Of the 658 employees of investment bank Cantor Fitzgerald who perished when American Airlines Flight 11 plowed into the north tower of New York’s World Trade Center, 180 worked for Cantor’s technology subsidiary, ESpeed. The deceased included ESpeed president and chief operating officer Frederick Varacchi, vice chairman Douglas Gardner and several other top managers.
“I wasn’t in the office that morning,” says Joseph Noviello, a seven-year veteran of Cantor Fitzgerald who at the time was chief technology officer of ESpeed. “As luck would have it, I was scheduled to join a couple of colleagues on an annual fishing trip.”
Luck, indeed: Noviello is the man most responsible for building and maintaining ESpeed’s high-tech trading infrastructure, with telecommunications links to 650 financial institutions around the world.
Varacchi had leaned heavily on Noviello. “We couldn’t do what we do without him,” Varacchi said in a November 2000 interview with Institutional Investor. In October Cantor chairman Howard Lutnick effectively seconded that endorsement, elevating Noviello to executive vice president and chief information officer. “It is because of Joe that the company’s technology, globally, never went down,” says Lutnick, who is also chairman, president and CEO of ESpeed. “Imagine - it’s 9:00 a.m. on a Tuesday and all of your friends have just been killed. Despite all of that, Joe worked nonstop for the next week or so.”
Now the rest of Cantor’s technology team, and by extension the 306 ESpeed employees in the U.S. and U.K., report to Noviello, who came to Cantor in 1995 from market data systems vendor Micrognosis, where he had been vice president of product development.
Noviello, working out of the Rochelle Park, New Jersey, data center that has become the hub of ESpeed’s operations, trumpets the fact that the company took only 47 hours to return to operational readiness - in time to help assure the smooth resumption of trading in U.S. Treasury securities, Cantor Fitzgerald’s principal activity, on September 13.
“It’s a great testament to everyone on the team to recover from such an event, to stay in the ring and keep fighting,” says the 35-year-old CIO. But, he adds, the attack took an immeasurable toll: “We lost a lot of intellectual knowledge, inspiration and passion.”
ESpeed’s financial performance however, is eminently measurable: It is a publicly traded company, still 52 percent-controlled by Cantor. With a 5 percent revenue increase in the fourth quarter, to $28.1 million, ESpeed posted its first quarterly net profit - $7.8 million - and it is projecting $22 million to $26 million of operating profits this year. Its stock price, recently about $9.50, is well below its February 2001 peak of $34.75 but up from its $4.60 nadir in October.
Analysts have been cautiously optimistic - and forbearing. “There was some visibility lacking in their earnings, but I wasn’t going to kick them when they were down,” says New York-based Putnam Lovell Securities brokerage analyst Richard Repetto, who kept his pre-September 11 buy rating on the shares.
Noviello says he is confident that future results will speak for themselves. In a recent interview with Institutional Investor Assistant Managing Editor Jeffrey Kutler, Noviello reviewed the recovery process and described his plans to extend ESpeed’s technology into additional, nonfinancial marketplaces.
Institutional Investor: How did ESpeed come through the disaster?
Noviello: There wasn’t a moment when the equity markets or the fixed-income markets were operational when ESpeed wasn’t. We’re operational as before.
Our volumes, system usage, participation and marketplace dominance are superb. Everything from our vantage point looks extremely positive.
Isn’t that a testament to the business continuity plan in place before the event?
There was a plan in place for some degree of disaster recovery, such as from loss of a data center. We benefited by having dual development staffs and operations staffs in the U.S. and the U.K. It helped that we had numerous communications hubs around the world, which allowed us to route around any problems. And in February 2001 we opened a data center in Rochelle Park, New Jersey, which was our third, in addition to those at the World Trade Center and in London. It wasn’t a disaster recovery site; it was a fully operational, concurrent data center running some of our primary products, and that gave us a foundation for getting quickly back on our feet.
How has your role changed?
Before this I was global chief technology officer, and my primary role is still to manage the organization’s technology efforts, making sure that we operate efficiently from both a business and a cost perspective. My title change to CIO reflects a more active role in the overall operation - helping to re-create the structure of the company, focusing more on the costs of the various departments, streamlining the businesses, looking for more operational efficiencies and working on the repositioning of ESpeed.
What do you mean by repositioning?
It means taking a look at opportunities that may not have been presented to ESpeed before. It also means reestablishing the organization, restoring management in areas that took a hit, making sure that all the necessary bases are covered.
Do your plans still include selling the ESpeed platform to nonfinancial or nontraditional marketplaces?
Yes. ESpeed is based on a number of core components that can be leveraged in other commodity markets. The first of these was energy: Cantor Fitzgerald and ESpeed joined with several energy trading firms in 2000 to form TradeSpark, which trades natural gas, coal, emissions, electricity, etc. Our strategy is to continue to enter other verticals.
What has TradeSpark accomplished?
It showed that ESpeed can adapt to something other than fixed-income products. Overall, there are more than 45 different classes of instruments - U.S. Treasury bonds, corporate bonds, natural gas and coal would be examples of instruments - and thousands of individual, tradable products traded over ESpeed.
What differentiates ESpeed from the online trading consortia that didn’t survive the Internet shakeout?
As part of Cantor Fitzgerald, an interdealer-broker that works across many product lines, we never really had a choice but to be flexible in developing our system to support various asset classes. It was always important to cover multiple products rather than deliver a niche solution for a narrow segment like, say, municipal bonds. There isn’t enough revenue around any single product to cover the cost of building a trading platform from the ground up. But there is plenty of revenue if you look at all the market opportunities together.
What were your biggest setbacks after September 11?
It’s important to point out that all of our intellectual property, source code and data are very much intact. So anything that ESpeed had produced and was working on is still available to build upon. There were minor setbacks and some time lost. Some projects were put on back burners; with the loss of so many people, it was impossible to move full speed ahead on every one of them. But we’re back on our development schedules.
Did you lose some market share, as competitors like BrokerTec Global have suggested?
I’ll say this much: We are still the dominant player in the U.S. Treasuries market, our volumes are superb, and we are very pleased with our current position.
Is there a lesson in this tragedy for the rest of the financial community?
Any organization that puts its mind to it and puts the right amount of funding to business continuity can position itself properly to sustain loss and prevent systemic failure. As a result of [the tragedy], people have elevated their awareness. Every organization is thinking about it, and systemically, we’re sure to be stronger than ever before. Examples of those that have succeeded, including ourselves, demonstrate the importance of having a plan.
