by Megan Groves

There are many things that Cincinnati is known for: Procter & Gamble, Kroger Corp., Gold-Star Chili and Graeter’s ice cream, to name a few. But hidden behind the façade of laundry detergent and bean-less chili is the untold story of a regional stock exchange that traded such companies as Delta Air Lines and American Electric Power Co. An exchange that gave birth to the national stock market system that allows 25 million transactions and 5 billion corporate shares to be traded daily. A story of new technology that now powers exchanges all over the world. A system that brought order to the chaos of seven independently operated national exchanges and threatened the dominance of the New York Stock Exchange.

For nearly two centuries the securities markets had operated on an outdated manual system grounded in a fixed-rate commission structure that benefited large dealer-brokers and the exchanges where they were members, with little or no regard for healthy competition. By 1971, the SEC actively studied the securities market to identify the problems posed by this protected business environment.

In the SEC’s (Security and Exchange Commission) Institutional Study Report in 1971, the Commission found that fixed commission rates impacted the securities market by limiting its usefulness to investors. Without question, the broker—rather than the investor—benefited from fixed commission transactions. The New York Stock Exchange and its brokerage members and securities specialists were eating up profits at the expense of the investing public customers. These findings led Congress to pass the Securities Act Amendments in 1975, ordering the development of a national market system using modern telecommunication and computerization tools and the un-fixing of commission rates; i.e., deregulation of the U.S. securities markets.

Anti-competitive practices existed in part because of the lack of communication and connectivity between the seven independent national exchanges then in existence in the United States: the Boston, Chicago, Cincinnati, Philadelphia, San Francisco and Los Angeles, (collectively the Pacific), New York and American Stock Exchanges. Lack of communication often led to large price disparities between the stock exchanges quoting the same stock. The NYSE was particularly fond of the fixed-rate commission practice, and most frequently benefited from it given that it was the dominant market with upwards of 90 percent market share.

Enter Regulation NMS (National Market System) 1975. This Regulation or set of amendments set the stage for competition. “It was the floor-based model versus the screen-based model,” said K. Richard B. “Nick” Niehoff, former president of the CSE. “The NYSE was definitely for the preservation of their floor and the thousands of people who worked as independent brokers.”

The Cincinnati Stock Exchange was the first of the seven exchanges to develop an automated system in accordance with the 1975 Securities Act Amendments, named the National Securities Trading System (NSTS). In 1985, after 10 years of research, development and use by member firms,  he CSE became the first stock exchange in the world to  operate on an approved, fully automated, screen-based trading system without a trading floor.

“We had created an exchange without walls,” says Niehoff. “Like air it was everywhere. The SEC Approval Order of the NSTS System in 1985, as a permanent cornerstone of the national markets of the United States, was the most significant event in modern U.S. exchange history.”

Twenty programmers were employed to write assembler code, according to Niehoff. Assembler coding takes numbered machine codes and translates them into specific instructions and inputs for users.

The NSTS saw a number of successes during its development. It increased the communications processing capability between exchanges by 25 to 35 percent, and added more than 400 securities by 1983. Between January 1982 and December 1984, the NSTS nearly doubled its number of traded stocks from 105 to 202, and saw its share volume increase from 3.2 million to 5.4 million.

The NSTS, in one form or another adaptation, remains pervasive throughout securities markets today. While software packages have evolved, the system is still based on the best execution model, where investors never want to pay more or sell for less money than they could have obtained in another market.

“The principles of best execution and first-come, first-served prevail and have always been the mantra of the CSE,” Niehoff says. What has changed is the technology. “If we used assembler code in 2010, the system would grind to a halt. But the core algorithmic principles of best execution have not changed.”

After the SEC began investigating the securities market in 1971, other institutions began publishing their own research findings. The Martin Report, written by William Chesney Martin, Jr., former president of the NYSE, addressed the SEC findings. The Martin Report proposed arguments for the protection of fixed commission rates and the creation of a national exchange system where individual stocks were automatically granted to a particular exchange, and allowed the NYSE and AMEX exchanges exclusive rights to trade a stock whenever it was considered to be of national importance.

More outrageous still was the Martin Report’s proposal of legislation granting antitrust exemption to the two exchanges. This was an especially bold move, in part because the SEC report specified that the need for a National Market System was based on the ineffectiveness and inability to enforce antitrust and monopoly regulation during the early 1970s. The SEC was often unable to determine cases of antitrust violation because a centralized system wasn’t yet in place and transparency was under a dark cloud. With no computer system to provide an audit trail, the orders of specific exchanges were often difficult to monitor due to the slow nature of paper processing.

“One of the criticisms was that the NYSE did not want to make all orders exposed, or more particularly, the top of book quote,” says Niehoff.

Many of the regional exchanges strongly opposed the Martin Report, which represented the interests of the NYSE, while disregarding the interests and endangering the autonomy of the smaller regional exchanges. According to statements made on behalf of the CSE, the Martin Report encouraged anti-competitive practices, and did not consider smaller exchanges as participants in an evolving national marketplace—a plxw where all U.S. investors were not located in lower Manhattan. The CSE was, among other matters, concerned with the tardy execution of orders, and stated that the paper documentation process that was standard operating procedure on the NYSE “should open our eyes to the danger of channeling all business in a particular stock in one location.”

Centering the national stock market or the entire securities industry in one particular exchange would not only threaten the principles of capitalism that encompass competition and innovation. It would concentrate too much power within the realm of one business.

The Martin Report became a source of contention between the NYSE and the CSE and other regional exchanges because of its inherent NYSE bias. “In all candor, the suggestions in the Martin Report seemed calculated to solve all of the problems of the NYSE, but they most definitely do not seem to be in the best interest of the public or of the entire securities industry. This is completely understandable because Mr. Martin was employed by the NYSE and while he visited the American Stock Exchange, also in New York City, the second largest national exchange, the smaller regional stock exchanges were ignored,” according to the statement on the behalf of the CSE.

The Martin Report was also widely discussed in the media. An editorial published by The New York Times in August 1971 prompted Milton H. Cohen, then general counsel to the Midwest Stock Exchange, to write a letter to the editor. Cohen found the Martin’s Report’s lack of emphasis on competition within market systems disturbing. “The critical question is whether greater concentration or enhanced competition is more likely to produce the result consistent with the public interest. The Martin Report comes out for a structure in which each security would be traded exclusively in a single marketplace, but it does not say where competition would fit in,” Cohen wrote.

Cohen, like others, was concerned with the need for different exchanges to protect their competitive interests against a large and powerful exchange like the NYSE. “Unquestionably, it is necessary to move toward a strong communications system to enhance access, data disclosure and competition itself. Unquestionably, collaboration in dealing with common problems should be encouraged. Unquestionably, there is a need for further equalization of regulations, so that degradation of standards does not become a competitive weapon. But a trend toward elimination of autonomous market and regulatory centers, which have proven their worth as breeders of innovation and wellsprings of incentive, should not be tolerated,” Cohen wrote.

The Martin Report was only the start of a long series of rivalries between the CSE and the NYSE, particularly when the CSE began to have success with its automated system and invited other regional exchanges to join as participants. The NYSE resisted automation efforts because of “the personal interests of their brokers and specialists, who were making a lot of money off maintaining the status quo,” Niehoff says. “After all, the members owned the place, so why wreck a good business?”

This pattern continued until 1979, when Congress began an investigation of why the SEC had not started enforcing the 1975 amendments.

Another reason the SEC was interested in automation was to prevent brokers from using inside information for personal or competitive gain. The very recordable nature of the NSTS made such practices less likely. ”As you move farther and farther away from the ability of people to communicate with each other in an oral fashion, such as in a floor crowd , so as to give clues to what may or may not be going on, the opportunity to trade on inside information starts to disappear,” Niehoff explains.

Automation also resulted in a series of reports each day for the SEC to analyze; an audit trail that could be evaluated and followed and from which to make determinations and findings from facts.

