How The Chicago Mercantile Exchange Went Wireless Against All Odds
The enterprise mobility market is rife with examples of how wireless services make workers more productive. For some organizations, achieving that productivity can be so compelling a proposition that they'll even try to defy physics to make sure their end users can experience the benefits of wireless.
Such was the case for the Chicago Mercantile Exchange (CME), which became the world's largest financial exchange following its merger with the Chicago Board of Trade (CBOT) in July 2007. Indeed, the solution ultimately devised for CME served as the model for later installations at CBOT, as well as at the American Stock Exchange. When CME begins the process of moving its trading pits to the CBOT building in March, the technological innovation will be moving along with it.
Literally billions of transactions are on the line. In 2007, CME and CBOT together handled nearly 2.8 billion contracts - an average of 11 million a day - which was a 20% increase over 2006. The CME offers futures and options based on interest rates, equity indexes, foreign exchange, commodities and alternative investment products such as weather and real estate.
CME's mobile mission began in 2002. The goal was to enable hundreds of traders working on two trading floors, each of which spans 3,000 square feet, to use a wireless system to quickly exchange valuable trading information. "What we realized years ago is that to make trading faster for our traders, we need to be able to facilitate communications directly into the trading pits," says Roger Crabtree, director of communications for the CME.
Traditionally, trades occurred much as they are depicted in film, with hordes of traders on the floor simultaneously yelling and waving their hands. For example, when a broker is instructed by a client to buy certain shares, the broker's order department sends the order to the floor clerk on the exchange. The floor clerk alerts one of the firm's floor traders, either by handing him a scribbled note or by flashing hand signals to him across the pit. The floor trader then finds another floor trader willing to sell those shares. This is easier than it sounds, because the floor trader knows which traders are handling which stocks. The two agree on a price and complete the deal. The notification process goes back up the line, and the broker calls the client with the final price.
The unwieldy process and ensuing wall of noise aren't conducive to a trading environment where speed and accuracy count. "Even nanoseconds are precious in this business," Crabtree says.
They Didn't Even Come Back
When Crabtree set out to find technology that would give futures traders the ability to instantaneously communicate critical market information, he quickly realized just how challenging the process was going to be.
Fixed voice services were ruled out almost immediately, since space in the trading pits is at a premium. Crabtree then turned to cellular technology and in-building wireless equipment as possible solutions. He invited proposals from some of the wireless industry's major carriers; their executives invariably walked away from meetings shaking their heads, saying they were unable to offer the kind of coverage and capacity the CME wanted.
"They didn't even come back," notes Crabtree.
That's because cell phones are designed for a certain amount of capacity. Giving a significant chunk of cellular capacity to some 400 users in one area would have had negative implications for the average user on the streets of Chicago.
The fact that the trading areas are situated on two separate floors, one directly above the other and each with a 45-foot high ceiling, makes for an extremely harsh environment for a wireless system, Crabtree says. The CME even considered giving traders their own cell phones with corporate calling plans, but soon realized operators couldn't guarantee coverage and capacity inside the trading pits.
The CME then settled on building an in-house solution using in-building wireless technology from vendor Ericsson. Again, it ran into technical difficulties. The Ericsson solution simply ran out of capacity because of its inability to reuse wireless spectrum. In a wireless network, the increase in capacity comes from the fact that the same radio frequency can be used over again in a different area for a completely different transmission.
At last, the CME turned to SpectraLink, now a part of Polycom, and its Link Wireless Telephony System (Link WTS). The solution is making headway in the medical community as an effective wireless voice solution because its low-power transmitters don't interfere with sensitive medical equipment. Plus, the Link WTS's spread-spectrum radio technology uses the unlicensed 902 MHz - 928 MHz band to offer effective coverage and capacity.
The only problem was figuring out where to put the transmitters, or base stations, for even coverage. The 45-foot ceilings meant that hanging these transmitters up so high would create a sprinkler effect in terms of coverage, and the system would run out of capacity, says Ben Guderian, VP of product management with Polycom. The trick was to minimize coverage to take advantage of the system's frequency reuse, he says.
What SpectraLink embarked on nearly defies the laws of physics. It proposed to install the transmitters closely together under the top trading floor itself to save space and take advantage of frequency reuse. That way, the system could be used for both trading floors since one was situated on top of the other. The low-power nature of the transmitters meant interference wasn't a problem.
Most of these types of installations are done in the ceiling and transmitters are spaced far apart to avoid interference. Typically, in order to boost coverage, an organization adds additional transmitters or base stations but then must factor in interference, power issues and capacity problems. You simply don't space transmitters close together because the interference would be unbearable.
