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May 31, 1999

Jefferies' Indications Tool Preserves Role of Trader

By John A. Byrne

The creators of a new web-based institutional equity trading system say they have fused new technology while preserving the primacy of the oldest tool in trading history - the human being.

The result is @Harborside, a system which anonymously connects natural buyers and sellers of shares by sending out indications, while leaving negotiations in the hands of @Harborside-affiliated traders.

@Harborside is sponsored by Los Angeles-based Jefferies & Company, which is pitting itself against a number of firms with similar goals.

Several firms contend they have developed new tools for efficiently handling block trades, which can be difficult to work. The OptiMark trading system, for instance, aggregates orders anonymously. Most recently, Bloomberg Tradebook launched an indications tool called Touch.

Traders on the buyside sometimes complain that conventional indications are often used to fish out order flow. These indications are typically advertised on electronic networks. In other word, there is no natural liquidity associated with the indications.

Unique Alternative

@Harborside said it is providing a unique alternative to rival systems, bringing together customers in a mating ritual that requires a separate Jefferies & Company sales trader on each side to negotiate the exact price and size. The trader will know his customer's identity but conversely, customers will not know the identities of their counterparties. Jefferies, which employs about 125 sales traders, crosses about half of the orders it is sent, according to AutEx, the Boston-based provider of block trading data.

Commisions

About 100 institutions are expected to access @Harborside in the first year, reaping a potentially lucrative stream of commissions for Jefferies & Company. The system is the brainchild of Richard Holway, formerly head of equity trading at Investment Advisers, a buy-side firm in Minneapolis.

Since leaving Investment Advisers, Holway fulfilled a dream he earlier brought to the attention of John Shaw, who heads up Jefferies & Company's equity sales and trading.

Secure

Holway, now a product manager of @Harborside in Boston, said the system securely locates natural counterparties who have indicated an interest in a security.

"The institutions are introduced through their respective brokers at Jefferies, who then represent them in classic negotiations on a block of stock," he added.

Rory Corrigan, a 25-year Jefferies' veteran and regional institutional sales manager out of New York, said that if enough customers use @Harborside it will enhance the price discovery process. The system went live on May 27.