Despite its benefits and its move toward transparency, automation brought its own set of technical problems. In 1980, William S. Batten, a NYSE Board member, wrote an essay outlining some of the remaining problems that needed to be solved by the National Market System, entitled “The U.S. National Market System: Progress, Problems and Issues.” While the installation of computer terminal stations made market floor transactions obsolete, it also required skilled workers to learn and utilize the software. “To begin with, a comprehensive training program was essential to familiarize brokers and trading floor employees with the complex operation of the system—and for them to gain sufficient expertise to feel comfortable using it,” Batten wrote.

A second concern was concentrated on the effort to protect filed limit orders, or orders that are filed at a specific price above or below the current market price. “One of our major remaining tasks—and one of the most difficult issues for the participating markets to resolve—focuses on how to protect limit orders held in the various market centers against inferior executions in other market centers,” Batten concluded.

By 1978, the NSTS had moved into the production phase, and was being independently implemented by various member firms: first the CSE, and later by the Boston and Pacific Stock Exchanges. Many of the execution problems were by now resolved, but common complaints from member firms included slow response times, problems with the function (F) keys, incorrect processing and delays in entering orders at the start of the business day.

Batten’s concerns were alleviated when the NSTS implemented a specific order of execution: existing limit orders were filled as soon as the price became fixed, next the excesses were filled by the Cincinnati market-makers who had a 30-second window in which to act, and any remaining excess was then sent through the Inter-market Trading System to the exchange, offering the best size at the fixed price.

The NSTS report described the system’s impact. It brought “the market to the CSE member’s office, an exchange without walls, through an inexpensive terminal and communications line. The NSTS provides CSE members with the least-cost access to the market in order to maximize the opportunity to receive an immediate best execution. Its main effects on the Cincinnati Stock Exchange have been to reduce costs dramatically and fuel a growth in membership, currently accelerating.”

The NSTS’s greatest success was, and still is, its ability to maintain best-order execution as the lowest cost provider in a very rapid trading environment. “The principles of transacting trades have not changed,” Niehoff says. “The thing that drives transactions is what is known as best execution. Filling stock orders is like an auction. The principles of best execution require that a broker obtain the best price for the client irregardless of where that price is being displayed.”

The NSTS allowed best execution to become an accepted, enforceable practice through automation software.

While the CSE was absorbed into the Chicago Board Options Exchange (CBOE), the NSTS remains as a guiding set of principles for U.S. securities markets. By 1986, with the occurrence of “Big Bang” in London, or de-regulation of the fixed rate structure in the U.K. securities markets, the NSTS had gained global recognition. In fact, the NSTS model was adopted by the London Stock Exchange (“LSE”) before the NYSE, according to Niehoff.

In addition to London, the CSE model has been adopted by the majority of international exchanges. And though the NYSE is still a predominant force in the U.S. and global securities markets, the CSE’s open architecture and early support of open, competitive markets has allowed new exchanges like the BATS, the Better Alternative Trading System, and the International Stock Exchange’s DirectEdge to emerge into the still growing and changing U.S. and global marketplace for securities, derivatives and commodities.

Nick Niehoff poses at the one-time home for the Cincinnati Stock Exchange, the Dixie Terminal Building on Fourth Street.

By Cheryl McDonald

Nick Niehoff, the mastermind behind the automation of the Cincinnati Stock Exchange (CSE) and the progressive business expert who changed the scope of the stock market forever, believes there is a strong connection between art and automation. He likens the automation process he oversaw to art, architecture and music combined.

“If you can see the big picture on a blank canvas and be the architect of the infrastructure, then it’s up to the conductor to make it all play together,” he says.

Though he’s clearly a numbers guy, Nick Niehoff defies stereotypes of science-and-math-loving computer geeks typing away on computer terminals, pocket protectors firmly in place. Buck Niehoff, Nick’s younger sibling and a long-serving member of the University of Cincinnati’s Board of Trustees, explains.

“That’s the surprise in the story,” says Buck Niehoff. “He was not really good at math or science. I don’t think he knows very much about computers, either. I think he has a computer because occasionally he e-mails me something, but he’s certainly not a computer nerd.”

With a brother’s insight and humor, he offers the rather shocking description of the unlikely candidate who led the automation of the stock exchange. “My brother was actually a good artist, but I don’t think he took other [classes] than whatever mandatory math was required at UC,” Buck Niehoff remembers. “I don’t think he took any other math or science or that sort of thing.” Nick did attend classes at the College of Design, Art and Architecture at UC, though, “when our father, who was paying the tuition bills, was not looking.”

So how did this non-computer guru who didn’t like numbers or math lead the computerization of the Cincinnati Stock Exchange? Buck Niehoff offers some insights.

“He knows a lot about art. Perhaps it’s his artistic imagination that allowed him to see the big picture, and get other people, the computer nerds, to do it [the automation], to figure it out, and actually do the nuts and bolts of it.”

So, why did Nick Niehoff take on the formidable challenge of reshaping stock exchange operations?

“I would say that one characteristic of my brother is that he’s very conservative and traditional, except that occasionally he has these little bursts of independence, of rebelliousness, like buying that 1930s Chevrolet when he was 15 years old,” Buck Niehoff says. “I think in some ways his getting involved with the CSE and taking it to a new level with computerization, was an example of that–his willing[ness] to risk something even though most of his life was very traditional, very conservative, always doing what was expected.”

As president of the CSE during the tumultuous 1970s and 1980s, Nick Niehoff used that capacity for boldness at local, national and international levels. He explains that his determined support of a National Market System and automation led to a tense battle between the New York Stock Exchange (NYSE) and the CSE. He shares some of the challenges of going up against industry giants.

“It wasn’t that we picked the battle, we were just in the battle,” Nick Niehoff says. “We took on the largest financial institution in the capitalist world (NYSE). It was a very unpleasant experience at various points in time.”

The NYSE had a huge amount of money and an ATM-like war chest to fund their fight against automation of the stock exchange. Automation, its leaders understood, would change the landscape, and re-define jobs, for the future. Brokers and executive managers happy with the status quo knew how to make their competitors very uncomfortable, Niehoff says.

In response, he surrounded himself with like-minded industry experts who had “hard skin” to put up with this tough environment. Still, there was a point where CSE staff was afraid for their personal safety.

“We thought, we’ll be standing at corner of 4th and Walnut streets thinking, ‘Why did we just get run over?’ “

But Niehoff had recruited a smart and stubborn team.

Buck Niehoff agrees that his brother’s fears were warranted. “Yes, there was the threat of being blackballed,” he says. “It was very courageous of him [Nick Niehoff] to take on the industry.”

Buck Niehoff contrasts his brother’s personality with this intimidating task.

“This is all against the backdrop of [Nick Niehoff] being a Brooks Brothers conventional banker, having a very conservative lifestyle. That’s the interesting thing.“

Peter DuPont was the President of Control Data Corporation’s (CDC) Electronic Trading Services (ETS) division, the company that worked with Nick Niehoff and the CSE on the automation project. He confirms Nick Niehoff’s assessment of the challenges of automation.

“We knew that we had formidable opponents, primarily the NYSE,” DuPont says. “They didn’t recognize that they were being overtaken by technology.”

The NYSE promoted a different model for the future than the CSE. They supported the “floor model,” a people-dependent system that relied heavily upon specialists and brokers working on the floor of the exchange.

“The specialists were the ones who were most firmly entrenched against anything resembling the system that we developed,” says Nick Niehoff. “So we had a fight on our hands. We had not only the NYSE to contend with, but we had the Securities Exchange Commission (SEC), which basically was supportive but in a limited way.”

DuPont remembers his exposure to the industry during the development of automation.

“At the NYSE, we had meetings with the executives, who were polite but not receptive,” DuPont says. “We also engaged Arthur Levitt, who was the chairman of the American Stock Exchange. We never really got much involvement or support from him.”

Levitt departed the AMEX and became the chairman of the SEC.

DuPont explained that the CSE had to return to the SEC on multiple occasions to get the authorization for the automation project extended because the CSE was operating as an SEC pilot program.

