Gregor Bailar: The CIO of NASD assesses the future of IT at the Nasdaq

GREGOR BAILAR TOOK the technology helm at the NASD (National Association of Securities Dealers) in late 1997, possibly the start of the most dynamic period in the association's history.

As CIO Bailar is charged with overseeing the systems and technology that run Nasdaq. Since 1997 he has seen just about every Nasdaq metric shoot off the charts: number of shares traded in a single day, number of trades, volume of traders, to name just a few.

InfoWorld Contributing Editor Mark Leon met with Bailar to discuss his role at NASD and the evolving nature of trading and technology.

InfoWorld: What are your responsibilities as CIO at NASD?

Bailar: I oversee the technology organization for the NASD family of the companies. The NASD is still the owner of Nasdaq for a few more months, and the other companies are the NASD Regulation, the American Stock Exchange, and Nasdaq Global, which is a separate set of companies.

InfoWorld: What do the Nasdaq systems do?

Bailar: Nasdaq is one of those few companies named after a computer system, as Nasdaq stands for the NASD Automated Quotation System. So the name of the company is really the name of the system which was mandated in part by the SEC in the late 1960s and developed in the early 1970s.

The fundamental thing it does is let everyone on the trading side see the relevant prices for a particular stock. That's the quotation system. In front of that, in order to get the data, there's a very large, proprietary network, wholly owned by the NASD and run by MCI.

There are 22 data centers throughout the United States for local points of presence. Each data center is constructed with a set of Compaq/DEC Alpha machines and a huge rack of routers. Those, in turn, connect to the firms. Each firm has at least one server -- some of them have 50 -- which then fans out to a number of users.

The quotation system is our primary responsibility. The second thing we do is transact; allow people to actually trade a stock with someone else through an execution system. The quotation system runs on a Unisys platform, which was the original platform. The execution system is all run on Tandem as the platform, with a host of Sun and [Windows] NT machines surrounding the core.

InfoWorld: Are these wholly separate systems, the quotation system and the execution system?

Bailar: Yes. It's a wholly separate environment. Nasdaq's original electronic mode was simply to give you a price. The execution was usually by phone.

Then in the 1980s we built the execution systems and the confirmation systems to make the entire process electronic. This is still unlike any other market in the United States. The New York, or even the American Stock Exchange, still generates paper orders.

InfoWorld: You said the network is proprietary. Are there plans to change that to an Internet-based system?

Bailar: Yes. It is Internet-based now. The technology for it is all TCP/IP and Cisco routers. It would be more appropriate to call it an extranet. In fact, the name for our next generation is called the Nasdaq Financial Extranet.

InfoWorld: Can you tell us more about that?

Bailar: The system now has one service for all connections. It's a fairness issue. If a trader in New York can see a price more quickly because he's near Trumbull than a trader in California, you have a huge arbitrage potential bbetween the two locations, and a fairness issue just in general for the market.

So this level of service requires even the smallest broker/dealer to have a reasonably sized infrastructure. They've got to have dual T1s coming into their shop and dual servers. However, some of the smaller traders would rather not have to support this.

So we will have a tiering of the services, the proprietary network with very high reliability, very high speed. Then we will have a virtual private network which will be for most trading groups, including small broker/dealers. This will be on a common shared infrastructure. Finally we'll actually do more and more over the Internet.

InfoWorld: What are the biggest changes you've seen since you've taken over as CIO?

Bailar: Our volume at that time was in the 600 and 700 million shares per day range, and we've peaked at 2.9 billion now. This was a significant spike, and it wasn't a gradual thing.

InfoWorld: Did that strain your systems?

Bailar: Yeah, it did at first. In the October, November timeframe of last year, even into December, we were having some delays beyond what we would want to have. At the same time, we were doing what we would normally do annually in growth every month and a half. I mean it was just phenomenal.

Volume doubled, and we tripled the capacity at the same time. You've always got to be way ahead with plenty of headroom, because you don't know where the spike's going to jump up to.

