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Oh What Memories!

On the brink of celebrating the 20th anniversary of Wall Street & Technology, one writer reflects on the trends, events and technology developments which changed the face of the securities business and tours some of WS&T's most memorable covers.

A journalist reflects on 20 years of technological innovation that revolutionized the Street.

Wall Street & Technology Magazine turns 20-years old this year, having published its first issue in 1983. As a reporter who joined Wall Street Computer Review (Wall Street & Technology's original name) in 1985, I've had a ringside seat covering the business of Wall Street as it was transformed by technology. Deregulation, financial-services consolidation, derivatives, globalization and the Internet were some of the trends that shaped the direction of the securities industry over these past two decades.

From green-screens to PCs, from Unix to NT, from client/server to distributed computing, from broker workstations to wealth management, from the back office to middle office, from rogue traders to risk management, from the promise of artificial intelligence to the reality of expert systems, from middleware to standards, from crossing networks to electronic-communications networks (ECNs), from writing tickets to straight-through processing, from the crash of 1987 to the attacks of 9-11 - Wall Street & Technology has covered it all.

In the early years, the magazine ran a column called Man and Machine, profiling how a retail broker automated his business, often out of pocket, with $3,000, an Apple Computer, portfolio-management software and a technical-charting service.

Broker workstations soon became the Holy Grail at major retail-brokerage houses, as firms like Merrill Lynch and Prudential-Bache rolled out the first PCs. It was a time when the major market-data vendor was Quotron Systems, a brand as powerful as Kleenex or Xerox, and Automatic Data Processing was buying up companies (Bunker Ramo and GTE) to compete with it. Two video-switch makers were dominating dealing-room technology: Rich, Inc. and Micrognosis, as traders monitored stacks of screens. Reuters was invading the North American market with its strength in foreign-exchange rates and dealing technology, while Telerate was building its grip on fixed-income data with the Cantor Fitzgerald Treasury-bond data. I can remember sitting in Telerate Chief Executive Officer Neil Hirsch's office surrounded by Rodin sculptures on the upper floors of the World Trade Center. A few years later, I would be touring the glass-enclosed offices of Michael Bloomberg, who met the untapped potential for delivering an interactive, fixed-income-analytical service to buy-side money managers.

In the early days of PCs and minicomputers, money managers didn't like to admit they used computers for stock screening, or to take the drudgery out of investment analysis. Quantitative money managers such as Batterymarch, led by indexing-pioneer Dean LeBaron, were among the first to embrace a highly computerized investment process.

By the mid-1980s, the die was cast for the major role that computers would play. Within a few years, sell-side firms were zapping baskets of stocks or so-called program-trades straight to the New York Stock Exchange's SuperDOT system. Big Wall Street houses like Morgan Stanley and Goldman Sachs were putting DOT boxes on buy-side-trading desks so that institutional customers could shoot their orders directly to the NYSE - a precursor to firms supplying FIX connections to their best institutional customers.

As institutional money managers began to demand anonymity, less market impact and lower transaction costs by the late 1980s, the first crossing network, POSIT, run by Jefferies & Co. and Barra, appeared before it was spun off to Investment Technology Group (ITG), a Jefferies subsidiary that would go public in the 1990s.

Up until 1990, many of the quote vendors forced customers to use proprietary hardware so they would not lose control over the data. Quotron and ADP had a little truck that rode around Manhattan delivering hardware. The rivalry was intense. It didn't help that Quotron was acquired by Citibank, a competitor to Quotron's largest brokerage customers. George Levine, Quotron's marketing executive, tried to keep big customers happy. ADP stole away the Merrill account from Quotron and then won Shearson, but Quotron's dominance unraveled with its antiquated technology. By 1989, more entrepreneurial, nimble players like ILX Systems, a subsidiary of Thomson Financial Services, introduced user-friendly quote systems on standard IBM-compatible PCs at a lower cost and upset the Quotron/ADP monopoly.

As derivatives-trading desks began to appear, Sun Microsystems and Apollo began to make inroads. Even though Unix workstations, previously used in engineering, cost $30,000 a pop, investment banks like Salomon Brothers and Morgan Stanley spared no expense as long as traders were making profits.