“We finally got the permanent status from the SEC so we didn’t have to keep going back to the well for more approvals,” DuPont says.

Buck Niehoff was confident that there were other examples of his big brother’s boldness. He recalls Nick’s hobby of “tinkering with cars” and a specific incident that showed his personality as a teenager.

“When he [Nick Niehoff] was 15 years old, before he was legally able to drive, he bought a 1930s Chevrolet from a used car lot somewhere. He drove it home even though he wasn’t licensed. Our father was furious. That was probably one of the biggest disasters my brother created in our family.”

Niehoff brought that same determination with him to his work with the CSE. Before the 1975 Amendments to the Securities Exchange Act (also known as the May Day amendments, or specifically Regulation NMS, or National Market System), and the deregulation of stock markets, a typical day at the Cincinnati Stock Exchange (CSE), or any stock exchange in the US, began with an opening time of 10 a.m. and closing time of 3 p.m. Brokers and specialists would arrive at their posts with their pockets stuffed with orders to process. At the ringing of the bell, brokers would approach specialists and call out the orders. This very manual and labor-intensive process was likely the root of the market’s limited hours, says Niehoff.

“People would be tired,” he says. “It was tiring keeping all of the paperwork flowing, and more to the point, accurate.”

Nick Niehoff's ID badge

The CSE staff operated from trading desks where the brokers’ orders were collected and then sent to the exchange for execution, an awkward and time-consuming process that perturbed Nick Niehoff.

“There were too many links in the chain,” he says. “It seemed that with modern telecommunication techniques, certain streamlining could occur.”

His frustration dovetailed with the 1975 NMS Securities and Exchange Regulations. The new regulations addressed major markets’ ability to hide behind a fixed rate structure, which ensured high brokers’ fees with no competition. With help from the CSE and automation, that antiquated business model would soon disappear.

Because Regulation NMS was an un-fixed rate structure that allowed for variable rates among brokers and their customers, competition entered the marketplace after 1975. For the first time, customers exercised more power in controlling the price of placing orders and trades. Customers could negotiate prices, and discount brokers, such as Charles Schwab, arrived on the scene to execute orders more cheaply. Their belief was simple: the location of the trade should not dictate the share price.

“Whether it’s on the CSE or the NYSE, 100 shares of Duke Energy stock is still 100 shares,” Nick Niehoff explains.

As director of the CSE, chairman of the CSE Board, and a player in the securities business, Nick Niehoff was engrossed in all aspects of stock-trading. All of the nationally registered U.S. exchanges operated under the guidelines of the SEC. Therefore, they were all under mandates to automate their processing capabilities for their members. The SEC saw automation as a way to save public customers money. Nick Niehoff saw opportunities to make the most of this shift by using telecommunications technologies and computers to automate the stock exchange processing of member firm orders.

Although these technologies were somewhat foreign to him, Niehoff was well-versed in securities, banking and investing. He well understood how capital flowed through the financial markets. His family had been working in the securities business since 1900, with 110 years and three generations of success in the financial world.

“Everyone in my family has been in the securities business,” Buck Niehoff says. “My grandfather was president of a regional investment firm called Weil Roth & Irving with offices in Cincinnati, Detroit, Chicago and New York.”

His father, Karl Niehoff, became president of that company, and in the late 1960s, the Niehoff family sold the company to a larger firm, the Ohio Company. Twenty years later, the Ohio Company was sold to 5/3 Bank. “In a way, our family firm is part of 5/3 Bank,” he says.

Ironically, Nick Niehoff started his business career in the corporate trust department of 5/3 Bank in1968. He then worked as vice president and secretary of Weil Roth & Irving until it was sold. Both Buck Niehoff and their father’s brother, Richard Niehoff, worked as municipal bond attorneys. Nick Niehoff’s son carries on the tradition as an investment counselor at a regional investment bank brokerage company in Boston.

It was only natural, then, that Nick Niehoff started his quest for automation partners in his hometown. Cincinnati Bell was one of the few independent telephone companies, or Baby Bells, left in the country. He approached both Cincinnati Bell and AT&T to discuss a collaborative venture to automate the CSE. One of the major challenges, he knew, was sending data over telecommunication lines.

“It made no sense to phone up orders, and have them written at the booth,” he says. Instead, he worked toward direct linkage or access to the market, which would eliminate human intervention and paper.

“Once we provided the brokers with system processing technology, then we had to make it available for the specialists,” Nick Niehoff says. “And in the case of the CSE, it was imperative to provide system technology to the multiple dealers that functioned as CSE competing specialists who were geographically dispersed throughout the U.S.” To him, it seemed logical to find or develop software programs that could compile computer files of stored orders instead of paper files and books that had to be manually sorted.

As Nick Niehoff became increasingly involved with the CSE as a board member, he resigned from his brokerage business. This was around the time that the CSE president retired, so Nick Niehoff threw his hat in the ring for that leadership position. After several months of searching and interviewing, he was offered the full-time presidency position.

As president, armed with direct control of the operations of the CSE, he began his search to find companies that specialized in computerization. IBM ranked high on his list, as did other companies that no longer exist today. He located Control Data Corporation (CDC), which he describes as focusing on “controlling data flows and arranging data in methods that were unique to the industry.” CDC’s work, he thought, lent itself to programs and computerization.

With Niehoff’s endorsement, CDC was selected to be the CSE’s software manufacturer and data center provider. No exchange in the Unted States had taken such a bold step. At that time, the national exchanges lacked the skills to operate data centers, run telecommunications switches and write software.

“We knew about regulations, we knew about rules, we knew about members, we knew about listing and delisting stock, we could turn on the lights at the beginning of the day and turn off the lights at the end of the day,” Niehoff says. This was the business of exchanges. Operating data centers, telecommunication facilities and programming computers was a whole new world of responsibilities.

CDC knew how to do what exchanges did not, so Niehoff negotiated and signed an operating agreement with CDC.

At that point, the unconventional Niehoff thought even bigger. If the CSE can automate, then why not partner with other regional exchanges, such as Chicago, Pacific, Philadelphia and Boston, to see if they would be interested in utilizing the CDC and CSE System, dubbed the “NSTS” (National Securities Trading System)? If the regional exchanges worked together utilizing a telecommunications network, they could easily send orders back and forth from one exchange to another in an effort to seek better-priced executions for the member firm’s customers’ orders.

For example, if an occasional order for a Boston company’s stock, such as Gillette, showed up at the CSE, it could be sent to the Boston Stock Exchange specialist, and conversely, if an order for Procter & Gamble stock came into the BSE, the BSE specialist could transmit the order to the Cincinnati Stock Exchange, where there was generally a deeper and more liquid and competitively quoted market for the hometown stock.

Niehoff wanted orders to travel smoothly from exchange to exchange in an effort to find the best execution possibilities, a process that became very easy to do with data transmission lines.

“How will a broker or specialist in Boston detect there is a deep and liquid market for Procter & Gamble stock at the CSE?” he asks.

The regional quotation network allowed all the participants to see each other’s quotes. The New York Stock Exchange (NYSE) began exploring a national quotation system that would connect all of the exchanges. Nick Niehoff joined the discussions, as did leaders of other exchanges.

The result? A consortium of all the exchanges could build a robust facility to calculate a national quote and disseminate it as broadly as possible–the National Quotation System. The CSE discontinued its individual quotation system, except for its own members, and sent quotes to this newly consolidated national system, also known as the Consolidated Quote System. It is still in effect today and is the cornerstone of national markets.

This same consolidation process evolved with the stock exchanges’ ticker tape. Each exchange had its own unique tape, an inefficient model for a consolidated system. So, in 1975, all of the individual exchange tapes merged onto the same tape, creating the Consolidated Tape Association.

As Nick Niehoff and the CSE moved further into automation for regional exchange members, it became clear that the technology that had been developed gave CDC a significant amount of expertise in manufacturing software and maintaining computer hardware and computer programs. The new way of doing business was winding its way into U.S. brokerages and exchanges.

