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September 30, 2001

Day Trader Woos Institutional Pros Direct Access Broker Wants Specialists' Respect

By Brian O'Connell

Also in this article

  • Day Trader Woos Institutional Pros Direct Access Broker Wants Specialists' Respect
  • Page 2

Trading professionals smirk when they hear the term day trader.

But the technology of day trading is no laughing matter. The institutional pros should turn it into a money-making opportunity.

That's the view of Terra Nova, the Chicago-based direct access, online trading broker, a mostly retail outfit that is eyeing the NYSE and Nasdaq institutional trading community.

The institutional part is a big transformation for a company that cut its teeth building electronic trading platforms for the day or direct access' trader since inception in 1994.

What's more, an alliance with Townsend Analytics, Ltd. provided early customers, such as SOES traders, with quote information and a seamless order routing interface to Nasdaq. That eventually led to the day trading service currently operated by Terra Nova.

Terra Nova also co-created Archipelago, which has grown into one of the world's largest ECNs as measured by share volume. Terra Nova's customers -the company calls them professional traders' - can execute trades on five exchanges and five ECNs. Terra Nova Online offers one of the lower Archipelago rates and is one of the few firms that provides direct access for option orders.

In anticipation of a bigger push into the institutional market, which currently comprises about 25 percent of its volume, Terra Nova has acquired two trading firms. These purchases give Terra Nova more access to trading markets, including more links to several ECNs.

Terra Nova purchased, Inc., a trading firm for active traders based in Richardson, Texas. That brought Terra Nova 1,000 new retail-size accounts, while fortifying it financially for its institutional approach. To hold onto its traditional customers, Terra Nova had previously merged with Market Wise Securities of Bloomfield, Colo., a direct-access broker dealer and the operator of Market Wise Stock Trading School.

More importantly, earlier this year, Terra Nova rolled out trading in New York Stock Exchange and American Stock Exchange securities via the Island ECN. That meant Island orders could include all listed

stock symbols - including exchange-traded index funds like QQQ, DIA, SPY and others.

By adding the Island-listed route to the existing ECN choices of Archipelago and Instinet, Terra Nova aims to provide a comprehensive solution for all types of traders who use ECNs as a primary execution point.

But can Terra Nova grow beyond a day-trading outfit and provide market makers and specialists with unique tools?

"I'm not so sure," said Scott Hein, professor of finance at Texas Tech University and a longtime follower of institutional trading markets. "Floor traders already have a lot of the things

that Terra Nova offers, if not at their price range. I suspect that the company may be targeting institutional traders because its day-trading base has bit the dust. Whether that's a good deal for traders or not is hard to say."

Terra Nova defends its strategy. "Traditionally our firm has been devoted to retail, Internet-based traders," said David Nassar, president and chief executive of MarketWise Securities and Market Wise Trading School. "But now we are heading toward professional traders who trade for a living. Institutional investors are interested in our single source trading system that gives access to multiple points of liquidity."