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September 30, 2002

SunGard's Survival Plan for Brut

By Peter Chapman

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SunGard is betting its acquisition of Brut will bolster its institutional trading ambitions and the profitability of the ECN.

The technology conglomerate bought the outstanding shares of the small alternative trading system in August for $50 million.

In acquiring the 78.5 percent stake, it took out a group of 25 broker dealers who founded Brut in 1997. SunGard has promised to pay the group up to $55 million more over the next two years depending on Brut's financial performance.

SunGard took control of Brut to shore up its competitiveness in an environment of declining prices, according to Mark Minister, the group chief executive for SunGard's brokerage and transaction operations. "To be competitive you have to be a low-cost provider," he said. "That is much easier to accomplish inside SunGard rather than as a stand-alone."

Remain Viable

Minister considers Brut more of a "technology play" than when it was founded. ECN rates were higher in 1997, permitting a small operation to survive. Now Brut needs economies of scale to remain viable. SunGard intends to leverage its skills of managing large systems to run Brut more efficiently. Minister did not discuss the possibility of layoffs. Brut has 62 employees.

The core Brut operation serving Nasdaq market makers will continue to be run independently under president Brian Hyndman. Hyndman will report to Minister. Hyndman's former boss, Richard Schenkman, has "retired," according to Minister. (Ironically, Minister, previously a Brut board member, was part of a three-person group that recruited Schenkman, a veteran of Instinet.)

Brut's 11-person institutional group, however, is being split off and combined with the SunGard Institutional Brokerage (SIBI) division. SIBI is SunGard's brand new seven-trader electronic agency desk based in St. Louis. It is headed by Jay Indovino, group chief executive for brokerage operations.

Indovino is part of the triumvirate, including Minister and SIBI's Jack Hornberger, that previously ran agency brokerage Bridge Trading in St. Louis. Last year, when Bridge Trading's parent, Bridge Information, filed for bankruptcy, the three men jumped to SunGard.

Indovino also oversees the SunGard Global Execution Services group, which includes a New York Stock Exchange floor operation and a London desk. Indovino reports to Minister.

The merger with SIBI is expected to strengthen Brut's "sponsorship" program. Through it Brut partners with over 60 broker dealers to bring in institutional order flow. Commissions are split with the brokers.

Minister calls the program an "interesting mechanism to help monetize the ECN commissions out there." Combining the two organizations will expand the number of people who can work with clients, according to Minister. "We think we can support it better," he said. "Before it was just an offshoot of Brut's broker dealer function. It was small. Here we have a group of pros."

Nasdaq Liquidity

Brut will be used primarily to access Nasdaq liquidity, Minister says, but can also be an avenue to listed liquidity. It is part of the Nasdaq InterMarket and offers DOT access as well.