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Graduate Scheme Insight: The Transformation of Wall Street

After spending the final 6 months of the TORI Graduate Scheme working in the TORI New York office, our Junior Consultant, Wiktoria Bartusik, takes a look at how the financial capital of the United States has changed over the years...

 

The Transformation of Wall Street

‘The Wolf of Wall Street’, ‘Margin Call’, and ‘The Big Short’ are just a few of the box office attempts to portray life on Wall Street. Stock brokers and investment bankers dressed in suits and screaming into their phones. But what does life on Wall Street really look like today?

 

The early days…

In 1792, Wall Street became associated with business and finance after 24 traders signed the “Buttonwood Agreement” to trade stocks with each other and began the New York Stock and Exchange Board. For centuries after this event, Wall Street was perceived as a symbol of commercialism. The world saw “Wall Street” as the face of America's Financial Services industry, hence the phrase being used as a figure of speech to refer to the US financial market as a whole - even if the firms were not physically located there.

 

The reality: what you can expect to see today

Post 9/11 local financial institutions dispersed throughout the island of Manhattan and in some cases ventured off to New Jersey. This was done to avoid high centralization of financial institutions and their buildings should another attack occur, and to take advantage of lower real estate prices elsewhere. As a result, the 8-block street running through downtown Manhattan is no longer the 9 to 5 office space many people still perceive it to be. Wall Street has transformed into a 24/7 neighbourhood filled with luxury rentals and apartments, and is flooded with daily tour groups full of international travellers learning about the history of the neighbourhood’s famous landmarks.

Walking down Wall Street today you will stumble upon buildings which stand empty or no longer fulfil their original purpose. Take 23 Wall Street as an example. “The Corner” formerly owned by JP Morgan, was renowned as the "House of Morgan" and was so well known that there was no need to put the bank’s name on the building’s exterior. Yet the building has been empty since 2008, and many surrounding former bank venues have followed its fate - unless they have not already been converted into a Tiffany's store, an upmarket watch boutique or a coffee house. Other conversions consist of 5-star hotels and rentals, including chains like Cipriani, a luxury hotel and restaurant situated on 55 Wall Street. It took over the National City Bank Building which was built to serve as the Merchants' Exchange. Today, the building is more likely to be a venue for an upscale wedding or a black-tie event (which explains the occasional stream of paparazzi lined up in front of the hotel entrance). Additionally, indoor spaces like the one found on 60 Wall Street inside the Deutsche Bank US headquarters building, are now home to numerous lunch and coffee vendors who are open to the public.

 

Digitization of the NYSE

The role of one Wall Street landmark hasn’t changed however. Located on 11 Wall Street, the New York Stock Exchange is the largest equities-based exchange in the world based on total market capitalization of its listed securities. Trading on Wall Street begins at 09:30 every morning when the opening bell is rung, and 16:00 marks the end of the trading day. Historically, the NYSE was famous for using an open outcry system on its trading floor, where 1 million of shares was traded in a single day for the first time in 1886. In 1987, a normal business day consisted of 500 million shares changing hands, and by 1997, this number rose to 1 billion of shares. Due to the sheer volume of shares being traded on the exchange, there was a greater need for electronic trading.

 
Trading in the 21st Century: the end of NYSE specialists

The NYSE specialists have been a dying breed ever since the 1990s. Specialists were members of the exchange who acted as designated market-makers to enable the trading of stock. They were the floor traders entrusted with manually managing the flow of stock, and acting as middlemen between buyers and sellers. Specialists were expected to make sure prices moved only incrementally from trade to trade, placing their own capital on the line to do so. Yet, with the rise of electronic order tracking, the majority of trades were soon executed electronically. Online trading exploded between 1996 and 1999 as internet traffic dramatically increased. Consequently, by the end of the century most specialists were replaced by online trading. All of this was possible due to more powerful personal computers, higher volume and faster access to bids and offers, along with the growth of online brokerage firms. As trading evolved by becoming less dependent on people and more reliant on technology, NYSE entered into a new era of algorithms and high-frequency trading.

 

Has the NYSE gone quiet?

Today, general daily trading volumes range from 2 to 6 billion shares. With most of the trading done online, NYSE no longer has the chaos swept trading floor we all saw in the movies. The ringing of the bell to open trading remains a tradition and is often performed by an important personality - whether it is a celebrity making an appearance, a start-up founder celebrating an IPO, or a representative of an institution commemorating its anniversary. Previously the sound of the bell would send brokers rushing to complete their trades, today however, it is solely a fanfare.

Overall, Wall Street’s transformation since 9/11 cannot be ignored. The neighbourhood evolved from commercial to residential, and walking down the street today you are more likely to bump into a tourist than a stock broker leaving the New York Stock Exchange. However, even if all the financial institutions move on or evolve, given its historic importance, Wall Street and its surrounding landmarks will forever remain a symbol of American finance.

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