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David Weisberger
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Stop the BS & Promote Real Transparency!

In this shared blog, David Weisberger says a recent WSJ article is wrong and that traders do need to purchase faster and more comprehensive market data to avoid being fined for violating "Best Execution" obligations.

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June 30, 1998

The Mixed Blessing of Technology Spending:Desks Must Spend on Technology to Remain Competitive

By Om Malik

Also in this article

  • The Mixed Blessing of Technology Spending:Desks Must Spend on Technology to Remain Competitive

Huge mainframes. Fiber-optic networks. State-of-the-art telecommunication systems. Worldwide market news delivered real-time.

Sound familiar? It should. These and more are at the very heart of a Nasdaq trading room.

Back in the pioneer days, much of what is today's Nasdaq trading-room technology did not exist. By contrast, some of today's technology has a pedestrian aura.

The consequences of that might be viewed as a mixed blessing desks have no choice but to collectively spend billions of dollars to remain competitive, but in return they transact business at an exponential rate.

Now Nasdaq, an electronic marketplace, is grappling with technology changes as never before.

Electronic communications networks (ECNs), such as Reuters Holding's Instinet, New York-based Investment Technology Group's POSIT equity matching system and an upstart crossing network, MatchPoint, developed by The AutEx Group and State Street in Boston, are helping to raise the stakes.

Never known for avoiding a challenge, the Street is embracing all this technology and more.

Three Areas

According to the latest institutional-equity study by Connecticut research firm Greenwich Associates, spending on technology is going to explode in the coming year.

Much will primarily be spent in three areas of Nasdaq trading: simplifying trading desks, deploying the Internet and client services.

"More and more firms are looking to deploy technology because the market has become extremely competitive, and recent regulations have cut into the spreads," said Lawrence Tabb, group director at The Tower Group, a Newton, Mass.-based consulting firm, referring to the order handling rules.

Tabb says that firms will use technology to make their operations more efficient and profitable.

To begin with, Tabb feels that desktop enhancements will be a priority for market makers, "because traders have to keep a grip on the various places they are trading in."

"When we started, there was the Nasdaq trading terminal and the Quotron," said Tom Norby, head Nasdaq trader at Portland, Ore.-based Black & Company. "Now there are so many platforms that you need to be a wizard to stay on top of every single one."

For one thing, the number of ECNs is on the rise. Besides Instinet, other ECNs include Bloomberg TradeBook. (Greenwich noted that 57 percent of all traders now report using Bloomberg terminals.)

Coming down the pike is BRUT, or the Brass Utility, developed by Automated Securities Clearance Corp., a Weehawken, N.J.-based company, and STRIKE, a Bear, Stearns & Co.-backed ECN.

Usage

According to Greenwich, among institutions generating more than $5 million a year in commissions, 82 percent now make use of non-traditional systems for Nasdaq business, up from 75 percent in 1995 and 1996.

The study notes that these same firms are expected to do 22 percent of their business in 1998 on non-traditional systems, up from 20 percent in 1997.

"Ten years ago, if you were an institution, you had to go to a Nasdaq trader to buy a stock," Tabb said. "Times have changed. Traders have to keep clients happy."

It is no surprise that technology budgets are being earmarked for running Nasdaq and ECN software as well as data feeds on one screen, instead of several standalone terminals.