Hand-Helds Dominate Big Board's Trading Floor

By Maria Trombly | Securities Industry News | May 5, 2003

Until last fall, traders who wanted to place complex orders with the specialists on the New York Stock Exchange floor had to manually write down the information and hand over little pieces of paper-even traders who had long switched over to hand-held wireless devices. "There are often times a customer would leave an order away from the market, orders with limits, that we'd have to take off the hand-held and put on a paper order," said Robert McCooey Jr., president and CEO at The Griswold Co., based in New York City. "It was too time consuming, and too burdensome, especially in a decimal environment."

Not only did he manually have to leave the order, he said, but he had to stay close to the specialist in case the stock price moved.

Then the NYSE upgraded the system, and McCooey and other traders like him were able to place those orders electronically as well. Now he can even break up orders into smaller increments and beam them over.

"Now the broker can leave that order with the specialists and can walk away and when the order gets executed, he gets a report on it electronically," McCooey said. "It was great for us-the stock's trading at your limit and on your hand-held you see that your stock is starting to execute. It's using technology in a way that aids us and aids our customer."

Today, the only time McCooey or one of his traders needs to use paper is to write down a note for personal consumption back at the booth.

"And we're taking some orders on paper if our customers aren't connected end to end," he added. "There are still some customers who are orally giving us orders, and I don't see that ending any time soon, though most customers are working at delivering those orders electronically. And a couple of my sales traders like to work on paper. They have to use the order management system, but they also like to keep their running totals on paper."

But there's no longer any need to use paper out on the trading floor, McCooey added. "No one's throwing away their pens yet, but now you've got the situation where you've got the two-sided pens-one side is the ink and one side is the stylus," he said, referring to the blunt tips used on the hand-held's touch-sensitive screen.

The improvement in performance was significant enough that usage of hand-helds immediately jumped, said Louis Pastina, NYSE's vice president of point-of-sale technology.

Usage grew at an average rate of 5,000 new messages a month through September 2002-then spiked by almost 26,000 in October, when the new feature went into effect.

As of March 2003, the New York Stock Exchange's wireless floor system was processing 213,000 messages-up from 77,000 the year before and 22,000 in March of 2001.

"The battle is roughly over," said Pastina. About 90 percent of brokers use the hand-helds and the other 10 percent, for the most part, are not big players in the market, he said.

"If you want to participate with the speed and accuracy that's needed," he said, "you really need a computer to do that."

All told, the hand-helds have helped remove 200,000 pieces of paper from the trading floor each day.

"Most of the paper that you see on the trading floor today is from lunch and breakfast, not from trading," Pastina said. "We do want the brokers to eat, and sometimes they're not too close to the waste baskets."

Currently, NYSE traders use either one of the two hand-helds provided by the NYSE-a Casio Fiva or a Hewlett-Packard iPaq-or a device provided by their own firms.

The Fiva is slightly bigger than the iPaq, so many traders have switched. McCooey, for example, switched seven weeks ago, even though the rest of his team is still using the Fiva.

"The iPaq is a lot smaller and compact, and you can move around without feeling that you're banging everyone with the large screen," he said. "And it can fit right into your pocket when you're not executing an order. I really like it."

Kenneth Polcari, managing director at Polcari/Weicker, a division of Garban Corporates Llc, has also decided to switch from the Fiva to the iPaq. He was trained on it last Thursday and is picking it up May 5.

"I've been slow in converting over because I'm used to using the one I have," he said.

But two of his partners have already switched over and told him they love it-and not just because it's smaller and lighter.

"Everyone who's using it is just thrilled with its ease of use," he said. "Once you get used to it, it's easier than the big one. They designed it more efficiently."

Meanwhile, Polcari said, he's looking forward to the next stage of improvements-new devices and faster connectivity. "There's a need for speed in your ability to receive and send information to your customer," he said. "It's always the faster, the better."

Today, the system can send market snapshots. With the next upgrade traders will be able to get real-time data, said Pastina.

