The Nasdaq exchange has a Year 2007 issue. In November, Nasdaq said the exchange will change its systems to account for stocks with tickers from other exchanges by Jan. 31, 2007.
Traditionally, stocks that trade on Nasdaq have tickers at least four characters long, such as Microsoft’s “MSFT” and Intel’s “INTC.” New York Stock Exchange tickers have one to three characters (such as General Electric’s “GE”), and the American Stock Exchange has three.
Nasdaq’s planning for the switch began in earnest in December and will carry on through testing in the fourth quarter of 2006, according to Adena Friedman, the exchange’s executive vice president of corporate strategy.
“We will have [more than a year] to prepare for this upcoming change, so industry participants can include changes in their 2006 budget,” Friedman says.
Nasdaq’s effort comes in response to a Securities and Exchange Commission request that markets develop a national symbology plan. Under the plan, exchanges would be able to trade issues across all markets to improve business continuity, make markets interchangeable and allow trading across all exchanges.
For Nasdaq, these system changes seem to occur every few years. In 1999, the exchange had to make sure its information systems were Year 2000-compliant. In April 2001, the financial markets converted databases and trading programs from fractions to decimals for stock quotes.
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Now its systems have to account for multiple tickers. The New York Stock Exchange changed its systems to trade stocks with tickers greater than three characters shortly after the Sept. 11, 2001, terrorist attacks, says Ray Pellecchia, a spokesman for the exchange. The American Stock Exchange was unavailable for comment.
Nasdaq is currently outlining requirements in terms of costs, resources and communicating with other companies that get market data feeds and may be affected. Software that relies on ticker size to create a business rule, say, to route a trade, will need to account for various ticker sizes.
While the impact on systems is yet to be determined—and the changes won’t be on the magnitude of Y2K—as with any recoding project, there is work to be done. Here’s Friedman’s plan:
Start Early
The first step for Nasdaq is combing through its systems to find ones that use ticker size to formulate business rules. For instance, if an older trading system routes a trade for a stock with a two-letter ticker automatically to the NYSE, it will have to be changed to a process that checks a database field for a specific market. New data fields will also have to be programmed as necessary.
Unlike the Year 2000 issue, not every system needs to be changed. For instance, payroll and financial systems are unaffected since they don’t utilize market data, Friedman explains. However, older systems may have been designed to make routing decisions based on ticker size.
Another change will be to expand the range of possible ticker lengths down to one and up to 11. The NYSE utilizes extensions to a primary ticker to represent convertible bonds and preferred shares. Nasdaq plans to alter the fields in its data warehouse to handle more characters.
Develop an Impact Assessment
How many brokers, money managers and data providers will be impacted by Nasdaq’s changes? How will that information and a time line be communicated? Nasdaq is looking to complete an early version of its impact assessment to head off potential problems.One possible hurdle: so-called entitlement fees, which are levied when someone accesses a real-time quote.
Users don’t pay a fee directly, but data providers pay a small sum to the exchange.
According to Nasdaq, one easy shortcut for determining where the fee should go is to base it on ticker size. If a ticker has one to three characters, the fee goes to the NYSE or the American Stock Exchange. Four or more characters should send fees Nasdaq’s way.Some of the companies that may be affected, such as Ameritrade and Merrill Lynch, weren’t available for comment.
Make Sure Partners Are Ready
Although Nasdaq’s data customers are waiting for the exchange to outline details of its conversion plan, partners will have to be ready through a series of tests. Testing of the ticker changes will take place in the fourth quarter in phases on Saturdays, when the market is closed.
Friedman says that the changeover has to be ready by late in the third quarter, so the exchange can begin testing with partners in late 2006 and early 2007.
