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July 31, 2003

An OMS Pricing Policy Is Shaking Things Up

By Peter Chapman

Eze Castle Software, in a move that's riling both the buyside and the sellside, is changing its pricing policy.

A top supplier of order management systems to the buyside, Eze is instituting transaction-based pricing for those customers who use its connectivity services. Customers will now be charged per share to route orders to brokers rather than per connection.

Eze's goal is to expand usage of its connectivity services by making it cheaper for some of its customers to connect to many more brokers. Now, a customer might only connect to those brokers receiving the bulk of its order flow, according to Eze president David Quinlan.

Eze is working with Spear, Leeds & Kellogg on the new deal. SLK, a unit of Goldman Sachs, will function as "billing agent," according to Quinlan.

Goldman, which also owns at least 20 percent of Eze, is said to be driving the Eze move.

Eze's success is not assured. It must convince the brokerages receiving the order flow to go along with the plan. They, in fact, pay the connectivity bill for their buyside clients in return for order flow. For many of the largest, the change likely means larger bills. In addition, they will be paying SLK, a unit of their rival.

One of Eze's biggest buyside customers is Boston Company. Head trader Dave Brooks says his firm is "not necessarily an ardent supporter" of the plan but believes it is "a fair way to price."

Eze has about 170 customers, mostly hedge funds. Around 60 percent use Eze's connectivity service, according to Quinlan.