Niehoff believed that the next stage of development would involve looking for economical ways to reduce prices of trades. CSE members wanted to reduce costs to keep public customers from paying exorbitant commission fees, another goal of the SEC’s NMS regulation. Once again, the CSE sought answers from CDC.

CDC’s programmers wrote another generation of software and formed BTSI (“Brokerage Transaction Services, Inc.”) to continue to streamline the trading process. The CSE integrated the BTSI processes into its NSTS.

Under Nick Niehoff’s leadership, the CSE was always in search of “cheaper, faster, better software and cheaper, faster, better hardware,” he explains. Technology trends made transitions more natural, and companies soon realized that they had to take their antiquated mainframes down. Nick Niehoff describes the old computer system that seems unfathomable to our uber-technology-crazed minds:  “If you were on the observation deck of the Empire State Building and looked down on the rooftops of some of the buildings in Manhattan, it looked like there were swimming pools on the roofs of those buildings. In reality, these were water ponds that were the cooling “tanks” for the water that ran through the monster mainframe computers, to keep them cool. It was the primitive form of air-conditioning and cooling for the monster machines that took up the space of an entire building floor.”

As the CSE became more cost-effective, a “war” erupted, says Niehoff. There was a point in time when the CSE had between 300 and 400 members, while the NYSE had no more than 300 members. Brokerage firms joined the CSE at a very rapid rate because their execution process was so streamlined and the costs were highly competitive. It was no longer necessary for the Charles Schwab office in San Francisco to have brokers in Cincinnati to make a transaction. Automation allowed data lines to transmit the orders throughout the country in search of best execution at a fair price.

The computers that ran the CSE were located in the CDC’s computer facility in Jersey City, NJ. Peter DuPont, of CDC, managed the operations of the data center. By 1979, CDC had been approached by Weeden & Company with a proposition to buy an automation trading system known as WHAM that Weeden had developed. A number of other brokerages were also considering being part of this consortium. CDC consulted with companies that had been involved with “the WHAM experimental system,” the most prominent of which was the brokerage firm Merrill Lynch. Brokers at Paine Weber also preferred more efficiencies and automation in trading. With Merrill Lynch’s promise of support and interest from Paine Weber (which was never realized), Charles Schwab, UC alumnus Edward Wedbush’s brokerage firm and Cincinnati’s W.D. Gradison & Co., CDC acquired the WHAM venture.

The cost was in the $100,000 range, according to Niehoff. It was a very small-scale operation, and it needed a lot of improvement and expansion, but CDC grew to a staff of 10 and began a significant sales campaign. Eventually this system was abandoned in favor of a new architecture. But Weeden’s system served an interim purpose that allowed CDC staff to visit brokerage firms and persuade those already involved to expand their participation. Peter DuPont remains glad that he was part of this piece of financial history.

“I think it was a noble experiment for CDC,” DuPont says. “I think the basic ideas were good. The seeds were planted for essentially replacing the NYSE’s floor environment model and going to automated trading. The advances in trading volume that we are experiencing today certainly would not have been possible if the old model had persisted.”

Although the new approach was a success, there were challenges in staying ahead of the volume. DuPont explains that volume was fairly modest, but the system was fairly modest, too. It wasn’t originally designed to handle large volume.

“Today, people would laugh at what was essentially a teletype system printing at very low speeds,” DuPont says. “Today, trading terms are talking about not only low mili, but micro-seconds. In terms of bids and offers, we have come a long way.”

Even more difficult was the task to gain participants and grow volume and revenue. Obviously, CDC needed to make money. Company leaders believed that if this venture was successful, it could transform the industry. And, being a computer manufacturer and designer of systems, CDC could play an important role in the national market. While the complete revolution never happened, DuPont is still grateful for the experience.

“Like a lot of bets, this did not pan out,” he says. “But I think it was a good try. I certainly enjoyed it. This was one of the more enjoyable parts of my business career. I think we were a little ahead of our time.”

DuPont has worked as a part of SunGard, a software and information technology services company with more than 25,000 customers in more than 70 countries, for the past 15 years. His colleagues little suspect that they work with a pioneer of the automation of the stock exchange.

“I’ve sometimes talked about (my role),” he says. “Like how we moved our baud rate up from 75 to 100. The younger people roll their eyes.”

He compared moving the baud speed (the rate at which data is transferred) from 75 to 100 to putting a man on the moon. Today, telephone lines run at approximately 9600 baud.

While floor-based exchanges persisted, NASDAQ began to look like the CSE; it engaged both a hardware and software company to automate its exchange, the Bunker Ramo Corporation.

Nick Niehoff and the CSE welcomed NASDAQ’s shift, in part because the two exchanges operated in very distinct markets. NASDAQ was copying the trading method that the CSE had modeled using multiple dealers and quote display screens, but NASDAQ, being the OTC market, did not take away from the CSE listed exchange business. Meanwhile, the CSE continued to grow by doing things better, faster and cheaper.

Today, NASDAQ is completely automated while the NYSE is still operating in a semi-manual mode.

Nick Niehoff knows that automation came at a very real cost. “The capital expense just to acquire the hardware and manufacture the software was $3 million for just the first year. That was very expensive, and no other stock exchange in the US, not even the NYSE, had invested that amount of money into automating in the late 1970s.”

In the 1970s, there was no Internet, no Facebook, no Twitter and no My Space. Even communicating to his staff was a challenge.

“I had a 40-button phone set that connected me to 40 people at once,” he says. “That’s how we did it.”

Five workers alternated turning on the markets remotely from Cincinnati.

“We would send test messages through the system, and say something like, ‘Chuck Schwab, are you there? Are you polling?’ “

Nick Niehoff’s vacations were few and far in between. He was regularly traveling from Cincinnati to New York, from meetings at the CDC data center in Jersey City to visits to member firms.

Nick Niehoff was in his late 20s and early 30s when he worked at the CSE and he admits the costs were more than just monetary. Did he ever envision walking away from the automation project?

“Sure, I wouldn’t be truthful I if didn’t say that,” he says. “Saturday mornings, I would be doing financial work and I would ask our chief financial officer, ‘Are we even making any money and paying our bills?’ Then a new member firm would come on, and it would be an exciting moment.”

Nick Niehoff stands on a rooftop in front of the World Trade Center

As early as 1858, there were the beginnings of a stock exchange in downtown Cincinnati where members met every Wednesday and Saturday. However, the Cincinnati Stock Exchange (CSE) was not officially organized until March 7, 1885, when 12 brokers agreed to meet at the office of E.N. Laralde on 29 W. Third St. each day to buy and sell securities.

The invention of the ticker in 1867 enabled brokers to share transaction information. Progress in electric communications enabled the use of telephones on the exchange floor in 1878. The first private telegraph wire from New York to Cincinnati was installed in 1888 in the branch office of P.J. Goodhart & Co. on Third Street.

Originally there were two calls a day, one in the morning and one in the afternoon, making it possible for brokers to spend more time in their own offices. The “First Call” of Friday, March 13, 1885, listed 10 city (Cincinnati) bonds, 20 railroad bonds, 12 railroad stocks, 15 bank stocks, 20 insurance stocks and seven miscellaneous stocks. Beginning in January 1902, a third session was held at noon, but was suspended in the summer, and finally terminated in February 1903.

During the 1920s, the morning session was continued until all trading was completed, and in 1930 the CSE reverted to two sessions a day.

Then, in 1946, when unlisted trading of New York Stock Exchange listed securities began, CSE hours were changed to coincide with their bigger city peer. Before 1952, trading had always been carried out by members in person, but in 1952 members allowed certain employees to act as alternatives, to act in place of their employer.

In 1948 the sequential “call” system of trading was replaced by a “posting” system. The large chalk-marked board had long recorded bids and offers in precedence as to price, but that listing did not automatically create a transaction. A broker would have to state that he was buying or selling and there would be an exchange of notes. In 1948 these postings became effectively official and could trigger a trade.

