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August 31, 2001

Cooperating with Competitors

By Editorial Staff

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  • Cooperating with Competitors

When Goldman Sachs pur chased Spear, Leeds & Kellogg last year it acquired more than its trading prowess. It also snagged some popular direct access technology. Spear's REDIPlus is used by the small broker dealer customers of Spear's clearing division to access news and quotes, track positions and route orders to the listed and Nasdaq markets. It is being revamped to appeal to Goldman's institutional clients. Neil DeSena, managing director of Spear, Leeds' REDIProducts division and Duncan Niederauer, a Goldman managing director now working in the SLK division, discussed the initiative with Traders Magazine's Peter Chapman.

Traders: Why is a top block trading house like Goldman helping its customers bypass, in many cases, its own trading desks?

Niederauer: It's unrealistic for firms like Goldman to expect clients to do business with us only in a high-touch, high-cost, high-service fashion. In other words, in an environment where sales traders interact with Nasdaq market makers and block traders, all for five cents to six cents per share.

Traders: The buyside wants more choices?

Niederauer: Over time, clients have directed some of their business through direct access pipes to the NYSE; some goes through ECNs. They've figured out ways to divide up their volume. They will tend to execute it at many different price points in many different ways - from requiring really high-touch services to low touch.

So we thought it a pretty powerful combination to offer our buyside clients a best of breed suite of execution services. We have high-touch complicated products that require capital commitment as well as high-speed, very efficient direct access to the New York Stock Exchange.

Traders: And that's REDIPlus?

DeSena: REDIPlus gives institutions direct electronic access to the New York and the Nasdaq markets. It also lets them route their orders to any upstairs trading department of their choice. That includes the desks of Goldman Sachs and Spear, Leeds as well as of any broker dealer willing to connect to REDINet.

Traders: REDINet?

DeSena: REDINet is the order routing network within REDIPlus. The REDIPlus system has, of course, always incorporated an order routing network. But for this initiative we've broken it out and labeled it REDINet. REDIPlus is the front-end. REDINet is the network. For those who would rather connect to REDINet through their own order management systems, we offer a FIX API and a proprietary FIX engine. We believe some customers will want to connect their OMSs directly into REDINet rather than use REDIPlus.

Traders: Which systems can they access at the New York?

DeSena: Institutional Xpress, Direct+, the BBSS, and SuperDOT. A lot of this will be [matrix] table-driven. For example, an order of 10,000 shares or less might go to SuperDOT while a large order for, say IBM, would go to a particular floor broker. The trader or the manager will pre-program the destination.

Traders: How about NYFIX, the competition to BBSS?

DeSena: We're thinking about it. We actually have a link into NYFIX, but we haven't instituted it. If one of my customers says he wants a link to NYFIX, we'll go live with it.

Traders: Will REDIPlus route to every floor broker on the BBSS?