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April 30, 2001

A Connection Everywhere

By Editorial Staff

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  • A Connection Everywhere

Salomon Smith Barney and Fidelity Investments made financial history in the mid-90s when the two Wall Street giants linked their trading systems using a common communications protocol.

Jim Leman, celebrating his 20th year at Solly, made the landmark linkup possible. His creation of the FIX, for Financial Information eXchange, protocol swept away the multitude of brokers' proprietary terminals clogging buyside desks. FIX made it possible for buyside traders to send orders, and receive indications of interest and confirmations through a single order management system.

Now a Salomon managing director in charge of global electronic trading and connectivity, Leman's foresight helped enormously in the creation of the buyside order management system industry, and presaged the current boom in buyside-sellside electronic connectivity.

Peter Chapman at Traders Magazine caught up with him for this interview.

Traders: What's your goal at Salomon?

Leman: My overall objective is to get every customer to electronically control every order and exchange of information between us. That does not mean they must send every order electronically. By electronically exchanging information we can cut down on transcription and typographical errors. It will also facilitate things like the electronic delivery of allocations and confirmations, both in the dollar and the non-dollar space. My goal is to get customers wired up to us.

Traders: Why is connectivity so important?

Leman: The idea is to leverage the human capital on both the buyside and the sellside as much as possible by taking away mundane or routine things that a computer can do just as well. The smaller stuff doesn't need as much attention as the more "chunky" or difficult-to-execute orders. You don't make a lot of money by making transcription steps, but you can lose money by doing it wrong.

Traders: Doesn't connectivity mostly benefit the sellside by cutting down on telephone calls?

Leman: The buyside will benefit whether they are pulling in a lot of assets or just trying to control their operating expenses. Some firms are looking to grow their asset base or deal with more complex products, but maintain their existing staff. Others are steady with their assets, but need to get control of their expenses. As an example, Fidelity found value in just getting liquidity information by better integrating indications of interest. Then they found that immediate notification and confirmation of orders by their brokers saved on error costs. Buyside traders' days are not just spent getting best execution. Many must deal with soft dollars; plan sponsor business; volatile markets; a deluge of orders; and a lot of different portfolio managers.

Traders: You were to speak about OMSs at a now-cancelled conference. What does a sellside guy know about OMSs? Why do you get involved?

Leman: Connectivity is no longer a novelty when it comes to selling an OMS. Today, it's a prerequisite. As a broker, we need to test with vendors. We need to be connected to the right networks. We need to talk to the vendors about their new customers. We need to understand what they do because customers come to us for advice.

Traders: What are the important points?