Runner: A Key Figure in Trading Execution

A runner in the context of broker-dealer operations is a junior employee responsible for physically delivering trade orders to the broker's floor trader for execution. This position is typically an entry-level role, often serving as a stepping stone to more advanced roles within the industry.

Basics

In the world of broker-dealer operations, the term "runner" refers to a crucial player in the process of executing trade orders. Runners are typically junior employees who undertake the critical task of delivering trade orders to floor traders for execution. Let's delve into the specifics of what runners do and their significance in the trading environment.

The Role of Runners

In the era of open outcry floor trading, where buying and selling securities involved physical interaction on the trading floor, the process of executing trade orders was quite different from today's automated systems. Orders were transcribed onto paper tickets, which had to be meticulously processed by the exchange and the clearing firms of the involved parties. This is where runners came into play.

Runners were junior employees stationed on the exchange floor, responsible for swiftly moving from one trader or broker to another. Their primary duty was to collect trade ticket information and ensure it reached the correct destination for execution. This seemingly simple task was essential for the smooth functioning of floor trading operations.

Floor Trading and Runners at the NYSE

While technological advancements have revolutionized the financial industry, leading to automated trading systems, floor trading hasn't completely vanished. Some exchanges, like the New York Stock Exchange (NYSE), still rely on floor traders, many of whom employ runners to support their activities.

At the NYSE, floor traders, who work for broker-dealers, execute substantial trades by physically operating on the exchange floor. These traders often utilize runners to facilitate their trading activities.

Floor Trading Today

Despite the prevalence of automated trading systems, floor trading remains a notable feature on some exchanges. Market participants and exchanges themselves view it as an important component for marketing and branding in the financial industry. However, the use of runners in trade execution varies among broker-dealers.

Broker-Dealer Procedures

Broker-dealers have different operational procedures when it comes to handling trade orders. Some manage the entire process themselves, from taking orders to executing them in the exchange's pit. In such cases, a trade clerk typically handles incoming orders. However, if a broker-dealer opts to use runners, these individuals are responsible for delivering trade orders to the broker on the trading floor.

Runner Responsibilities

Runners play a pivotal role in ensuring the accuracy of trade executions. They communicate all the terms associated with a market order exactly as the customer placed it to the clerk. Despite their significance, runners are generally considered low-paid employees, often earning less than minimum wage. Nevertheless, their precision in order communication is crucial to preventing errors in execution. Additionally, runners are usually tasked with returning executed orders to the broker-dealer's clerk for final processing.

Floor Brokers

Floor brokers, a type of market maker, operate from the exchange's trading pit. Much like their electronic counterparts, they use a bid-ask quoting system. This system requires floor brokers to buy at the bid price from a seller and sell at the ask price to a buyer. Floor brokers handle the responsibility of buying or selling securities on the trading floor. They communicate orders through shouting, hand signals, or following the exchange's pit trading system.

Once a corresponding counterpart for their order is identified, the broker earns a payment for the spread. It's important to note that for any trade to execute, the ask price must always be higher than the bid price. Floor brokers are also subject to specific rules and regulations enforced by exchanges and regulatory bodies.

Conclusion

In the world of broker-dealer operations, runners, although often overlooked, are integral to the efficient execution of trade orders. These junior employees play a critical role in ensuring the accurate communication of market orders, facilitating the work of floor traders, and contributing to the functioning of floor trading operations. While automated trading systems have transformed the industry, runners remain relevant, particularly in exchanges where floor trading persists. Their contributions, despite their low pay, are essential in preventing errors and maintaining the integrity of financial markets.