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April 30, 2001

Birth of an Industry

By Sanford Wexler

The SEC's "Disclosure of Order Execution and Routing Practices" could soon be generating revenue for several industry vendors. One vendor, Transaction Auditing Group (TAG), says it saw it coming. Demand for the firm's execution quality measurement software, has increased as a direct result of the new regulation.

"We have been ready to do this since the end of last year," said Alan Shapiro, president of the Northport, N.Y.-based firm.

The SEC is leaving it up to broker dealers to decide how to disclose the trade data their executions generate. Vendors, such as TAG, are jumping in to extrapolate, organize and present the massive quantities of information to the general public.

Broker dealers are required to release the data on execution statistics via a free Web site, but it does not have to operate their own. Broker dealers can link their data to a site offered by others. The challenge for the broker dealers, said Shapiro, is producing an accurate source file.

Another vendor offering execution monitoring services is Mantas, a unit of SRA, an information technology consulting firm in Fairfax, Va. (Mantas is likely to be spun off as an independent company in the coming months). Mantas, which is versed in execution analysis, joined forces with Merrill Lynch developing the Best Execution Analysis and Monitoring (BEAM) system. The BEAM system is now offered by Mantas as part of its best execution and monitoring module to all of its customers.

"We will be offering reporting for SEC Release 11ac1-5 and SEC Release 11ac1-6 later this year," a Mantas spokesman said.

Two firms in a position to enter the disclosure field are the online broker ranking firms Gomez Inc. in Waltham, Mass., and Keynote Systems in San Mateo, Calif., according to industry pros. But for now, both are remaining on the sidelines. "It's not a business that we are in right now," said Dan Berkowitz, a Keynote spokesman. Alyssa Sibley, a senior analyst at Gomez, said the firm is "definitely interested" in the statistic generated by the new SEC regulation. "Once we do have the monthly reports, it's something that we will definitely be looking at," she said.

Nasdaq, for its part, announced a new reporting service that will "collect, compile and web host [firm's] Rule 11Ac1-5 required reports through"

Most individual investors are unlikely to dissect the huge mountains of data. Instead, the data will likely be dissected by analysts, consultants, broker dealers, and the financial press. One upshot may be advertisements for individual firms touting their best execution' and price improvement' rates.