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May 31, 2004

At Deadline

By Editorial Staff

FIX Protocol

*The FIX protocol is not going to win any popularity contests on the buyside, which appears to be in no hurry to start using it. The lack of consistency in FIX's deployment standard and the lack of connectivity are among the buyside's criticisms, according to an informal survey at TradeTech 2004. The institutional equity technology conference, which was held in Paris, found that these problems are also creating FIX skeptics among existing users.

Nevertheless, many trading industry players have a love/hate relationship with this controversial technology. That's because FIX has become a standard employed by many large firms. It is a critical technology for communicating pre-trade information for cash equities and has played a significant part in improved small order executions.

Options

*The Securities and Exchange Commission, which published a concept release on options trading, should let exchanges compete because the options markets have had lower margins and more vigorous competition between exchanges over the past four years. That's what the Securities Industry Association's Options Committee wrote in a comment letter.

"SIA does not believe SEC intervention to restrain exchange business models or practices is necessary to promote competition or improve execution quality for investors in the market," wrote Tony McCormick, chairman of the committee. And what about the controversy over payment for order flow? McCormick wrote that there is "no evidence to suggest a negative impact on quote competition and execution quality from such practices."

Algorithms

*J.P. Morgan has established an electronic trading desk. The electronic execution services group is providing J.P. Morgan's buyside customers with algorithmic trading tools. The algorithms were designed to minimize market impact and maintain relative anonymity. Users will be able to customize the tools and control the strategy of the stock execution. That includes price limits, aggressiveness and "price dependent speed of execution." The computer controls the details. That means deciding when, where and at what price to send each component of the order. The algorithms are the same type used by Morgan when executing proprietary statistical arbitrage strategies. Morgan has integrated its new algorithmic technology with an order management system sold by Charles River Development.

E-Suits

*E*Trade Financial and MarketXT Holdings are squaring off in two separate court cases. MarketXT sued E*Trade for $1.5 billion in a federal court in New York. E*Trade then counter-sued MarketXT for $120 million in the same court. The spat is over the 2002 sale of Tradescape Securities and other assets by MarketXT to E*Trade for $280 million in stock. MarketXT claims E*Trade made "material misrepresentations" to encourage MarketXT to sell. E*Trade then never paid, MarketXT said. For its part, E*Trade asserts MarketXT concealed poor volume and revenue figures. It also inflated its balances sheet with phony assets, according to E*Trade. "Numerous disputes have arisen between the parties regarding value and responsibility for various liabilities that were first made apparent following the sale. The parties have been unable to resolve these disputes," E*Trade contended.