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April 1, 2003

Consolidating Fragments

By Editorial Staff

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Fragmentation is a dirty word to some pros, but not to Rich Korhammer. Where others see an excess of trading centers, he sees opportunity. Indeed, he built a successful business consolidating - onto one screen - data from nearly every ECN, alternative trading system, exchange, display facility and order matching system.

The technology of Korhammer's Lava Trading, Inc. gives traders a panoramic view of both Nasdaq and listed markets. And it provides fast, direct access to the various trading points.

Lava's ColorBook does two things: It consolidates all the market data into a single feed. And it routes out orders from front-ends, order management systems, proprietary systems or trading programs.

Korhammer claims his technology is used by 16 of the top 20 investment banks and accounts for 20 percent to 25 percent of total Nasdaq volume. He has about 100 customers. The majority of them are on the sellside.

It's been four years since Lava pioneered direct access for the professional trader. Other front-end vendors are nipping at his heels. Most cut their teeth on the now moribund daytrader sector and desperately need to crack the upper echelons of trading. Korhammer dismisses their offerings as inadequate, but is still concerned enough to sue one vendor for patent infringement.

Peter Chapman, technology editor at Traders Magazine, recently caught up with Korhammer.

Traders: Some say the Nasdaq market has become more fragmented since the debut of SuperMontage with ECNs striking out on their own. How do you see it?

Korhammer: I see it as competition. Fragmentation assumes something is broken and needs to be fixed. But being fragmented' is a problem. Competition is healthy and competition is capitalism. Those who have the most to lose will try to convince people it is a fragmented market. When you go into a store and walk down the aisle, you see all the different cereals on the shelf and you get access to them... Is that a fragmented marketplace or a competitive marketplace?

Traders: And in the trading world?

Korhammer: When you use Lava's technology, it is not fragmented. It brings the marketplace into one area. Before SuperMontage came out we told our customers it wouldn't change anything for them. They would still have access to all the ECNs. So nothing has changed for our customers.

Traders: Some traders, even those with Lava-like technology, call the market fragmented because they must constantly decide upon which one to trade.

Korhammer: Sure, it's like deciding which 87 octane at which service station might be of better quality or the best price. Do you have time to go around to every service station to find out who is charging the lowest price? Competition does include choices. Choices may mean people must make decisions and learn what best serves their needs. Traders are paid to know where the best pools are.

Traders: O.K.

Korhammer: Competition helps to keep prices down. That is not to say competitive forces don't have some problems, in and of themselves. But at the end of the day, the benefits far outweigh whatever complications or choices people have to make.

Traders: How much Nasdaq volume do you do?

Korhammer: On a light day, a quarter billion shares. On a medium day, one-third of a billion.