Internet-Based System Will Shore Up Trading
Tuesday March 4, 11:08 am ET
By Doug Tsuruoka
Leo Guzman is an investment banker and expert on stock exchanges and indexing.
Guzman's two hats are providing him with a ringside seat on shifts in trading technology on the New York Stock Exchange.
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Before 9-11, Guzman notes, all trading orders were sent to the NYSE via an electronic trading system called SuperDot.
SuperDot is a routing system in which NYSE members transmit market and limit orders directly to the exchange.
Using SuperDot, brokers connect to NYSE via a wireline.
But the collapse of the World Trade Center temporarily took out many point-to-point connections of the SuperDot system. This wreaked havoc with trading.
As a result, Guzman says, the Securities and Exchange Commission is ordering all NYSE members to change to an Internet-based trading network that's better protected against terror attacks and other disruptions.
The new system is called the Secure Financial Transaction Infrastructure, or SFTI.
It's a private network that links the financial community with exchanges.
The SEC's deadline for the changeover is Dec. 3.
Guzman spoke with Investor's Business Daily recently about NYSE's new trading system.
IBD: Why does the government think SFTI is better protected against disruptions than SuperDot?
Guzman: You have to remember why the government developed Internet systems in the first place. The Internet originally was designed so the military could have a closed system that was so redundant it could stay up after a nuclear attack. This is what SFTI can do.
IBD: Can you describe how the system is configured?
Guzman: Think of it as a giant loop of fiber optics that circles the New York metropolitan area. This loop runs out of the NYSE in Lower Manhattan through New Jersey, north through Westchester Co. (outside the city) and back to Lower Manhattan.
IBD: How is it better protected?
Guzman: Unlike the old point-to-point system with SuperDot, the system has a large number of nodes, or connecting points, that lead to the NYSE. Rather than one wire connected at two points that can easily be cut, there are many, many access points where you can reach the NYSE's trading center.
IBD: This makes it safer?
Guzman: Yes. There must be many breaks in the loop for the entire system to fail. It's like a racetrack where you can run from left to right or right to left with no loss of information in an emergency.
The hardware and software that process the data also are spread out at various points on the loop.
IBD: How does the new system protect individual firms on the NYSE?
Guzman: A brokerage connecting with (NYSE's trading center) is required to connect to only two nodes in the loop. This means if one node is cut off, data can be routed to the other node.
IBD: How did the NYSE store and process trading data before 9-11?
Guzman: NYSE had one data center in Lower Manhattan and one in Brooklyn, a few miles away.
IBD: Did your lose your connection to NYSE on 9-11?
Guzman: Yes. We had traditional (point-to-point) connections with the NYSE. Our lines ended in Lower Manhattan at the Verizon station that was crushed by the collapse of the World Trade Center. So we lost all connection to the market centers. In addition, we lost some tech services from other vendors in the area.
IBD: Are financial firms complying with the new SEC rules about how they connect to the NYSE?
Guzman: When we checked late last year, only six-seven NYSE member firms were connected. |
