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January 1, 2001

Machine Liberates Multi-Tasking Traders: Software Is Designed to Monitor More Stocks With Fewer Pr

By Peter Chapman

Also in this article

  • Machine Liberates Multi-Tasking Traders: Software Is Designed to Monitor More Stocks With Fewer Pr

Two vendors are pushing a technology that monitors the market for traders.

Neovest and Vhayu Technologies are competing to sell market-scanning software to market makers and proprietary traders. Their products track every trade in every stock and alert traders to significant changes in price and volume as well as news. Traders can use the technology to monitor the less-active stocks on their pads, freeing them to concentrate on the big-movers.

"Desks can watch more stocks with fewer traders," said Scott Gietler, vice president of business development at Los Gatos, Calif.-based Vhayu (pronounced vy-u) "They don't have to watch the market all day. We can tell them when something happens," he added.

With many broker dealers planning to increase the number of stocks they trade but facing a shortage of experienced traders, the two vendors (among the most prominent in their market space) may be in the right place at the right time.

Merrill Lynch, for example, initially planned to build up its market making capacity from within. But tight labor conditions reportedly forced the retail giant to reverse course and buy wholesaler Herzog Heine Geduld. Competitors Morgan Stanley Dean Witter and Salomon Smith Barney have both indicated they will boost the number of stocks they trade into the thousands.

Rob Trimmer, director of sales at Atlanta's Neovest and a former coverage trader, says vanishing spreads and market volatility compel a market maker to manage positions aggressively. He adds that cost-conscious banks buying brokerages are pushing traders to handle more stocks as well.

"A good trader used to handle a couple of dozen names," Trimmer said. "Now he's being asked to trade twice that many."

Great Start

Neovest hit the ground running when, shortly after it was formed in late 1999, it landed the biggest fish - Knight Trading Group - as a customer. Knight not only picked Neovest's flagship product, also called Neovest, but also took an undisclosed stake in the vendor.

Knight has installed the software in its trading rooms in Jersey City and London and plans to do the same in its New York, Tokyo, Chicago and Boston locations.

"We picked Neovest because it can sort through 18,000 securities in real-time and give off patterns of activity that allow a trader to identify movements in his or her securities," explained Bill Karsh, a senior vice president in charge of business development and operations at Knight and a member of Neovest's advisory board.

"It allows our market makers to trade intelligently enough not to be on the wrong side of the market," Karsh added.

Trading Teams

Trading teams at Knight typically handle 50-80 stocks and consist of one senior trader with two or three assistants. Knight claims to trade 18,000 stocks.

Neovest, the result of a merger between a small Atlanta agency broker called Volume Investor with First Alert, a Provo, Utah, software vendor, has also inked a deal with Merrill Lynch's soft dollar division, Citation Group, to market to Merrill's buyside customers.