Stockmaster - the service that revolutionised Reuters
Friday 13 June 2014
Fifty years ago, on 1 July 1964, the Reuters Stockmaster price retrieval service started. That was a red letter day in Reuters history, worth remembering by Reuter staff, past and present.
It is worth remembering because Stockmaster transformed Reuters. It was the first big driver of the remarkable change from a financially precarious Reuters, often dependent on help from its owners in the press, into a thriving, profitable business. The Stockmaster service also laid down a strong Reuters sales, marketing and technical infrastructure in major financial centres outside North America. It saw Reuters in direct touch with its customers, rather than wholesaling information to intermediary agencies. That profit and that infrastructure were the foundations on which the other two great products, Monitor and Dealing, built so successfully that, by the time of the flotation of the company in 1984, it was the owners who received benefits from Reuters’ profits, rather than the other way round.
Michael Nelson can claim to be the father of the Reuters Stockmaster service. He and Donald Read have told, in Castro and Stockmaster, and The Power of News respectively, how Michael successfully negotiated with Ultronic Systems Incorporated for the rights in the Stockmaster system outside North America, and obtained them in the form of a profit-sharing joint venture. It was a really good deal, because under the terms of the joint venture, Ultronic not only supplied the North American content of the service but also the capital equipment to run the system, so that the cash-poor Reuters was in effect subsidised to start Stockmaster. In return, the key asset which Reuters brought to the agreement was its leased high speed circuit across the Atlantic. Ultronic engineered this circuit, via time division multiplexing, to be able to carry the large volumes of data in the Stockmaster service from North America to Europe.
Ultronic was one of three North American companies which had introduced computerised stock and commodity market price retrieval systems. The others were Bunker-Ramo and Quotron. Mike Nelson judged that Ultronic’s Stockmaster was the best. Stockmaster worked by receiving the electronic price ticker data from stock and commodity exchanges, processing that data in a central computer, and making it available instantly for online retrieval by desk units in customers‘ offices. In those pre-screen days, Stockmaster merely showed the user three digits of information, on three “Nixie tubes”, small display holes in the front of the desk unit. However, if you were a market trader, and you had been shown how to use the system, you knew the price those three digits represented. Using the Stockmaster keyboard and those three digits, the trader could ask for and retrieve any one of the latest traded price of a stock or commodity, the opening, previous day’s close, high and low of the day, and if he was an exchange member, the latest bid and offer prices too. Moreover, if he left the keys down on a particular stock price, and that price changed on the exchange, he was shown the new price on his desk unit virtually instantaneously. So, for the first time, someone remote from an exchange had access to prices as they happened, in real time. He no longer had to rely on the relatively random receipt of prices via the teleprinter, only some of which he might want; he could now retrieve just the ones he wanted.
To the broker or bank trader in his office those three digits also represented potential profit, or the avoidance of loss. In terms of his speed of access to price information, he was now trading on more level terms with people on the exchange. He had the advantage over any competitor who did not have Stockmaster. Also the service provided him with the price information he needed faster and more cheaply than did the clerk and the open telephone line to the exchange or to his head office which he was probably relying on previously. He could now use that telephone line for actual trading, rather than clogging it up with price information. If he was a retail broker, he could furnish his clients with up to the second prices. These efficiencies meant the potential for more trades and hopefully more profit. So he was willing to pay well for that extra efficiency. It was a virtuous circle, which was not only profitable to both Reuters and its customers, but probably also helped in the overall growth in turnover of the financial markets.
I remember it as a time of fun and excitement. We were pioneering into new territory and growing fast, and we felt we were on a winner. We were very well led and morale was high.
If Michael Nelson was the father of Stockmaster in Reuters, Glen Renfrew was the doctor and midwife. Glen was appointed manager of the computer division of Reuters Economic Services, to run the joint venture, and to spearhead Reuters move into the electronic services era. He was the perfect man for the job. He had always had an interest in investment, and knew the markets and their practitioners very well. He was keen on technology, and could work closely with the engineers. He was multi-lingual and a great salesman. He had the Australian informality and got on well with the Americans at Ultronic. He had terrific drive and charisma and inspired his staff. His leadership was vital in making the service a success.
