When I went to Lehman in 1986, it was the dawn of the UNIX trading system as Lehman, Salomon, Morgan Stanley and others went head-to-head developing front-office order management systems for virtually every business line. It was a time when Steve Jobs would even come to Wall Street to pitch his latest and greatest devices. The time I was lucky enough to sit in on a Steve Jobs demo, it was for the Next Cube (which would become the core of Apple OS). It was, as we say up here in Boston, wicked cool.
From the mid-90s, it became a blur.
The Internet boom spawned the rise of online brokerages, which broke the high commission model and drove innovation in wealth management and fixed-fee brokerage. Online brokerage and the Order Handling Rules kicked off the ECN wars, which, when institutionalized in the early 00s, started the push for direct market access, smart order routing, buy-side algorithmic trading, dark pools, execution management platforms, post and then pre-trade transaction cost analysis and finally high frequency trading. None of these innovations, I would guess, were ever imagined even three years before they went mainstream.
While these transitions dislocated hundreds if not thousands of people, they also increasingly brought the best business – and technology – minds in the world to New York, London and Tokyo. Here they would work for firms where the only barriers to success were their imaginations. Even budget was not much of a barrier when competitive pressures aligned.
Increasingly, even major horizontal technology firms began using financial markets firms as product incubators. Today, for example, there are a number of hard-core technology firms focused on the movement, routing, parsing, and analysis of high-speed, low-latency messages, as messaging flow for U.S. exchanges passes a one second peak load of over 3.7 million messages. This number is up from a peak of only 5,000 messages just 10 years ago. What’s more, that growth shows no sign of abating.
So why are hardware firms interested in solving such a niche problem?
Well to begin with, financial markets firms have no lack of money when it comes to being first. That helps. But second, and more realistically, as the number of processors on a core increases, and chip/server costs decrease, the amount of data will skyrocket. And with more data created, there will be an increasing need to parse, analyze and act on this data in real-time.
Just think of the solutions that could be created by harnessing the geospatial data from cell phones for determining traffic patterns, or using RFID for managing the global supply chain, or for that matter employing real-time logistical information to develop auto-piloting for automobiles. All of these solutions will be based upon the data management innovation that is being done in the securities industry.
Now why am I writing this commentary on innovation?
TabbFORUM is kicking off a new initiative called the TabbFORUM Spotlight Series. The Spotlight Series will be periodic commentaries, videos, and analysis on various topics that TabbFORUM editors find of particular interest within our community. The first of these series is on Innovations in Trading and Technology. The TabbFORUM Innovation Spotlight Series will solicit, attract, and spotlight ideas, thoughts, technologies and people that TabbFORUM feels have, and or will greatly influence, our industry and community.
And with that, we would like to both kick off our first Spotlight Series and thank NYSE Technologies for so graciously sponsoring this initiative and enabling us to provide you with insight and some clarity on Innovation in Trading and Technology.