Meyer (Sandy) Frucher, CEO of the Philadelphia Stock Exchange (PHLX), loves a good story. He tells them easily, like one might tell a friend or spouse about the day at work. Even when he's pressed for time, he weaves a juicy plot and leaves listeners begging for the conclusion. With this in mind, it seems only natural that Frucher relies on an anecdote to explain the importance of IT in his organization.
His story begins last year, when Richard Baker, chairman of the US House of Representatives Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, came to Philadelphia and requested a tour of the exchange. Baker's schedule was tight, so he asked to see only the most important aspects of the market. Without missing a beat, Frucher took him straight to the Operations Command Centre, the epicentre of technology for the entire company. "He was simply blown away," Frucher remembers. "He said: 'You are the first exchange I've visited that has shown me technology as an identification of what things are all about.' I'd say that about says it all."
It certainly says a lot. As CEO, Frucher has engineered and overseen the biggest technology transformation in the 216-year history of the US's oldest exchange. Today, the exchange trades equities, options and foreign currency options and provides equity clearing services. In years past, however, the portfolio was less diverse. The transformation began in 1998 - when transactions were still being processed largely on paper and the PHLX was haemorrhaging money. The US Securities and Exchange Commission hired Frucher to turn the company around and merge the PHLX into the American Stock Exchange (AMEX). The merger never materialized, but Frucher worked together with CIO Bill Morgan (who has held the position since 1995) to develop and execute the technology modernization. In a highly competitive marketplace, the PHLX needed the new technology to attract trading volume from other exchanges. Then last year, Frucher sold 90 percent of the company to six Wall Street firms - Citadel Group, Citigroup, Credit Suisse, Merrill Lynch, Morgan Stanley and UBS - in exchange for those companies' options business. The deal helped the PHLX rebound from a $US13.9 million loss in 2005 to an estimated $US30 million in earnings this year.
Re-architecting the PHLX's systems wasn't easy. To get things started, Frucher borrowed $US20 million from local banks. With help from former Philadelphia Mayor Ed Rendell, Frucher also championed a capital fee to be imposed on owners to help fund the new systems. Then came the technology itself. Frucher took a hands-on role working with Morgan to devise the systems that chart trades. He also backed the use of handheld and laptop technology that help make all of the trading electronic. The process practically eliminated the traditional (and less efficient) open outcry system, in which brokers shout out their offers for trades. Paper transactions are nearly history. Today, the PHLX is the third-largest of six exchanges in the United States, executing as many as 380 million quotes a day. "Everything we do runs on technology," Frucher says. "We couldn't exist without it."
Now technology is driving the PHLX into the next decade. In September, the organization relaunched the Philadelphia Board of Trade as an all-electronic futures trading platform and unveiled a new line of business providing data centre hosting services to local companies.
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