The Swiss stock exchange SIX introduced fully electronic trading back in 1995, heralding the end of open cry trading. Pimco is taking a different tack, offering an ETF via open outcry.
Exchange-traded index funds (ETF) are a massive business, making it difficult to stand out with innovations. Pimco is causing a stir by reaching back to a nearly mothballed concept. The bond specialist, owned by German financial group Allianz, is putting its $3 billion «Active Bond ETF» onto the trading floor of the New York Stock Exchange (NYSE).
The NYSE is one of the last exchange operators anywhere to operate an exchange ring where transactions are still done via open outcry, according to a report in the «Financial Times» (behind paywall). It has been trying for some time to get floor trading in exchange-traded index funds reauthorized.
Trading Places
Now, with fund behemoth Pimco, the exchange has found a prominent debutant. Its «BOND» ETF is the first fund in 15 years to be bought and sold again via shouts and hand gestures in New York.
For a good primer on how open outcry works, the film «Trading Places» starring Eddie Murphy and Dan Aykroyd offers a great lesson on how this is done, as they get rich and drive their scheming bosses into bankruptcy at the same time.
Human Touch Required
But for Pimco and the NYSE, it is more than just a PR exercise, with the hope a «human touch» will bring advantages in trading exchange-traded index funds.
Human judgment is to prevent too many shares from being thrown onto the market during hectic stock situations, with ETFs having a reputation for amplifying trading «flash crashes.» Furthermore, traders from larger firms could help small special funds, which usually only address a limited audience, to get off to a successful start on the stock market, ensuring ETF trading liquidity during critical periods.
