Merger

NYSE merger won't lead to IT makeover

The merger is expected to be done late this year or in early 2006

By Lucas Mearian, Computerworld
22 April 2005
URL: http://www.computerworld.com/databasetopics/data/story/0,10801,101291,00.html

New York Stock Exchange Inc. this week said it has agreed to merge with electronic trading exchange Archipelago Holdings Inc., a move that propels the Big Board -- which still relies largely on its trading floor -- into a full embrace of e-trading

But the planned merger doesn't mean that the NYSE's trading operations will get a rapid makeover via an influx of technology from Chicago-based Archipelago, according to officials at the exchanges.

Steve Rubinow, Archipelago's chief technology officer, said that while the two exchanges will likely learn a lot from each other's vastly different technology infrastructures, their IT departments will remain separate, and their systems will run in parallel for the foreseeable future.

The two IT teams will have a close working relationship, Rubinow said, but "the nature of that working relationship has yet to be spelled out." As for the future of the two trading approaches, "it's really up to what customers want to do," he said. "They'll help us determine what the future of all these systems will look like."

In an interview last December, Roger Burkhardt, the NYSE's CTO, said the exchange planned to adopt a hybrid model that would allow electronic and traditional floor trading to take place side by side.

Echoing Rubinow's comments, an NYSE spokeswoman said after the merger was announced Wednesday that officials there and at Archipelago "are committed to going forward with the hybrid model, and the markets will remain distinct." However, the two exchanges "will be exploring ways to work together."

If the exchanges are kept separate, "a lot of the IT challenges would be minimized," said Bill Cline, a financial industry consultant at Accenture Ltd. Both Cline and Jodi Burns, an analyst at Celent Communications LLC in Boston, said it's likely that traders will ultimately determine the fate of the NYSE's open-outcry auction system.

Burns added that she can't see why the combined company would keep the NYSE's two-century-old approach alive for long, because electronic trades can be processed much more quickly than those done on a trading floor.

Currently, the NYSE electronically matches only about 10% of its trades, according to Larry Tabb, an analyst at The Tabb Group in Westboro, Mass.

The NYSE also hasn't been aggressive about adopting technology to automate the trade-matching process, Tabb and other analysts said. For example, trade orders are still manually key-punched into the exchange's clearing and settlement system.

Tabb said the planned merger would provide the NYSE with access to "very good front-end technology" for tasks such as managing the flow of trade orders and accepting different types of orders. But "developing the capability for floor brokers and specialists to interact with an electronic flow will take time - time to develop and time to adapt."

The two exchanges said the merger is expected to be completed late this year or in early 2006. The owners of the NYSE would hold about 70% of the stock in the combined company, which is expected to be called NYSE Group Inc. Archipelago shareholders would own the remaining 30%.

The NYSE's announcement came just two days ahead of today's announcement that Nasdaq Stock Market Inc. plans to buy the e-trading business of Instinet Group Inc., the other leading online exchange in the U.S.

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Updated: 05 NOV 17

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