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December 1, 1999

Industry Watch: Trading Population Bomb Confounds Some Experts

By Peter Chapman

Is the world of alternative trading systems (ATS) consolidating or expanding?

Some experts thought the long-awaited consolidation phase had started when the BRASS Utility ECN, also known as BRUT, announced it would merge with competitor ECN, STRIKE Technologies. But if they thought their merger would put an end to destructive competition, they were wrong.

NYFIX, of Stamford, Conn., announced it was applying to the Securities and Exchange Commission to start an ATS, dubbed NYFIX Millennium. NYFIX operates an order routing network linking sellside firms to exchange floors. The wannabe ATS claims that 100 million to 200 million listed shares pass through its lines daily. NYFIX initially wants to start trading in listed shares.

Meanwhile, Track Securities, an online New York-based brokerage affiliated with market data vendor, Track Data, announced plans to form an electronic communications network. Track Securities says it was partly encouraged by a low start-up cost.

A low barrier to entry does not guarantee order flow, however. BRUT and STRIKE are part of a pack of five ECNs duking it out in the shadows of the two dominant players, Island and Instinet. Their merger will allow them to move up in the rankings.

Sources say BRUT president Brian Hyndman will be top dog as STRIKE CEO Art Pacheco turned down a co-chairman role. Hyndman says some of STRIKE's technology will be incorporated into the new system. Ownership of the new entity would be split evenly between STRIKE and BRUT shareholders. The deal is slated to close by the end of the year.