After a terrorist attack left much of lower Manhattan uninhabitable and shrouded in smoke and dust, it was hard to imagine that the New York Stock Exchange would re-open just six days later. Yet at 9:30 am on 17 September, rescue workers who’d been pulled from the rubble of the collapsed Twin Towers rang the opening bell, signaling the start of trading. During the course of the day, the Dow Jones industrial average fell 7 percent, and certainly no one can tell how it will fare in the weeks to come, but at press time, no technical glitches had been reported.
The night before the markets re-opened, IEEE Spectrum’s Jean Kumagai spoke to Dana Stiffler, a senior analyst at Boston-based AMR Research, who studies the increasingly sophisticated technology that underpins finance and trading. Stiffler described what was involved in getting the city’s financial district back on its feet.
In terms of technology, how would companies go about recovering from such a tremendous disaster?
The big Wall Street investment banks don’t have their computer systems at ground zero, so the major number-crunching and back-office processing were not affected. The people are what’s hard to replace. Those outside the industry would be surprised at how much of the trading is still manual or paper based.
What kinds of things are done manually?
Generally, the more complicated the security being traded, the less automated it’s likely to be. So equities trading is more streamlined than bond trading. For over-the-counter contracts, there’s often phone-based negotiation prior to a trade. Much of the initial placement of orders is done by phone, and faxed confirmations follow the trade. Even the Nasdaq is not nearly as automated as they would lead you to believe.
People have said the markets could have reopened sooner. A lot of New York Stock Exchange securities are traded on other exchanges, for example.
That’s right. The Nasdaq is already decentralized, really a network of dealers. And the New York Stock Exchange systems themselves are fine. But when you have the really large firms, like Merrill Lynch and Morgan Stanley, reeling and being physically displaced, the market isn’t going to function properly. Initially, they had said they might open as early as Thursday [13 September]. But they weren’t ready–from a personnel or a technology or a psychological standpoint.
There’s also the question of just getting the specialists onto the floor of the exchange. Each specialist is responsible for, say, five stocks and for maintaining a healthy bid-ask market in a certain security.
I’ve been covering this area for about three years, and have met a lot of people who work on different aspects of exchange technology. And they’re just tough as nails, smart and tough. I wonder if this will change them.
What’s also interesting is that a lot of the big investment banks have agreed to a moratorium on gaming the market. They’re going to be more conservative, and more concerned with working together than making a lot of money, which they probably could do. It’ll be interesting to see the market open tomorrow [16 September]. It’s normally such a cut-throat world.
As I understand it, a lot of Wall Street companies are getting help on disaster recovery from firms like IBM, Comdisco, Sungard, and Iron Mountain, which provide data backups and emergency sites where employees can set up shop.
That’s right. The impact will be on firms’ trading operations at the front end. The back ends are now being hosted by the folks you mentioned, and the data is for the most part quite safe.
One company with a big loss is Cantor Fitzgerald [which lost about two-thirds of its 1000 employees from its headquarters on the top floors of Tower One of the World Trade Center]. They’re a big U.S. treasury wholesale broker, and they provide a lot of liquidity in the market. Though not mentioned in the news much, firms like that are what make the market go. Their main operation was at the World Trade Center, but their value was really in their technology. They spent millions of dollars and about two years developing their exchange-like application, eSpeed. A lot of alternative trading systems have tried to launch over the last couple years with mixed results, but eSpeed was quite successful.
There was also a conference going on at Windows on the World that may have an impact on the industry.
…the financial technology conference hosted by the Risk Waters Group? A number of the people attending it are missing, and presumed dead.
Yes. I and some of my colleagues might have attended had we not had other engagements. It’s not yet clear who was there, but the meeting would have attracted a handful of very high-level people, as well as industry analysts like me and a lot of vendors. Until I looked at the agenda on Wednesday, I didn’t realize how bad it may be. The high-level people are not technologists per se, although they may have technical backgrounds. They’re more the people deciding where the industry is going in terms of e-commerce.
The e-commerce initiatives in the industry right now include something called T+1. It’s akin to supply chain management, a way to streamline trading and post-trade processing, so that the settlement process, from the time the order is executed until the time the trade is confirmed, takes just one day, instead of three days. That’s a huge and very technology-intensive undertaking.
Could this set back such efforts?
Yes, depending on who was at the meeting at the time of the attack. Things were not moving along terribly quickly, to be honest, and it’s possible some steam will be taken out of the leadership. These were the guys who were getting everybody ready to get ready.