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June 30, 2004

A Silver Lining for IOI Vendor?

By Peter Chapman

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There aren't many 35-year-old electronic trading services. In fact, there's probably only one. AutEx, a quote advertising medium of Thomson Financial, was established in 1969 and is still going strong. The vendor took a big hit with the advent of the FIX protocol in the mid-90s. But it is still billing the bigger trading houses in the six and seven figure range every year.

FIX let brokers bypass the AutEx network and send their indications of interest directly to the buyside. Indications, or IOIs, are invitations to trade that note stock, side, and with "supers," price and quantity.

IOIs are one of three AutEx services. The other two are trade advertisements and order routing. Advertisements, sent post-trade, are of size. They let brokers brag about their trading prowess and help to attract more business. AutEx's order routing service lets buyside traders send orders to brokers and brokers return reports.

FIX didn't completely kill off AutEx's IOI business. About one-third of the million messages flowing through its system every day are supers. But most of the rest are advertisements. Because of the limitations of the AutEx terminal, most buyside traders use the service strictly for the advertisements and to get recaps of previously sent IOIs. Because the data rolls off the screen as soon as it comes in, it is nearly impossible to keep track of indications in real time.

Those adverts, called BlockDATA' by Thomson, are important though, and, sources say, the main reason why AutEx is still hanging in there. Also, the competition is weak. About 300 broker dealers and 500 money management firms use AutEx. Thomson charges both the buyside and the sellside, but takes in the majority of its annual revenues from the sellside.

However, Thomson isn't coasting on BlockDATA. The vendor sees opportunity in the recent changes sweeping the trading business. With more buyside traders taking control of their orders and more electronic tools at their disposal to do so, Thomson is betting it can grow its order routing business.

Technology editor Peter Chapman sat down with Bob Moitoso, a Thomson senior vice president responsible for AutEx, to talk about the vendor's initiatives.

Traders: From all reports, your indications business sounds stagnant. What's the story here?

Moitoso: The IOI business is not contracting. It is growing. Order routing though is certainly a higher growth business. It's growing at a much faster clip than indications.

Traders: Given that IOIs supported block trades. And given that blocks are losing ground to programs and algorithms. Isn't the trend bad news for indications?

Moitoso: Certainly, in the past, IOIs supported the buyside in the trading of large blocks. Large blocks have dwindled somewhat, but the tool is still important. But now maybe I'm looking at advertised trades more. And I want more electronic access or order routing.

Traders: Bigger trades are being chopped up.

Moitoso: Exactly. For example, in our order routing network, a few years ago, for each order we would see three or so execution reports come back. Now we see eight. Not only are they getting chopped up, they are getting executed in the marketplace in even smaller pieces.

Traders: Why are you optimistic about order routing?