How New York Stock Exchange Glitch Wounded an American Icon

UPDATE: This article, originally published at 1:31 p.m. on Thursday, July 9, 2015, has been updated with comment from the New York Stock Exchange.

NEW YORK (TheStreet) -- What we learned Wednesday when the markets were barely fazed by a three-hour shutdown of the New York Stock Exchange felt a lot like Dorothy Gale's discovery that the Great and Powerful Oz was really just a carnival showman standing behind a curtain.

The New York Stock Exchange  (ICE) is the original business behind the Wall Street brand, synonymous with American capitalism and financial prowess. Pictures of the havoc there during the Black Thursday crash in 1929 and the Black Monday crash in 1987 have become history book staples. Last year, it was the global leader in initial public offerings, or IPOs, for the fourth straight time, raising $70.3 billion, according to a regulatory filing.

So when it shut down at 11:32 a.m. Wednesday, "Breaking News" alerts flashed across financial news channels, and newspapers and Web sites trotted out the banner type. But U.S. markets kept functioning with only minimal disruption. The trading floor, as usual, was largely empty. The crowds were outside, and they were mostly tourists, accompanied by a brief surge in TV reporters.

It should have mattered more. A decade or two ago, it would have. That it didn't shows the gap between the symbolic importance of the building at the corner of Wall and Broad streets and its actual place in markets dominated by electronic platforms and algorithm-based trading.

By the time the exchange fully reopened at 3:10 p.m., that place was all too evident..

For the three preceding hours, trades that might otherwise have been routed through the NYSE were instead sent to one of 10 other public exchanges or 50 private exchanges, also known as dark pools. Traders, some of whom were on the NYSE floor during the outage, found other ways to go about their business. Those based outside of New York, such as Michael Antonelli, a sales trader at Robert W. Baird, barely noticed the outage.

"Dark pools are just one example of other places to execute stock," he said in an interview. Others are the BATS Global Markets exchanges, the New York Stock Exchange's Arca platform, which was unaffected, and the Nasdaq Stock Market. (NDAQ)

On Wednesday, they helped. "Instead of routing to the NYSE, I can route to a dark pool and look for liquidity," Antonelli said.

Indeed, the NYSE accounts for only about 20% of the public trading volume today, according to BATS, as compared with nearly 80% almost 20 years ago. Wednesday's NYSE volume was in line with previous days as the system was up and running for the 4 p.m. market close -- which is typically one of the highest-volume trading times.

That explains why a trading floor once packed with people jockeying for position and relying on elaborate hand signals to communicate now serves more as an elaborate television set.

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