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December 1, 2003

Keeping a Score for Traders

By Peter Chapman

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  • Keeping a Score for Traders

A Database That Keeps Track of Customer Business

Database technology that was once the sole province of wealthy bulge bracket firms is now being packaged for sale to small and mid-sized brokerages.

A vendor called Xtiva has introduced a database system for institutional brokerages that tracks the business a firm is getting from clients, as well as each employee's contribution towards that business. The tool allows managers to see which customers and employees are carrying their weight and which are not.

Large broker dealers have long had the resources to build information systems that tell them how much in commissions and credits their buyside customers are generating and the staffers to credit for the business. Smaller firms are equally interested in the data, but have had to rely on starchy reports cobbled together by hand from various systems. The process is inefficient, error-prone and produces reports often of limited value.

Xtiva, which started out in 1995 selling software that tallied payouts for retail reps, experienced the anguish firsthand. "Typically, they are housing their transaction information in disparate systems," said Bill Sterling, an Xtiva product analyst. "They haven't had one good spot from which to retrieve it. We are able to consolidate it in one database and do a number of things with it."

The San Francisco-based shop at first jury-rigged its retail platform to handle institutional commissions, but last year overhauled the system. The vendor now markets two different systems, one for retail, the other for institutional. It counts 20 customers in the institutional space including Thomas Weisel Partners, its first, C.E. Unterberg Towbin, and Friedman Billings Ramsey. All are small and mid-sized firms.

"Top tier firms, because of their wherewithal, tend to have better systems across the board," said Tom Moysak, vice president of sales at Xtiva. "But we can do it more cheaply." All Xtiva's institutional customers access its technology on an ASP, or time-share basis.

As with all databases, Xtiva's system performs two basic tasks: it sucks in data and spits out reports. Inputs can be categorized as either internal transaction data or external "value-added" data. Transaction data comes from the brokerage's back office systems or from its clearer's system. External data includes such pieces as research votes, commission and share volume rankings, travel and entertainment expenses, and trading profit and loss figures.

All that data is then combined with certain "coverage rules" to produce a record of the amount of business done by a specific client over a given time period with certain employees in a given stock. A coverage rule is built from such variables as client, employee, name of stock, start date and end date. Typically, the employees are research sales execs, sales traders, analysts and market makers.

Sales Trader

Managers can mine the database to determine the effectiveness of their firm's sales and trading program. Thus, for example, they could zero in on the amount of commissions Fidelity Investments did with Charley the sales trader in IBM this year as compared to last year.