After having its trading floor destroyed on Sept. 11, 2001, the New York Board of Trade is capping five years of solid growth with plans to implement electronic trading for the first time.
The current prosperity of the plucky commodities exchange—the value of a seat on the exchange has catapulted from $70,000 in 2001 to $700,000—can be traced directly to NYBOTs disaster recovery strategy, which paid big dividends in the aftermath of 9/11.
NYBOTs next move is to roll out an electronic trading system designed to continue growth and enhance its disaster recovery strategy.
The wholesale adoption of electronic trading would spell the end of the exchanges traditional "open outcry" system, in which traders shout and give hand signals to trade commodities contracts. But NYBOTs members are adamant in retaining the traditional market, with all its color and seeming chaos. Electronic trading is therefore part of NYBOTs newest backup strategy, according to Executive Vice President of Operations Patrick Gambaro.
Because prior to 9/11, Gambaro had set up a fully equipped disaster recovery site, including trading pits and a data center, in the Long Island City district of Queens, the exchange was up and running at the remote site in less than one week. Daily trading volume is now up to 200,000 contracts, worth $45 million, up from 80,000 contracts worth some $25 million daily in 2001 prior to the attacks. The exchange handles cocoa, coffee, cotton, ethanol, orange juice, wood pulp and sugar, as well as currency and index futures and options.
Following 9/11, NYBOT, as well as many other financial services institutions in lower Manhattan, implemented triangulated data network architectures, a step up from earlier-generation schemes, which had one principal site and a single disaster recovery backup facility. Even as it carried on business as usual from Long Island City, NYBOT put in a triangulated data network, one point of which is at the exchanges new trading floor at 1 North End Ave., in a building owned by the New York Mercantile Exchange and adjacent to the World Trade Center site. The computer systems that perform trades and clearing processes are housed in a data center at 39 Broadway in lower Manhattan and at the Long Island City facility, which is run by SunGard Availability Services.
"If we lose North End Avenue, I still have my data centers," Gambaro said. Since moving the main trading floor back to lower Manhattan in 2003, Gambaro has upgraded links between the sites with new T-1 and T-3 lines and has put in a new Nortel PBX phone system. "All the phones could be switched from the trading floor to Long Island City, so the clients and brokers couldnt tell any difference," he said.
Other organizations have followed suit. Dow Jones reopened a newsroom at 1 World Financial Center—formerly its headquarters—but moved its editorial and sales headquarters, as well as its data operations, to South Brunswick, N.J. Dow Jones built a secondary data facility in Secaucus, N.J. Still other companies acknowledge dispersal of their data operations but jealously guard information about their corporate data centers: A Merrill Lynch spokesperson said the giant brokerage has built several new data centers in response to 9/11 but declined to elaborate. Those new fail-safe schemes have enabled many financial heavyweights to move significant operations—but often not their principal data site—back to lower Manhattan. As those big companies move back, that district of New York is regaining much of its lost luster as a financial capital, even as construction on the new Freedom Tower continues on the site of the former World Trade Center.
With NYBOTs current backup strategy, the first failover would be to Long Island City. The second would be electronic trading, Gambaro said. "We probably would do a combination of Long Island City and electronic." An electronic trading system would come in handy in the event of a disaster, such as a pandemic, that would prevent traders from reporting to the trading floor to carry out their work. "If people could not get into the facilities, they could trade without a trading floor," Gambaro said.
Sticking with open outcry is important to the exchanges members. "The exchange is committed to open outcry until such time that its proven to be ineffective. Traders tell us what works and what doesnt," Gambaro said.
Nonetheless, there is pressure to go electronic. "The presence of an electronic trading system is required for us to be more competitive on financial processes," he said. To that end, Gambaro and the exchanges other leaders have been looking at contenders to provide an electronic system. The Chicago Board of Trade is one of several providers vying for the contract, Gambaro said. NYBOTs criteria for the system, according to Gambaro, are the effectiveness of the platform in terms of uptime, disaster recovery capabilities and cost. A decision will be reached in the fourth quarter, with deployment slated for the first half of 2007, he said.
The electronic trading system will be the latest in a steady stream of IT enhancements made by the exchange in the last five years. NYBOT has moved off of expensive Tandem Himalaya mainframes as its principal trading engines to IBM Intel-based, rack-mounted servers, running Oracle database software. The cheaper servers are arrayed in a grid-style configuration, Gambaro said. "The network is set up not to fail. It will be cheaper than doing the same type of business on the mainframe. Maintenance and licensing [are] not as high as on the mainframes," he said.
In addition to the new servers, NYBOT has also implemented a plethora of trading system enhancements. NYBOTLive, which launched in March 2003, is a real-time technical analysis and quoting service delivered over the Web. eCOPS is an electronic coffee and cocoa exchange system that does away with paper forms necessary to execute commodity trades and deliveries. The system went live for coffee in January 2004; cocoa was added in May 2005, and orange juice came online in July 2006. An EOR (electronic order routing) system sends orders to traders in the pits via tablet PCs.
The past year has seen a top-to-bottom review of system resiliency, including security in sending and receiving data covering both internal and external intrusion detection systems. Last October, NYBOT participated in a disaster recovery exercise across the futures industry in which exchanges tested their backup sites.
But the pictures not all rosy. Five years of steady growth has brought about some problems along with prosperity. The Long Island City site, which served so well in the aftermath of 9/11, would be hard-pressed to handle the size to which NYBOT has now grown. Said Gambaro: "We might have a problem because there might not be enough room there."