A troubled technology overhaul at the New York Stock Exchange is about to face its biggest challenge yet.
For the past four years, the NYSE has been replacing outdated systems that underpin its markets. The project, called Pillar, is designed to turbocharge the Big Board’s stock and options exchanges and help it regain market share from more tech-savvy rivals.
On Monday, the NYSE began upgrading the core technology on its flagship exchange, the listing venue for companies like
Over a three-week period, all stocks listed on the Big Board will be moved in phases from an old system to the new one.
The NYSE switched the first group of stocks to Pillar technology on Monday without incident, a spokesman for the exchange said. If the rest of the process goes smoothly, nobody will notice a thing. But previous Pillar rollouts on other, lower-profile NYSE exchanges have been marred by glitches and delays.
“Fundamental platform changes, by definition, are nail-biting moments,” said Jamie Selway, a former executive with brokerage Investment Technology Group Inc.
In the 1990s, the NYSE towered over other U.S. exchanges in trading volume and the prestige of its listed companies. Since then, regulatory changes and the rise of competitors like
and Bats—now owned by
Cboe Global Markets
—have eroded the NYSE’s lead. The shift to electronic trading also was tricky for the NYSE, which still runs a trading floor.
The NYSE tried to adapt by acquiring electronic-trading platform Archipelago Holdings Inc. in 2006 and adopting much of its technology. But other exchanges have since leapfrogged past the NYSE it by making their own systems faster.
With Pillar, the NYSE hopes to speed up the average processing time for orders in NYSE-listed securities on its main exchange to 40 microseconds, or millionths of a second. Currently, such processing times average around 120 microseconds, traders say. By comparison, such processing times are around 35 microseconds at Nasdaq and 56 microseconds at Cboe, representatives of the companies said.
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Speed is essential for modern exchanges because a huge portion of their trading volume comes from high-frequency traders. These firms make money through rapid-fire trading of stocks, and they gravitate toward markets that execute trades quickly and reliably.
Ultrafast trading has been attacked in works including Michael Lewis’s book “Flash Boys.” High-frequency traders reject such portrayals and say they serve a useful function by making markets—buying and selling stocks throughout the day, effectively acting as intermediaries for investors.
Pillar is designed to attract market-makers, as well as to put all of the NYSE’s markets on one unified technology platform. The NYSE runs five equities and two options exchanges.
Initially set to begin in August 2015, the Pillar rollout has been repeatedly halted so the NYSE could fix bugs and allow more testing. In all, the NYSE delayed its Pillar launch timetable over a dozen times, and there have been at least 18 glitches on platforms using the new technology, mostly in 2016 and 2017, according to NYSE notices sent to traders.
Most of the glitches were minor, but one was serious: On March 20, 2017, the NYSE’s Arca platform, which was running on Pillar technology, failed to publish 4 p.m. closing prices for more than 300 exchange-traded funds, sowing confusion among traders and upsetting ETF issuers. The NYSE blamed the problem on a software upgrade.
This month’s upgrade will be especially complex because the NYSE’s flagship exchange has unique quirks. Among these is what is called its “hybrid” model, in which human floor traders coexist alongside an electronic trading system.
“It will involve some clever choreography,” NYSE Chief Operating Officer Michael Blaugrund said in an interview.
Pillar’s origins date to 2014 when NYSE owner Intercontinental Exchange Inc., or ICE, acquired a small firm called Algo Technologies Ltd. The firm had designed a superfast matching engine—the system responsible for bringing together buyers and sellers at an exchange. Algo co-founder Alexei Lebedev became the Big Board’s chief software architect and wrote much of the code for Pillar.
NYSE employees initially called the tech project “Project Abbey,” after the Beatles album “Abbey Road,” but it was later rebranded Pillar, a name meant to evoke the exchange’s historic building in Manhattan, people familiar with the matter said.
The Pillar upgrade that began on Monday will take place without Mr. Lebedev, who left the NYSE about two months ago. Over the weekend, Mr. Lebedev said: “I am 100% confident in the ability of the NYSE’s Pillar team to carry out the upgrade.”
In a podcast released by ICE in April, Mr. Lebedev said the project had been tough because of the complexity of legacy NYSE systems.
“Things that have been running for a while tend to have a lot of parts that are not documented,” he said. “If you touch it, it might break. And nobody really knows where that sensitive part is, [the one] that you’re not really supposed to touch.”
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