According to Polycom, it took extraordinary engineering efforts and proprietary technology to place these low-power transmitters so that they would cover both floors in a way that didn't create this sprinkler effect or cause interference. In essence, the installation turned both trading floors into one big coverage area that could radiate evenly throughout both floors without causing interference or taking up capacity.
"We did the things that are a nono in typical in-building radio layouts," Guderian says. "And it's not an environment that you can recreate in a lab. It was difficult to put into our own R&D facility a host of base stations close by each other and test and finetune around that. This wasn't just a thing to install and forget."
Crabtree likens the trading floor to a shoe box and the frequency coverage of cellular to two large balloons. "The SpectraLink system makes those balloons smaller and powers those down to create hundreds of little bitty balloons to get a whole lot more capacity."
For most businesses and in-building vendors, this type of deployment is unthinkable because of the level of interference that would occur. Even SpectraLink never envisioned such a deployment for a trading floor. Yet, CBOT and American Stock Exhange aren't the only enterprises to follow suit; SpectraLink also has deployed the system in corporate call centers where customer-service representatives need to move around the floor to verify information.
Nonetheless, Crabetree says, "we're still unique to most users. Most people don't even think about wanting to do this."
One might ask why the CME didn't turn to WiFi. When it initially began its wireless undertaking in 2002, the CME didn't consider WiFi because the technology didn't feature all of the advances available today. But Guderian says that, even today, WiFi's channel density is too problematic for this type of deployment. Today's WiFi can accommodate only up to 20 channels, and it isn't robust enough to handle the call volume. Crabtree says the CME is considering WiFi in the future as an adjunct to the SpectraLink system. It's also studying an IP version of the Link WTS to squeeze even more users into the spectrum.
How It Works The Link
WTS consists of three components: the master control unit (MCU), base stations and wireless telephones. The MCU connects to analog or digital station ports on the facility telephone switch. When a call is received, the MCU sends the incoming call out to the wireless phone through SpectraLink's overlapping network of base stations located throughout the building. The base station receiving the call provides the wireless radio connection to the appropriate wireless telephone.
The way the system is engineered allows the CME to control the class of service provided to each financial professional on the trading floor. This is key, since the Commodities and Futures Trading Commission mandates phone restrictions for specific types of traders. For instance, some traders cannot legally talk to the public, while others can. Traders who deal with their own money are allowed to make calls globally, while brokers and traders working for firms only have calling access through the range of the floor.
"Our phones work like any other wired phone off the telephone switch, so entities can use the same policies and mechanisms for controlling access. That just fell right into place," Guderian says.
The initial installation, completed in October 2002, involved 70 Link Wireless telephones. Today some 800 financial professionals shout out "buy, buy, buy" or "sell, sell, sell" over the phones on the CME trading floors.
End users are clearly pleased, Crabtree says. Indeed, many traders have changed their businesses to incorporate the technology. "The way we look at [return on investment] is that this capability brings volume to the floor. Volume continues to rise on a monthly basis," Crabtree says.
Year-end 2007 financials for CME were not yet released at press time. Sales were $1.089 billion in 2006, an 11.5% increase over 2005. Net income for 2006 was $407.4 million, a 32.7% increase over 2005. How much of that increase can be attributed to the new mobile solution is hard to say. But Crabtree stresses, "We are very successful, and that has been a part of our success: to be able to facilitate and get orders to the floor quickly. We don't look at it as a traditional ROI. We know [that it is successful] by having a waiting list of users that have wanted to use this for a number of years."
The CME has upgraded the WTS devices a few times. It rents out the devices and headsets to the end users, and has established a help desk to handle battery and headset issues. The durability of the device is an added asset to traders who work under extreme pressure and are known to take out their frustrations on their telephone equipment.
The CME's next challenge is to move its trading pits a couple of blocks away into the building where the CBOT is located. The lengthy process begins in March. The CBOT's trading floors span about 50,000 square feet and are situated side-by-side, which creates new challenges in terms of spectrum reuse, Crabtree says.
Although the SpectraLink WTS system is already installed on the CBOT trading floors, it will need to be upgraded to accommodate double the number of current users, about 1,600 once the merger of the trading floors is complete.
"We've asked [those in charge of renovations] for some natural barriers, such as tiering of booths," Crabtree says. "And we've asked to use wood instead of metal in the construction."
Even though futures trading is moving toward an electronic format, Crabtree doesn't envision the trader in the pit going away any time soon. "I've been in the exchange for 22 years, and for 18 years I've been hearing that the pits will go away. I don't think they will ever go away."