UBS' global head of market structure says coronavirus shutdowns at iconic venues like NYSE are causing clients to rethink the future of floor trading

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  • Vlad Khandros, global head of market structure and liquidity strategy at UBS, said some of the Swiss bank’s clients are questioning whether exchanges’ physical trading floors should reopen.
  • The New York Stock Exchange, along with Chicago trading pits run by Cboe Markets and CME Group, have temporarily closed in recent weeks as a result of the spread of the novel coronavirus. 
  • Khandros said the US equities market has largely worked fine despite NYSE’s trading floor being closed.
  • Options trading is one market that potentially has been negatively impacted by not having a trading floor, he added, although it might be too early to understand what the root cause of the issue is. 
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With exchanges’ physical trading floors empty amid concerns over the spread of the novel coronavirus, some on Wall Street are asking if they should keep their doors closed for good.

Vlad Khandros, global head of market structure and liquidity strategy at UBS, said “a number of clients” have asked if trading floors will ever reopen, with many hoping they remain closed because they view it as an additional source of friction for trading.

“The longer things go very smoothly the more clients are wondering if the exchange floor is really needed,” Khandros said on a media call Thursday morning. “Does that perhaps make access to information more democratized? Does having a floor perhaps add friction to the process? These are questions we are getting from clients constantly.”

The New York Stock Exchange’s iconic trading floor, along with Chicago trading pits for options and futures run by Cboe Markets and CME Group have all closed in recent weeks. All the exchange operators have said the closures are temporary as a precaution regarding the coronavirus. In a statement announcing its closure, NYSE said the floors “provide unique value to issuers and investors.”

Some industry veterans have already suggested the money saved by the companies for keeping the floors closed, which is likely in the millions, could keep them shut for good. 

While it’s still early days, Khandros said his team is looking at data sets to understand how the no-floor model has changed trading, whether it be for better or worse. 

He said that generally, the US equity market has continued to run without any issues despite the market’s largest trading venue, NYSE, closing its floor.

One hiccup has been adjusting to not having d-orders, which allow investors to leverage floor brokers during NYSE’s closing auction. Khandros said the loss of d-orders has limited some flexibility trading firms typically had, adding that some clients weren’t happy about the change and UBS made adjustments so clients could properly trade the close.

But by a large, the change hasn’t had a huge impact, he added.

“A number of our clients still feel like, broadly speaking, the open, but more importantly the close, where a lot of the d-order usage was concentrated on NYSE, has worked relatively well from a market mechanics standpoint,” Khandros said. “There’s certainly pockets and some tickers that folks feel could have been improved and further handled now that there are no d-orders into the close, and we’re still digging into it, but we are always working to improve our clients’ execution quality.”

To be sure, the markets haven’t operated completely seamlessly without trading floors. Options trading is one area where some spreads have widened, liquidity has decreased and, in some cases, volatility has increased, Khandros said. 

Because the changes are so new, though, Khandros said it could simply be a matter of trading firms needing more data to adjust to doing business without a trading floor. 

“The little bit of historical data we now have in the last number of days or weeks is so varied that some firms would still struggle to implement curves appropriately anyway,” he added.

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