(Westheimer, 1991)

by Alex Keller

The floor of the Cincinnati Stock Exchange in 1899

December 11, 1914

Exchange Floor Is to Be Opened

Nearing the end of the year, governors of the Cincinnati Stock Exchange decided to open the exchange floor for informal meetings, but not for record trading or official quotations. The exchange was to have its first informal session the following Monday, to be held daily at 11 a.m.

The intention at that time was to hold the sessions for one week, and at the end of the week a meeting was to be held to decide whether to continue with the informal sessions, or to open the exchange officially. If expectations were fulfilled, the exchange would open for regular official quotations Saturday, December 19.

During this first, informal test week, the exchange was not to make any public sales as an organization; individual members would be allowed to quote sales if they chose. However, the official stock and bond sheet would not be published, nor would general quotations be made public. The newspapers did plan to publish, informally, quotations in active stock established by the trading of the day.

(Cincinnati Commercial; December 11, 1914; 9:5)

The makeup of the Cincinnati Stock Exchange in 1915

March 13, 1918

First Stock Broker in C.S.E. History

To be Expelled from Membership

Richard G. Bray, stockbroker, was the first in history to be expelled from membership at the Cincinnati Stock Exchange. Bray was also made to assign, or legally transfer, his effects to attorney William J. Creed as a result of his actions at the exchange. It was estimated by those informed of his situation that between $75,000 and $100,000 may have been involved.

No details as to the specific reason for his expulsion were disclosed at that time. However, the reason given on the assignment deed was, “Dullness in the brokerage business.” It was not clear whether Bray had been speculating, or making risky deals for profit, in the market.

A short session was held the following morning by the governors of the Stock Exchange in which evidence that had been submitted at the hearing was reviewed. They voted to expel Bray from membership, carrying with it his dismissal as secretary. President Claude Ashbrook announced the official verdict from the rostrum (a platform for public speaking) when the exchange met at 10 a.m. for the usual morning call.

By that time, Bray had already made his assignment in Insolvency court. The deed of assignment was filed that afternoon. Bray’s brokerage business and all his real and personal estate was transferred on the deed.

(Cincinnati Enquirer; March 13, 1918; 16:1)

1950

The Cincinnati Stock Exchange Has a Very Big Year

The Cincinnati Stock Exchange, guided by Charles H. Tobias, chairman of the Board of Trustees, and Charles H. Steffens, president, turned down a proposal to unite, like Cleveland and St. Louis had, with Chicago on Feb. 3, 1950. CSE was already preparing to add new facilities.

The Cincinnati Stock Exchange had modernized its trading room in the Dixie Terminal Building on Fourth Street to better facilitate stock trades. The third wall of the exchange’s floor was lined with compartments resembling curtainless voting booths equipped with signal lights instead of telephone bells for the phones, which were directly connected with the offices of member firms. The floor broker would follow the ticker showing New York Exchange transactions as fast as they happened. He would execute orders according to their prices.

In December 1950, 15 issues were added on the exchange’s board in the Dixie Terminal Building, bringing the total to 115. By the end of the year, the trading volume reached 590,000 shares, which was quite a jump from 375,000 in 1949.

“Much business is coming from smaller investors,” Steffens said. “The little fellows seem more prosperous.”

(Cincinnati Times Star, Cincinnati Enquirer, Post, 1950)

June 3, 1952

Longer Hours Adopted By Cincinnati Stock Exchange,

Breaking Half-Century Old Pattern

The Cincinnati Stock Exchange adopted longer hours, June 3, 1952, in keeping with several of the nation’s stock markets.

The New York Curb Exchange, the Midwest Stock exchange and the Cincinnati Stock Exchange broke a half-century pattern by extending their hours of activity to 2:30 p.m. (EST) from the traditional 2 p.m. (EST) closing time. The New York Stock Exchange had not yet extended its hours.

It was believed that centers of population and wealth had moved westward, and the additional time to do business was intended to meet the needs of stock market traders and investors in those areas.

At that time, it was common practice for stock exchanges to begin closing on Saturdays during the summer months, picking the sixth day up again in September. Many stock market analysts believed that it if the longer hours of operation during the five-day weeks were successful, year-round closings on Saturdays would become the norm.

(Cincinnati Enquirer; June 3, 1952; 14:6)

January 7, 1964

Local Exchange Has Second Best Year in History

& Record Day

In January of 1964, the volume of trading on the Cincinnati Stock Exchange was second highest in 32 years. The CSE had traded 837,636 shares during the year, up from 806,035 two years earlier. The exchange’s all-time high had come in 1961, when brokers traded a reported 919,052 shares.

The record for the largest one-day volume of trading came Oct. 23, 1964. A total of 39,267 shares changed hands that day in Cincinnati. The Gas & Electric Co. accounted for most of the action with stock amounting to 36,000 shares.

Prices on the CSE grew to a high of 154.63 points in November from a low of 132.03 recorded on the first week of the year. However, they did not reach the all-time high of 161.10 recorded in November 1961.

(Cincinnati Post Times Star; January 7, 1964; 11:1)

June 18, 1976

Cincinnati Stock Exchange Offers System as Model

In the 1970s, computer automation was the on the verge of revolutionizing the business of trading stocks and bonds, and Cincinnati was leading the way. In 1976, the Cincinnati Stock Exchange was offering its own version of a computerized central market system, a.k.a. national market system, to the Securities and Exchange Commission as a model to be followed for the national central market.

The system, which was scheduled to go into operation in October 1976, would allow brokers and dealers to execute orders directly through their viewing terminals, said Richard G. Meyer, chairman of the CSE.

The system was based on a working model developed at Weeden & Co., a New York third market investment house that was a CSE member. It was not the only system though. Other systems, including NASDAQ’s, which was offered by the National Association of Securities Dealers, were in competition for SEC attention and approval.

The advantage of automation, under the central market system, was that a computer could accept and match buy and sell orders for stocks and other equities from all over the country automatically; a revolutionary idea at the time.

The CSE led this revolution, already executing some limited orders in utility stocks on its system. The CSE planned to test the capabilities of the system further in October by using it to handle approximately 75 issues of stock.

(Cincinnati Post; June 18, 1976; 20:4)

July 1, 1995

Cincinnati Stock Exchange Says Good-Bye

The Cincinnati Stock Exchange turned 110 in 1995, and with it bid farewell to its namesake city, moving all of its operations to Chicago.

The CSE had been in the process of moving since 1991, after the Chicago Board Options Exchange took over the management of its computer system and the majority of its 239 seats for brokerages. There had been just three employees left at the CSE offices at the Bartlett Building on Fourth Street to wrap up the exchange’s final administrative and financial duties.

(Cincinnati Enquirer; July 1, 1995; B7:2)

Barney Kroger knew what he was doing. He started a company from scratch that competes toe to toe with every major food retail company in the United States. He built a company that survived the Great Depression, rationed food and employees for WWII and built a nationwide grocery empire. And Kroger made another important business decision when he invested the small listing fee to be incorporated into the Cincinnati Stock Exchange in 1902.

The Cincinnati Stock Exchange is one of the country’s oldest stock exchanges. Of the 13 stock exchanges that were operating in the early 1930s, the Cincinnati Stock Exchange is the oldest by far, dating back to March 1885. Some evidence even suggests that the exchange could have been started as early as 1858, but it ceased operations during the Civil War and never regained its identity when hostilities ended. The early exchange of 1858 would have allowed men the opportunity to trade stock every Saturday and Wednesday, more of a means to socialize than to trade shares of their companies with each other.

In 1885 the Cincinnati Stock Exchange, as it is known historically, was formally organized and trading began. The CSE helped many significant Cincinnati companies grow by offering distributions of their stock throughout the nation. While the exchange grew larger and began trading more companies geographically disbursed throughout the country, Kroger stock benefited by being sold to investors throughout the country. Other local companies and Ohio-based companies that prospered because of the CSE were Cincinnati & Suburban Tel. Co. (1903), Procter & Gamble Co. (1906), Cincinnati Gas and Electric Co. (1906), Cincinnati Milling Machine Co. Milacron (1905), Columbus Power and Light Co. (1906), The Formica Company (1913) and Goodyear Tire & Rubber Company (1921).

