If you like symbolism – and isn’t that what separates us from the chimps, after all? – then you may want to brave the New York City subway system (always a relaxing summer excursion) for a ride to the Nasdaq Stock Market’s offices in lower Manhattan.
New York is a city blessed with more than its share of American cultural icons, and tracking their evolution might make for interesting anthropological study of evolving economic and social trends. Where once cigarette smoke billowed ever so tantalizingly from billboards, today sky-high crotch shots dominate Times Square. The city itself is, of course, a daily bombardment on all the senses. My personal favorite is the lovely underground odors one encounters in mid-summer, but that’s another story.
If you do venture forth to Nasdaq’s offices, you’ll encounter the screen-based stock market’s $8 mn ploy to level the symbolic playing field with its larger and until now more visually compelling rival, the Big Board. Because the fast-growing Nasdaq essentially only exists in the cyberspace linkages between market makers, traders and brokers, and does not have a physical floor on which television cameras can focus, it has lost out to the NYSE in the all-important media exposure game.
Nasdaq’s remedy is a new TV studio, complete with a 55-foot bank of monitors – officially called MarketSite but known simply as ‘The Wall’ – to display computer-generated graphics, a live ticker of stock prices (using company logos, rather than stock symbols), and updates on market indices from Nasdaq and the NYSE. The system is designed to report breaking news on markets and listed companies, with the images then relayed to screens of Nasdaq traders.
At the Wall’s April unveiling and big photo-op – timed so New York’s Governor George Pataki and Mayor Rudolph Giuliani could make their grand entrances – officials from Nasdaq and government spoke of the symbolic role of the Wall as the tangible intersection between media technology and financial markets.
Certainly technology is a subject the markets are thinking plenty about, along with those responsible for regulating the markets. ‘Clearly an important aspect of how the markets are moving ahead is their ability to use technology,’ says Howard Kramer, the SEC’s associate director in the division of market regulation.
Looking back at progress made since the SEC’s landmark ‘Market 2000’ study in 1994, Kramer says we now have a much fairer and more transparent market: ‘There have been a number of changes to make sure professionals put investor interests before their own. It’s a market where broker dealers are better able to achieve best execution for their customers.’
And are the rules keeping up with the march of technology? ‘It’s up to the markets to keep abreast of technology; we just have to keep abreast of the markets,’ Kramer says.
Nasdaq, for one, is doing its best. With 600,000 terminals in the offices of more than 540 market makers, the data streams of market activity are directly accessible from another 300,000 terminals, plus all the secondary reporting fed through Reuters, Dow Jones and other services.
But progress doesn’t stop there. Nasdaq’s systems currently can handle a trading day of 630 mn shares. By 2001, the market expects a 2 bn share trading day. Compare that to May 1975, when fixed commissions were abolished and the modern competitive financial markets were first created, when an entire day might see 20 mn shares change hands. Today, 20 mn shares of Microsoft or Intel might be traded through Nasdaq within a minute or two of the market’s morning opening.
Morning Blip
That morning blip, in fact, is what sets Nasdaq’s capacity requirements. The first few minutes of the trading day can see some 1,430 transactions bombard the system per second; by 2001, the capacity will be 2,500 transactions per second.
Nasdaq is not alone in grappling with the stress of modern-day stock trading. Look at the Toronto Stock Exchange, which was badly embarrassed when avalanche trading in shares of the notorious Bre-X shut down trading systems three times in a week. That debacle delayed – but did not prevent – the TSE moving to an entirely electronic trading system soon after. Traders’ shouts were silenced April 23 when the 140 year-old TSE phased out its trading floor.
The tortuous trend to automated trading had been underway for some time. Only a tenth of the TSE’s 1,500 listings were still being traded by about 50 floor traders a week before the final siren.
In 1977, the TSE installed Cats, the worlds first computer assisted trading system. It allowed brokers to trade from their offices. But overhaul is long overdue and multi-million dollar attempts to build a replacement for Cats collapsed following mounting technical problems.
The TSE then threw in the towel and bought a C$2 mn system which was developed by the Paris Bourse called Torex which is set for launch by year-end.
The move comes as the TSE is fighting to regain its declining share of interlisted stock trading. A recent study shows Nasdaq’s share of Canadian equities trading in both markets rising from about 5 percent in 1988 to 13 percent in 1995.
Back at Nasdaq, which weathered the Bre-X scare, a big push has been to bolt the market to the Internet as a means of reaching out to Main Street investors. A year ago, Nasdaq had no site on the Web; today, its online home page (www.nasdaq.com) receives some 4 mn hits a day. The market has spent about $2.8 mn developing the site and another $21 mn promoting it through a national television ad campaign.
Alfred Berkeley, Nasdaq’s president, says the Web site’s success ‘is an extraordinary manifestation of the latent demand for information’ about markets and is ‘taking the mystery out of the markets.’
He says companies should use the Web to make available for individual investors the same quality and depth of information provided to analysts. ‘You should take advantage of this resource as a focal point to get people to your story,’ he says.
But Web use has now spread beyond individual investors. So Nasdaq is hyping a new ‘Intranet’ for CEOs, CFOs and investor relations officers of listed companies. Developed with Microsoft, the service is dubbed ‘Nasdaq Online’ and was slated for launch in late May. Each listed company gets a password to log on and executives can pull up analysts’ reports on their company, find out who the market makers are, and what their bid and ask prices are.
‘Say a board member calls and says What’s up with the company?’ says Nasdaq spokesman Reid Walker. ‘Executives can instantly log on and see what they and their competitors are doing in the market.’
Web Potatoes
With consumer and corporate cyber-surfers taken care of, the markets are now turning to Wall Street as a Web audience. MSNBC, the joint venture created by Microsoft and NBC, recently launched Business Video, delivering live and stored audio, video and multimedia news and events over the Internet. MSNBC is promising more than 3,000 CEO interviews a year, coverage of New York Society of Security Analysts meetings and education seminars, and corporate presentations from industry and brokerage conferences.
The next step will be to use the same technology as a way of vastly expanding the scope of company roadshows. The SEC recently approved a request from MSNBC to be permitted to broadcast securities offerings roadshows to its 27,000 Private Financial Network subscribers.
Until now, securities law prohibited companies and their underwriters from releasing any offering information on radio or TV that didn’t conform to SEC guidelines for printed prospectuses. But MSNBC promised it would restrict broadcasts to PFN subscribers, demand they not copy the transmissions, and give a copy of the prospectus to every viewer before transmission.
So as the stock markets near the new millennium’s 2 bn share trading days, whether it’s the TSE’s ‘virtual’ trading floor or Nasdaq’s Web-based information network, technology looks to be up to the challenge.
Jeff Cossette contributed to this article
