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Tim Quast
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We're All HFTs Now

In this guest commentary, author Tim Quast looks back at the history of HFT and how the market has evolved to where many firms now fit the definition of high-frequency trader.

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February 1, 1999

Settlement Vendor Plans to Compete With DTC Monopoly

By Staff Reporters

One of the more arcane elements of the institutional-clearing and settlement cycle is on the road to extinction.

At the moment, institutional brokers send trade confirmations to their institutional clients for subsequent affirmation. With the equity-transaction settlement cycle expected to shrink within three years from three days after trade execution to one day following the trade block trades will eventually no longer be confirmed and affirmed the conventional way.

Instead, institutional trades will be matched with brokers and institutions sending trade details to a service provider, which will compare them and then generate affirmed confirmations for all matched trades.

Anticipating the trend toward trade matching, Boston-based Thomson ESG has filed an application with the Securities and Exchange Commission to provide central matching services for depository-eligible settling in the U.S.

The application is seeking exemption from the clearing-agency registration requirements of the Securities Exchange Act of 1934, as those requirements were interpreted by the SEC last April.

An exemption would permit Thomson ESG to provide both trade-matching services and traditional trade-conformation and affirmation services for U.S. depository-eligible securities.

The filing, in effect, is the result of a six-year effort by Thomson ESG to liberalize the U.S. market for trade confirmations, opening up competition and ending a monopoly by the Depository Trust Company.

"Central matching is on the critical path to T+1 [trade-execution date plus one day] or T+0," said Lee Cutrone, executive managing director of Thomson ESG. "SEC approval of today's filing will ensure we can offer our matching service to our U.S. clients when the industry moves to shortened settlements."