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January 1, 2000

Faster Internalization Service Promised - Does Illinois Vendor Have a Bette

By Peter Chapman

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  • Faster Internalization Service Promised - Does Illinois Vendor Have a Bette

The latest product on the order management and trade routing circuit is promising a more efficient money-making machine than the competition.

The upstart TT Exchange, operated by Trading Technologies, matches incoming customer orders with traders' proprietary positions, or other customer orders. And TT founder and chief executive Gary Kemp says the product, with the backing of three investment banks, is off to a good start in the U.S.

"The primary dollar sign on the value chain of trading is proprietary trading," Kemp said. "We provide broker dealers with a more automated way to internalize much more order flow and, therefore, a way to make more money." Kemp declined to name the investment banks.

TT Exchange, slated to go live in April, will be banging heads with products such as the TCAM Service Bureau from OM Technology; BRASS from Automated Securities Clearance; Fidessa from Royal Blue; Eagle Trader from Spear, Leeds & Kellogg; and a similar technology from start-up Avnet.

These products provide automatic execution, order management, and position keeping, external routing, compliance and other functions.

TT Exchange is strictly a matching engine, however. It does not route orders outside the firm. (It could, therefore, hit a brick wall if it comes up against BRASS which offers connectivity to 150 market makers via its proprietary network, BNET.)

Of his three initial customers, Kemp said two will use it to internalize Nasdaq order flow and one will use it for bond trading.

European Player

Trading Technologies is best known in Europe for its front-end derivatives trading software that links upstairs traders with exchanges. (Trading Technologies, originally headquartered in Europe, has moved its main offices to Evanston, Ill.) Kemp was one of the key architects of Frankfort's Eurex, the largest, and fully electronic, derivatives exchange in Europe.

This is not Kemp's first foray into the equities market, either, as bulge bracket players Goldman Sachs, J.P. Morgan, Salomon Smith Barney and Deutsche Bank all use TT Exchange for equities in Europe.

Kemp says that securities firms in the U.S. will be more inclined to internalize their order flow now that decimal-based pricing promises to bring narrower spreads. That should help the sale of TT Exchange, he says. "They have to do more volume," Kemp said. "And to do more volume means to do all the matching and not let it go to a primary marketplace."

Trading Technologies will get paid when its customers get paid. The company enters into 10-year plus agreements with broker dealers, often charging on a per transaction basis, according to Kemp. He expects to earn anywhere from $50,000 to $1,000,000 per day from each deal.

Target customers are "the top 25 investment banks in the world," Kemp said. He also sees a market for TT Exchange at large mutual funds.

Electronic matching of orders is not new. "At TCAM, we built the very first trading system that matched orders in 1982," said Bijan Monassebian, a TCAM founder and now head of Long Island, New York's Avnet. "About 90 percent of orders are executed automatically today."