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September 30, 2001

Extranets Answer Faster ProcessingStreet Watches As Tech Competition Erupts

By Peter Chapman

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  • Extranets Answer Faster ProcessingStreet Watches As Tech Competition Erupts

When elephants dance, so the saying goes, the ants get crushed. That hasn't happened yet to Transaction Network Services (TNS), but Wall Street's smallest extranet must now shimmy with three very large competitors.

Radianz, Savvis and Global Crossing Financial Markets all made their bows in the last two years with plans to wrest from TNS the business of transporting trade messages.

All four networks are now waging a fierce battle to link together as many banks, brokers, institutions, alternative trading systems and vendors as possible. Ultimate success lies with the firm which captures the most message flow.

All four hope to profit from the pressure Wall Street faces to process securities transactions electronically from start to finish. That's known as straight-through processing.

The vendors bill their service as a happy medium between the cheap, but unreliable Internet and the reliable, but expensive home-grown networks.

They are finding success. Many brokers are ripping out their proprietary networks and outsourcing the job. But the heightened level of competition is a far cry from 1999 when TNS itself was part of a giant telecommunications organization and faced a single struggling competitor.

That year, TNS, whose main business is transporting credit card transaction data, was acquired by PSInet, the large Internet service provider. The deal was to give TNS access to PSInet's plentiful bandwidth, but the marriage foundered when the two groups clashed over strategy.

TNS was never able to use the PSInet backbone partly because PSInet refused to give it the managerial controls it sought, according to Alan Schwartz, the general manager of TNS' financial services division.

Ultimately, the collapse of the technology and telecom sectors claimed PSInet as a victim. Forced into bankruptcy earlier this year, it sold the Herndon, Va.-based TNS to a private equity firm.

TNS is now flying solo. A small 12-person-financial services division serves 500 customers. It last disclosed revenues of just $5 million for the first nine months of 1999.

Although it dominated the financial extranet business in 1997 when it took over the network operations of agency brokerage ITG, it must now contend with the sprawling networks of Radianz, Savvis and a refocused Global Crossing. Those organizations boast thousands of users because of their relationships with the market data firms, Reuters and Bridge, and the SWIFT clearing network, respectively.

Size Not Issue

Schwartz insists size is not the issue. "Our network only carries mission-critical transaction-based products - indications, executions or something surrounding that," he said. "We don't do things that attract the low-end market. That means our clients are sitting with a high-availability, focused network."

For Schwartz, data is either high-end or low-end. Orders and IOIs, the meat and potatoes of the trading desk, are high-end. Market data, voice, video, e-mail, etc. are low-end. Too much down-market traffic jeopardizes the smooth flow of high-end traffic, says Schwartz.

TNS' competitors don't see it that way. Their orientation is "down-market," but their goal is up.