NYSE boss Thomas Farley sees value in trading floor

The venerable trading floor of the New York Stock Exchange, the daily backdrop to television business news reports, has found an unlikely champion.

Thomas Farley this year took the helm of NYSE after its acquisition by Intercontinental Exchange, a much younger Atlanta-based exchange. The 38-year-old embodies the new era of electronic trading, with a CV that includes shutting down commodity futures markets on the floor of the New York Board of Trade, a move that embittered some traders.

But Mr Farley touts the merits of NYSE's 111-year-old equity trading floor, capitalism's big show. He spends most mornings there chatting with traders or on the balcony overlooking their dwindled ranks for the opening bell that kicks off trading for the world's largest stock market.

"When we agreed to acquire the New York Stock Exchange back in 2012, one of the questions was, how valuable is that floor? And what is the future of that floor? And I've seen first-hand how valuable that floor is," he says.

Keeping a human element has helped NYSE land big initial public offerings since technical problems with Facebook's listing left Nasdaq with a black eye. But with most shares changing hands at data centres in New Jersey, doubt has been cast on the need for physical exchanges and trading floors. Some analysts question whether ICE is committed to long-term stewardship of NYSE or perhaps fine-tuning it for sale.

The growth of off-exchange venues and dark pools has left NYSE with just a fifth of US share trading. Mr Farley has arrived at a time of controversy, too. High-speed, electronic trading has raised concerns about a repeat of the 2010 "flash crash" and the allegation in Michael Lewis's book Flash Boys that equity trading is "rigged".

To confront that, Mr Farley will need to live up to his nickname. A former Georgetown University baseball player, he mostly plays basketball now and was dubbed "Solid" by John Strickland, a famous street ballplayer He rises at 5.30am for a workout with a group that includes Olympic swimmers Conor Dwyer and Matt Targett as well as the actor Hugh Jackman.

Before joining ICE, he was chief financial officer at Kiodex, a web-based commodities trading platform co-founded in the dotcom boom by Raj Mahajan.

Now chief executive of proprietary trading firm Allston Trading, Mr Mahajan calls Mr Farley "a rational decision maker".

The two were close friends, but that did not stop Mr Farley from giving sobering advice when the dotcom bust took its toll: sell. The group went to SunGard. "He didn't let the dream get in the way," Mr Mahajan says.

ICE chief Jeff Sprecher hired Mr Farley in February 2007 from SunGard as president of the New York Board of Trade, a venue for "soft" commodities that ICE had just acquired. In early 2008 ICE ended open-outcry trading in its US commodity futures markets.

In the first week of the electronic-only regime, ICE cotton markets surged, prompting the exchange clearing house to make hundreds of millions of dollars of margin calls - demands for additional collateral - to merchants. Some of the industry's oldest names were pushed out of business.

"ICE swung a wrecking ball at the industry by raising margin requirements in early March 2008, and a lot of us have always held Tom responsible for that," says Jordan Lea, co-owner of Eastern Trading, a cotton merchant.

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Mr Farley has defended his leadership of NYBOT, now known as ICE Futures US. In Congressional testimony, he attributed the price swings to markets rather than exchanges, which he called "the messengers of price information".

At NYSE he stresses the importance of the combination of human trader and technology, which he says means more predictability and less volatility, including for IPOs - a business the NYBOT pits were not in.

In recent years, NYSE has taken share in technology IPOs and it snagged the September listing of China's Alibaba, the world's largest listing. Mr Farley hopes to court more young, tech-focused companies.

While computers dominate, having humans to stabilise and use their judgment in trading lends a level of comfort and helps in price discovery, NYSE believes. Companies also have the media exposure that comes with ringing the opening bell.

Not to mention: "It's really fun," he says. Dick Grasso, a former NYSE head, calls it "the greatest show on earth".

The question is whether ICE shareholders see it that way. NYSE was a side note in the group's acquisition of NYSE Euronext. ICE coveted Liffe, a European derivatives bourse, and cash equities trading is a much lower-margin business than futures.

"For right now they believe in it, but if they cannot make it more profitable in a few years they aren't married to it," says Richard Repetto, an analyst at Sandler O'Neill.

Mr Farley has cut costs, halving headcount. Plans to simplify market structure and boost confidence include a streamlined system for matching trades and reducing the number of order types available to traders. Some $80m will also be spent modernising NYSE's landmark building itself.

"To some extent, we have a civic duty to preserve this place," Mr Farley says.

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