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February 1, 2003

Data Trove for the Sector Trader

By Peter Chapman

Also in this article

  • Data Trove for the Sector Trader

The Platform for Keeping Tabs on Company Products

A new market data service is capitalizing on the movement towards sector-based trading on Wall Street.

San Francisco-based Sector Data sells a service that allows traders to quickly access detailed information about publicly traded listed and Nasdaq companies. It includes information about the competitors, suppliers and customers of these companies.

From broad industry categorizations, traders can drill down to the product level of nearly 3,700 companies in the healthcare, media, technology and financial services industries.

On its surface, the product, SectorEngine, is a standard market data offering, which provides quotes, news and charts. Click on a stock symbol, though, and a window opens up onto a dense trove of company data. That repository is called SectorBase, a high-end equity research platform underpinned by a patented classification system constructed by two frustrated West Coast portfolio managers.

The money managers found it difficult to analyze similar companies in such high-growth areas as healthcare and technology because of the inadequacies of government and private classification systems. So, they built their own hierarchy.

The core unit of the hierarchy is the product. SectorBase is broken down into 70,000 trade names in 16,000 product groups. "You really can't get an accurate view of the breakout potential of a company unless you understand the products and services," said Kevin O'Brien, Sector Data's chief operating officer. "So, rather than lumping companies into broad classification systems, these guys did the opposite. They went all the way down to the product level."

The standard government classification system is the Census Bureau's NAICS, or North American Industry Classification System. O'Brien says the system is accurate in its categorizing of old line industries such as railroads, but is "deplorable" when it comes to the fast-changing high-growth sectors.

Sector Data offers industry information on 9,000 North American companies. The approximately 5,300 companies that it doesn't classify are listed according to the NAICS hierarchy.

Sector Data was founded in 1998. Its original plan was to market SectorBase to investment departments as a research tool. In 2001, though, it launched SectorEngine and aggressively pursued trading desks. Its first customer for SectorEngine was Preferred Trade, a San Francisco brokerage owned by Sector Data's chairman and chief executive.

"The fastest penetration of the past three to six months has been on the trading floor," said O'Brien, "or with smaller institutions that want a quick view of the market during trading hours."

Traders want an edge, adds O'Brien. They want more insight into a company. SectorData has inked deals with the Pacific Exchange, First Options, and its sister company Spear, Leeds & Kellogg. The firm has also entered into partnerships with brokers offering direct access technology such as LaBranche Financial Services, Interactive Brokers and Preferred Trade. It is in talks with many of Wall Street's big trading shops, according to O'Brien.

To a large degree, Sector Data's new emphasis on trading floors is due to the enthusiasm for the product by its largest backer, chairman and chief executive Mike Engmann. Engmann, 52, a major options trading force on the West Coast since the 1970s, was originally a passive investor in Sector Data.