Big Board to Shift Brokers to TCP/IP Standard

By Maria Trombly | Securities Industry News | Sep. 16, 2002

Although TCP/IP is the common communication standard for the Internet and in many other environments, the New York Stock Exchange-and other exchanges-has been supporting older protocols as well. Beginning last month, the NYSE stopped accepting requests for new lines based on old standards-which include X.25, Bisync, 3270 and Async. And, as of Dec. 31 2003, all customer lines into CMS (Common Message Switch) must use the TCP/IP communication standard.

"Following Sept. 11, the NYSE received input from many firms that their TCP/IP connections proved to be more robust," the exchange stated in a letter to member firms. "In light of the extensive communication problems experienced [with other protocols], many firms were planning to expedite their conversion to TCP/IP."

More than 45 firms have already implemented TCP/IP access to CMS, the exchange said.

According to Peter Kane, vice president of capital markets at Concord, Mass.-based Financial Fusion, a leader in straight-through processing connectivity solutions, TCP/IP is easier, cheaper and has greater bandwidth than the protocols it is replacing.

"And TCP/IP allows many more counterparties and organizations to connect worldwide," Kane added. "The global telecommunications providers have laid down significant TCP/IP bandwidth in all the places where you would like to see new order flow."

According to Damon Kovelsky, an analyst at Newton, Mass.-based Meridien Research, converting to TCP/IP is not a problem for firms using relatively new order management systems, or that are large enough to have specialists on staff to handle similar issues.

"I can see how smaller firms may have problems," he said, but added that the firms have 18 months to make the switch. "That's plenty of time."

Some CMS vendors have come out with TCP/IP drivers that companies can install to help smooth the transition. New York City-based Aegis Software, for example, has just announced a new CMS protocol driver, a code library that provides order management systems with TCP/IP connectivity to exchanges such as the NYSE.

The driver is written in Java and can thus run on any machine, including legacy systems, said Aegis Vice President Norm Friedman.
Another alternative is to add a translator to convert the old protocols to TCP/IP, he said.

"There is a black box that will take X.25 traffic in and send TCP/IP," he said-but it may slow the communication flow. "Your order might get to the market a quarter of a second slower."

Friedman added that customers that need to go into their order management systems and replace drivers are likely to be using older systems-perhaps as much as eight years old-and might be due for an upgrade. This could be a good opportunity to port the entire application to a Solaris machine or a Windows cluster, he said.

However, according to Kovelsky, now is not the right time for a brokerage firm to think about doing more than absolutely necessary-even if it might make sense otherwise.

"I don't think the money is there for it," he said. "Right now, with a lot of these projects, you do as little as needed and at as little cost as possible."