Does Floor Trading Matter?

While algorithmic trading now dominates financial markets, some exchanges continue to use human floor traders. On March 23, 2020 the NYSE suspended floor trading because of COVID-19. Using a difference-in-differences analysis around the closure of the floor, we find that floor traders are important contributors to market quality. The suspension of floor trading leads to higher spreads and larger pricing errors for treated stocks, relative to control stocks. To explore the mechanism we exploit two partial floor reopenings which have different characteristics. Our finding suggest that in person human interaction facilitates the transfer of valuable information that algorithms lack.

Keywords: Algorithmic trading, DMM, human trading, floor trading, liquidity, market quality, price efficiency

JEL Classification: G12, G14

Suggested Citation: Suggested Citation

Brogaard, Jonathan and Ringgenberg, Matthew C. and Rösch, Dominik, Does Floor Trading Matter? (March 6, 2023). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3609007 or http://dx.doi.org/10.2139/ssrn.3609007