Trading Spaces, B-School Edition

For many B-schools, a flashy "trading room" is the centerpiece of finance programs and a high-profile recruiting and fund-raising tool

The stock market is making a comeback—look no further than your local B-school for proof, where campus trading rooms are becoming more popular than ever.

Trading rooms first appeared on college campuses 10 years ago, when MIT's Sloan School of Management opened its facility in early 1996. Another trading room opened at the University of Texas, Austin's McCombs School of Business just a few months later.

Since then, more than 60 business schools, both grad and undergrad, have built trading rooms. And according to the hardware and software vendors who outfit the labs, most of that growth has occurred within the past two years.

Fundraising Gold

In truth, "trading room" is a misnomer. It's really little more than a standard computer lab gussied up with dual-screen monitors, financial software, and flashing stock tickers. The goal isn't to create a campus full of day traders, but rather, to house electronic sources of financial and investment data for simulations or research—no actual trading occurs.

Trading labs are used as classrooms for finance courses in investing or futures markets, a place where students can analyze real-time and historical financial data or use software to build and test investment portfolios. At many B-schools, the labs also serve as home base for the MBA program's student-run investment fund, as well as a facility for faculty research.

Besides their primary purpose—providing hands-on learning experiences for students—schools have seen that the trading rooms are useful marketing, development, and recruitment tools. As the cost of technologies such as LCD screens and personal computers has decreased, the overall cost of building a trading room has also gone down. That means trading rooms are proving to be increasingly cost-effective ways to recruit students and faculty, and to impress corporate visitors and alumni.

Paying Attention

Several schools have also found other lucrative ways to open up their trading labs to the community. Bentley College, for one, uses its trading room to host a summer camp for high school students called Wall Street 101, introducing them not only to the exciting world of finance, but also to Bentley College. As Bentley can attest, a top-notch trading lab can also go a long way toward enhancing the reputation and prominence of a lesser-known business school.

The trading-room boom also reflects the strong job market in the finance world. Finance positions are the most in demand for 2006, according to the latest Graduate Management Admission Council's Corporate Recruiting Survey. Beverly Hadaway, director of the EDS Financial Trading and Technology Center at McCombs, says one of the original aims of the school's trading room was to attract the attention of Wall Street recruiters, an initiative which she says has been "highly successful."

Many schools are banking on trading labs to give their students a leg up in the job hunt, by allowing them to earn certifications in financial software, such as Bloomberg, or manage real money in a student-run investment fund. "When we graduate, companies want to know how you can contribute, what value you can add," says Bentley College junior Arman Salavitabar. The trading room gives you that value."

Dress Rehearsal

The financial simulation software developed for trading labs has also made it possible for B-school students to show off their trading skills at events such as the Rotman International Trading Competition at the University of Toronto's Rotman School of Management, where teams compete against each other on various case scenarios.

In one, students take on the roles of either analysts or traders, with the analysts forecasting the earnings per share for several fictitious companies and then broadcasting these forecasts to traders, who are responsible for managing a portfolio of those stocks as well as bonds.

Still, in these days of desktop access to financial information, the trading rooms may be on their way to the land of anachronisms. At Carnegie Mellon, one of the first schools to open a trading room, the trading room was dismantled after the school decided a physical space devoted just to trading was unnecessary once the school began requiring all students to own a laptop.

The Atmosphere of the Floor

Sanjay Srivastava, who was a professor at Carnegie Mellon when he and a colleague developed the trading simulator software FTS (Financial Trading System) in the late 1980s, said simulations can now be run from any large classroom.

One downside of the dismantling, Srivastava says, was that the trading room had also served as a focal point for students interested in trading careers. That type of enthusiasm is difficult to recreate, he says, which is why the rooms serve a purpose more than just for show.

The University of Iowa's Tippie College of Business used to have a trading lab, but a representative says that with advancements in technology, having the space devoted to just one purpose became unnecessary. Now trading courses are taught in computer classrooms where trading programs share hard-drive space with specialized accounting and other software programs.

Beyond the Books

Srivastava says Pittsburgh-based FTS has about 60 active university users, about 20 in a trading room setting, with the remainder using it to create a virtual trading room via the Web. Srivastava says he has seen an uptick in business over the past few years as more trading rooms are built, but the biggest change, he says, is where the inquiries are coming from.

Previously, the typical adopter of FTS was a professor interested in using technology in the classroom to teach concepts not well-suited to textbooks. More recently, he's seen more interest from university deans, development officers, and other administrators.

Indeed, a session at last year's annual meeting of the Association for Collegiate Business Schools and Programs included a session on trading labs conducted by a representative from Rise Softools (now Rise Vision), a Kansas City-area provider of electronic display solutions. The session description highlighted how trading labs are becoming "powerful tools" in both recruitment and fund raising.

Your Name in Lights

Rise Vision's Lance Wipf says several Rise clients have found trading labs to be investments with unusually high returns. The money spent to build the lab (which can range from a hundred thousand to a few million dollars) is recouped within a few years by the increased donor contributions and increased exposure for the school.

Many schools have found that trading labs can provide a tangible focus for a capital campaign, as alumni who have gone on to make their fortunes in finance have proven willing to fund campus trading rooms, especially when naming rights come as part of the package.

One of the earliest donations in the $17 million capital campaign currently under way at the University of Richmond's Robins School of Business was from University trustee Stephen M. Lessing, managing director and head of client relationship management for Lehman Brothers, who pledged $900,000 for the Lessing Capital Markets Trading Room. At the University of Rhode Island, an alumnus donated $250,000 for the creation of the Bruce S. Sherman Trading Room, part of a $10.6 million facility renovation at the College of Business.

The Wow Factor

At Lehigh University, a 1976 grad secured a grant from his employer, IBM (IBM), to provide all the computers and servers for the school's Financial Services Lab.

Once built, trading rooms serve as popular stops on tours for prospective students and potential donors. "When we really want to wow them, we bring them up to the center," says Hadaway. But that wow factor isn't just window dressing.

Lakshmi Bhojraj, director of the Parker Center for Investment Research at Cornell University's Johnson School, says that while the data walls and scrolling ticker aren't as practical as the information available through computer terminals, they do create excitement, lend an air of realism, and help convey the message that the center is on the cutting edge of investment research education. And that's something a school can trade on.

    Before it's here, it's on the Bloomberg Terminal.