Backup site saved Nybot

By Maria Trombly | Securities Industry News | Sep. 9, 2002

The New York Board of Trade (Nybot), which was located in 4 World Trade Center, lost its trading floor on Sept. 11. Four members lost their lives. The Nybot is an open-outcry exchange, without an electronic trading system as a backup. If a small, two-ring trading floor had not been previously built in Long Island City for just such an event, the exchange would have gone out of business permanently.

Since Sept. 11, Nybot has spent $5 million to expand its backup site, from two rings to eight. The exchange now trades each product for more than three hours, as compared to more than four hours before Sept. 11. Meanwhile, volumes have surpassed last year's. July 2002, for example, saw volumes 46 percent higher than those of July 2001.

Although Nybot has been operating without a backup trading floor for most of the year, the exchange's backup computer facility went live in July. The computer center cost about $2.5 million and is a mirrored version of the entire Nybot system. If anything goes down, the backup can be up and running in milliseconds. "You wouldn't even notice that it's been switched," Pat Gambaro, Nybot's senior EVP and interim COO, said. "At any given point during the day, I can switch Long Island City to be the backup without anyone noticing."

The backup computer center has a full menu of hardware and software, he said, and T1 and T3 lines connecting it to Long Island City. It also backs up the telephone system and the internal network. "I can handle any technical disaster," he said. "But I don't have an alternate trading floor, and I need to have someplace to go. I need a trading floor in order to keep us in business."

That problem will be resolved soon, he said. The Nybot has decided to move in with the New York Mercantile Exchange (Nymex) at 1 North End in Manhattan, and the Long Island City trading floor will once again become a backup site.

Senior management and staff are expected to move in with the Nymex by year-end, and the new trading floor should be in place by the end of the second quarter of 2003, said Gambaro. Eventually, the Long Island City facility may be closed, he added, if the Nybot and Nymex decide to merge their backup sites as well. "From a standpoint of cost savings, it would make more sense just to be able to move to one site as opposed to two," Gambaro said.

There has been some discussion of making the backup trading floor a virtual one, but the Nybot directors have decided not to go electronic.

"Our products are more conducive to open outcry trading," Gambaro said. "So we will continue to have our full backup floor." He wants to expand the backup facility from eight rings to 12. "It would be better to have enough trading rings available to brokers so that they can trade in a somewhat normal environment, so the transition is easier than it was here."

Nybot is the only exchange to have survived the loss of its facility. "The New York Stock Exchange spent an afternoon with us," he said. "We've gotten phone calls from Chicago, Kansas City, Singapore, Tokyo-just about every exchange in the world has called us except the Liffe-they're our competitors. Everybody wants to know how we did it."

The exchange paid attention to 1993, when the first attack on the World Trade Center was made. "We knew what the problems were in 1993. It took us almost three years to put together a concise business-continuity plan, which went hand-in-hand with our disaster-recovery plan."

Having backups for the computer systems is not enough, he said. In order to survive a major physical disaster, there must be an actual location where members can go in order to do business.

One lesson he learned, Gambaro said, is that adequate phone lines are an absolute necessity. On the Saturday after Sept. 11, he discovered that the main phone switch in the Long Island City building did not work. The exchange called Verizon to get a new switch. As a precaution, Gambaro also went out Saturday and bought 250 cell phones, at a cost of $70,000. The phone switch was fixed, and every booth now had two working phones. But the cell phones came in handy anyway, since it immediately became apparent that two lines weren't enough.

Nybot needed a new, 1,200-line switch but with air travel halted and crossings in and out of New York limited at the time, the new switch had to be brought in on a U.S. Army helicopter. In three days, the switch and the new phone lines were installed and operational, bringing the total to six lines per desk. Under normal circumstances, it takes one or two months just to get the switch itself.

Despite the enormous work it took to build the new trading rings at the backup facility and to create a new IT backup site, the exchange has continued to move ahead on other technology initiatives. For example, in April of 2001 the Nybot had piloted an electronic order routing system and a hand-held wireless device for floor traders.

"That process has resumed-we picked it up by November of last year," Gambaro said. There are already Compaq iPaq hand-helds on the trading floor, he said, that the Nybot provides to traders.

Nybot is upgrading electronic tools for members to Web-based systems using standard XML-based protocols. Within a year, these systems will be running on 10-gigabit Ethernet, he added. That standard was approved this summer and is 10 times faster than the gigabit Ethernet available previously.

The exchange is also looking at Voice over IP, moving telephone communications to data networks. "It offers more layers of disaster recovery, lower cost and ongoing maintenance," he said.