Amid the chaos that follows the 9:30am opening bell on the trading floor of the New York Stock Exchange (NYSE), you might be excused for not being able to recognise many faces among the crowd. But, there is one that’s easily noticeable.
Stood poised in the centre of the terraced trading pit is Peter Tuchman, who weaves, jostles and yells alongside 500 other stockbrokers in a bid to land a fair price for his customers.
The sudden eruption of energy and screaming voices is palpable. However, to be at the centre of it is something else entirely. “It's an environment so extraordinary that it exists nowhere else in the world,” Tuchman tells Opto.
For more than 35 years, Tuchman has been a part of the 400-year-old profession of trading in open outcry – the means of communication in which floor traders communicate trade orders through verbal and arcane hand signals.
“It's an environment so extraordinary that it exists nowhere else in the world”
Generations of traders making split-second decisions amid frenzied crowds have passed through the pits. But it is Tuchman’s iconic twin clouds of white hair (earning him the moniker the Einstein of Wall Street) and expressive eyes that have made him synonymous with Wall Street.
It has been more than a decade since Tuchman appeared on the front page of the New York Post, with his mouth agape in reaction to the wild price swings during the 2008 financial crisis. Ever since, photographers have gravitated towards him, cementing his place as the most recognisable, and pictured, stock trader on the NYSE.
Chaos on the floor
The countless images of Tuchman during seminal moments in the NYSE’s history tell the story of entire fortunes made and lost. He’s been at the centre of the trading floor for some of the investment world’s biggest blunders.
At the time of the US crash of 1987, Tuchman was still a clerk when the bottom fell out of the market. “The stress, panic and anxiety was something I've never seen to this day,” he recalls.
Similarly, Tuchman’s first-hand experience of another cataclysmic event for the city of New York is seared into his memory. He recalls the surreal feeling of “walking through the darkness in three feet of ash” in the wake of the terrorist attacks on 11 September 2001.
Alongside shaping Tuchman’s experience, these events had a significant impact on the investment community. “To be able to navigate it, to be part of it… to have survived it [when] so many people in the industry did not. If nothing else, I am a survivor as far as that goes.”
“To be able to navigate it, to be part of it… to have survived it [when] so many people in the industry did not. If nothing else, I am a survivor as far as that goes”
Masters of the ring
Being able to cope with the stress, panic and anxiety of dealing with hundreds of millions of dollars of other people's money on a daily basis is a level of responsibility that Tuchman thrives on.
His resilience, however, is increasingly tested as the days of open outcry appear to be numbered. Many of the boisterous and colourful trading pits around the globe, immortalised in movies such as the 1983 film Trading Places, have fallen silent as automation takes over.
“I was one of the last people to give up the pad and pick up the computer. I fought it as much as I could, but it was obviously much too big for me,” Tuchman admits.
“I was one of the last people to give up the pad and pick up the computer. I fought it as much as I could, but it was obviously much too big for me”
Most major stock exchanges, including those in Tokyo, Hong Kong, Toronto and Mumbai, have abandoned their trading floors. However, the NYSE, alongside the Chicago Board of Trade and London Metal Exchange, has so far refused to resign itself to the march of the machine.
Even as the coronavirus pandemic forced each of them to close their trading floors earlier this year, it was the NYSE that was the first to reopen on 26 May. The floor has been operating under strict rules and at a 30% capacity since then.
Many point to the Big Bang in 1986, the day when the City of London was deregulated, as the beginning of the end. In one fell swoop, the securities industry was deregulated and open outcry trading on the London Stock Exchange went from being face-to-face to electronic.
At its peak in the 1990s, there were roughly 5,000 floor brokers and support staff on the NYSE trading floor. That number has since fallen closer to 500. Most of the exchange’s volume now flows through fibre-optic cables into a data centre in New Jersey.
Floor traders used to trade blocks of 10,000 shares, according to Tuchman, and could trade as much as $200m worth of stocks in any given day. But in today’s electronic market, a computer can execute 100-200 shares at a time.
Over time, the advent of technology brought with it certain efficiencies, offering faster execution and supposedly fewer errors. “As technology streamed into the business, in every business not just ours, people were outsourcing in a lot of ways. Unfortunately, some were bypassed completely where the human element was not as important as it is on the floor of the stock exchange,” Tuchman considers.
The trade-off for efficiency, however, raised some concerns. Not only did electronic trading lack volume, which in turn reduced liquidity, it also jeopardised market behaviour from an absence of human judgement, Tuchman explains. “When algorithms and electronic trading become reactive and not responsive, it can affect the integrity of the market As a human being, with my experience, I am able to make a judgement saying that's just an overreaction … whereas as algorithms can slice and dice buy and sell interest.”
For instance, without someone transacting the order, there are ways that order flow can be intercepted before it gets to a market maker to fulfil. The practice of “pinging” or “spoofing” is unethical and illegal. A high-frequency trader can send out small orders to an exchange to get an indication of buyer interest so that they can then drive up the price of a stock or confuse demand.
“When you take the human element out of a situation where you are buying and selling stocks, you are at risk of bad actors and technical fault. [The pandemic] highlighted how necessary we are as brokers”
These practices make the market a less level playing field.
“When you take the human element out of a situation where you are buying and selling stocks, you are at risk of bad actors and technical fault. [The pandemic] highlighted how necessary we are as brokers.,” Tuchman explains.
Life in the fast lane
Tuchman’s background is as colourful as the flashing screens that surround the pit.
