Big Board took huge trading volume with newfound ease
When volume on the New York Stock Exchange surged to 132 million shares last Wednesday, very few of the clerks who work in the back offices had to log any overtime.
Only a year and a half ago, on Jan. 7, 1981, when Joe Granville gave his famous ''sell everything'' signal and volume jumped to 92.8 million shares, the order surge kept the midnight oil burning at some Wall Street firms.
In the short time since, Wall Street has invested heavily in computers and improved communications equipment. That investment - estimated at nearly $70 million at the Big Board alone - has paid off. Millions more have been spent by the member firms, upgrading their own systems.
According to Sam Alward, senior vice-president at the exchange, the goal of the automation has been to allow the exchange to operate efficiently at a peak volume of 150 million shares. In computer runs, the exchange had reached that goal. But it hadn't tested the machinery at that level during an actual trading day, when emotion and pressure place tough demands on computer systems. Volume last Wednesday was at times running at the equivalent of 200 million shares per day. ''Now we've been tested,'' says Chuck Storer, a spokesman, ''and we've passed the test.''
The volume surge also came after some of Wall Street's large wire houses had laid off clerks and other back office personnel when volume sagged this summer. Both Bache Halsey Stuart Shields Inc. and Merrill Lynch, for example, let a number of people go. But both brokers say they were able to handle the latest volume surge without any difficulty. One Bache officer noted that the firm has the computer capability to handle 175 million-share days.
At Shearson/American Express, an officer says the firm's computers were returning orders within 15 minutes of being placed. He says his office placed even more business in the bond market than the stock market, and the computers still had no trouble.
On the floor of the exchange, Don Stone, senior partner of the specialist firm of Lasker, Stone & Stern, says the surge of orders went ''smoothly and with a minimum of error.'' He added, ''This shows the man/machine interface has had an outstanding success.''
This contrasts with 1968, when Wall Street firms had trouble handling 20 million-share days. At that time, the exchange shut down on Wednesdays for several months to allow back office personnel a chance to catch up. Brokers and their clerks often worked until midnight matching buy and sell tickets.
Today, the ability of Wall Street's back offices to handle heavy trading is due to several important changes. Any orders to buy a stock for 300 shares or less go directly from the brokers' computers to the specialists' computers. Thus , they bypass the booths where the firm's own floor traders are waiting to handle orders. The computer catalogs the orders as they come in and the specialist executes the order through the auction system.
Each order is assigned a number and the computer reports back to the brokerage house when the order is executed. According to Mr. Alward, 50 percent of the orders now go directly to the specialist. The turnaround time for an order placed in this system averages just a little more than 90 seconds. On the day when 132 million shares were traded, 50,000 trades were handled in this way.
Another reason the exchange has been able to handle all the trades is the high level of institutional activity. Last Wednesday, for example, there were 2, 400 block trades of 10,000 shares or more which produced a volume of 60 million shares - or 45 percent of the volume. The larger trades are easier for the brokers to match up in the evening.
For example, when Mr. Granville gave his sell signal there was a larger percentage of small trades, since many of his clients were individual investors. On that day, some 10 percent of the trades that were reported had some form of initial error. Last Tuesday, when the volume was 90 million shares, the initial error rate was 3 percent. Normally, after researching the questionable trades, the exchange can lower the error rate to 1 percent.
The exchange has improved the communications equipment the floor personnel use. For example, many brokers carry paging beepers that direct them to the specialists' booths more efficiently. Because of the din on the floor, the beepers vibrate to attract their attention. The exchange is also experimenting with cordless telephones and hand-held computer terminals for entering orders.
All of this automation has actually reduced the number of personnel on the trading floor - a sore point with the exchange's unions. Business Week reports that today 400 fewer people roam the floor than five years ago, when the volume was half as great as it is now.
It was an ebullient week for Wall Street. Buoyed by predictions of lower interest rates and the tax increase in Washington, which will lower the federal deficit, stocks rallied on explosive volume. The Dow Jones industrial average shot up 81.24 points, closing the week at 859.29, a record. On Tuesday it set a one-day record when it bounced up 38.81 points.
Trading was active in computer stocks, such as IBM, and some of the oil stocks, such as Exxon. On Thursday, when rumors spread of problems with Mexican loans, bank stocks took a beating but soon recovered.