into a buying or selling frenzy; then, when the closing bell is rung, slumping with exhaustion.
But the days of the floor traders are numbered. Silicon and microelectronics this week posted a big win over shoe leather and gab.
The London Stock Exchange announced Monday it had decided to close down its share trading floor by the end of the year. Options and financial futures will continue to be traded by ``open outcry,'' but common-stock transactions are going inside computer terminals.
Since the enactment of sweeping deregulation last Oct. 27, the number of brokers and jobbers on the floor of the London exchange has fallen from about 2,000 to about 200.
Most big investment banks have set up their own dealing desks and are doing business directly with one another - through the Stock Exchange Automated Quotations system - rather than sending their representatives to the exchange's Threadneedle Street trading hall. Because the bigger dealers have migrated from the floor in the past four months, they no longer want to pay to keep the floor kiosks going.
The move to computerized trading is not just happening in London, either. The Tokyo Stock Exchange is committed to moving more and more of its share trading onto its computers. The Tokyo exchange floor is still a hive of activity, but because many of the lower-capitalization stocks are handled via computer, it is much more subdued than it was five years ago. Hong Kong and many smaller markets are doing likewise. In the United States, the fully computerized NASDAQ system for over-the-counter stocks is rivaling the gigantic New York Stock Exchange (NYSE) in volume and has long since eclipsed the American Stock Exchange.
The trend away from face-to-face trading has accelerated in recent years. There are basically two systems now at work in financial markets. The auction system is epitomized by floor traders, setting prices in competitive bidding. Its increasingly popular rival is the dealer system, in which computer screens exhibit buying and selling prices for a stock.
The Big Board is the foremost bastion of the auction system. NYSE officials say the organized chaos of a trading floor is essential for setting fair stock prices. They intend to continue to add computer equipment, but only to facilitate share trading done by shouting, arm-waving human beings.
Even the Big Board, however, may eventually come around, analysts say. The trend seems inexorably away from floor trading - although, curiously, not necessarily away from the auction system itself.
Gordon Macklin, president of the National Association of Securities Dealers, says there are aspects of auctioning involved in the NASDAQ dealer system. Shares in Apple Computer, for instance, have upward of 30 marketmakers on the NASDAQ system, and they must compete with one another to differentiate themselves. This essentially is competitive bidding, Mr. Macklin says.
Similarly, he notes, at the auction-oriented NYSE, the members, specialists, and bloc traders all do business in ways that look very much like a dealer market.
Will the NYSE ever go all the way?
Don't count on it, says exchange spokesman Richard Torrenzano. The spreads for customers in an auction market ``are always better,'' he says. Floor traders, moreover, can make quick and intuitive decisions about buying and selling that computers are unable to make. And the NYSE is able to process a much greater volume of trades than any other market.
The demise of auction trading in London, Mr. Torrenzano says, will bring more people who preferred the old system to the NYSE.
But Mr. Macklin thinks even the Big Board will evolve toward a more dealer-oriented system in 10 years.
``Two hundred years ago,'' he says, ``it made sense to begin trading under a buttonwood tree'' in New York, during the infancy of the NYSE. ``But today, if you were designing a system for global trading it would never occur to you to gather under one tree or in one room.''
Macklin sees the future as being one of ``informationally centered markets with geographically decentralized participation'' - exactly the approach London is taking to position itself at the center of the global stock market.