NYSE Trading May Get Electronic Jolt

The board of directors is expected to consider today a proposal to increase the amount of stock trading done by computers. It would be a dramatic shift for the 211-year-old exchange.

Big Board officials have long contended that the current system, in which a knot of traders huddle on the famed trading floor to do most of the actual buying and selling of shares, is far superior to an automated, Nasdaq-style market.

But the NYSE is facing pressure from nimble electronic competitors and the increasing irritation of mutual funds and other big investors that think the business of trading at the exchange is antiquated.

Today's vote "is a recognition on the NYSE's part that electronic trading is here to stay and you better be part of it or step aside," said Rob Hegarty of TowerGroup, a financial technology consulting firm.

The proposal is the first initiative of John Thain, who became the NYSE's chief executive last month after Richard Grasso was ousted in a flap over his compensation. Thain's swift pursuit of a decision on electronic trading signals that this could be the first step in transformation of the way U.S. stocks are traded.

"This is huge if it happens," said John Wheeler, head of stock trading at American Century mutual funds, calling it a "sea change."

Experts generally praised Thain's strategy, saying a failure to modernize would hurt the Big Board.

"It's his only move. He doesn't have that many options," said Larry Tabb, a financial technology consultant in Westboro, Mass.

For small investors, increased electronic trading wouldn't mean much, experts said, though it would significantly help the mutual funds trading on their behalf.

The primary benefits would be faster trade executions and a better chance of having trades effected at desired prices.

Electronic trading also could prevent some of the abuses that critics complain are routine on the exchange floor. (The NYSE and the Securities and Exchange Commission are investigating potentially improper trading by some NYSE "specialist" firms.)

In some ways, the push to automate is tied to Grasso's absence.

Grasso aggressively defended the NYSE's human-based system, using his once-celebrated public persona to bash electronic rivals. But the controversy over his outsize compensation package sparked a reassessment of all aspects of the NYSE and made critics and regulators more willing to challenge it.