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January 1, 1999

Broker-Dealer' Friendly Is ECN's Growth Strategy: Automated's BRUT Names Street Partners

By Michael L. O'Reilly

Competing with eight other Securities and Exchange Commission-approved electronic communications networks (ECNs), BRUT has marketed itself as the broker-dealer-friendly ECN.

The strategy seems to have worked. Last month, BRUT announced its partnership with four Wall Street firms, which combined reportedly handle up to 25 percent of Nasdaq's volume: Goldman, Sachs & Co., Knight Securities, Merrill Lynch & Co. and Morgan Stanley, Dean Witter & Co.

Only Jersey City-based Knight Securities had previously disclosed its relationship with the ECN. Kenneth Pasternak, president and chief executive of Knight Securities, said the firm is a 14-percent owner in BRUT.

The four partners collectively own just under 50 percent of the ECN.

"As we looked for equity partners, we wanted some of the biggest names on Wall Street," said Brian Hyndman, BRUT's president. "With our four minority partners, I think we got that."

BRUT or the BRASS utility is a division of Weehawken, N.J.-based Automated Securities Clearance Corp, maker of BRASS order-management and routing software. Automated Securities Clearance Corp. is the majority owner of BRUT, controlling more than 50 percent of the ECN.

BRUT was approved by the National Association of Securities Dealers and the SEC last April. Since handling its first trade last May, the ECN has experienced steady growth, according to figures supplied by BRUT. From August to September, BRUT saw its volume climb 100 percent. The following month, volume grew 66 percent. From October to November the last month figures were available volume in the ECN grew by 25 percent.

Currently, BRUT has 95 subscribers and averages more than six million shares a day.

"BRUT has grown pretty well," Pasternak said. "We're happy with the progress."

Hyndman said BRUT markets itself directly to broker dealers, only allowing a buy-side firm to access the ECN through a sponsoring broker dealer.

"We're a broker-dealer-friendly ECN," Hyndman said. "We will never market our product directly to the buyside. We want our sell-side subscribers to know we won't compete with them directly."

But with competition for order flow increasing among ECNs, Hyndman added that BRUT was asking its broker-dealer clients to increase their own marketing of the ECN to the buyside.

Other SEC-approved ECNs include Reuters Holdings' Instinet, Bloomberg Tradebook from Bloomberg, Datek Online Holdings' Island and STRIKE from STRIKE Technologies.