The Kroger Grocer and Baking Company was one of the first and largest companies to be listed on the CSE. Kroger was incorporated on April 30, 1902, with 40 stores to its name and $1.75 million in annual sales.

When Kroger joined the CSE, the company was turning disaster into a triumphant business. After the business depression of 1893, the company came out even stronger than it had gone in. By the end of the year, Kroger had bought 17 new stores and profits for the year exceeded $112,000.

In 1902, Kroger expanded to 40 stores and began extending its reach to other parts of the state as well. Kroger stock was selling at a respectable $40 per share, but according to the records kept by the CSE, Kroger stock did not sell a single stock for nearly four years, from 1906 until 1910. Although the company had expanded to nearly 100 stores, had over 300 horse carriages making deliveries and had bought other food chain stores to lower competition, shares of stock were not selling for the company.

Between 1910 and 1918 Kroger stock climbed to its highest price, $305 for a single share of stock. The extremely high rates came from the low trading volumes during the early years of the stock market. With less stock selling, prices of each share had to be high. And although some years no Kroger stock was being traded at all, other stock, like the Cincinnati Gas and Electric, was being traded heavily each day. Other times, such as in the late 1910s, Kroger stock was only been traded a few times a month, or even a few times a year. Although the stock kept climbing throughout the 1920s, the Great Depression sunk Kroger stock to an all-time low.

With the looming retirement of Barney Kroger, stocks began a slow decline from a steep cost of $128 in 1929 to an all time low of $12 ¾ in 1932, when Albert H. Morrill was president of the company. When Kroger retired from the company in 1930, Morrill had been promoted to president of the company, in charge of keeping Kroger among the top grocery store chains in America. But stock prices fell quickly. Stock dropped from more than $130, with trading in the 200,000 share volumes, to just $25 two years later, when trading volumes barely reached 100,000. With the retirement of Kroger came the loss of his hands-on approach to running the company and his determination to keep the high quality of his products at an affordable price.

The Great Depression brought more than stock price woes to the Kroger Company. The 5,575 stores, the largest number of stores in the history of the company, became too many to handle. With transportation and communication methods not yet highly developed, the company found it hard to keep in contact with all the stores. It became imperative that the company hire a real estate manager to cut out the ailing stores and keep the health of the entire company as the top priority.

Another challenge Kroger faced was the public’s outcry against chain stores. Politicians, radio announcers and the general public were starting an anti-chain store movement. The country had seen the sprouting of bare bones “super-markets” that had little to offer. The country was taking a stand against big business. But Kroger prevailed by decentralizing the Kroger company, allowing them to pay special attention to different communities, all while owning thousands of other stores around the country. Kroger also started massive campaigns convincing people to shop at Kroger; convincing them that Kroger was not a “chain store menace.”

Even after retirement, Barney Kroger responded to his namesake company when his help was needed. After selling all his stock before the Great Depression, he reinvested in the company when no one else had the confidence too.

As the country struggled to break free of the Depression, Kroger fared better in the stock market and the grocery front. Although not many new innovations marked the period between 1929 and 1939, Kroger stock prices hovered around $25, depending on the quarterly reviews of the company. In the 1930s, shopping carts were added to stores, frozen food became commonplace and the supermarket earned a reputation as a household name. But investors were still wary of the stock market. Kroger also became incorporated into the New York Stock Exchange on January 26, 1928, the exchange that the Kroger is still traded on publicly until this day.

After the death of Morrill in 1942, Charles M. Robertson took over as president of the company. He had big aspirations, such as the expansion of the Kroger Co. to new states and increasing the efficiency of manufacturing practices, however these were put on hold as WWII started.

According to a wartime report, “about 40 percent of all Kroger employees served in the armed forces.” Expansion and progress were set aside until Kroger could be fully staffed again.

After the war subsided in 1946, Kroger stock reflected the company’s rapid expansion. Stock doubled from $30 to $60 per share in one year. After Robertson retired, Joe Hall took his place. Hall, the real estate agent who trimmed down the 5,575 stores in 1929, was one of the many reasons for the rapid stock price growth. He began a huge consumer research program, bought an egg processing plant to help with manufacturing and changed the name of the company from the Kroger Grocery and Baking Company to the Kroger Company. By the 1950s, Kroger stock had risen to $70 per share, and in 1952, the Kroger Company topped $1 billion in sales.

For the next five years, Kroger stock continued to rise. In the 1960s, the company ventured into the trend of discount stores, lowering prices and limiting customer service. Kroger products were still held to the same standard, but prices were reduced even further. The company also expanded into the drug store business by buying a chain called SuperX. Kroger became the first food retail chain to have a pharmacy inside the store. In response, Kroger stock hit a premium of $99 in 1959. The stock split 3 for 1, causing trade volumes to skyrocket from around 20,000 a month in 1958, to nearly 50,000 a month in 1959.

Why should a company split their stock? According to Scott Henderson, treasurer and vice president of Kroger, “There’s no reason split the stock. If you have one share of stock at $50, and it splits two to one, now you have two shares of stock at $25. You still have the $50,” says Henderson. “If anything it might be a bit more administratively expensive to have more shares outstanding.” Yet, Henderson also noted that “It appears to be more of a psychological event. There seems to be more of an emotional response that shareholders have. It seems like they have more trading and more support for stocks that have a $20, $30 or $40 price stock. Most people cannot afford to buy a $500 stock. But they can afford to buy a $30 stock.”

The company continued expansion throughout the 1960s, tripling annual sales from $1 to $3 billion in just a few years. Stock held steady at $30 per share until the 1970s. In an effort to expand the company more, Kroger began building larger stores with more specialized departments. The company closed many smaller stores and replaced them with giant supermarkets capable of doubling the income of the smaller stores. George Hancock writes in his book The Kroger Story that “while the number of Kroger stores decreased by 166 between 1972 and 1982, total square footage climbed 45 percent. Meanwhile, average weekly sales per Kroger store increased from $44,000 to $180,000.”

This profitability, among other factors, led to the steep increase in the number of Kroger stock shares being traded each month. Kroger sold an average of 80,000 shares of stock in 1960, but by 1970, an average of 200,000 shares changed hands every month. In November 1972 alone, Kroger sold over 1 million shares.

Innovations within the country contributed to the increase in Kroger stock prices and its trading. Kroger stores shelves featured nearly doubled the product they held two years prior and every product had a sell-by date as well as nutritional facts printed on every label. Kroger was the first supermarket in the country to add sell-by dates on their products. Although sell-by dates are not federally mandated, Kroger went the extra step to put their product ahead of the competition.

The 1970s also saw highly developed advertising. Kroger began running ads that hailed every product Kroger had as the best. As one executive put it, “The customer was changing, so we began searching for ways to bring new direction to our merchandising.”

A stylish Kroger store attracted customers with low everyday prices.

According to Hancock, Kroger was the first grocery store to apply the “everyday low prices” motto to selling its goods. Kroger wanted every bill “to be as low as or lower than it would be at any other comparable store.”

The 1980s proved tough for both Kroger and the stock market. The nation’s recession led to stock price volatility. Every month saw extreme highs and lows. For example, in October 1988, Kroger stock went from a high of $58 to only $18 four days later.

Although the stock prices were low for the company, Kroger seemed to fare well enough in the recession. The company bought a chain of convenience stores called Kwik Stop and merged with the Dillon Companies in 1983, allowing Kroger to operate nationwide. “Kroger went from a $25 billion company to almost a $40 billion company,” says Henderson.

However, many companies sought to buy Kroger, which led to higher stock prices. In 1988, several companies offered to buy Kroger; the highest bid was $5 billion, placed by Kohlberg, Kravis and Roberts, a global assets management company.

