IT Plays Critical Role In NYSE’s Global Market Gambit

If the plan works, NYSE could become a global, round-the-clock marketplace for stocks, bonds, options, and derivatives. If not, the nation's pre-eminent stock exchange could surrender market share to domestic and global competitors.

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The New York Stock Exchange has had little first-hand experience with big mergers in its 214-year history. Now, the Wall Street icon is coming up to speed quickly, having done two major acquisitions in the past year.

In January, NYSE Group, the exchange's parent company, closed a $9 billion acquisition of Archipelago Holdings, whose computer systems for electronic stock trading are newer and more sophisticated than its own. This month, NYSE Group agreed to acquire Euronext NV, which operates stock exchanges in Paris, Brussels, Amsterdam, and Lisbon, and a futures exchange in London, for $10.2 billion. If approved, the deal would create a three-way combination with $100 billion in daily trading and $27 trillion worth of listed companies--and potentially a state-of-the-art electronic network. NYSE's buying spree may not stop there: CEO John Thain has said Asia could be next.

If the plan works, NYSE could become a global, round-the-clock marketplace for stocks, bonds, options, and derivatives. If not, the nation's pre-eminent stock exchange could surrender market share to domestic and global competitors as it tries to merge the operations of three companies after essentially going it alone since its founding in 1792.

NYSE is under pressure to cut costs as competition from Nasdaq and international rivals such as the London Stock Exchange and Deutsche Boerse has forced down the price of trading. It's trying to move more U.S. trading volume from its open-outcry floor to Archipelago's Arca network. NYSE has said buying Euronext could result in $375 million in cost savings--and $250 million to $300 million of that could come from rationalizing IT, according to Bill Cline, managing director of global capital markets at consulting company Accenture.

How many balls can Rubinow juggle with system migration? Photo by Chris Lake

NYSE Group appointed a new chief technology officer last month, elevating Steve Rubinow, who had been CTO at Archipelago, to head of IT for the entire company. For now, the NYSE's computer systems and Arca continue to operate in parallel. "It's too early to have integrated them tightly," Rubinow says.

Arca routes trade orders to NYSE, but that one-way capability was in place before NYSE and Archipelago came together. The next step is bidirectional routing of trade orders, something NYSE is working on now.

There's "substantial overlap" in the technology portfolios of NYSE and Arca, Rubinow says. Together, they have a half-dozen database vendors and nearly as many hardware vendors. So expect consolidation. As part of the streamlining effort, NYSE will steer brokerage firms and other institutional customers toward its own SFTI network as a way of accessing both the NYSE and Arca exchanges, since many use multiple carriers to do that today. Fewer connection points means less adminstrative work for NYSE.

NYSE is undertaking a transition from decades-old computer systems from Tandem Computers and Stratus Technologies to low-cost servers running Linux, while maintaining the ultrahigh reliability and fast execution needed to run the exchange.