Wednesday, February 23, 2000

Everything will be fine in six months: TSE Information bottleneck: CATS trading system terminals blamed for woes

Garry Marr and Kim Hanson Financial Post

Kevin Frayer, The Canadian Press Analyst James Steel talks on his cell phone as he watches a stock ticker in Toronto's financial district.

Toronto Stock Exchange officials said yesterday that changes to be made over the next six months should eliminate some of the problems that have been hampering trading.

"It's 3:57 p.m., my heart is a beating and we are making sure we are going to get through here," said Steve Kee, manager of information services for the TSE. The exchange made it through the day without any major problems yesterday after two consecutive glitch-filled sessions.

On Monday, the TSE was forced to shut down two minutes early after some member firms were unable to make trades for the last 15 minutes because of a breakdown in the order-management system. On Friday, the TSE said some member firms were unable to confirm trades after the Toronto broadcast feed shut down for 10 minutes.

"The problem was there was so much information moving back and forth on Friday," said Mr. Kee. "Capacity is not an issue. Our trading levels are within an acceptable range. We are able to handle the trades that come through the TSE."

The problem is the information coming into the system is getting bottlenecked because the system has been forced to process information from both aging CATS terminals and the order-management system that broke down Monday.

By Sept. 1, all member firms will have to have had their CATS trading system computer terminals replaced, which Mr. Kee said has been a major problem for the TSE. The CATS system has been in place since 1977.

In the interim, firms polled yesterday said there are becoming increasingly frustrated with the exchange.

"The view from the trading desk is they have some work to do," said Mark Chandler, a strategist with Goldman Sachs in Toronto.

Paul Bates, chief executive of Charles Schwab Canada, said his company is still using the antiquated CATS system.

"There truly is no single point of issue. It is all driven by volume. To put it simply, you put enough pressure on a garden hose and you find all the leaks," said Mr. Bates.

"It almost seems every time you have a meeting, you ask what type of spike can we reach without pressure, the answer is 'we have all types of room'. Two days later that becomes normal activity and you race to add more capacity. That's what we are seeing."

Mr. Bates said the TSE has made major improvements over the last few months, one of the most important of which was installing a backup system in November.

"That was done in preparing for Y2K. Believe it or not, there was nothing before that," he said.

To test its systems, the TSE had to use its main operating system after trading hours.

Graeme Harris, a spokesman for Royal Bank's wealth-management arm, said the recent problems were having a major effect on business.

"Naturally, something like this is going to have a ripple effect across our whole business. When you are relying upon someone else to conduct your transactions like the Toronto Stock Exchange, and they are unable to complete that on your behalf, it affects our business. We can't fulfill a transaction for a customer."

John See, the vice-chairman and head of Canadian operations of TD Waterhouse Group Inc., said when the TSE's systems fail there is little his firm can do.

"At the moment we're pretty limited in terms of anything else we can do. Their problems are similar to ours in terms of a rapid and sudden surge in volumes. In terms of our own capacity we've made substantial upgrades and enhancements. "Just last Friday, for example, we increased our Web capacity by as much as 25% and our electronic channels have significant expansion programs under way for the next few weeks

http://www.nationalpost.com/financialpost.asp?f=000223/212670&s2=canadianbusiness

-- Martin Thompson (mthom1927@aol.com), February 23, 2000