Hall of Fame: CBOE's Tom Knorring, ‘The Mathematician’

He studied math at Northern Illinois University, but dreams of a glittering career in computer science were temporarily derailed when he graduated at the height of the Arab Oil Embargo in the depths of a recession. With no one hiring computer science graduates, Knorring taught high school algebra and geometry for a year before the economy improved, and he found a job automating inventory systems at Walgreens Drug Company. He soon decided that he wanted a graduate degree, and since Walgreens didn’t particularly encourage further education, he went looking for an employer that did. 

On the Chicago Board Options Exchange’s third anniversary, Knorring joined the then-tiny marketplace as a programmer. He was 24 years old, the same age as most of the traders on the floor. His remit was to work on the systems used to clear trades. 

While he worked, he also attended graduate school at night. Armed with an MBA in Management Information Systems, he felt he should change tack—or, as he put it, “really do something’.” He joined British futures firm Rouse Woodstock, where he ran the computer department of just eight or 10 staff. After Oppenheimer bought the firm 1984 and wanted him to move to New York, he returned to CBOE as project manager automating the trading floor, beginning a second run at the exchange that would last another 32 years. He ran a number of projects, including automating the pit brokers and automating quotes from paper orders to electronic systems. He oversaw the CBOE’s AutoQuote project to facilitate firm quotes in less active series of options, and Electronic Book, which provided more timely order execution and fill reports for limit orders. 

AutoQuote was designed using a binomial computer model to generate option quotes given the stock price, dividends, interest rate, volatility and time to expiration. But the market didn’t immediately warm to using an automated system for trading options. “It was a little scary to them. In 1990, people didn’t even like using answering machines,” Knorring says.

 Gradually they got used to it, and such was AutoQuote’s success that the exchange became concerned about its ability—and that of the Options Price Reporting Authority (OPRA)—to handle the volumes. “We were generating 100 messages per second [and] people thought that was out of control. Today we generate 20 million quotes per second,” he says.

Other exchanges with the same concerns came together to form committees to address the matter—the Consolidated Tape Association (CTA), OPRA and Nasdaq’s Unlisted Trading Privileges (UTP) program. Knorring joined all three. “The CBOE was small in relation to NYSE, Nasdaq and other stock exchanges, but we didn’t let that stop us. It was a big challenge working on industry-wide initiatives like these with our competitors,” he says.

After Tom Haley, former vice president of market data at NYSE, retired as CTA chairman in December 2004, Knorring was elected to replace him. Three years later he was also elected chair of the UTP. In charge of both, he combined the meetings and started to synchronize practices in an effort to provide greater transparency to the outside world—no easy task, since most initiatives required a unanimous vote from all the member exchanges.

He achieved a great deal as chairman, despite the difficulties, including getting outsiders to attend meetings of the Advisory Committee from the retail and institutional communities, ATSes and even individual investors. Though invasive at first, eventually their involvement proved useful, Tom also managed to get vendor contracts updated, CTA fees overhauled, added limit up and down for individual stocks and reduced latency below one millisecond. “We had to standardize practices, contracts, definitions. We made a lot of progress.” 

His industry colleagues agreed. Tom Davin, managing director of FISD and last year’s IMD Hall of Fame inductee, says, “Tom is among the most respected figures at the intersection of the options world and the market data industry. As options volumes soared, Tom was a key conduit among regulators, the trading community, and the market data industry, facilitating the adjustments to the dramatic changes in options trading and data distribution. He is a straight-shooter who provided leadership and a balanced perspective to the consolidated tape plans during a transformative period for the National Market System.”

The most transformative change in the market data industry during his tenure has been automation. “Now, fewer people perform far more trading at a much faster rate, Knorring says. The CBOE’s floor used to be piled high with paper from trading at the end of the day. With today’s automation, that is no longer the case. There is a lot less sweeping by the overnight crew.”

And speaking of a clean sweep, Knorring plans to clean out his desk on April 26 next year—CBOE’s 44th anniversary—after which he will spend time visiting his four children and four grandchildren, and pursuing his passion for cycling. Still, it sounds like he’ll miss the world of CBOE and market data. “I’ve been fortunate to spend my entire career at a dynamic organization that was critical to the growth of our industry. When people think of options, they think of CBOE—and I think of market data.”