“The board of directors rejected the offers being made because they were saying the offers being made did not fairly value the whole company,” says Henderson. To prove this, he explained that “Kroger is incorporated in the state of Ohio… and under the laws of the state of Ohio; corporations can pay a dividend up to the fair value of the enterprise.” In other states a corporation can only pay a dividend up to the capital of the company. In other words, Kroger can pay a larger dividend than other corporations when they find the fair value of the company to be larger than their capital, which Kroger was able to do.

After the board rejected the offer, members sought a way to minimize the price fluctuations of the stock. They started by reorganizing the stock and giving control of 30 percent of the company to its employees. Shareholders of the stock also received dividends of $48.69 a share, on top of the price of the share they had previously bought.

“Kroger took on several billion dollars of debt to pay the dividends and we paid out more than the retained earnings of the company,” says Henderson. “Our shareholders equity became a large negative number.” This is where the Kroger acquired its largest debt ever. “In the history of Kroger and Kroger stock events, it was the most complicated event we have ever had.”

Kroger accumulated a debt total of $5.3 billion. This reorganization, a low point in Kroger’s history, lowered stock prices to $8 per share in 1988 and 1989. Yet trading volumes remained high, with nearly 400,000 shares traded every month.

Throughout the 1990s Kroger climbed out of debt and hit a high point in 1999 with the acquisition of Fred Meyer. The $13 billion merger created the nation’s largest retail grocery company. According to a press release from Kroger, Fred Meyer shareholders would own 38 percent of the company. Joseph A. Pichler, CEO and chairman of Kroger at the time of the merger, assumed the role for both companies. Kroger stock reached a high of $60.81 on the day of the merger and stock volumes for that day soared from 1.5 million the previous day to 5.3 million.

“There is $20 billion of capital invested in the company,” says Henderson. “Kroger is one of a small number of companies that historically over time have produced a return in excess of capital employed in this business.”

Today the Kroger Company controls 9 percent of the retail food industry market, falling second only to Wal-Mart. Kroger posted a net revenue of $70.2 billion in 2007. It now operates nearly 2,500 stores nationwide, with nearly 800 convenience stores and 400 jewelry stores under the Kroger brand.

Time and time again Kroger has used innovation and the stock market to fuel growth.

Sources

http://www.fundinguniverse.com/company-histories/The-Kroger-Co-Company-History.html

http://www.libraries.uc.edu/research/subject_resources/business/book_Joseph_Hall.html

http://www.thekrogerco.com

Laycock, George. The Kroger Story: A Century of Innovation. Cincinnati: Kroger Company. 1983. Print.

Henderson, Scott. Personal Interview. 4 Dec. 2009.

Cincinnati Stock Exchange Manuscripts and Pamphlets.

Leshner, Don. Bullish: Of History and Electronics and a Come-Back Trail. Cincinnati Magazine. Nov. 1971: 50, 70-73. Print.

In the words of a Cincinnati Times-Star editorial, “Barney Kroger represented an era which the dominant political currents of our time have ended, perhaps forever. It was a rough-and-tumble era, which developed some very obvious faults but which had even more obvious merits. It was the era of free enterprise.”

Bernard Henry Kroger was born in January, 1860, to a family of German immigrants who ran a dry-foods store in Cincinnati, Ohio. It is rumored that his first toy was a cigar box that Kroger turned into a model for a grocery store. After dropping out of school at the age of 13, Bernard got his first job working seven days a week at a pharmacy. The long hours and low wages were no reason to quit, however, Kroger’s mother insisted he find another job where he did not have to work on the Sabbath. Although money was tight, Kroger did not argue and promptly quit his job.

Kroger’s next job was that of a farmhand for a large farm in Warren County. For nine long months, Kroger worked every day in the fields for a measly $6 dollars a week. Even after contracting malaria, Kroger would not quit, determined to show his mother that he was not a quitter. Alas, after his spirits were broken, on a cold December day, Kroger quit the farm job. He opted to walk the 35 miles home and save the bus fare.

His next job brought him to the business he would later dominate; the food retail industry. Soon after quitting his farm job, Kroger received a job working for the Great Northern and Pacific Tea Company. By the end of his first day working as a door to door salesman, Kroger had sold $35 worth of coffee and tea, and with the %3 commission, Kroger had made 85 cents in his first day on the job. During the remainder of the week, Kroger grossed a $7 paycheck, the most he had ever made in a week.

Soon after he began working at the store, it was sold to new owners who charged more for an inferior product. Kroger found that many of his old customers would not buy from him anymore and he pointed to this experience as the one that most forcibly taught him that people, even those of meager income, would pay more money for good food.

Soon after the new owners had taken charge, the store began to fail. The owners turned to Kroger to save the store. After Kroger outlined his demands of $12 a week and 10 percent of the profits, he was named manager of the new store, The Imperial Tea Company. By the end of his first day, Kroger had fired the entire staff, besides the delivery boy, bought a new cash register and hired a cashier to run the machine. They were the entire staff.

In 11 months as manager of The Imperial Tea Company, Kroger had turned the store around and gained a net profit of $3,100. With the profit from the previous year, Kroger explained to the owners that it would be wise to open a second store on the other side of town, but the owners didn’t listen to their young manager. Kroger saw this naïve thinking as an ending point for the store. He withdrew his profits and quit The Imperial Tea Company to start his own store.

At the age of 23, on July 1, 1883, Kroger combined his $372 in savings with a $350 loan from a friend, B.A. Branagan, and rented a small store near the riverfront, at 66 E. Pearl St, for $40 a week. He named it the Great Western Tea Company. Kroger worked longer hours than he had ever before, pouring over the records of the store, ordering food, preparing coffee and tea for the next morning and any other necessities that came about. But a couple of disasters would nearly cripple the new business before it got on its feet.

This first disaster came when Branagan was delivering food in the newly purchased wagon. He was trying to beat a train to deliver his groceries on time, but instead, narrowly escaped death. The cowcatcher on the front of the train clipped the back of the wagon, splintering it in half, killing Kroger’s newly purchased horse and throwing Branagan clear of the wreak. A total lose of $518 came from the fiasco.

The next disaster came from the flooding of the Ohio River. The river had risen to 71 feet and had flooded Kroger’s entire store; $365 of merchandise was lost.

But Kroger prospered. In his first year, Kroger was out of debt and had $2,260 worth of assets to his name. After a year in business with Branagan, Kroger offer to buy out his share in the company for $1,500, to which Branagan agreed. Kroger was now the sole owner of The Great Western Tea Company. And he was demanding as ever that his quality of food be the best around. One such tale of his demands demonstrates his ability to sell and his strive for the best.

As quoted from a pamphlet distributed by The Kroger Company called “Barney Builds a Business” is a story about Kroger’s demands for quality and customer service:

“Calling on a woman at her door, Barney asked her for her coffee order. He was met with a refusal. His coffee, she said, didn’t taste good and besides she was having a party. Her house was full of friends so would he please go away. Barney told her that he his coffee was good. Would she let him in to her kitchen to demonstrate? He’d be glad to serve free coffee to all the guests. Her friends, who were by that time peering around her from behind, urged her to let the young man try. They agreed that the coffee didn’t taste particularly good. Reluctantly the housewife let him in.

The first thing Barney did was to begin scrubbing the coffee pot. The pot must be very clean he said and his hostess blushed. Her coffee pot wasn’t very clean. He explained patiently how to brew coffee correctly as he went along. When he finished he served the coffee. It was delicious. His hostess was enraged at the affront to her ability and her guests were secretly delighted. The event was of course the talk of the town. Barney had lost one customer but had gained a hundred.” He would take nothing but the finest.

In 1885, Kroger expanded his growing business by buying his second store and a year later buying two more, giving him control of four stores within three years.

The final hurdle for Kroger was the panic of 1893; the bank he had his entire life savings and that of his stores, $80,000, was on the brink of failure. Kroger had to make a choice between taking out as much as he could before it failed, or trusting his instincts that the bank would not fail. He kept his money in the bank and the bank pulled through the depression with all of Kroger’s money still there. With everyone else scared their banks were going to close, sellers were desperately looking for buyers and Kroger ran a tough bargain. He snatched up every deal he could find and at the end of the year he had a profit of $112,000 and was the proud owner of 17 stores.

