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March 1, 2002

Stock Systems Link Foreign Marts: Direct Access From Singapore to Switzerland

By Peter Chapman

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Foreign stock markets are just a mouse-click away.

With the recent launch of State Street Global Management's Equity Connect, at least half a dozen agency brokers and vendors now offer direct access to electronic exchanges outside the U.S. Traders can use their own keyboards to hit bids, lift offers or set prices instantaneously on over 20 exchanges from Singapore to Switzerland.

No-frills systems emphasizing fast access compete with fatter front-ends offering full depth of book quotations. Obscure outfits such as Electronic Global Securities and big names such as Instinet are plugging their networks into new markets daily. Users are on both the buyside and the sellside.

The push to link traders with multiple markets coincides with the tremendous boom of U.S. investment in foreign equities and the even greater surge of funds flowing into U.S. stocks from overseas. The Securities Industry Association estimates U.S. investors bought $3.6 trillion worth of foreign equities in 2000, double the amount just two years earlier. In the same period, foreigners increased their purchases of U.S. stocks from $3 trillion to $7 trillion.

The following companies are among the most visible players in the U.S. offering direct access to world markets. (Six are agency brokers. One is a software vendor.) All offer at least some connectivity to U.S. markets as well.

Electronic Global Securities

In business just two years, EGS' specialty is Asia. Via its COMET front-end, the Cayman Islands-registered broker gives its hedge fund clients direct access to markets in Japan, Hong Kong, Singapore, Australia, London and the U. S. Taiwan and Korea are in the works.

Most of its 26 clients are based in Asia, but the release of COMET version 3.0 has given EGS the confidence to ramp up a sales effort directed at U.S. traders. Co-founder Shams Karim says version 3.0 is a major improvement over version 2.0 which only offered direct access to a small group of securities.

Karim, who runs EGS' San Francisco office, and co-founder Tom Ashworth, who runs the Hong Kong office, are graduates of Morgan Stanley's derivatives units in Hong Kong and Singapore. With major backing from the large retail brokerage, Kimeng Securities, they started EGS to capitalize on what they saw as a lack of direct access technology for the institutional trader.

COMET's functionality includes basket trading, VWAP, time-slicing, blasting and allocations. The system does not provide a look at all the quotes on the exchanges, the so-called full-depth of book. "Too expensive," said Karim. Apparently EGS customers don't mind. They want speed of execution above all. They can get quotes from their Bloomberg terminals.

The system is browser-based. That means clients send their orders to EGS over the public Internet. Once there, however, they go out over dedicated lines to EGS' executing brokers. Clients, according to Karim, accept the risks inherent with the Internet in return for a light and fast trading system.

EGS is not a member of any exchange but works through introducing brokers. Karim says there is no loss of speed or efficiency in going through a third party system. Clearing in the U.S. is handled by Investec Ernst.

Interactive Brokers