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May 31, 2003

A Royal Battle in the OMS Market: U.K. Supplier Is Shaking Things Up In the U.S.

By Peter Chapman

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  • A Royal Battle in the OMS Market: U.K. Supplier Is Shaking Things Up In the U.S.
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Will Royalblue eat a rival's lunch? Royalblue, the number two supplier of Nasdaq order management systems, says it plans to overtake the number one supplier, SunGard Trading Systems, at the upper end of the market. Royalblue Financial's recent win at Bear Stearns signals the U.K.-based vendor may have the wind at its back.

The deal with Bear puts Fidessa, Royalblue's OMS, in three of the top 15 Nasdaq trading rooms. The other two are Banc of America Securities and RBC Capital Markets. Meanwhile, Merrill Lynch is using Fidessa on its listed desk and is pilot testing the system on the all-important Nasdaq side.

Merrill's Nasdaq desk is likely to take the system sometime this year, according to sources at Merrill. A spokeswoman for Merrill declined to comment on its plans, noting only that on its Nasdaq desk the system is still in testing.

Execs at Royalblue say they are in talks with at least two other "very interested" big East Coast shops. They won't mention names, but likely candidates for Fidessa are UBS Warburg, CS First Boston and Lehman Brothers, according to people familiar with Royalblue's potential customer base in the U.S.

If Royalblue does end the year with six large accounts it will surpass SunGard in trading's upper echelons. That's because, at most, only 11 of the top 15 brokers are up for grabs. The other four - Goldman Sachs, Morgan Stanley, Citigroup, and Schwab Capital Markets - all use proprietary systems.

In a blow to SunGard, Morgan Stanley, its second largest customer, dumped the BRASS order management system about six months ago.

Royalblue is winning converts among mid-sized broker dealers as well. SG Cowen, Adams, Harkness & Hill, BrokerageAmerica, SunTrust Robinson Humphrey, Sandler O'Neill & Partners, State Street Brokerage, specialists at the Chicago Stock Exchange and a few others are all now customers.

In addition, Royalblue is close to signing up two of Bear Stearns' biggest correspondents, according to Royalblue execs.

No matter how much headway Royalblue makes this year, SunGard will still reign supreme with the largest installed base of any vendor. Its BRASS service bureau is used by about 200 Nasdaq dealers.

But, in the OMS market, it is the number of terminals, not the number of firms, which determines revenues. Vendors typically charge brokers per terminal, or trader. And, of course, the largest shops have hundreds of traders and thus require more terminals. Royalblue's plan is to take the lion's share of the terminals, a move which would seriously hurt SunGard's revenue base.

"We don't really need 200 clients to take the industry," said Joe Chafatinos, executive vice president, new business development, at Royalblue. "If we take 20 firms [from SunGard] we have 40 percent of their revenue. If you take 40 percent of a firm's revenue, they're virtually..."

Extinct? BRASS has had a stranglehold on the Nasdaq dealer market for about a decade, but has been dogged by complaints over performance and service. Due to the complexity of building and servicing a Nasdaq OMS, though, not many have tried to compete with BRASS. Of those that have, most failed or made little headway.

Dominant Supplier