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September 30, 2002

A Star Is Reborn: The Bank of New York's securities group has been recreated as a one-stop agency t

By Peter Chapman

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Goodbye BNY ESI. Hello BNY Securities. After spending the last five years building up its agency brokerage services, the Bank of New York is launching the finished product. The newly-christened BNY Securities Group boasts twelve divisions and 925 employees servicing money managers, plan sponsors and broker dealers around the world.

The BNY ESI moniker is scrapped. The decision to jettison the venerable ESI brand reflects the dramatic transformation of ESI & Co. since the bank bought it in 1997. From its roots as a 135-employee small-order electronic routing shop, ESI has blossomed into a full-service global player.

BNY Securities is now the country's fourth largest agency broker based on reported trades of listed securities. It trails only ITG, Bridge Trading and Instinet. BNY ranks 26th when matched up against all brokers, having traded 175 million shares in June, according to AutEx/BlockDATA.

The Game Plan

The new game plan is simple: Capture as many orders as possible by offering every type of agency execution possible. That means blocks and baskets -- both domestic and foreign. Soft dollars. Commission recapture. Transition management. Electronic order routing. Direct access to a New York Stock Exchange floor broker. Direct access to Nasdaq through its partnership with Bloomberg TradeBook. Electronic matching of Nasdaq and listed stocks, also through Bloomberg. Clearing.

All its competitors offer some of these services. None offers all of them. Instinet comes closest, but lacks an independent floor broker. ITG is famous for its portfolio trades and electronic matching, but does not service plan sponsors. Bridge Trading is known for connectivity and blocks, but lacks plan sponsor capabilities and international trading.

Joe Velli, head of BNY Securities and a senior executive vice president of the bank, said "breadth" is what distinguishes BNY from the pack. "Our intention is to offer all the different models," he said. "So no matter how an asset manager trades we can accommodate him."

Velli cites the recent purchase of Big Board direct access broker Francis P. Maglio as evidence of the strategy. "I don't want to trade with an upstairs desk," he said, echoing the words of a hypothetical buyside trader. "I don't want to trade electronically. I don't want soft dollars. I want to go right down to the floor of the New York Stock Exchange and talk to a trader."

The idea of a one-stop shop was first bounced around the Bank of New York's boardroom about seven years ago. At the time, the bank was already a major supplier to Wall Street of such backoffice services as custody, stock loan and fixed income clearing. The progression up the food chain of securities processing was considered a natural extension of those lines.

The bank, considered a "fee-based" bank by analysts, is grouped with such institutions as State Street, Mellon and Northern Trust. All derive the bulk of the revenues from fees for servicing Wall Street's backoffice needs. Interest income plays a lesser role. The Bank of New York has $80 billion in assets, making it the 16th largest U.S. bank.