In 1902 Kroger renamed his store the Kroger Grocery and Baking Company and by the 1920s his empire had grown to its peak of 5,575 stores nationwide. He was able to accomplish such quick success by offering what his competitors weren’t; low prices. He bought all his products in bulk to keep the retail prices relatively low and he added the first in-house grocery store bakeries and meat departments.

Shortly before the Stock Market Crash of 1929, Kroger sold his stock of the company for $28 million. Whether it was a stroke of luck or financial suave was never determined. Kroger even bought back a third of the company during the Depression to demonstrate his confidence in the company.

With his huge amount of finances intact throughout the Depression, Kroger also made huge contributions to different Cincinnati causes, often without recognition. He donated five Bengal Tigers to the Cincinnati Zoo, opened numerous city parks and gave money to help research Tuberculosis, among other things.  And as with his company, Kroger was intolerant towards mismanagement in government as well. He protested questionable practices at City Hall, bringing better government to his beloved city. As one reporter wrote “he speaks his piece in language that cannot be misunderstood.”

Kroger died in July 1938, at the age of 78.

Control Data Corporation was incorporated in Minnesota, July 8, 1957, by Fremont Fletcher, Abbot L. Fletcher and D.P. Wassenberg with 600,000 shares of stock sold at $1 per share. The first headquarters were in the McGill Building, 501 Park Avenue, in downtown Minneapolis. William C. Norris was announced as the president of the company on Aug. 14, 1957. Former Sperry Rand Univac engineers who joined CDC in Sept.1957, include: Robert Perkins, William R. Keye, Howard Shekels, Robert Kisch and Seymour Cray. Early CDC board of directors members included president William C. Norris, Arnold Ryden, Walter G. Andrews, Robert F. Leach and Frank C. Mullaney, as well as other early executives: first director of marketing, Willis K. Drake; first public relations director, Allan J. Walsh; James G. Miles, director of engineering services; and Henry S. Forrest, director of government services engineering, Eastern Office (Washington D.C.) manager.

1957

CDC acquires Cedar Engineering.

1958

CDC’s “Little Character,” 1/10-scale prototype of 1604, is operational. Receives first order for 1604 computer. Sperry Rand sues CDC.

1959

CDC delivers air traffic control display.

1960

CDC acquires Control Corporation. The 1604 and 160 computers are delivered. The first CDC data center is established in Minneapolis.

1961

The 160A and the 924 are delivered. A new computing center is established in San Francisco. The company receives $5 million contract for fire control computer for Polaris Submarines. Net sales from annual report = $19,783,745.

1962

The company moves to new a headquarters in Bloomington, Minnesota. The European office opens in Lucerne, Switzerland. The Polaris computer, the 606 tape transport, and the 166 line printer are delivered. The Sperry Rand lawsuit is settled out of court.

1963

The 3600 computer, 603 tape drive, and the 405 card reader are delivered. CDC acquires the Computer Division of Bendix Corp.; Beck’s, Inc.; Digigraphic Systems of Itek; and Control Systems Division of Daystrom.

1964

CDC acquires Rabinow Engineering; Transacter business (General Time); Holley Computer Products; Bridge, Inc;, Computer Laboratories, Inc.; Adcomp Corporation; and TRG, Inc.

1965

3100, 6600 delivered. CDC acquires Data Display, Datatrol, Computech, Glenn W. Preston Associates. Production of 160-A and 1604A ceased. Control Data Institutes established. Net sales from annual report is $16,473,162.

1966

The 1700, 3800 and 6400 are delivered. CDC gains a $22.7 million contract from United States Post Office for the Postal Source Data System. Frank Mullaney leaves company.

1967

The 6500 computer delivered. The first foreign Control Data Institute established in Frankfurt. CDC acquires Autocon Industries, C-E-I-R, Inc. and Automatic Control Company.

1968

CDC acquires Commercial Credit Corporation. Cybernet communications network is established. The 449-2 Special Miniature Computer, 200 Remote User Terminal and SCOPE operating system are delivered. CDC files an antitrust lawsuit against International Business Machines (IBM).

1969

The 3500 and 7600 computers are delivered. CDC acquires Computing Devices of Canada, Precision Data Card, Marshall Communications, Printed Circuits, Inc. and American Business Systems, Inc. CDC acquires partial interest in Ticketron.

1970

Hardware, software and service prices are unbundled. KRONOS 1.0 operating system offered. Star 100 announced. 3170, 6200 and 6700 computers delivered.

1971

The 921 Optical Character Reading machine and the Cyber 70 are delivered.

1972

CDC creates a Committee for Social Responsibility. CDC acquires Syntonic Technology. National Cash REgister (NCR) and CDC establish Computer Peripherals, Inc.

1973

International Business Machines settles with CDC and acquires Service Bureau Corporation as part of settlement. CDC acquires the data services operation from ITT; System Resources; and renames interest in Ticketron. Peripheral Products offers low-cost disk drives. CDC signs a 10-year cooperation agreement with the Soviet Union. Seymour Cray leaves CDC to form Cray Research.

1974

The old CDC logo is retired. CDC acquires Credit Francaise, First Holding, Ltd. and Davidsohn Computer Services. The Star 100 is delivered to Lawrence Livermore National Laboratory.

1975

Technotec data service is established. CDC and Honeywell form Magnetic Peripherals, Inc., and CDC acquires Medlab Computer Services and Compu-Net, Inc.

1976

The 38500 Mass Storage System is delivered and the PLATO computer-based education system is announced. Control Dataset, Ltd., is formed with ICL. CDC joins with the Iranian Government to form Computer Terminals of Iran.

1977

First dividend on CDC common stock declared. Company published its statement on Social Justice. PLATO Systems are implemented at all domestic Control Data Institutes.

1978

Control Data Institutes and learning centers number sixty-nine worldwide. City Venture Corporation formed. William C. Norris named “Upper Midwest Executive of the Year” by Corporate Report.

1980

Cyber 203 and 205 are delivered. Control Data Properties is formed.

1981

The 110 microcomputer is announced. Net sales from annual report equal $3,101,300,000.

1982

CDC acquires Computer Industries Corporation. Control Data is one of 15 companies establishing the Microelectronics and Computer Technology Corporation in Austin, Texas.

1983

CDC Acquires Medix Schools. The 14″ OEM Winchester Drive is announced. ETA Systems, Inc., is established and CDC embarks on a joint project with National Cash Register (NCR) to open a CAD center in Santa Clara, California.

1984

CDC Announces plans to phase out its plug compatible-peripheral equipment business and considers sale of Commercial Credit. CDC acquires Communications Solutions, Inc.

1985

CDC sells Syntonic, Electronic Realty Associates, Commtrak and Landmark Graphics.

1986

William C. Norris retires and Robert Price is named CEO. CDC sells Communications Solutions, Inc., Trinet, Burke Marketing, Multi-Arc, stock in Centronics and its majority portion of Commercial Credit.

1987

CDC sells its remaining interest in Commercial Credit Corporation. CDC acquires SAMI/Burke and remaining interest in VTC, Inc.

1988

The Data Storage Products group is reorganized under Imprimis Technology, Inc. CDC acquires 20 percent interest in Silicon Graphics.

1989

Robert Price retires and Lawrence Perlman named CEO. CDC sells VTC, Imprimis, and PLATO. Control Data Institutes in the United States are spun off from the company. ETA Systems closed at a $490 million write-off.

1991

A portion of CDC’s corporate archives is donated to the Charles Babbage Institute. CDC acquires MiniData Services, Hazelden Employee Assistance Services and Barrios Technology.

1992

Control Data Corporation is divided into Ceridian Corporation and Control Data Systems, Inc.

1999

Control Data Systems, Inc., acquired by Syntegra.

Source: http://www.cbi.umn.edu/collections/cdc/histtimeline.html