Virtual trading floors useful in real life

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In the immediate aftermath of September 11th 2001 the trading floors in New York City fell eerily silent as financial activity ground to a halt and large swathes of Manhattan were sealed off.

No one could access the southern part of the city, so trading rooms in buildings that were not affected remained empty for months. Many financial services companies had contingency plans that involved bussing their traders to offices in Chicago.

However, bang in the middle of New York, on 25th street, a mock trading room for students at Baruch College’s Zicklin School Of Business, that had only been operational for a year, became the unlikely venue for real corporate activity.

“We had 15 to 20 traders who stayed about a month, some of them were from Refco,” says Richard Holowczak, director of the Subotnik Financial Services Center at the New York school.

“September 11th happened on a Tuesday. We were contacted at the end of that week, so we switched our networks round. The NYSE resumed trading the following Monday.”

The school’s ability to turn its trading room into a viable trading hub lends weight to its reputation as one of the most technologically advanced facilities for business students in the world.

Set up in 2000, the goal was to bring “real-life” experience from Wall Street into the classroom, with financial news terminals displaying currency trading, economic reports and running stock quotes.

Students can play the role of hedgers, traders, portfolio managers or speculators. Class topics include option pricing and portfolio management.

Ten years ago there were only a handful of such trading rooms in business schools around the world.

Today there are more than 60, including ones at: the University of Washington, Penn State, Texas A&M University, MIT, the Illinois Institute of Technology, Michigan State University, Tulane University, Baruch College, Saint Joseph’s University and Carnegie Mellon University.Vanderbilt and Bentley College.

Reading University in the UK has a state-of-the-art example, as does University College London.

But they do not come cheaply; it can cost millions to set one up. Most business schools, especially in the US, have donations from their wealthy alumni to thank for the initial funding.

“The market data is very expensive and can cost up to $2m. As an academic institution we can negotiate discounts with the software providers and exchanges to relax the fees and, with the data vendors, to give us some discounts on the software,” says Mr Holowczak.

“After all, it is to their advantage. They want students to learn about their data so they will become consumers.”

Other sponsors of trading rooms include the larger banks, which benefit thus from a first look at any promising students. Academics say they can see better who has the guts for trading and who does not.

These rooms are not just built to breed traders: many business schools are also using them to develop software programmers and IT analysts.

University College London has just opened a virtual trading floor sponsored by investment banks Credit Suisse, Goldman Sachs, Merrill Lynch and Morgan Stanley – as well as Reuters.

The room is used by students doing financial degrees and the university’s new conversion masters in financial computing.

”The laboratory receives real-time datafeeds from Thomson Reuters, and the banks clubbed together to arrange donation of the 30 terminals and other lab equipment, giving the machines a spec similar to the ones traders would use,” says Christopher Clack, programme director.

The two goliaths of software provision are Reuters and Bloomberg.

Industry observers say Reuters has the edge when it comes to foreign exchange and derivatives while Bloomberg is better for fixed-income.

One challenge for programme directors is to keep abreast of required technology; three years from now these machines will be out of date.

Baruch College, whose trading room can hold 50 students, uses Reuters on all of its terminals. “Bloomberg tend not to discount,” Mr Holowczak says.

But are these trading floors really advantageous to students applying for business school?

“It is hard to say. In my judgment, not having a trading floor could turn out to be a drawback for the college. People almost expect experiential learning,” says Narayanan Jayaraman, Professor of finance at Georgia Tech College of Management – which has a $1m trading floor.

“Students can use the experience in a job interview.

“Having a trading floor is a good competitive advantage but in the next five years most schools will have something similar.”

Mr Holowczak says: “Students are turning down colleges that don’t have trading floors. The text books are out there.

Whether you are at New York University or Columbia the theory is all the same. What do you need? You need the edge to put this theory into practice.”

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