The trading floor: a short history, from coffee houses to screens

The first share market that resembles a modern one grew up in Amsterdam after the Dutch East India Company was founded in 1602. Its shares could be sold on to someone else, and dealers gathered to do it: in the open air at first, and from 1611 in the courtyard of an exchange built for the city’s merchants. In 1688 Joseph de la Vega, a writer living in Amsterdam, described the dealing there in a book called Confusión de Confusiones, which is usually named as the earliest book about a stock market.

In London the dealers in shares and government debt did their business in the coffee houses of Exchange Alley, above all one called Jonathan’s. The story usually told is that they had been turned out of the Royal Exchange for their manners. From 1698 a broker named John Castaing published a printed list of prices from Jonathan’s, The Course of the Exchange. In 1773 a group of brokers moved into a building of their own, which took the name of the Stock Exchange, and in 1801 it was put on a formal footing, with members and rules. Lloyd’s of London grew in the same way out of Edward Lloyd’s coffee house, where ship owners met the people who insured them.

New York followed the pattern. On 17 May 1792 twenty-four brokers signed an agreement to deal with one another at fixed commissions; by tradition they signed it under a buttonwood tree in Wall Street. In 1817 their successors adopted a constitution as the New York Stock & Exchange Board and took rooms of their own.

In each city the order of events was the same. People who wanted to deal found one another in a public place; the place became known; and in time the regulars closed the door, wrote rules and decided who could come in. A floor was from the beginning two things at once: a place where prices were made, and a club.

A full pit was too loud for the voice to carry, so the pits grew a sign language. In Chicago its root was simple: palms turned towards the body meant buying, and palms turned away meant selling. Fingers gave the price and the quantity, and the position of the hand about the face and head gave larger numbers and delivery months. The details differed from exchange to exchange and from pit to pit, and no single dictionary of them was ever agreed.

The signs carried orders as well as trades. Clerks at telephones around the edge of the floor took orders from outside and flashed them to a broker in the pit, who flashed back what had been done. Brightly coloured jackets marked out firms and roles so that one person could be found in a crowd of hundreds.

The trade itself was written by each side on a card and matched afterwards. Where the two cards disagreed, the result was called an out-trade, and settling out-trades before the next morning’s opening was an ordinary part of the working day.

Nasdaq opened in 1971 as a network of screens showing dealers’ quotations for shares that had no exchange floor at all. It is usually called the first electronic stock market.

In London the reforms known as Big Bang took effect on 27 October 1986. They were about commissions and the ownership of firms, not about the floor, but they arrived together with a system of quotations on screens. Within months the floor of the Stock Exchange was all but deserted. Nobody had ordered the dealers off it: they found that the same business could be done from a desk.

Futures took longer. The Chicago Mercantile Exchange’s electronic system, Globex, began in 1992 as a way to trade after the pits had closed for the night. Later in that decade an electronic exchange in Germany took the main market in German government bond futures away from the pits in London, and London’s financial futures exchange closed its own pits soon afterwards. The Tokyo Stock Exchange closed its trading floor in 1999.

In 2015 CME Group, by then the owner of the Chicago pits, closed most of its futures pits, saying that open outcry had fallen to a very small share of its futures trading. Most of the pits that were left shut when the pandemic arrived in March 2020, and in 2021 the exchange said that most of those would not reopen.

The New York Stock Exchange still has a floor. Most orders in its shares are matched by computer, but the designated market makers who stand on the floor are responsible for the opening and closing auctions in each share. On 23 March 2020 the floor was closed because of the pandemic and the exchange traded entirely by computer for the first time; it reopened in part on 26 May.

The London Metal Exchange, founded in 1877, still has the Ring: a circle of seats where members deal by open outcry in short sessions, one metal at a time. The exchange proposed closing it in 2021 and, after consulting its members, kept it for setting its official prices.

In Chicago some options pits continue, where large and complicated orders are still negotiated by voice.

Everywhere else what remains is the vocabulary. A floor, a pit, a seat, a ticker, the tape, the bell, cable: the words on a trading screen today mostly describe a room that is no longer there.