Being buried in paperwork isn’t really something we experience anymore.

So when you hear what I discovered about The New York Stock Exchange in the 1960s, you might be surprised.

There was a time when The New York Stock Exchange was closed on Wednesdays.

Paper vs. The New York Stock Exchange

For a period in the late 1960s, The New York Stock Exchange was only open for trading four days a week. The culprit was paperwork.

This is a rarely discussed period in stock market history. And for months, this problem altered the face of the work week for many employees on the Street.

The response of various firms to this logistical problem provides an interesting case study in Wall Street ingenuity.

The floor of the New York Stock Exchange in 1963. Photo by Thomas O’Halloran from Library of Congress.

Things came to a head during the “Paperwork Crisis.”

The Paperwork Crisis is when the NYSE was forced to close the stock market for one day a week.

A rarely discussed period in stock market history.

This began in 1968 and went on for months, as stock trading went dark on Wednesdays and occasionally additional weekdays in order for staff to work through the tremendous backlog.

Unfortunately for the NYSE, just shutting down for an extra day didn’t solve the problem.

There were a couple of issues, outlined below.

Lack of Security

Paper transaction systems were not secure. Fraud and big writedowns were too common.

Even though taking Wednesdays off helped reduce the pile of paper, firms began to notice that relying on paper and people was not very secure in the first place.

1971:

  • U.S. Attorney General John N. Mitchell told a U.S. Senate hearing that he estimated that organized crime syndicates had stolen $400 million worth of securities!
  • Because of these vulnerabilities — and their associated challenges — about 1 in 6 NYSE member firms either closed or merged during a two-year period in the late 1960s.

Paper Still Has Problems

Besides its unsustainable volumes and vulnerability to fraud, paper trading was also susceptible to human error.

It was obvious that a new, more organized alternative to paper trading was needed. Besides the security vulnerabilities, paper trading was imprecise. And it was inefficient. The need for human oversight drastically reduced the number of transactions that could occur daily.

  • For comparison — those 12 million average daily transactions in 1968 pale compared to the estimated 900 million+ daily average of today.
  • The difference is computers. Beginning in the 1970s, many Wall Street firms began computerize their trades.

Computers Come to Wall Street

New York Stock Exchange trading floor. Credit: Photographs in the Carol M. Highsmith Archive, Library of Congress, Prints and Photographs Division.

Automation was a much-needed and welcomed addition to the stock exchange.

Trade automation spread through Wall Street by the early 1970s. These state-of-the-art new machines — and the knowledge required to operate them — came with a significant cost.

Once firms purchased the equipment needed to automate their trades, this encouraged even greater transaction volume, because firms wanted to recoup their investment as soon as possible.

The NYSE Today

Automation was a much-needed and welcomed addition to the stock exchange.

Barely related: I really enjoyed the book “Flash Boys” by Michael Lewis about high-frequency trading. Highly recommended.