Before he got a job at the NYSE, he had studied for a career in agriculture, going as far as to live in a kibbutz — a collective and communal community — in Israel for a year. However, Tuchman soon abandoned the idea and even though his father wanted him to follow his path into medicine, he decided to get an MBA.
While studying, Tuchman dabbled in the music business. He opened a record store on Bleecker Street in New York City during the 1980s and would go to school at night while trading commodities during the day.
After being forced to close his store due to overseas competition, he ended up in the People’s Republic of Benin (now Benin) for a period of time, working at an oil company. Returning to the US, Tuchman — then in his mid-20s — saw Wall Street as an attractive career option. His father had a patient who ran a brokerage firm on the floor, which led to him getting a summer job as a teletypist in 1985.
“Once I arrived down there with this summer job, I loved it instantly. The energy, the people, the action — it was like I had arrived. I knew it was going to be the career for me,” he recalls fondly.
Tuchman flourished in the frenetic environment. Over the next three years he worked his way through every position on the floor until he got his seat as a broker. The process could sometimes take ten to twelve years before a seat opens up and getting to that point was no mean feat.
“The funny thing about the floor of the stock exchange is there's no training for those jobs,” Tuchman says. “There are many jobs on the floor, starting from what's called the squad, which is a runner — the lowest rung. It's sort of like a caste system in a way, where there's no schooling to be good at what you do as a broker, or as a clerk, or as a teletypist on the floor of the exchange. Everybody starts at the bottom.”
“It's sort of like a caste system in a way, where there's no schooling to be good at what you do as a broker, or as a clerk, or as a teletypist on the floor of the exchange. Everybody starts at the bottom”
But Tuchman had found his calling. He was good at thinking on his feet, good with numbers and most importantly, good at engaging with others in the melting pot of the trading floor.
The future of the floor
The whole industry has continued to become more dependent on technology, but the NYSE’s decision to maintain the presence of floor traders has proved to be of value.
“We had to adapt because it's the way of business, but we've been able to maintain the human element,” Tuchman notes. “This story gets even more fun and interesting, and upsetting in a way, as we see what happened during the pandemic, [which] raised some shortcomings in the technical space when it comes to trading.”
A study by NYSE owner International Exchange of trading statistics between 20 February and 20 March, during which time the stock market crashed 30%, highlighted how floor traders dampened volatility.
“We had to adapt because it's the way of business, but we've been able to maintain the human element”
During the period, not only did bid-ask spreads widen, but there was also substantially more actionable liquidity in the final 30 minutes of trading, which is when 20% of US trading happens, according to Reuters.
The lack of floor traders meant that so-called D Order (short for Discretionary Order) couldn’t be used during the downturn, as only NYSE brokers have access to them to temper volatile swings in the final minutes of a trading day.
While Tuchman appreciates that one computer can do the work of ten brokers, he believes that trading has become “generic” because of the industry’s reliance on tech. “All [technology] is working off of is keywords and algorithms, and that is really jeopardising some of the integrity of the market,” Tuchman says.
Furthermore, skilled brokers, like Tuchman, work with other traders to get a better price through what’s known as price discovery — the subtleties of which are hard for a computer to pick up on. The reason comes down to the fact that these negotiations consider not only tangible factors but also intangible ones, such as investor sentiment or the overall behaviour of the market.
“Everyone has access to the same information, yet their interpretation of the information is different,” he points out, adding that it’s really up to the person on the frontline to use their experience to consummate the trade. It’s a competitive business at the end of the day and the role of a floor trader is ultimately to get the best price for an asset for his client.
After all, despite huge leaps in trading technology, Tuchman does not think that tapping away at a screen is an adequate substitute for the nonverbal cues that indicate the motives and intentions of opposing parties.
Tuchman says it’s like sitting at a poker table in Las Vegas: “When you get four aces, you don't just lay them on the table and tell everybody you're the winner because you're not going to make any money.”
“When you get four aces, you don't just lay them on the table and tell everybody you're the winner because you're not going to make any money”
When he’s got a million shares to buy for a high-net-worth institutional client, Tuchman doesn’t reveal his hand too early. “I have to do it in a way to buy it correctly. There's a way to do it correctly.”
Ultimately, he’s happy that some of the issues highlighted how important and necessary floor traders. “We've shown by coming back that the investment community is thrilled with the human element,” Tuchman considers. “The market is responding appropriately. The IPOs are coming back, things are trading more normally, and there is more liquidity in the marketplace.”
He’s also optimistic about the ongoing support he feels floor traders have been given, explaining that “there's a big part of the community that needs us, wants us and lets us know that we're relevant and necessary”.
A familiar face
For the first time in the NYSE’s 228-year history, it operated entirely electronically during floor closures of 2020, which prompted many advocates to claim that it was a fairer way of trading.
But, Tuchman is standing his ground.
For him, the job of a floor trader is now more important than ever. During tumultuous times, technology can suffer as it cannot recognise the very human emotions involved in the trade.
The trading floors of stock exchanges are also the tangible element of investing. “You go down there, you're in this incredible room, you’re at the delta of all the information, all of the media, all of the financial edge transactions going on daily, markets going up and down, fortunes being made and lost.”
“Do I believe that we will be there forever? Absolutely, and I'll be the last guy standing”
In times of crisis, just like the pilot taking control back from autopilot during turbulent weather, it’s the floor traders who wrestle with market volatility face to face.
It is this in which Tuchman puts his faith.
“Do I believe that we will be there forever? Absolutely, and I'll be the last guy standing.”
This article was originally published in our Opto Magazine. You can purchase copies on our Opto Shop.