NYBOT: Going Home

 
 
By Larry Dignan  |  Posted 2003-09-10
 
 
 

In effect, Pat Gambaro began planning for this day in 1993. This month he is coming home, to new offices with a state-of-the-art trading floor for the New York Board of Trade (NYBOT), where Gambaro serves as chief operating officer.

The exchange was scheduled to move back to downtown New York over Labor Day weekend, almost exactly two years after its operations were uprooted by the attacks on the World Trade Center.

Aided by $23.3 million in city and state reconstruction funds, the board will operate alongside the New York Mercantile Exchange (NYMEX) at a facility in Lower Manhattan along the Hudson River. The two exchanges are similar, although NYMEX trades energy and metals while NYBOT trades commodities such as cocoa, coffee, sugar and orange juice. The Mercantile Exchange vacated more than 13,000 square feet of space on its trading floor for NYBOT to install miles of cable, data centers and trading kiosks. That means two commodity exchanges, on one floor.

The trip for the plainspoken Brooklyn native and the New York Board of Trade began when Four World Trade Center was leveled in the Sept. 11, 2001 terrorist attacks. Executives such as Chief Information Officer Steven Bass literally walked over the Brooklyn Bridge on the way to NYBOT's backup facility in Long Island City, Queens. At the time, 200 to 250 people worked at the NYBOT facility in the World Trade Center. Most were evacuated, but the exchange lost four members, who were at their offices in the towers when they fell.

That Bass was able to walk to a backup facility at all could largely be attributed to Gambaro's doggedness. The 133-year-old NYBOT's commodities contracts can be easily replicated by rivals in London and Chicago. For years, Gambaro had argued for a backup trading floor to be kept ready.

"Pat was always swimming upstream to get this done," says Tom Ryan, a strategic account manager at SunGard, which has provided backup services to NYBOT for 12 years. "It's almost like people who criticize cops—until they get mugged. Pat just knew this was the right thing to do" back in 1993, after the first attack by terrorists on the World Trade Center.

The backup site that NYBOT has used since 9/11 is modest. The trading pits have stained maroon carpets and monochrome screens. Yet the cramped trading floor has kept NYBOT afloat for two years.

"People keep looking at us and saying, 'Wow, you really pulled this off,' but it was really common sense," says Gambaro, 57. "If I had a candy store and the candy store burned down, what am I going to do next? I'm going to protect the candy store in the future."

Since Sept. 11, NYBOT had one small scare. The exchange wasn't affected by the nation's largest blackout on Aug. 14, but it was largely attributed to timing—trading was done for the day. The Long Island City site lost power and didn't have backup generators. At its new site, however, the exchange will be better prepared—it has backup power.

Sticking to His Guns

In the early 1990s, Gambaro couldn't get the backup center approved on his own, but the NYBOT board commissioned a study on the idea by Deloitte & Touche. Deloitte supported Gambaro's arguments and added a key financial element: NYBOT would lose $350,000 a day and its customers would lose $3.5 million a day, if its Trade Center base went down.

The foresight to create a backup trading floor and business continuity plan has made Gambaro, former chief information officer at NYBOT, almost a celebrity in technology circles. Gambaro has endeared himself to floor traders, who have been able to feed their families because of his tenacity.

"It was an adjustment coming here and I'm still getting used to it," says Vito Moscato, 71, a reporter on the floor who matches up trades in the pits. He's worked for NYBOT since 1957. "We're just lucky to be here."

The Long Island City site wasn't always viewed as an oasis. Even after getting approval from top management to fund the disaster recovery site in 1995, Gambaro was questioned nearly every quarter over whether the NYBOT, then known as the Coffee, Sugar and Cotton Exchange, needed a backup trading floor at a cost of $200,000 a year.

Gambaro, a former member of the U.S. Army Rangers, a small, highly trained unit used for special operations and reconnaissance surveillance, stuck to his guns. The site now costs about $330,000 a year to keep idle—an expensive insurance policy. It costs $1.2 million to operate as a full-fledged trading floor.

"The board spent the money on it, but the challenge was keeping it as time wore on. The argument was that you never die until you cancel your life insurance," says NYBOT President and CEO Charles Falk.

But paying for the space was not all that NYBOT did to keep ready. Every six months NYBOT members and staff drilled, testing procedures for moving operations to the alternate site in case of disaster. The exchange also tested the backup site every three months. Such a test was scheduled for Sept. 18, 2001.

The continuity plan was about half the size of the Manhattan phone book, and designated which employees were to report to the backup site and which ones were to work from home.

The plan accounted for everything except for the complete loss of Four World Trade Center. Yet that was the emergency actually faced.

Initially left with two trading pits—circular areas where traders swap contracts—and a mere 6,000 square feet of space at the Long Island City facility, NYBOT shortened trading sessions of four to five hours down to 90 minutes and made traders rotate shifts. Later, NYBOT spent $5 million to double the size of its Long Island City location to allow for cocoa, orange juice and sugar trading, and it added a trader lounge.

