For the Chicago Stock Exchange the New Year started on super speed – thanks to a new broadband in-house Internet platform.
The platform, an Ethernet-based web service, replaces the exchange's old T-1 lines.
"It is one of those massive, fundamental shifts that occurs every several years," said Charles Rutstein, an analyst at Forrester Research. "The shift is from very complex, old networking technologies, to much simpler and much cheaper networking technologies."
This fundamental shift was no doubt prompted by the exchange's 450 members – floor brokers, specialists and market makers – who use the Internet extensively for company and customer communications and for market research.
The exchange's previous T-1 line was frequently jammed with traffic, causing noticeable service slowdowns. By contrast, the Ethernet-based broadband service, supplied by San Francisco-based Yipes Communications, Inc., gives CHX members speedy 10 Megabits-per-second access to the Internet.
"We started looking for Internet access about a year ago, when just about everybody was looking at broadband," said Krysia Jacobs, director of information services at the CHX. "Since we don't basically deal directly with the public and didn't need an e-commerce web site, we had some leeway in providing members much faster way to access for their e-mail and research. We were running out of bandwidth. T-1 wasn't terribly reliable."
The decision to adapt an Ethernet-based web platform was not difficult, adds David Coder, manager of networks at the CHX. "Ethernet is simple and easy," he said. "You just plug it in and turn it on."
Another factor in the exchange's decision was the ability to crank up network speed from 1 Mbps to 1 Gbps, in 1 Mbps increments. "We wanted to be able to turn up the knob in case we develop future bandwidth-intensive applications," Coder said.
That should be a big improvement over the CHX's T-1 lines, which are restricted to fixed bandwidths and can take months to upgrade. "So right now, slowdowns are a thing of the past," Coder said.
Jacobs noted that the new broadband platform is not linked to the CHX's electronic trading platform, which recently underwent a facelift. "Our Internet systems are privately dedicated," she said. "We're not looking to use it to trade. Maybe down the road we could look at a virtual private network (VPN) but that's not on the table right now."
"We just wanted to give our traders faster access to the web so they could go out and gather news and research and do e-mail," she added.
Crank It Up
Yipes says the key to success for a trading exchange is an ability to change data distribution capabilities on the fly – something that T-1 isn't known for. "Flexible bandwidth, from one Megabyte to one Gigabyte, is appealing to the Chicago Stock Exchange," said Ron Young, co-founder of Yipes Communications. "Now the exchange can increase its bandwidth anytime, depending on trading volumes and how busy it is. It used to take weeks to do that at the CHX. Now it only takes three seconds. There are a lot of flexible options."
Young cites another client, the Worcester Telegram & Gazette newspaper in Worcester, Mass. as an example of how IT managers can increase bandwidth on the fly. "After the Sept. 11 terrorist attacks, the
Telegram quintupled its bandwidth to accommodate the huge increase in Internet use by reporters and editors. That's the simplicity of Ethernet." Normally, Young adds, the process of adding Megabits is expensive since users have to buy new equipment for the extra processing power. "Even moving from a T-1 line to a T-3 line means going from 1.5 Megabits to 45 Megabits," he said. "And when you add Megabits you have to buy new equipment and new translation software to meet the increased demand for use."
But with an Ethernet Local Area Network, the Chicago Stock Exchange adds the same capability as the Worcester Telegram. "When the markets get busy they can pump up users Internet access without having to buy new equipment or learn any new computer languages," Young said.
Yipes charges about $5,000 per month to maintain 10 Megabits of Ethernet computing power. Young and the CHX would not comment on specific pricing arrangements for the CHX installation.
The CHX's shift from T-1 to Ethernet high-speed Internet service isn't a surprise given the telecommunications networking landscape. Still, said Charles Rutstein, the analyst at Forrester Research, "the traditional telcos will most likely continue to ignore this for a while. It all depends on how fast this takes off for the telcos to wake up."
Others agree, adding that the CHX's decision to jettison its T-1 for an Ethernet platform may be emulated by other exchanges. "If you're moving from ISDN to IP and trying to figure out how to handle increasing future bandwidth needs, this could be a silver bullet," said Andrew Davis, an analyst at Wainhouse Research. "Rather than banding together multiple T-1 lines, or having to go from T-1 to T-3, an Ethernet connection would be an elegant solution in moving to scalable, flexible, and Ethernet-compatible networks."
The Ethernet installation is just the latest technology makeover the CHX has undertaken in recent months.
Back in July, the exchange tapped Global Crossing Financial Markets to develop a link between MAX, the exchange's order-routing system, and Global Crossing's extranet. The connection allows Global Crossing's "On Net" customers, like Goldman Sachs, Bear Stearns, and Lehman Brothers, to access the Exchange's order routing system for increased liquidity.
Traders and brokers can move more than 4,400 NYSE, Nasdaq, Amex, and CHX-exclusive issues at the CHX through a single system, creating what the exchange calls "one-stop shopping" for equities trading.
Firms like Goldman Sachs had to previously run direct-leased lines to link to the exchange's order-routing system. Now with the Global Crossing deal in place, the average of two months it once took for a customer to build a private communications link to MAX, has been whittled down to only a couple of weeks.
While nobody at the CHX is saying so, the deals with Yipes and Global Crossing may help pacify exchange members who struggled in 2001. Seats that sold for $350,000 in 2000 were available for $99,000 in Aug., 2001. And the shaky market conditions were blamed for the loss of dozens of trading jobs at the CHX last year.
