Wall Street financial firms brace for tech changes

NEW YORK -- As the pace of electronic trading quickens and new federal regulations kick in next month, Wall Street financial giants are bracing for a surge of network traffic.

At the Securities Industry and Financial Markets Association’s (SIFMA) Technology Management Conference here this week, Wall Street firms Lehman Brothers, Deutsche Bank and Morgan Stanley were among those sharing insights into how regulation is causing them to boost their networks' storage and monitoring.

The U.S. Securities and Exchange Commission’s (SEC) Regulation National Market System (Reg NMS) rules, however, are just a part of the winds of change sweeping through the multibillion-dollar U.S. securities business.

Automated trading, which eliminates human traders from the loop as complex machine programs make trading decisions, is making Wall Street obsessed with the need for ever-higher network speed to find buyers online to complete electronic purchase orders.

“If they beat you by a millisecond, they win,” said Howard Lutnick, chair and CEO at the firm Cantor, Fitzgerald, during the keynote address at SIFMA, adding that 10 msec should be considered the maximum time a trading network should take to fill an order. “Volumes will grow and milliseconds will matter.”

Cantor, Fitzgerald went through the devastation of the September 11th terrorist attacks on the World Trade Center six years ago, seeing 658 of its employees killed, but has managed to rebuild.

In his keynote address at SIFMA, Duncan Niederauer, president and co-CEO of NYSE Euronext (the company created by the merger of the New York Stock Exchange and the European stock exchange) also alluded to the growing need for speed.

Niederauer said his exchange has brought processing speed down from the 30-second maximum of just few years ago to 100 msec today. Electronic trading -- especially automated machine trading that removes people from the process altogether -- is growing, he noted about the industry.

“We’ll continue to have a trading floor, but there’s no doubt that floor is destined to get smaller,” said Neiderauer in his keynote. “The exchange is basically a technology business.”

Traffic spikes, like the one that occurred on February 27 when a network glitch made the Dow average seem to drop 178 points in sixty seconds, also are a growing concern. Many industry insiders say that anomaly hasn’t been explained fully, but it points up the need for the industry to be ever-watchful about capacity planning.

Peak message volumes through the major U.S. stock exchanges are doubling every two years, said Manisha Kimmel, executive director of the Financial Information Forum, which tracks market data traffic.

“In May, there were 305,929 peak messages per second in quotes and trades from the exchanges feeding into the SIAC,” said Kimmel, pointing out that’s a rise from 180,509 peak messages per second in May last year.

The Security Industry Automation Corp., acquired last year by NYSE Euronext, processes these trading messages through its network hub in Brooklyn, N.Y.