Oct 31 2006

Training Students for Wall Street Trading

Business schools build high-tech Wall Street trading rooms for students to simulate real-life securities trading.

To enhance its reputation as a business school, Saint Joseph's University in Philadelphia decided in 2002 to build an authentic high-tech Wall Street trading room at its Haub School of Business. Peggy Allen, manager of academic computing, was given her marching orders. Little did she realize that the stress of trading pork bellies and utilities stocks was nothing compared to the stress of building a trading room from scratch.

Allen needed to install a ticker board that continuously displayed stock prices and to offer students financial programs that provided real-time price quotes, research and statistical analysis – all from different vendors that she had never dealt with before. In addition, Allen needed hardware: new computers, fast networking equipment and high-powered servers that would run the entire trading room operation.

After researching the technology, Allen purchased $200,000 worth of hardware and software. Business school leaders spent another $200,000 or so on furniture and room renovations. In the fall of 2002, the trading room opened.

“It was a lot of work putting it together,” Allen recalls. “All the vendors were different: the software vendors, hardware vendors and data providers. It took a lot of coordination to make sure everything worked with everything else.”

A Growing Trend

Dozens of universities across the nation, including Penn State University's Smeal College of Business in University Park, Pa., and the University of Washington in Seattle, have built Wall Street trading rooms in recent years to enhance their reputation as premier business schools and to attract more students to their undergraduate and MBA programs.

Not only do students receive hands-on trading experience to prepare them for their careers, but this type of facility also becomes a showcase and a source of pride for the business schools. The trading rooms help recruit and retain students because the rooms become a central location for students to meet and learn, says David Haushalter, a finance professor and academic director of the Smeal College of Business trading room at Penn State.

“When students get involved in the room, it almost becomes a second home for them,” Haushalter explains. “Students in their freshman year meet people there and find a network that carries them through graduation. Students can access databases that are not available in typical classrooms. This experience helps them develop a better understanding of the concepts we teach.”

For IT administrators, a trading room is not your average computer lab. It must have the look and feel of a Wall Street trading room, while being a classroom. Trading rooms require a wide range of technologies and an insightful design.

For example, when Penn State's Smeal College moved to a new building this year, its new trading room featured carpeting, wood paneling and large windows through which outsiders can view the room. To further simulate a real trading room, three plasma screens were installed for students to watch CNBC. Eight wall clocks depict current times from Beijing to Johannesburg. And each PC has two monitors – one for conducting research, the other for taking notes.

“As a technologist, this is nirvana,” says Gary Field, trading room manager for Penn State's Smeal College of Business. “But if you are going to do this, be prepared to spend a lot of money.”

For instance, Field says the school paid more than $50,000 for the advanced display technologies in the trading room, including the 50-foot-long ticker board. Each financial software application can cost from $200 to $1,500 per computer.

In general, colleges use their own funds, donations and grants from the private sector to build their trading rooms. Saint Joseph's University fronted all its costs, but Smeal paid for its trading room with the help of friends and alumni. The college received more than 8,000 donations totaling $29 million for its new building, and a portion of that was reserved for the trading room.

Getting Started

In 2002, officials from Saint Joseph's Haub School of Business decided to convert a computer lab to become the school's new trading room with 33 workstations. The faculty debated which financial software programs to purchase, while Allen researched the remaining technology needs. She recommends that IT managers tour other university trading rooms and meet with vendors to see the available options.

Saint Joseph's installed one long ticker board that streams the latest stock prices, along with two other big display boards that show Dow Jones news headlines, the biggest stock gainers and losers of the day, and the progress of a student-managed portfolio.

Colleges today can purchase ticker boards, the software that runs the boards and a subscription to real-time quotes and news all from the same vendor. But in 2002, Saint Joseph's didn't have that luxury and had to buy them from different vendors.

Despite the issues, Allen advises shopping around for different vendors that offer data feeds. Although many provide the same data, their prices vary.

IT managers should buy Windows-based computers with fast processors, so they can run multiple applications at the same time, says Mick Westrick, director of IT at the University of Washington's business school. Two monitors for each computer are essential, so students can multitask and make quick decisions the way they would be required to on the job, he adds.

Penn State's Smeal College has a 1,600-square-foot trading room with 44 computers. They are powered by two servers for computing all the financial data and six smaller servers for storing files, printing and security, Field says.

The computers are connected to the servers on a network at gigabit speeds. The school also installed Integrated Services Digital Network lines for videoconferencing capabilities, so that Penn alumni working on Wall Street can lecture to students remotely. Field also purchased projectors and screens, so faculty can show computer screens and Web pages during lectures.

Penn State has subscribed to multiple financial applications such as Reuters and Bloomberg. Reuters required the school to purchase a dedicated T1 line to run its software. The school also bought statistical analysis tools and uses trading software, which allows students to simulate trades and manage a portfolio throughout a semester.

“We tried to copy what the commercial trading rooms have, [because] our students are expected to know what is expected of them when they go to a real trading environment,” Field explains.

In classes, students are given a fake sum of money to invest in order to test their trading prowess. Some colleges even allow students to manage investment funds using real money that reaches millions of dollars. While they can't actually conduct real trades in the trading room, they can do all their research there.

“If they're undecided about entering the world of investment management or becoming a trader, the simulation helps them understand what these types of jobs entail,” says Ronnie Sadka, an assistant professor of finance at the University of Washington.

Troubleshooting Software

IT administrators have additional software and networking issues they need to resolve before trading rooms can run seamlessly. Because the computers run so many software programs, IT staffers must test the software and develop a standard operating system and software configuration that ensures the applications can run together without crashing, Saint Joseph's Allen says.

At Penn State's Smeal, the financial software was designed specifically to save data and research on each computer's hard drive. Field, with the help of the university's main IT staff, tweaked the system so that when students log on and authenticate themselves to the network, their files are saved on their personal drives on the university's servers.

Field secured the software's passwords to prevent students from copying them and accessing the applications from home. He purchased a program that automatically fills in the password for each application when students in the trading room log on, he says.

If building a trading room sounds daunting, just remember that at the heart of it, the room is a computer lab, Washington's Westrick points out. “Ultimately, it's not that complicated,” he says. “The only things that are different are the ticker boards, the software for the boards, the trading software and having dual monitors.”

IT managers say they've had few problems since they got the financial software and the ticker boards up and running. Saint Joseph's University pays about $75,000 in annual technology maintenance costs, including software licenses, and $20,000 to hire student workers to manage the room and create tutorials on the software.

Despite the heavy investment, professors say trading rooms are worth it.

“It's a good investment,” says Ahmet Tezel, an associate professor of finance and director of Saint Joseph's University's trading room. “The learning and training students get from trading rooms help them get more job interviews and better jobs in the industry. It also helps with recruiting. [Prospective students] see the ticker symbols and the big-screen TVs. It's attractive.”

Five Tips on Trading Rooms

Here's some advice from the experts on building and implementing trading rooms:

1. Build a conference room. When designing a trading room, add a conference room with computers, so students can conduct research while classes are in session in the main room.

2. Involve the university's main IT staff. They can help with software configuration, login and authentication issues.

3. Hire students. Students can help oversee the room, train other students to use the equipment and create tutorials on the software.

4. Keep it open. Consider giving 24-hour access, so the room becomes a central gathering place for business school students. It also allows them to go in after hours to check activity on foreign stock exchanges.

5. Give tours. IT managers' duties can include giving tours to prospective students, alumni and representatives of other colleges seeking advice on building their own trading rooms.

Wylie Wong is a veteran technology reporter and writer based in Phoenix.

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