InfoWorld: When you talk about tripling the capacity, are you talking about hardware, software, the network?

Bailar: We replaced the entire Nasdaq network last year; every connection, every router, every server in 22 data centers. All of that was replaced last year.

The quotation system is a set of 200, brand-new Tandem machines. I think we've got 374 processors now, all of them up at the latest release of the processor.

We tuned the software on the 30-year-old Unisys system, and were able to get 20 percent more utilization of the machine, which actually doubled our capacity.

InfoWorld: And that was a software issue?

Bailar: Yes, it was the memory mapping files

InfoWorld: Can you give us a high-level view of all your software?

Bailar: It's easier to talk about the future because we've got a mixture of things now.

We are a message-based environment. Our software systems are almost entirely built by Nasdaq. Where we are using other packaged software is in infrastructure elements like the message bus. We are working with Tibco very closely on putting a message bus in the back end.

And then we have been moving a lot of applications to the NT platform and the Sun Solaris. We tend to use Sun if the application is in the area of network control, systems interface, or systems infrastructure. For some of our specialized processing engines, we've been moving to some pretty big NT boxes.

InfoWorld: On the NT vs. Unix question, where is it that you would use NT?

Bailar: I'll give you an example. Two years ago now we had a need for a new surveillance system that could easily grow with scale. It has to monitor every transaction that happens on the Nasdaq and then it does a neural-net analysis to look for irregularities.

So we put out a bid and had Unix and NT vendors compete. We were not religious about it; we just wanted the best solution. And it turned out that the NT solution won.

InfoWorld: What about Linux?

Bailar: We have some Linux creeping into the control systems where we need something quickly, but it's not yet ready in our space for prime time. Not because of the operating system itself, but because of the support infrastructures arouund it.

InfoWorld: Could you talk about the role of the CIO vs. the role of the CTO?

Bailar: We have a CTO. These roles, CIO and CTO, depend very much on what your company looks like. We spend over half of our budget on technology; over $450 million. So the difference between my role and that of our CTO is that the CTO's focus is on day-to-day operations. But I would have to say that that's not necessarily the classic CTO role.

InfoWorld: Yes, so titles can be misleading.

Bailar: I think, traditionally, the CTO is an advisor. So here we may have these roles kind of flipped.

InfoWorld: You currently have a challenge with the decimalization issue.

Bailar: It is a significant deal. There's no doubt many of these systems were written opportunistically. Most of these systems don't even use a number. Data is stored literally as 'pieces of eight.' So in that sense it is like the Y2K issue.

In some ways it is bigger than Y2K. You can't just look for all the date routines. You have to look for messages, comparisons, and all sorts of things. But that is not the reason we delayed the market going live with decimalization.

We stopped the market because the market was on a growth path it had never seen, ever, practically doing an annual growth every three months. And, in some forecasts, decimalization of the quotation system will trigger a 50 percent increase in quoting. In some estimates it is 600 percent. So we need to make sure we have all the bandwidth we need.

InfoWorld: When are you planning on going live with decimalization?

Bailar: Our system will go live in February of next year. The industry will begin to go live in March, and probably come into full play in April.

InfoWorld: Are we going to see a merging of stock markets, perhaps a global stock market?

Bailar: I think you certainly are going to see a global stock market. Nasdaq wants to be a player in that game. We believe very strongly that the investor wants access to every product that's available.

In the United States you don't have to worry about what exchange something is on or how you get it. And that is what people will want on a global basis

We've come live now with trading of Nasdaq stocks in Hong Kong. Next is Nasdaq in Japan. We have Nasdaq Europe well under way for a next-year launch. We have summits going on in Latin American and the Middle East.

InfoWorld: What is driving this push to a global stock market, technology or politics?

Bailar: I wish I could say we're solving all the technical problems, but it's much more the political atmosphere that's changed.

This story, "Gregor Bailar: The CIO of NASD assesses the future of IT at the Nasdaq" was originally published by InfoWorld.

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