In those days, I interviewed Marc Sternfeld, chief information officer at Salomon Brothers, who was the first to convert the front-office to client/server distributed computing and Sybase relational databases. I frequently spoke to Rick Adam, chief information officer of Goldman Sachs, a former NASA engineer, who would later found Neon Software, and Leo Melamed, a visionary who created financial futures, Globex and wrote science fiction.

In 1991, I flew to Chicago to interview O'Connor & Associates, an options-market-making boutique. The firm was designing OTC derivatives with NeXTstations to speed up application development. With the financial-engineering trend in full swing, rocket scientists with Ph.D.s. in mathematics and physics were hired to invent new instruments for corporate customers.

Because there was no risk management to speak of in the early 1980s, OTC-derivatives traders were maintaining their swap books with complex cash flows in spreadsheets. That changed with the rise of the middle office to calculate positions, check data accuracy and do hedge and risk reporting. Despite predictions that the middle office would swallow the back office, because the back office didn't understand the real-time needs of the front-office traders, that did not happen.

Instead, to save costs, there were on-again, off-again talks through the early 1990s by the major Wall Street houses to merge their back offices, share data centers, or outsource operations. Sound familiar? But that didn't materialize.

In the late 1990s, the Internet democratized access to information and online trading, threatening the role of intermediary. Sell-side brokers began investing in ECNs and spun off B2B e-commerce units. Since the dot.com meltdown, however, the retail investor has lost confidence, online trading has suffered and, once again, the trusted-financial adviser is back in charge. Today, CIOs are taking fewer risks when it comes to wireless and the latest gizmos. But going forward, financial services professionals will need a lot more technology to stay in the game. Whether it's ECNs or SuperMontage, instant messaging or Web services technology is the future of Wall Street - now and for the next 20 years.


"The Next Wall Street Crash"

September, October 1983

In its second issue, Wall Street Computer Review - Wall Street & Technology's original name - examined the preparedness of brokerage houses and exchanges for a surge in trading volume from small, retail-trade tickets and pondered whether brokerage houses would go under if they didn't add enough computers and train employees to handle the processing and trade confirms. In addition, it predicted that higher volumes would come from new brokerage services offered by banks and insurance companies and new vehicles such as options and financial futures. In contrast to 1968, "when a 12-million-share day just about sent the systems belly up," in 1980, the New York Stock Exchange hit a peak of 84.3 million shares, then broke that record on October 7, 1982, when 149.7 million shares were traded. Meanwhile, the Big Board was gearing up for a 250 million-share day by year-end, WSCR reported. Today the average daily volume is about 1.3 billion shares.


"Presenting Wall Street's All-Star MIS/DP Team" December 1985

Call them Wall Street's Moles - the unsung, invisible heroes, who actually built the securities-industry's labyrinth of communications, operations, retail-brokerage and trading systems. Among the stars were William Anderson of Prudential-Bache, William Behrens of Ernst and Co., William Cook of Morgan Stanley, Ritch Gaiti of Merrill Lynch, Joseph DeFeo of Goldman Sachs, William Tuite of Drexel Burnham Lambert, Louis Hughes of Salomon Brothers and Richard Morrison of Shearson Lehman Brothers. "They are the Management Information Systems/Data Processing (MIS/DP) brains who are propelling the securities industry into the automated world of the 21st century," wrote WSCR's then Editor-in-Chief Pavan Sahgal. By 1996, when WST resurrected the honor roll, the terminology had changed to CIO Elite - reflecting the broader mandate of chief information officers. That year, Leslie Tortura of Goldman Sachs claimed the top spot, with Kevin McGilloway of Lehman Brothers and Jeffrey Borror of Daiwa next in line.


"Crisis on Wall Street"

December 1987

On Oct. 19, 1987, the Dow Jones Industrial Average plummeted 508 points, roiling financial markets around the world. Dubbed Black Monday, that day more than 608 million shares changed hands, more than triple the daily volume. WSCR reported on "How Systems Fared, The View from the Trenches."

Computer-driven-trading strategies such as program trading and portfolio insurance were blamed for causing market volatility that sent prices into a free fall. But WSCR said it was automation that helped the securities industry survive the avalanche of orders that poured through the New York Stock Exchange's SuperDOT systems. Comparing the situation to "a MASH unit with incoming wounded," Timothy Cronin, president and CEO of Wang Financial Information Services Corp., which provided the Shark, an online stock-quote and trading service, said, "Anyone operating that day was way beyond the design envelope - way in outer space. It was controlled chaos."


