As floor traders clad in jackets and ties vanish from the New York Stock Exchange, they are being replaced by people like Sam Johnson, a technology whiz kid who goes about his business wearing jeans and cowboy boots.
As floor traders clad in jackets and ties vanish from the New York Stock Exchange, they are being replaced by people like Sam Johnson, a technology whiz kid who goes about his business wearing jeans and cowboy boots.
He is helping to lead NYSE Euronext’s new effort to develop trading technology that it can sell to other exchanges and brokers. Mr. Johnson, who joined the NYSE when it acquired his software firm in January, quickly is making inroads.
Last week, he and his crew of 90 techies won a mandate to assist the Tokyo Stock Exchange, Asia’s largest marketplace, in revamping its antiquated systems. “We’re just getting started,” said Mr. Johnson, 37. “Selling technology is going to be a big part of the exchange’s future.”
The NYSE, which belatedly has embraced the computer age and is closing sections of its trading floor, may have little choice but to place a big bet on Mr. Johnson. NYSE Euronext’s stock price is off 25% this year as investors worry about its ability to bolster its business.
It needs new sources of revenue as the rise of electronic trading drives down profitability in its core business and as tech-savvy rivals such as Nasdaq Stock Market Inc. of New York capture more trading market share.
Just as important, selling technology is a useful way for NYSE executives to get a foot in the door of other exchanges and cultivate relationships in an industry that is consolidating rapidly.
“Technology is a great way to gain entry and meet management teams at exchanges, which otherwise might not take place,” said Michael Long, an analyst at Keefe Bruyette & Woods in New York. “The idea is that these meetings will eventually lead to a full-blown merger.”
Until now, the world’s largest stock exchange has been slow to capitalize on trading technology. It didn’t attempt to sell trading technology until this year, when it acquired Paris-based Euronext and its stable of tech developers and bought Mr. Johnson’s firm, TransactTools, for an undisclosed sum.
Mr. Johnson remains chief executive of NYSE TransactTools.
Other exchanges have been reaping fat fees from technology for years. The Chicago Mercantile Exchange, for example, racked up $90 million last year by providing electronic trading capabilities to the New York Mercantile Exchange and the Chicago Board of Trade. OMX Group Inc., an exchange based in Stockholm, Sweden, generates a quarter of its revenues by building technology for other exchanges — a big reason that the little-known company is the subject of a fierce bidding war between Nasdaq and Borse Dubai.
“OMX’s market technology unit is a hidden treasure,” said Sang Lee, managing partner at consulting firm Aite Group in Boston. “It’s some-thing every exchange would like to emulate.”
Mr. Johnson is a key player in the NYSE’s effort to do that. The Oklahoma native, like much of the exchange’s leadership, comes from Goldman Sachs, where he helped build the firm’s electronic trading systems before striking out on his own in 2000.
Based in an office above the Century 21 department store in downtown Manhattan, Mr. Johnson’s fledgling TransactTools scored big when it landed its first big client, Archipelago Holdings, an electronic stock exchange that’s now part of the NYSE. Mr. Johnson and his group built a system enabling Archipelago to communicate with other marketplaces that use different computer languages.
NYSE TransactTools now has 800 clients and is on pace to generate $75 million in revenues this year, with profit margins in the high teens.
Mr. Johnson’s ambition is to reach $450 million in revenues in the coming years, which would make his unit the NYSE’s No. 2 business line, second only to trading.
The stakes are enormous for Mr. Johnson and his new employer, which is fighting hard to remain the dominant place for trading stocks.
In part because of its reputation for technological ineptitude, the exchange has lost significant share to about 40 electronic marketplaces that have sprouted in the United States, many of which are backed by Wall Street’s biggest banks. A similar number of alternative venues could spring up in Europe, where Euronext is a major player, as regulators there prepare to change the rules governing stock trading later this year.
“Competition for the NYSE is already tough and about to get a lot tougher overseas,” said Mayiz Habbal, a managing director at Boston-based consulting firm Celent LLC.
To make his sales pitch, Mr. Johnson has packed his schedule with trips to places such as Singapore and London in the coming weeks. He’s in talks with India’s National Stock Exchange, in which the NYSE bought a 5% stake this year, and he’s eyeing exchanges in China.
“Fortunately, I can sleep anywhere,” Mr. Johnson said.
CNS
