IT Plays Critical Role In NYSE’s Global Market Gambit

If the plan works, NYSE could become a global, round-the-clock marketplace for stocks, bonds, options, and derivatives. If not, the nation's pre-eminent stock exchange could surrender market share to domestic and global competitors.

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At the same time, NYSE is rolling out a new "hybrid" computer trading system that can match buyers' and sellers' prices for electronic orders over the NYSE's Direct+ system, then bring in a floor specialist to make a market for a security if there isn't a match.

Rubinow doesn't consider it a disadvantage that NYSE has little M&A experience. "A lot of this is common sense," he says. "Our people know where the biggest opportunities for improvement are."

Last System Standing

For the time being, NYSE plans to maintain two computerized trading systems, Arca and the hybrid, "and see which wins," says Larry Tabb, founder and CEO of the Tabb Group, analysts for technology vendors serving financial markets.

NYSE Group completed a first phase of the hybrid rollout in April with a system for stock brokers; systems due this year for floor specialists and listed companies are expected to increase the system's electronic order size tenfold and reduce lag times of as much as half a minute between bids and matched prices. New trading rules require exchanges to execute electronic trades in fractions of a second.

The Arca network provides instantaneous matching of buyers' and sellers' prices but now has to support the large and complex NYSE. During January and February, about 2.5 billion orders passed through Arca each month. "It was built for a much smaller market," says Fred Pennino, an associate partner in IBM's global services unit focused on stock exchanges. "That's one of the challenges Steve is going to face."

Another is the planned Linux migration. NYSE has dozens of applications that support floor trading, market-making specialists, stock brokers, and resale of market data. According to Pennino, the NYSE maintains about nine IT environments beneath it all. "You have a hodgepodge of different operating systems and platforms," Pennino says. "One of the first challenges they have is to bring that down to two or three or four."

A wild card is the future of the Securities Industry Automation Corp., the IT subsidiary of the NYSE and American Stock Exchange that's served the exchanges for 34 years. In January, SIAC named Marianne Brown, a former brokerage executive from Automatic Data Processing with expertise in high-speed, large-scale transaction processing, as CEO, reporting to Thain. In addition to trading systems, SIAC runs clearinghouse systems that settle the accounting when trades are executed.

Whatever decisions the NYSE makes, it could take a few years before it's clear whether they've succeeded. "I'd love for everything to be plug and play, but that's too much to hope for in a short period of time," Rubinow says.

According to analyst Tabb, the exchange won't try to write one set of code that runs all its exchanges. But it could be feasible to maintain multiple applications that run in one data center on top of Linux, share information, and support the Arca, NYSE, and Euronext networks.

"The chance of them being able to do this in the near term in doubtful," Tabb says. "They can't make any radical changes until they see whether the hybrid works or not. ... There's at least five to 10 years of work to change the platform."

But Rubinow's already at work. He expects the IT assessment to end, and progress to be made, over the next six to 18 months.