"The Back Office Dares to Be Avant Garde"

February 1990

Viewed as a necessary evil, the back office was a stepchild to front-office-technology enhancements through most of the 1980s. But in 1990, Wall Street firms - facing declining trade volumes and overcapacity - began to look at transforming the back office from a cost center into a revenue-producing business by expanding into global custody, clearance and settlement and securities lending. Investment banks began to compete with service bureaus like ADP and Citicorp-owned Securities Industry Software and back-office-system vendors like Beta Systems. "Everything is up for sale," reports Gerald Higgins, senior vice president of data processing and communications at Drexel Burnham Lambert, which was willing to sell time on its IBM mainframes or sell its software. Morgan Stanley leveraged TAPS - Trade Analysis and Processing System - the first multi-currency, multi-instrument front-to-back-office-trading system - to offer a smorgasbord of value-added services, including execution, clearing and TAPs technology for equities, fixed income, European and Tokyo-traded securities.


"Do Chicago's Pits Still Lead in the World of Futures"

February 1993

As international-futures exchanges sprang across Europe and Asia, the U.S. share of financial-futures-trading volume slipped from 100 percent in 1980 to 50 percent by 1992. While Chicago's two dominant future's exchanges - the Chicago Mercantile Exchange and the Chicago Board Of Trade (CBOT) still had the lion's share, debate raged over whether or not open outcry pits would prevail over electronic-trading platforms being launched by foreign futures exchanges. Even though the CME launched Globex on June 25, 1992, with Reuters Holdings PLC and the CBOT as its joint-venture partner, the international after-hours platform struggled, though Globex volumes picked up when the Matif joined in 1993. By 1994, both Reuters and the CBOT had dropped out and the CBOT had developed Project A. When pressures to cut the costs of building proprietary-trading engines heated up during the late 1990s, the CME swapped Clearing 21 for NSC, a trading engine developed by Euronext - the conglomerate that owns Matif. In August 1999, CBOT teamed up with Eurex - the all-electronic German and Swiss futures exchange turned technology supplier.


Top Ten Technology Failures

Wall Street has had its share of infamous technology projects that ran over budget, missed deadlines or just didn't work:

1 International MarketNet (IMNET)

2 Citibank's acquisition of Quotron

3 Dow Jones' Acquisition of Telerate

4 The Electronic Joint Venture

5 Seer Technologies

6 EDS Selling TAPS

7 Optimark

8 Bridge Information Systems

9 BondBook

10 Global Crossing


1.In 1984, Merrill Lynch and IBM teamed up with Monchik-Weber to create IMNET, a proprietary-broker workstation with real-time data, that never materialized.

2. Citibank purchased Quotron Systems in 1991 for roughly $700 million.

3. Dow Jones bought Telerate for $1.2 billion in 1990, approved a $650 million investment project in 1997, but sold it to Bridge in 1998.

4. Six bond dealers formed EJV Partners in 1990 to build a fixed-income workstation that was meant to be a Telerate/Bloomberg killer. It was sold to Bridge, which in turn was sold to Reuters.

5. Seer Technologies, a CASE-tools-software company, hyped by former First Boston CIO Eugene Bedell, went public, ceased to operate and is now being resurrected as Access STP.

6. Morgan Stanley sold the market rights to TAPS to Electronic Data Systems (EDS) in 1985, but a lack of systems documentation and securities-industry experience doomed the effort. EDS sold TAPS to Bank Of America, but Nomura Securities was the only firm to get it running.

7. Former Instinet CEO Bill Lupien touted Optimark, an institutional-equities-trading system, that attracted big investment banks as investors, but it was too complicated for traders to use.

8. Bridge Information Systems bought seven market-data companies with debt, then filed for bankruptcy in 2001.

9. A consortium of major bond dealers backed BondBook, an anonymous-matching system, but shut it down because of low buy-side volumes and the post 9-11 market downturn.

10. Global Crossing - a transatlantic optical-fiber network - filed for bankruptcy in January 2002, foiling SWIFT's plans to use it for GSTPA's matching utility. GC also owns IXNET, a financial services extranet.

--- Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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