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June 30, 2004

An Attack on the King

By Peter Chapman

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  • An Attack on the King

Shaking Up the Indications Business

Competition is coming to the indications business.

Two small vendors, working on opposite sides of the Atlantic, are attempting to break the grip held by Thomson Financial's AutEx division on the distribution of indications of interest and trade advertisements.

Indii, a three-year-old start-up based in Connecticut, is launching the U.S. attack. Fix City, a London-based consultancy, is working with the U.S.'s TransactTools to establish a beachhead in the U.K.

"Everyone has decided the king is dead," says Marshall Caro, Indii's co-founder and chief technology officer. "The question now is: who is going to replace it?"

The question of whether AutEx is really dead' is debatable. Certainly, some of its offering is less relevant than in the past. But the vendor transmits nearly one million messages per day and, sources say, any attempts to dislodge AutEx face tremendous hurdles.

King AutEx has ruled the IOI roost for 35 years. Launched in 1969 at the dawn of block trading, AutEx provided institutional brokers and their customers with a pricing alternative to the New York Stock Exchange. Brokers could communicate their trading "interest"-including stock, side, price and quantity information - to buyside traders without revealing their intent to the floor.

The service, which was bought by Thomson in 1985, includes post-trade advertising. Upon completion of a trade, a sellside desk will report the number of shares to AutEx. The data is then broadcast to AutEx subscribers. Known as BlockData, the service helps buyside traders find the axe in a particular name. (Thomson is an affiliated company of Thomson Media, the publisher of Traders Magazine.)

AutEx's control is not total. Bloomberg and Reuters both transmit indications and advertisements as part of their market data services. But the two don't have all of the business. Every message sent by a broker via a service goes through AutEx. Only some of those messages also go through Bloomberg or Reuters. Therefore, a busy buyside trader is more likely to consult AutEx and ignore the rest.

The last big challenge to AutEx came in the mid-90s. Then the FIX communications protocol made it possible for brokers to send indications (but not advertisements) directly to their customers. AutEx lost considerable message traffic.

Still, today, the vendor boasts traffic of one million messages daily. About 300,000 are known as supers'- the more detailed IOIs. Most of the rest are advertisements. AutEx claims 300 broker dealers and 500 money managers worldwide on its network.

Despite the importance of trade messaging, traders on both the sellside and the buyside have long complained about the structure of the system. The brokers gripe about AutEx's pricing. The buyside grumbles about the value of incoming messages.

AutEx charges both the sellside and the buyside, but it is the sellside that pays the lion's share. Annual AutEx bills can range into the seven figures for the largest shops. AutEx charges the sellside between 11 cents and 55 cents per message, sources say. Some low-volume users can pay up to one dollar per message. AutEx declined to comment.

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