September 29, 1997

Less Mess At The Merc Chicago Mercantile Exchange's new apps mean more real-time trading By Bronwyn Fryer he typical stock exchange trading pit is about as low-tech as it gets. Frantically gesticulating traders conduct business by shouting and waving their hands on a floor that is knee-deep in handwritten trading tickets. But at the Chicago Mercantile Exchange, several applications are being launched to clear up some of the mess. The Merc pours an estimated 10% of its total IT budget into new applications. The goal: to let traders at more than 10,000 banks, brokerages, and trading firms worldwide do business with the Merc's 1,000 employees in real time. "We are linking a broad array of firm, vendor, and e xchange solutions to efficiently execute futures trades in both electronic and open outcry markets," says David Dugan, VP of systems development at the Merc. For example, a new order-routing API links member firms' electronic order delivery systems with the Merc's Tops (Trade Order Processing System). Running on Tandem Computers Inc.'s Nonstop systems linked via a TCP/IP-based network, Tops expedites the flow of orders from a firm's order desk-or from its customers-to the Merc. The Merc also broadcasts currency quotes and new products on its Web site and on its Globex international electronic trading system. Push technology from Townsend Analytics of Chicago sends real-time prices to Merc members, who can customize the system for their businesses. All this technological muscle streamlines order routing, trading, and clearing of futures and options. World Leader The Merc is the world leader in stock index products trading. Last year, it captured more than 95% of U.S. volume in stock index futures. On an average day, its clearing- house division acts as custodian for more than $8.5 billion in performance bond assets. Trading continues around the clock and around the world via the Globex system, which runs on a Digital Equipment 6000 Series host. One of the most innovative technological developments at the Merc lets traders fill and report orders instantly. In the Merc's currency and agricultural futures trading operations, member organizations that trade $100 trillion annually will soon be able to route filled orders electronically from the Merc's pits to brokers and customers. The Merc's Cubs (Chicago Mercantile Exchange Universal Broker Station) application, now being rolled out, combines technologies designed to link the traders to their firms' brokers both at the Merc, using IBM model 90 workstations, and off-site back at their brokerages and banks. The system runs on Sun Microsystems' Sparc servers. It was built on IBM's OS/2 operating system but is being rewritten for Microsoft's Windows NT and Sun's Solaris. It displays incoming orders to the trader and lets the trader accept or reject each one. Cubs saves trading time by eliminating the need for hand delivery of tickets. "Cubs will let us take some of the noise away from the floor," explains Mike Kelly, senior VP of computer technology. "It will allow a guy standing in a pit to get orders processed directly through a terminal, without the paper." Cubs works like this: First, an order comes in from a customer either over the Internet or through the Merc's Tops electronic order entry, routing, and fill reporting system. Next, the order is passed to Cubs, which in turn delivers it to a specific trader's Cubs station in the trading pits. On the Cubs workstation, the trader may fill orders for up to 50 contracts. The trader can view orders waiting for acceptance, arranged by price and time. If the trader accepts the order, it then moves to a window that lists sells and buys, prices, and total contracts executable at various pri ces. From there, the trader executes the order using the open-outcry system in the pit. The trader then enters the fill information into Cubs, which transmits it back to the Merc's Tops order routing system. Then, the order goes to the member firm's order desk and, in some cases, directly to the customer. The account executive then phones the customer to report that the order was filled, or an Internet customer can see confirmation of the sale online. The system time-stamps every step of the order flow, providing an automatic audit trail. Applications such as Cubs fill a critical need in a trading arena where a single transaction can represent millions of dollars. Until recently, the Merc's open-outcry auction was a far more complex combinat ion of paper, people, and computers. After the pit traders completed a transaction, they filled out a trading ticket with information including the trader's name, and the type, quantity, and price of the trade. Runners collected the tickets and delivered them to the trading firms' data-entry operators on the second level of the trading floor. Finally, the data-entry operators entered the data into a member firm's system. This process was extremely labor-intensive and prone to error. "It could take many hours to clear a trade," says Mike Pertell, the Merc's WAN manager. "The system was so slow that people sometimes worked into the wee hours of the night, correcting errors." High Security Cubs is part of a complex messaging architecture that the Merc has been building since 1995 to speed and enhance the trading process. One of the first applications to bring real-time communications to the Merc was its clearing system. It passes as many as 1 million highly secure messages each day among cus tomers, member firms, and the Merc. "Security is built into both the network infrastructure and the application," says Pertell. "The network uses routing tables and filters to maintain physical security, and the application enforces logon security with checks of the data and the message queue being used." The Merc's clearing system uses IBM's MQ Series messaging middleware, which guarantees delivery of round-the-clock, real-time messages, as well as messaging management software from Candle Corp. The moment the broker presses the Send key for a trade to clear, the data is sent through a frame-relay network connection. Delivery of the message is guaranteed, even if the trading companies have no direct link to the Merc. "Trades go continuously to and from the exchange," says Joanna Mallers, VP of futures operations at Merc customer ING Futures and Options Inc. in Chicago. Even if the network is down, the messages show up later. "The other day, our system was down from 8 a.m. until 2 p.m.," she says. "But we still were able to send and retrieve all of the queued messages." Since the implementation of MQ Series in 1995, the Merc has gone from transmitting and receiving 1 million records a month to 16 million. This kind of scalability is the chief advantage of MQ Series and other middleware software in its class, says John Mann, a research director with the Yankee Group Inc. in Boston. "Messaging technology like Corba and DCE can't approach it," he says. "They can't scale for thousands of destinations in a real-time environment. If you need real time and you're processing high volumes of information, you need this kind of software." Also unusual is MQ Series' messaging interface, which can be used by programmers on any number of platforms. Tough Task Setting up guaranteed-delivery messaging systems isn't easy: It took the Merc nearly a year to get its clearing system running. "It took us a very long time to establish procedures for operators to deal with problems," says Pertell. "If communica tions went down, it took a long time to pin down the problem." Indeed, implementation of MQ Series is generally far from easy: "It takes a smarter-than-average company to understand this kind of complex, high-volume, real-time messaging architecture," says the Yankee Group's Mann. Until last year, network management presented another challenge. "MQ Series has a lot of queues scattered all over the place," says Mann. "People are building these systems with hundreds of destinations. It takes a lot of work to manage it all." To handle the management side, the Merc implemented Candle's Command Center for MQ Series in the summer of 1996. The object-oriented network-management tool, which runs on the mainframe host and an NT client, lets Pertell and his colleagues collect and analyze MQ Series-specific data from a single vantage point, providing all the information needed to manage the entire MQ Series network. "So far, we haven't lost a single record for a trade," says Pertell. In September, the comp any announced the first availability of its S&P E-mini trades, which buyers can buy or sell over the Internet. A Globex link lets customers do their own order-routing. With these applications taking advantage of real-time messaging, the Merc is improving access to data and reducing risk. That's a big plus, especially for those who spend their lives in the pits. Back to News in Review Send Us Your Feedback Top of the Page

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