Commentary

Elaine Wah

Modern Markets, Modern Metrics - A Blog By IEX

In this blog by IEX's Elaine Wah, the newest public exchange looks to refute public claims that the metrics it uses are designed to inflate its own volume numbers and mislead people.

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August 31, 2000

BRUT Loves UMA

By Peter Chapman

SunGard's entrant in the ECN sweepstakes, BRUT, was an also-ran for its first two years, struggling to attract trades. Then BRUT met UMA.

UMA is the Universal Market Access system, a quote management front-end that competes with Nasdaq's NWII product. SunGard launched UMA in April 1999 chiefly to help traders comply with their obligations to display limit orders. But, in a clever combination of engineering and marketing, SunGard integrated it with BRUT, its majority-owned electronic communication network. Nasdaq dealers could now access an ECN without taking their eyes off their markets.

SunGard introduced UMA to help BRASS-users avoid accidentally deleting a customer limit order BRASS has automatically reflected in their quote. On busy days a trader using NWII may think the quote an error and change it. In eliminating the limit order he violates the Securities and Exchange Commission Order Handling Rules. But if he uses UMA a pop-up window lets him reinstate the limit order. NWII provides no such recourse because it merely interfaces with BRASS.

That feature alone may be worth the price of switching from the Nasdaq standard. But since that price is zero (UMA is free to BRASS users) SunGard banks nothing. The profits come with BRUT.

SunGard licensed UMA to BRUT which largely took over the marketing of the front-end. It became a crucial tool for BRUT salespeople. UMA obviates their need to convince the trader to put another terminal on his crowded desk. He doesn't have the space nor the inclination to shift his attention from his quote screen. But if he replaces his NWII with UMA he doesn't have to. He gets both better limit order control plus an ECN.

"BRUT is now integrated into the trader's main tool," said Bob Greifeld, a senior vice president at SunGard and former president of the affiliate that operated BRASS. "That's a powerful reason for the BRUT salesforce to push UMA." Push they did. About 110 firms now use UMA and most subscribe to BRUT. Volume on the ECN soared 90 percent in the final quarter of 1999 over the previous quarter to a daily rate of 23 million shares, according to a report from Chase H&Q. It now stands at about 40 million shares per day.

Easy access, however, only partly explains the surge in BRUT's volume. Anonymous trading between market makers is what sets BRUT apart from the rest of the ECN pack and is a key factor in its success. Market makers place an order on BRUT which then sends a replica over SelectNet to a quoting counterparty. Only the BRUT I.D. is given up. The user remains unknown, but pays BRUT a fee for the privilege.