According to Pastina, the NYSE is already doing the feasibility studies for the upgrade, which will happen near year-end.

The problem will be to build the new wireless system while maintaining the old one up and running, so that traders can gradually switch over-without having the two systems interfere with each other. In addition, because the current system was built before wireless communications standards were universally adopted, it's more secure by definition-there are no publicly available tools to hack into it because there are no systems like it available to the public.

"The whole obsolescence thing runs to our advantage," Pastina said.

The new system, which will be built on wireless standards, will have to have extra security mechanisms. On the plus side, its speed will increase from 1 megabit per second to 54. "That's very appealing," he said.

The move to standards on the wireless side will be accompanied to a move away from standard on the hardware side-the exchange has decided to build its own hand-held instead of continuing to use commercially available products. That's because commercial products don't last long on the market before being replaced by new models, he said. Investing in a proprietary device will mean that the exchange will be able to update the operating system, for example, without having to replace the device.

"Say, if we wanted to move to a Linux operating system," he explained. "The company that builds it will also provide service for it. When a commercial product goes out of production, they end their support."

The new device is expected to be faster, with better battery life and a brighter screen than the ones currently in use on the trading floor, Pastina said.

The NYSE first started experimenting with hand-helds in 1994 and 1995, with some pilots and proof-of-concepts. In 1996, it hired GTE Government Systems and started building a three-level system of security for its new wireless network. The first level of security is physical isolation of the network. The 50 antennas are pointed inside, Pastina said, so that signals don't spill outside the trading floor or onto New York's streets. And access to the trading floor itself is very tightly controlled by traditional security measures-ID cards, badges, security guards.

Secondly, the devices themselves are secure. Each device, whether provided by the NYSE or set up by the individual trading firm to conform to NYSE standards, must use the same antenna and communications protocols to access the network. And the devices themselves are collected at the end of each day and secured.

Finally, there is password protection and encryption of the message traffic itself.

The first hand-held was a 286-based, tablet-style computer running Microsoft DOS-the old command-line user interface since replaced by Windows. The device, made by Epson, was the EHT 30 and displayed the information that traders needed, and let them use the touch-sensitive pad to enter trades. It weighed two pounds, it didn't have any color, the screen resolution was low and it required frequent battery changes-inspiring traders to wear battery belts around their waists.

The next generation, the EHT 40, used a 386 processor, so it was slightly faster, but was still gray scale and because it was low-resolution and had a small screen, users had to flip through multiple screens to get what they needed-a slow and annoying process.

The first major advance came in 1998, when NYSE introduced a Windows 95 device, the Mitsubishi Amity VP. It was three to four times faster, had color to help traders distinguish buy and sell orders, and a larger screen, so users didn't have to flip through pages to get to information they needed.

On the down side, it weighed about 3.5 pounds due to the larger batteries required by the faster, more colorful machine. And to rub more salt in, it still required frequent battery changes.

At the end of 1999, Casio came out with the Fiva, a tablet-style hand-held that addressed some of the problems of the earlier machine. Once NYSE put it into use at the beginning of 2000, usage jumped up again. It was followed by a smaller Casio product, the Windows CE-based Cassiopeia, which is smaller, lighter and doesn't require as many battery changes but also had less functionality. Traders could send messages and get market data but couldn't do orders and reports. The iPaq as a device was introduced by proprietary trading firms-beginning with Goldman Sachs early last year, followed by Credit Suisse First Boston and NYFIX. The NYSE rolled it out in the first quarter of this year.

Today, there are between 725 and 750 devices on the trading floor on any given day. More than 600 traders use iPaqs and Fivas; another 125 bring their own devices.

"There's a lot more of clerical minutia that doesn't help the end customer-it's a necessary part of the process, but it doesn't necessarily help the end customer," said McCooey. "That's what makes the hand-held and the order management system and the whole technology infrastructure that we built on the New York Stock Exchange so important and so vital."

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