Making Markets Change

Making Markets Work

What if the market stopped and nobody noticed?

Photo: Nabeel Syed. Source: Life of Pix

That’s what happened last Wednesday. Between 11:30 am and 3:00 pm, no trades were processed through the New York Stock Exchange. But apart from awkward TV images of traders standing around staring at blank screens, almost nothing changed. Shares kept changing hands. There was no trading halt. Anyone who wanted to sell or buy Alcoa leading up to their earnings announcement could do so.

This wasn’t your father’s shutdown, or even your older brother’s market freeze. Even though the iconic NYSE stopped trading, there are 10 other official venues where people can buy and sell shares. And there are dozens of unofficial exchanges—dark pools. These exchanges are simply computers running software to connect buyers and sellers. And when the NYSE’s computer froze because of a failed software upgrade, the other exchanges picked up the slack without a hitch.

Source: Bloomberg

Over 7 billion shares changed hands on the official exchanges, with a flurry of trading at the close. This was less than Tuesday’s volume, but more than Thursday’s. The pace of trading was steady. There wasn’t even a hiccup around 11:30 when NYSE’s platform went down.

People worry about the market’s structure today: it’s fragmented and hyper-fast. Millions of dollars are being made via economically useless activities, like running fiber-optic cables from New Jersey to Chicago to gain a few microseconds in order to arbitrage the system. But last week that fragmentation worked. The little “N” on a consolidated data feed that represents the NYSE was replaced by some Ts and Ys and Ks.

All these competing exchanges give us a resilient system. In markets, as in much of life, it’s not the biggest and the strongest that survive, but the system most adaptable to change.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2017-07-17T12:22:42+00:00 July 13th, 2015|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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