Before trading got started on Sept. 17, a Saturday test run revealed the telephone switch serving the Long Island City site didn't work properly. In a city where connections count, it was lucky that a Gambaro cousin worked in former Mayor Rudolph Giuliani's administration, which had designated opening the NYBOT one of its priorities along with the New York Stock Exchange and New York Mercantile Exchange. Gambaro contacted Verizon through Giuliani to get the switch fixed that Saturday. NYBOT also bought 250 cell phones for its traders, as insurance.

Verizon got the switch running, but once trading opened, it became clear the Long Island City phone system was still a handicap. Traders were each using two phones to conduct business—but were used to four to six phone lines each. The newly repaired Verizon switch would melt down if more lines were added.

After a quick call, Giuliani's administration arranged for an Army helicopter to lug a new 1,200-port Siemens switch—roughly the size of a computer rack—from St. Petersburg, Fla., to New York. It took four days to install the switch, much faster than the usual 30 to 60 days, says Gambaro. By time trading opened Sept. 24, traders had booths with six phone lines as requested.

Now, the move back downtown means Moscato will have an easier commute from Bayonne, N.J., and can avoid the New York City subway system.

At NYBOT's new home, employees like Moscato will have the opportunity to use technologies that were introduced at the backup site, but haven't been adopted widely. For example, NYBOT is encouraging its members to use a wireless handheld system to make trading more efficient.

Cultural Shift

The NYBOT employs an "open outcry" system, where buyers (speculators) and sellers (hedgers) meet in a pit and scream prices at each other, each betting on what a commodity will cost in six months. The open outcry system stays in place at the new location, but will be surrounded by wireless systems to move trades from paper to digital. NYBOT will keep the shouting, but encourage traders to enter details of a trade via PDA instead of paper.

The exchange introduced a series of wireless technologies at the backup site. A wireless handheld system dubbed the Automated Trading Card is for locals, traders who play commodities to profit in their personal accounts. Brokers also get a handheld that manages orders, dubbed the Order Book Management System.

Behind the scenes, NYBOT employs electronic order routing, which allows orders to be sent over the Internet directly to the booth on the floor. Currently, the booth clerk physically passes the order by hand on paper to a trader in the ring. Eventually, these orders will be zapped to traders' handheld devices.

Moscato, for one, is giving wireless a try. He has been trained to use a handheld iPaq to replace a paper-based system that for years tracked contract terms and trades after orders were placed.

But NYBOT won't be ditching paper entirely. Unlike its larger, all-electronic rival, the London International Financial Futures and Options Exchange, the majority of trades at NYBOT are still tracked by paper.

"The key is to give traders a choice," says Joshua Aaron, president of Business Technology Partners, the consultant retained by NYBOT to get its One North End Avenue "A" location up and running. "It's a cultural shift, but we'll offer them both systems."

NYBOT's new trading floor consists of a series of steel trusses that ring pits for each of the exchange's commodities—cocoa, sugar, coffee and cotton, for example. These trusses hold monitors, speakers, clocks, cable trays, electrical distribution and outlets, and wireless antennae. Flat-screen displays ring the pits set up with trading data. With the flat screens, NYBOT can deliver more information in a smaller space—it also eliminates confusion with NYMEX's displays, which ring from above the entire trading floor including the area occupied by NYBOT.

Construction efforts were also complicated by the fact that NYBOT had to build its trading area, lay cable and create space for a data center all while its landlord, NYMEX, was operating as usual. NYBOT elevated by three feet its trading floor and ran its own cable, mapping out the building and then verifying its map with two engineers who had to crawl under the floor. Teams of about 20 to 30 electricians worked seven days a week almost around the clock to lay the miles of blue and white fiber optic cable that flows between floors.

The new location's data center, which runs on Tandem fault-tolerant servers, will handle trading functions, but the bulk of operations will be processed at two remote locations—39 Broadway, 10 blocks away from the new site, but on a different power grid, and Long Island City, which could be shelved if NYBOT and NYMEX eventually combine backup trading facilities.

The Securities and Exchange Commission has proposed that financial institutions should have backup locations 200 to 300 miles from home base. When asked if his two backup sites are too close to NYBOT's main location, Gambaro chafes.

"Obviously, whoever wrote that didn't talk to the stock exchanges. How am I going to get there?" asks Gambaro. "Do I drive there every day? Do I buy a house somewhere? Move my whole family?"

As history showed, there is never an easy answer.

Trade Base Case">

New York Board of Trade Base Case

Headquarters: World Financial Center, One North End Avenue, New York, NY 10282

Web Site: www.nybot.com (Phone not yet assigned)

Business: Commodity exchange trading sugar, cocoa, coffee, orange juice and financial products.

Chief Information Officer: Steven Bass.

Exchange Volume 2002: 20.9 million shares traded; 2003 (through June 30): 12 million shares.

Challenge: Migrate from paper-based trading records to wireless handhelds. Determine the future of its Long Island City backup trading site.

Baseline Goals:

  • Use wireless handhelds for entering information on the majority of trades.

  • Boost trading volume an additional 10% to 15% in 2004.

  • Cut operating costs by sharing expenses with the New York Mercantile Exchange.