June 15, 2006

Traders Are All Over, But for the Shouting, Some Use Software

As Markets Evolve, Products
Provide Familiar Noises;
Whistles, Pigs and Lasers
By AARON LUCCHETTI
June 14, 2006; Page A1

When professional investor Ken Sullivan bought a big pile of Treasury notes recently, he did it surrounded by the sounds of people shouting out prices. It was almost as if he were right there among the brokers on the floor of Chicago's bond-trading pits.

Mr. Sullivan was actually a few miles up the city's Chicago River, sitting in the office cubicle where he works. And the shouting didn't come from any humans. It came from his copy of MarketSound, computer software that cranks out pretend trading noises. "I never turn it off," said Mr. Sullivan, a 15-year bond-trading veteran.

MarketSound is one of a wave of products capturing an unusual niche: former financial traders who miss the bustle of the trading pit, and believe they drew energy and even trading ideas from the noise.

The sounds ebb and flow based on the size of trades and price movements. In general, the sounds get louder as the size of trades and volume increase.

The rise of electronic trading has meant the decline of the traditional trading floor -- an icon of capitalism that dates back over two centuries. Much of the trading in the U.S. now consists of numbers flashing across computer screens rather than brokers shouting prices and waving pieces of paper. At the New York Stock Exchange, the ranks of traders have thinned so much that the lunch club for senior traders shut down in April due to lack of demand.

The Big Board's owner, NYSE Group Inc., recently announced plans to merge with a giant European owner of five electronic exchanges. Last month, Nasdaq Stock Market Inc., a large electronic U.S. market also rolled out its own simulator, dubbed Market Velocity. It, too, gives traders cues similar to the sounds on the floor, which they can use to sense when prices might turn.

MarketSound is designed to generate a realistic mix of background noises that fluctuate in time with the market, as well as spoken prices in a choice of three voices. Its automated voices read out stock quotes and other market data. A companion product, Virtual Pit, generates fake sounds of people shuffling around, talking and, occasionally, yelling in the background.

One voice, recorded by a British nightclub singer, clears her throat, saying "ahem, excuse me," before reading her next price. It is programmed to happen randomly, once every month or so. In 2003, the program's creators received patent No. 6,507,818 on the algorithms used to produce natural-sounding crescendos that rise and fall smoothly in line with the peaks and troughs of actual, real-life trading.

'BUY!' 'SELL!'
 
Listen to a brief audio clip of pitsounds and price quotes for the FTSE Index from GHCO's MarketSound software.
Windows Media | Real Audio

One early MarketSound customer, a Chicago broker named Jim Oliff, left the trading pit after 22 years following his seventh vocal-cord operation. When he switched to electronic trading, he didn't miss the yelling that led to the surgeries. But he longed for the surges of energy that came from big price moves. "It was extremely comforting to get even the imitation of a pits noise," he says.

Goldenberg Hehmeyer & Co., a brokerage and trading firm based in Chicago with a hundred-plus traders, liked MarketSound so much so that Goldenberg bought its maker in 2003 and now provides the software, which was introduced in 1999, as a perk to clients. It says more than 100 have used it. At one office, the noise blared for years from loudspeakers strapped to the ceiling.

"It wasn't faint, it was loud," says Joe Cheff, a bond trader there. "The lady in the next office didn't like us very much." After months of complaints about the ruckus, the company next door, a phone-sales operation, moved out, he says.

In addition to MarketSound, Goldenberg traders also use another software product called Trading Technologies, which blasts sound effects -- a referee blowing a whistle, a pig squealing -- based on how a trader is doing. On one recent morning in the firm's New York office, the sound of a laser burst came screaming out of one person's PC, followed by the sound of a window being shattered. Across the room, an actual trader hollered, "Man, I stink."

"The younger guys like the videogame sounds," says Bill Barry, who heads Goldenberg's New York office.

Floor noise can be a valuable asset to traders, conveying important information not reflected in raw numbers. A dramatic example took place on Oct. 19, 1987, when U.S. stocks suffered one of their most climactic tumbles ever. That day, NYSE floor traders got a warning of trouble from the sound of quote machines all humming simultaneously to print "sell" orders. "Anytime there was an influx of program trading, you'd hear the printers," recalls Warren Meyers, a Big Board floor broker.

In May, CNBC's Maria Bartiromo broadcast a scoop from her dinner conversation with Federal Reserve Chairman Ben Bernanke. The fact that it was going to have a big effect in the market was immediately apparent, directly behind her. She was broadcasting from the Chicago Mercantile Exchange, and after she broke the story, the surge in floor noise got so loud she had trouble being heard over it. "It seems like something is going on behind us," Ms. Bartiromo said on the air, looking over her shoulder.

Moments later, stock prices accelerated their decline in an already shaky trading day.

MarketSound isn't a perfect substitute for real market noise, says Larry Gazette, a hedge-fund manager in New Jersey who helped create the product before he and his business partners sold it to Goldenberg. He still uses it on speakers at home and over headphones at the office, so he can take his eyes off the screens every now and then to read a research report. His biggest complaint is that it lets him listen to only one market at a time. And some traders tell Mr. Gazette the software isn't fast enough to keep up with the increasing speed of trading today.

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