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September 30, 2003

ITG Raises Direct Access Stakes

By Peter Chapman

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Turning to a Greek God for Smooth Sailing

Investment Technology Group is gambling on new products to keep it ahead of direct access competitors.

The trading systems pioneer is replacing its aging QuantEx and ITG Platform systems with new program and single stock trading front-ends. The upgrade comes as ITG reports sharply lower share volumes and revenues in its client site,' or direct access division.

A product called Triton is the next step in its program trading platform, said Mark Wright, an ITG managing director in charge of direct access and consulting services.

The replacement of the Unix-based QuantEx and the Windows-based ITG Platform - with a single Windows-based system - has been on ITG's drawing board for the past few years. Although Quantex came first in 1991, ITG Platform has attracted far more customers because of its easier-to-deal-with Windows technology. ITG counts over 500 users on ITG Platform, but only about 130 on QuantEx.

Front-end technology is so-called because it permits traders to enter orders, monitor prices and executions, and to analyze data.

Triton, named after the Greek God of the Sea, is Windows-based and was built on an open architecture. That allows customers to plug their own applications, such as Excel spreadsheets, into Triton. That can make Excel, in effect, an extension of Triton, through which traders can run Triton's trading models.

ITG also has integrated its vaunted pre-trade and post-trade transaction cost analysis technology (TCA) into Triton. For the past year or two, program traders have lobbied vendors for built-in TCA. They want to be able to assess their implicit costs quickly and without having to fiddle with a separate system. Until recently, most vendors, including ITG, offered TCA as a stand-alone product.

With the integration, Triton users can select a few rows from their blotters, click the TCA button and view their pre-trade and post-trade costs, estimated or otherwise. "The swivel chair is gone," Wright said. Traders no longer have to load their lists into a separate application.

Beyond that, traders can now pull those TCA values into their trading strategies. A Triton trading strategy, for example, can incorporate the pre-trade cost values in its determination of how quickly the trader should trade a given name.

Keeping up with the demands of the market is far more critical for ITG today than ever before. Ten years ago, as part of the Jefferies empire, ITG had most of the quants and indexers to itself. Today, the number of institutions firing off baskets has grown, but then so too have the number of vendors and brokers courting them.

Hot on ITG's heels are brokers such as Instinet, UNX and Spear, Leeds & Kellogg as well as vendors such as FlexTrade, Portware, InfoReach, and Belzberg. Half just entered the program trading space in the past few years.

Two of the oldest appear to be keeping pace with ITG on the innovation front. FlexTrade, for instance, recently began packaging transaction cost analysis into its popular front-end.

Spear, Leeds recently merged its program trading system, TradeFactory, with its REDIPlus front-end. The combined system offers both single stock and list trading. It incorporates TCA as well as sophisticated trading algorithms acquired when Goldman Sachs, SLK's parent, bought the Hull Group.

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