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August 31, 1998

Bright Side of Upheaval In Order Management:BRASS, the Industry Standard, Faces Competition

By Om Malik

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  • Bright Side of Upheaval In Order Management:BRASS, the Industry Standard, Faces Competition

Ten years ago, Automated Securities Clearance was a small but pushy software company that competed for order-management business with TCAM Systems.

How times have changed. Weehawken, N.J.-based Automated is no longer an upstart, peddling its core BRASS system and order-routing services.

BRASS now overshadows the rival product of TCAM, the New York affiliate of Waltham, Mass.-based Stratus Computers, and upstages the products of other vendors.

These include London's Royalblue Group, Trinitech Systems in Stanford and New York's QV Trading Systems. Moreover, BRASS handles a majority of the order flow on Nasdaq desks.

But the question remains: Can BRASS, the industry standard, stay on top in a business with hostile competitors?

Bygone Days

BRASS and its competitors have their origin in a bygone era. Years ago, Nasdaq traders used paper pads to track their changing positions, profitability and average costs.

On a busy day, the trader's assistant scribbled down trade information. Sometimes keeping track of information was not easy. Mistakes were made.

Clearing and settling trades was another matter. After a trade was executed, a ticket was typically dropped into a box which was taken to the backoffice. Keypunch operators then entered trade data for processing.

Eventually, entrepreneurial vendors developed order-management and trade-processing systems to make post-execution support speedier and cheaper.

BRASS, for instance, allows traders on Nasdaq desks to adjust their quotes; to hold limit orders if necessary; to monitor profit and losses, or P&L; and to interface with clearing brokers.

Faced with a cost-efficient alternative, traders abandoned the paper-based record-keeping and order management for TCAM, BRASS and others.

Two Categories

Wall Street's order-management and trade-processing systems fall roughly into two categories: proprietary software developed by firms, accounting for 40 percent of the business; and the rest, handled by vendors such as BRASS.

BRASS is estimated to control 50 percent of the market, and has about 130 accounts.

Order-management and trade-processing firms make money by selling their software and hardware to the sell-side community, and through subscriptions, with sell-side firms paying for each terminal or for licensing the vendor's software.

In the latter, the trading firms do not have to buy and maintain the products.

TCAM sells and licenses its product and competes with Royalblue in the outright sale of its business.

BRASS sells a total package to some firms, particularly the largest, and it runs the software and provides backup for other firms.

First Vendor

In 1982, TCAM became the first vendor to develop an electronic trading system. In the roaring 1980s, TCAM was the only game in town. Mentioning Automated to a trader would have invited a blank stare.

In the early 1990s, computer-hardware maker Stratus acquired TCAM, hoping that the software-maker's dominant position would help it sell more computers on Wall Street.

The shaky marriage, however, distracted TCAM from its core business product for equity-trading operations, say people familiar with the firm.

The timing of the marriage could not have been better for BRASS and Automated, which had launched a new software written for the newly-popular UNIX platform.

Under sustained attack from BRASS, TCAM fired back in 1994, acquiring Marlboro, Mass.-based Femcon Associates, then the number-two player in the order-management business.

Upheaval