1. MIS 3090: IT for Financial Services Introduction to Class

2. October 10, 20152/16 Welcome!! Introductions Class basics Syllabus Texts

3. October 10, 20153/16 I am… Dr. Bill Ph.D. in MIS 17 years at VU (Wildcat X 2) Teach ERP, Database, CRM Research in CRM, XML, ERP Interests in…

4. October 10, 20154/16 Our class… Brand new! Combination of MIS and Finance IT for Financial Services Seminar format

5. October 10, 20155/16 Class Basics HBS cases Additional readings Hands-on Guest speakers Final projects

6. October 10, 20156/16 IT is… Information technology (IT), as defined by the Information Technology Association of America (ITAA), is "the study, design, development, implementation, support or management of computer-based information systems, particularly software applications and computer hardware." IT deals with the use of electronic computers and computer software to convert, store, protect, process, transmit and retrieve information, securely. Information Technology Association of Americainformation systemscomputers computer softwareconvertstoreprotect processtransmitretrieve

7. Class Framework Info. Technologies Hardware Software Networks Databases

8. October 10, 20158/16 What are Financial Services? Financial services refers to services provided by the finance industry. The finance industry encompasses a broad range of organizations that deal with the management of money. Among these organizations are banks, credit card companies, insurance companies, consumer finance companies, stock brokerages, and some government sponsored enterprises. As of 2004, the financial services industry represented 20% of the market capitalization of the S&P 500 in the United States.servicesbankscredit card insurance stock brokeragesgovernment sponsored enterprises2004market capitalizationS&P 500

9. Financial Services Security Markets Brokerage Industry Banking Industry Miscellaneous Class Framework

10. October 10, 201510/16 What’s hot in IT? Hardware related? Software related? Network related? Internet related?

11. Financial Services Security Markets Brokerage Industry Banking Industry Miscellaneous Class Framework Info. Technologies Hardware Software Networks Databases Increased Bandwidth

12. October 10, 201512/16 Financial Services Security Markets Brokerage Industry Banking Industry Miscellaneous Class Framework Info. Technologies Hardware Software Networks Databases Super Computer simulations

13. October 10, 201513/16 Financial Services Security Markets Brokerage Industry Banking Industry Miscellaneous Class Framework Info. Technologies Hardware Software Networks Databases CRM apps

14. October 10, 201514/16 Financial Services Security Markets Brokerage Industry Banking Industry Miscellaneous Class Framework Info. Technologies Hardware Software Networks Databases Integrated Credit DBs

15. Financial Services Security Markets Brokerage Industry Banking Industry Miscellaneous Class Framework Info. Technologies Hardware Software Networks Databases Increased Bandwidth Integrated Credit DBs CRM apps Super Computer simulations DSS MIS TPS ERP Systems

16. October 10, 201516/16 Outline  How does the NYSE operate (say in contrast to NASDAQ) ?  Who are the players involved in the NYSE?  Follow an order through the system…  What technologies support the NYSE?  NYSE and its Networks  The Future… mergers and acquisitions  Conclusion

17. October 10, 201517/16 Introduction  The largest securities market in the U.S. (estb. 1792)  Physical mechanism for trading of securities via a competitive agency-auction market (double auction) – Labor intensive: open-outcry around specialist posts (not straight through processing)  The key to NYSE’s leadership position has been the amount of liquidity is provides to the market – less a function of its on-going, and somewhat erratic, application of new technologies and systems development  Threatened by NASDAQ and ECNs  Private (membership-based) organization until recently – Predictable reaction to new technology adoption that threatens the positions of the members (if it’s not broken, don’t fix it)

18. October 10, 201518/16 Trading Volumes Source: http://www.nysedata.com/factbook/main.asp about 2B shares daily in 2007

19. October 10, 201519/16 How the NYSE Operates…  Orders are sent to a floor broker through a system known as Broker Booth Support System (BBSS)  The floor broker transmits the order to a stock specialist using the BBSS or prepares a physical paper order – cross trade is possible but subject to specialists’ approval  Orders can also be sent directly by the broker through the SuperDot computer system: this eliminates the floor broker, order goes directly to the specialist’s workstation – The broker (or client) may not want this as it shows the clients’ hand to the market at large – the client may want to get a better deal than have the order automatically execute – if they walk over to the specialist, they may get a better price