During the 1960s he drove the project forward quickly. The London “slave” memory drum was set up on the second floor of 85 Fleet Street, to receive the real time stream of data from the Ultronic master computer in Mount Laurel, New Jersey. Customers in Europe could then retrieve the data from the London slave. David Russell was recruited as chief engineer, and in turn he brought in other engineers through his contacts in companies such as ICT, Ferranti and Marconi: men like Norman Radford, Tony and Mike Cornish, Ian Holmes, Barry Barnett, Peter Howse, Dredge Liversedge, and others, who formed the early technical core from which Reuters electronic engineering competence grew. To sell the service, we had existing Reuters staff, among whom were Joe Daffin, Harvey Cooper, Daniel Fogel and Max Siebenmann, and new recruits such as John Albanie and Werner Habersaat whose first task was to sell to the Swiss banks.
The original content of the service was North American stock and commodity prices, and the original customers were brokers and banks in Europe who traded in those markets. But deals were forged with European and later other exchanges, to add their data to the service, and this opened up additional markets for Stockmaster, from those brokers and banks trading in non-American assets. A first European master installation was established in London to process the information from the non-US exchanges, in the same way that Mount Laurel processed North American exchange data. As time went on and the number of customers grew, additional computer centres were added, all interconnected. Each centre could process pricing data from its local exchanges and feed it into the international system, while receiving the stream of data from all the other centres, and making the whole lot available for interrogation by local customers.
The pricing of the Stockmaster service varied with line and other costs, and the particular service taken, but the norm around Europe for the full service including North American stock price data settled down to a charge of $750 or $850 per month for the first desk unit, and either $100 or $50 per month per unit for subsequent units in the same office, depending on the technical configuration which was needed. $850 per month was well beyond what we were able to charge for teleprinter services in those days, and was the start of the Reuters’ revenue take-off. As Glen told his staff, “At last we’re making real money”. And it was recurring revenue, coming in every month, based normally on a two year contract.
A key fact in the success of the service, in both the marketing and technical sides of the business, was that Reuters kept control in its own hands. Stockmaster was a Reuters service, sold by a Reuters sales force, contracted by the customer directly with Reuters, and maintained by Reuters engineers from a Reuters data centre. It was not sold wholesale, as some other services had been in the past, to be marketed by local agencies. If those agencies wanted to sell Stockmaster, they were paid a sales commission. Reuters kept the bulk of the revenue. That control was how both our profits and our infrastructure were built up.
On a personal note, I had a small part in the Stockmaster project, as assistant manager of the computer division from 1966. I remember it as a time of fun and excitement. We were pioneering into new territory and growing fast, and we felt we were on a winner. We were very well led and morale was high. My main role was to run the division’s administration, but I was sometimes let off the leash, as on one occasion to sell and install the service around the Caribbean and Bermuda (a tough job, but someone had to do it). That involved linking customers with Ultronic data centres in the United States, and we had good support from Ultronic to help us do that. I also had great help from Reuter correspondents John Bland in Mexico City and Peter Smith in Caracas, an illustration of how many parts of the company were involved in helping the Stockmaster venture.
By the end of the 60s Stockmaster was well established, and the computer division was folded back into RES, job done. Customers were using the combination of Reuters news and Stockmaster prices to make their trading decisions. Reuters was making good money, enough to make itself independent of its press owners. It was also well on the way to possessing a strong sales and technical infrastructure outside North America. Next it was for the Reuters Monitor to use those assets to penetrate the huge market for foreign exchange prices, and to add Reuters own, as opposed to Ultronic’s, computer technology to the mix. It was then for the Dealing Service to take the next major leap forward, by adding a new level of technology and engineering and sales expertise, so that we could provide the customer with the means to do his actual trading via Reuters, as well as provide him with pre-trade information. But the Stockmaster represented the first, key, step in that exciting journey.
So Happy Birthday, Reuters Stockmaster. We all owe you a lot.
PHOTO: John Ransom, assistant manager of Reuters computer division in 1966, with Stockmaster. ■