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May 31, 2004

Pricey OMS Vendor Attracts Attention

By Peter Chapman

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  • Pricey OMS Vendor Attracts Attention

It's the most expensive buyside blotter on the Street - and traders are snapping it up.

LatentZero, the new kid in buyside order management, is trumping many of its more established competitors with technology typically found on the sellside. Its Minerva trading and order management system can cost several million dollars, but it is edging aside older software.

"We are seeing a transition away from companies with an existing client base that have not moved on from a product perspective," said Dan Watkins, LatentZero's co-founder. "We are one of only two companies moving on from a functional perspective."

The other one is Charles River Development, according to Watkins, but Linedata Services is not far behind. Longtime market leader Macgregor doesn't rate a mention.

In fact, in two very large Minerva deals recently, Macgregor's technology was given the heave-ho. State Street Asset Management replaced Macgregor's system with Minerva in February. An unidentified New York money manager did the same last month.

Rebuilding

"Macgregor appears to be in a rebuilding phase," noted TowerGroup analyst Gavin Little-Gill. "They've fallen off the radar." Little-Gill confirms the top players are now LatentZero, Linedata and Charles River.

LatentZero, a British firm, launched Minerva just two years ago. Today it claims about 13 clients. That compares with approximately 90 using Macgregor systems and 70 apiece for Charles River and Linedata. These firms are between ten and 15-years old.

LatentZero got its foot in the proverbial door selling a compliance engine called Sentinel in 1999. At that time there was no sophisticated compliance technology for the buyside. Nasdaq market makers had their orders vetted in systems from SunGard and royalblue, but the buyside was still using pen and paper.

Compliance engines analyze orders to make sure they do not breach client and regulatory requirements. They are used chiefly by portfolio managers in the practice of risk management.

Goldman Sachs Asset Management was the first Sentinel customer. Now about 34 are using the technology. With the money it earned selling compliance, LatentZero developed Minerva.

The original plan, according to Watkins, was always to roll out an order management system for the buyside. Watkins and co-founder Richard Jones were IT execs working in Asia for the brokerage house Jardine Fleming. That's when they thrashed out the LatentZero business plan. Watkins oversaw technology for both Jardine's sellside and buyside divisions in Tokyo. Jones was in charge of buyside technology in Hong Kong.

Watkins' unique perspective came in handy when it was time to implement an order management system for Jardine Fleming Asset Management. There was nothing suitable for purchase so they adapted the system used by the brokerage division.

That experience informed the design of Minerva. The system layers a real-time' messaging architecture on top of the central database. So, data does not have to go through the database to get to where it is going. That's how it works on the sellside. On the buyside, data typically travels through a database. "I'd long thought the buyside was underserved from a technology perspective," said Watkins.