Commentary

Salil Pachare and Ilia Rainer
Traders Magazine Online News

Does the Tick Size Affect Stock Prices?

The Securities and Exchange Commission has recently released a whitepaper examining the change in tick sizes on trading based on data it collected during the Tick Size Pilot.

Traders Poll

Would the creation of a single central regulator in Canada affect your inter-listed trading strategies?




Free Site Registration

February 1, 1999

Order Management's BIG Room for Growth: A Fourfold Increase in Global Spending Is Predicted

By John A. Byrne

The Tower Group report notes: "BRASS may have grown too rapidly to cover all the demands on its system. Complaints from some current users about lack of support have led BRASS management to bring in an outside organization for evaluation."

According to experts, the fundamental reason for BRASS' diseconomies of scale is simple: a surging Nasdaq stock market and a network scrambling to keep pace with growing business. Conversely, its unrivaled volume practically guarantees BRASS a continuing supremacy.

The Tower Groups' Iati said some BRASS customers expressed dissatisfaction in two areas during research for the study: occasional though not frequent systems crashes, and a frustration with service.

Moreover, BRASS does not have a native Microsoft Windows NT front end, which some clients want. (For the benefit of technophiles, BRASS runs on a Microsoft Windows-based, SUN X-terminal on a PC, with full redundancy in technical architecture. The program is written in C using a SQL-based relational database. Order routing is FIX-compliant.)

One medium-sized BRASS customer contacted for this story dismissed reports of defections, noting that his desk is satisfied with BRASS service.

For its part, BRASS said it is committed to improving overall service.

In a recent letter signed by ASC president Robert Greifeld, customers were told that BRASS bureau capacity will be maintained at two-and-a-half times the requirements for each account. Capacity for a given 15-minute trading period will be ten percent of the volume transacted, the letter stated.

Clever Marketing

One thing is very clear: BRASS is a hard act for other vendors to follow. For starters, it employs a clever arsenal of marketing ploys. Among the arsenal: BRUT, the exotic electronic communications network (ECN) that pays users for liquidity, and BNET, which lets BRASS customers automatically or manually transmit orders to BRASS users.

For their part, BRASS competitors each operate either a service bureau, lease software or take both approaches. And each is eyeing opportunities in areas where BRASS may actually seem to have its strongest links.

Ironically, though BNET and BRUT give BRASS a strong edge as well as bragging rights, The Tower Group discovered an interesting twist: The competition is using them for competitive advantage.

"Customers who sign to BRASS get access to the order flow on BNET and discounted access to BRUT as part of the package," Iati said. "That's attractive."

But Iati said one BRASS competitor, who he did not name, is telling clients that while a subscription to BRASS does provide access to BNET and BRUT, it potentially restricts the clients' access to other ECNs. These ECNs would presumably view order flow on BNET with a skeptical eye.

Indeed, The Tower Group's study warns: "By developing its own ECN, BRASS has possibly jeopardized its ability to access the order flow of other ECNs. If access is thus restricted, the very liquidity that is needed for BRASS to succeed will be compromised."

Greifeld dismissed the assertion and noted that BRASS implemented an electronic data connection about five years ago with the largest ECN, Reuters Holdings' Instinet. "We have had a long-term relationship with Instinet and other ECNs," he said.