Toronto Exchange Re-Thinks Electronic System Technology

All is not well with the Toronto Stock Exchange (TSE). After years of hype, the TSE's new president Rowland Fleming pulled the plug -- temporarily -- on the exchange's plans to eliminate its trading floor in favor of an all-electronic system. The exchange blames "unexpected obstacles" in the project's technology development for the postponement -- a delay which has left the technology plans for the electronic system in disarray.

The TSE's chairman of the board Fred Ketchen says that the project, which the exchange's members expected to be up and running within a few months, is "disappointingly ... behind schedule." He says that the hold up -- which he hopes will not delay the project beyond 1996 -- is due to the TSE "taking a step back and ... questioning whether the kind of technology we are using is the right technology."

Ketchen says that the TSE had begun "building the technology for this [project] right on top of" the exchange's inhouse developed technology, the 18-year old, IBM-based Canadian Automated Trading System (Cats). A source at the TSE calls the Cats technology "obviously outdated." Ketchen says that, upgrades aside, "Cats was developed in 1977, so it's old. That's where we need to focus our attention."

Separately, the TSE's information services department underwent a reorganization which, according to sources, consolidated the department. Details regarding the reorganization remain sketchy at press time. The information services department is headed by Chris Matthews, who did not return phone calls seeking comment.

Fleming has been, according to a bulletin the exchange issued in late January to member firms about the electronic trading project, "instructed to undertake a detailed review of the entire project with particular emphasis on the efficiency and reliability of the technology being developed." He is also charged with providing full reports on the project's progress to the board. Fleming replaced Pearce Bunting as the exchange's president on Jan. 5.

The TSE outlined the planned switch in 1992, tasking its internal development group with overhauling the Tandem Computers Inc. technology-based system used to support specialist trading on its physical floor (TST, Jan. 13, 1992). That project was slated to take one year. The proposed system would have required member firms to enter orders directly from intelligent workstations connected via wide area network to Unix-based servers housed and maintained by the exchange. That was then; now Ketchen says: "I have no idea what the new technology will be. That's under study."

The bulletin that the exchange issued to member firms said that "the board is very concerned by the likelihood of further delay and the finalization of the project and the impact this may have on our members." Still, Ketchen says that the delay was necessary because of "unexpected obstacles" which have rendered the "cost of the project significantly higher than we anticipated." He declines to elaborate.

Even so, the exchange's member firms might not be rushing to jump ship yet. A source at Toronto-based TSE member firm Wood Gundy Inc. says, "It's not really the end of the world.... [The TSE has] been having some technology problems. But most of the actual trading on the TSE is already basically done by electronic access now."

At the same time, sources at the TSE say that the exchange's information services department underwent a reorganization under Chris Matthews. A source at the TSE says that the reorganization was "basically a streamlining of operations, but no one was fired. Some service people were moved over to the marketing side."

According to Ketchen, the decision to wait on the elimination of the physical trading floor was made "when the new president came around." Ketchen says that Fleming "had a meeting with all the technical people and we decided that this thing is not as far along as we had hoped it would be at this time. We [asked] ourselves, 'Why are we putting new technology on top of old technology?' -- I don't think that's the way to do it. We may have to change the underlying processes whereby this thing gets completed."

Ketchen says: "We've done a great deal of development work here, but some of these things were not working the way they were supposed to." Ketchen says the TSE is unsure which type of "new technology" the TSE will pursue. "That's under study," he says.

Ketchen says he is aware that there exist "rumors saying that we won't replace the trading floor at all -- which I myself have heard -- that's not the case. We've come too far along. I just think the project needs some redirection, to take a step backwards, find out where we are."