20. October 10, 201520/16 Follow an order through the system clientbroker w/ member firm floor broker located on the edge of the trading floor runner specialist post broker price quotation updated streaming stock ticket information

21. October 10, 201521/16 NYSE Technologies  Electronic order-routing system through which NYSE member-firms transmit orders directly to the specialists’ trading post  After execution, a report is sent directly to the member-firm over the same electronic circuit that sent the order to the specialist  Capacity: 2.5 billion shares per day SuperDot BBSS  Order-management system that enables member firms to quickly and efficiently process and manage their orders  Selectively routes orders electronically to either the trading post or the booths on the NYSE Trading Floor

22. October 10, 201522/16 NYSE Technologies (cont’d…)  A mobile, PDA-like device enables brokers to receive orders, disseminate reports, and send market "looks," in data and image formats  The monitor is provided for viewing by specialists  Multiple data sources incl.:  Point-of-Sale (POS) books  Overhead "crowd" displays  Market montage  Various vendor services

23. October 10, 201523/16 Specialist Trading Post 20 trading posts 1,500 trading booths on the edge Every listed security is traded at a unique post by one specialist. All buying and selling takes place around these posts Specialists manage the market in the specific securities allocated to them. Specialist units can be run as companies or partnerships. There are 12 such firms employing 482 specialists, controlling 2,800 stocks. Specialists can buy and sell for their own account but face stiff controls as they have critical access to order- book information.

24. October 10, 201524/16 NYSE MarkeTrac

25. October 10, 201525/16 NYSE Networks  The NYSE has 2 large data-processing sites with fully redundant networks connecting 300 Tandem mainframe processors, 500 communications servers and 250 routers  External Access Network – NYSE Common Access Point (CAP) is a portal to all NYSE trade-execution products and information services – Allows member firms and customers to directly access NYSE terminals and services on the trading floor. – Access through T1 or T3 dedicated leased lines or through the Internet. – Members can connect to their proprietary order-management system in their booth.

26. October 10, 201526/16 NYSENet.com (corporate services…)  Service for listed companies with individualized company specific trading and performance reports along with a range of more general market data

27. October 10, 201527/16 Ongoing Developments  Order books are traditionally private as they constitute a source of valuable information – NYSE Openbook (from January 24, 2002)  After-hours trading / 24-hour day trading – Neither currently available (after-hours dominated by ECNs)  Meeting the ECN threat (NYSE Direct+) – Trade through rule in effect since 1975 – Small trades: limit orders up to 1,099 shares – Processes 10% of NYSE daily volume – 30 second time limit between orders – Try to take business from third market: NASDAQ dealers who trade NYSE, AMEX and other stocks – Rule 390 (since abolished by NYSE) – Merged with Archipelago or ARCA|EX (major development!!!!!!!!)

28. October 10, 201528/16 NYSE Group NYSE Group (NYX) is now a publicly traded company  Europe is the next round in the NYSE vs. NASDAQ fight  NYSE merged with Euronext (LSE no longer in contention)  NYSE purchases AMEX in Jan. 2008 stock chart from http://www.cnbc.com.http://www.cnbc.com

29. October 10, 201529/16 Conclusion  Advances in technology has provided the opportunity for straight-through systematic processing for orders from the trading desk to the trading floor at incredible speeds  Technology has enabled NYSE to operate more efficiently. – NYSE aver. daily volume in 2007: 1.9 B shares – Program trading represents about 60% of all trades daily  The NYSE remains one of the world’s most technologically advanced exchanges and is continually striving to upgrade and enhance current technologies  Little possibility that trading will be exclusively electronic (like NASDAQ) and all trades will be paper-less

30. October 10, 201530/16 For Next Class…  Read – NASDAQ Stock Market articles – Visit the Philadelphia Stock Exchange website (www.phlx.com)