A substantial part of all stock trading in the United States takes place in a warehouse in a nondescript business park just off the New Jersey Turnpike.
Few humans are present in this vast technological sanctum, known as New York Four. Instead, the building, nearly the size of three football fields, is filled with long avenues of computer servers illuminated by energy-efficient blue phosphorescent light.
Countless metal cages contain racks of computers that perform all kinds of trades for Wall Street banks, hedge funds, brokerage firms and other institutions. And within just one of these cages ? a tight space measuring 40 feet by 45 feet and festooned with blue and white wires ? is an array of servers that together form the mechanized heart of one of the top four stock exchanges in the United States.
The exchange is called Direct Edge, hardly a household name. But as the lights pulse on its servers, you can almost see the holdings in your 401(k) zip by. ?This,? says Steven Bonanno, the chief technology officer of the exchange, looking on proudly, ?is where everyone does their magic.?
In many of the world?s markets, nearly all stock trading is now conducted by computers talking to other computers at high speeds. As the machines have taken over, trading has been migrating from raucous, populated trading floors like those of the New York Stock Exchange to dozens of separate, rival electronic exchanges. They rely on data centers like this one, many in the suburbs of northern New Jersey.
While this ?Tron? landscape is dominated by the titans of Wall Street, it affects nearly everyone who owns shares of stock or mutual funds, or who has a stake in a pension fund or works for a public company. For better or for worse, part of your wealth, your livelihood, is throbbing through these wires.
The advantages of this new technological order are clear. Trading costs have plummeted, and anyone can buy stocks from anywhere in seconds with the simple click of a mouse or a tap on a smartphone?s screen.
But some experts wonder whether the technology is getting dangerously out of control. Even apart from the huge amounts of energy the megacomputers consume, and the dangers of putting so much of the economy?s plumbing in one place, they wonder whether the new world is a fairer one ? and whether traders with access to the fastest machines win at the expense of ordinary investors.
It also seems to be a much more hair-trigger market. The so-called flash crash in the market last May ? when stock prices plunged hundreds of points before recovering ? showed how unpredictable the new systems could be. Fear of this volatile, blindingly fast market may be why ordinary investors have been withdrawing money from domestic stock mutual funds ?$90 billion worth since May, according to figures from the Investment Company Institute.
No one knows whether this is a better world, and that includes the regulators, who are struggling to keep up with the pace of innovation in the great technological arms race that the stock market has become.
William O?Brien, 40, works as chief executive of Direct Edge, the young electronic stock exchange that is part of New Jersey?s burgeoning financial ecosystem. Seven miles away, in Secaucus, is the New York Four warehouse that houses Direct Edge?s servers. Another cluster of data centers, serving various firms, is five miles north, in Weehawken. And yet another is planted 20 miles south on the New Jersey Turnpike, at Exit 12, in Carteret. As O?Brien says, ?New Jersey is the new heart of Wall Street.?
Direct Edge?s office demonstrates it doesn?t take many people to become a major outfit in today?s electronic market. The firm, whose motto is ?Everybody needs some edge?, has only 90 employees, most of them on this building?s sixth floor. There are lines of cubicles for programmers and a small operations room where two men watch a wall of screens, checking that market-order traffic moves smoothly and, of course, quickly. Direct Edge receives up to 10,000 orders a second.
Direct Edge now trails the NYSE and Nasdaq in size; it vies with BATS for third place. Direct Edge is backed by a powerful roster of financial players: Goldman Sachs, Knight Capital, Citadel Securities and the International Securities Exchange, its largest shareholder. JPMorgan also holds a stake.
The exchange now accounts for about 10% of stock market trading in the US, according to the exchange and the TABB Group. Of the 8.5 billion shares traded daily in the US, about 833 million are bought and sold on O?Brien?s platforms.