CEO of The Options Clearing Corp. Knows His Company Lives or Dies by the Strength of Its IT

CIO — Wayne Luthringshausen is chairman and CEO of The Options Clearing Corp. (OCC), a clearinghouse for options, futures, derivatives and other complex financial trades. The company, which is jointly owned by some of the country’s largest options exchanges, processes over 5 million contracts on an average day. Its customers—approximately 130 financial services firms—can’t put up with any downtime. Luthringshausen depends on IT to get this done. "Our systems, the hardware they operate on and the wires that connect them, that’s our factory," he says. "We don’t have a business without it." Correspondingly, IT employees make up almost two-thirds of the company. In April, OCC went live with a fourth-generation transaction processing system that cost $100 million and took five years to install.

Luthringshausen needs to get his budget approved—and ultimately provided—by his customers. As a result, a large part of his job is to serve as an intermediary between IT and those clients. Luthringshausen spoke with CIO about how he fulfills that role and works with his executive team, including the CIO. He also offers some surprising insight on how CEOs view IT expenditures. Hint: Coming in on budget is not always the be-all and end-all.

CIO: Do you find yourself having to defend your IT department to your customers?

Wayne Luthringshausen: That’s how I’ve viewed my job all along. If IT screws up, I’ll tell my clients that we’ve screwed up and we’re going to solve the problem. But the other side of it is that I don’t think my board should be beating up on my IT folks. I have to be an advocate, because we’re doing a good job. For example, I went to a bar one night after a function, and one of our clients was there. He yells down the bar at me, "Luthringshausen, you’ve got the lousiest IT operation anywhere in the world!" That took me aback—it’s not the best way, but it’s one way to get feedback. The issue, it turned out, is that every night we process the day’s transactions, and our agreement is that we get the results to our clients by midnight. So we’ve built our system to be able to deliver on a peak night, when the volume is substantially higher than average. As a result, most nights we deliver around 10 p.m. When that night comes where he gets them at 1 a.m., in his mind, I’ve missed.

As the CEO, how do you stay on top of complaints like that, as well as ones that address fundamental weaknesses with your IT?
There are two ways. Our clients, the Merrill Lynches and the Goldman Sachs, are very technologically astute, and if we fall too many technology generations behind them, we’re not going to be able to provide the kind of information services they need in order to trade. So for me, it starts with noticing that our customers want to do more and realizing that we can’t do those things inexpensively and efficiently.

For example, options expire on the third Saturday of every month. It’s a busy day, and there’s usually a heavy volume of transactions. Over that weekend we reconcile all the transactions that were made and expire all the contracts that aren’t exercised. Everybody in the industry works that Saturday. Well, our old system was a dumb terminal, so if you worked for Merrill Lynch you had to go all the way downtown to use the machine for what really is just a half hour of work. So of course everyone was asking, "Why can’t I just get on my laptop at home and log on to a website?" When you get enough questions like that you start to realize that you’re out of touch with your clients and the way they’re conducting business. That’s when I start to look at redoing the systems.

I also look for internal things. Our U.S. options volume has been growing at 20 percent a year, and the bigger it gets, the more recognizable our problems become. And the ramifications are bigger when you’re doing 5 and a half million contracts a day than when you’re doing a million. We have about 50 quality standards to help us measure how we are doing. If we miss one, odds are I’m not going to hear about it. But you miss two, or miss one for several months in a row, everyone hears about it. Suddenly you’re not just dealing with a miss, you have a weakness you have to address. People come to me with money requests, because we need to add this or that. We make a lot of changes, we’ve fixed this, fixed that, patched here. One day, you sit up and you say, "Guys, it just seems like our systems aren’t what they ought to be for the kind of business that we’re doing today. Let’s take a look at that."

Was there a specific moment that you knew it was time for a new system?

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