Commentary

John D'Antona Jr.
Traders Magazine Online News

CEO CHAT: Tina Byles Williams, FIS Group

Investment veteran is on the lookout for talented, lesser known managers in frontier and emerging markets.

Traders Poll

Are you concerned about foreign ownership of a U.S. stock exchange?



Free Site Registration

August 31, 2004

DIY for Direct Access

By Peter Chapman

Also in this article

  • DIY for Direct Access

BNY Brokerage, yielding to buyside pressure for self-service trading, is launching an electronic direct market access (DMA) service.

The Bank of New York's agency brokerage is marketing a new do-it-yourself trading service to institutional customers. Called DEx, for Direct Execution Services, the service takes the trading technology used by BNY's Nasdaq desk and puts it into the hands of the buyside.

"Strategically, we needed a much broader presence in the direct market access space. That's the way our clients want to move," says Carey Pack, president of BNY Brokerage, a division of BNY Securities,itself part of the Bank of New York.

DEx is powered by the technology of Sonic Financial Technologies, a vendor acquired by the Bank of New York six months ago. The technology, which aggregates the prices from all of the Nasdaq trading centers - and can route orders to the best location - has been used by BNY's Nasdaq desk since it was formed last year.

Listed and Basket

BNY has expanded the Sonic functionality to include listed and basket trading as well as access to proprietary trading algorithms. (Most of BNY's volume is in listed securities.) The system complements BNY's existing non-electronic direct access business on the floor of the New York Stock Exchange. Formerly known as Francis P. Maglio & Co., the floor brokerage service lets BNY's buyside customers bypass its upstairs desk to gain direct access to the crowd.

Both forms of direct access - electronic to Nasdaq and telephonic to the NYSE - have gained popularity in recent years as the buyside has taken more responsibility for its own trading.

Not much data exists on the amount of broker-less trading done by the buyside, but a recent study by the Tabb Group offers some insight. The consultancy found 88 percent of institutional money managers traded directly on ECNs. That translated into 16 percent of all order flow.

Statistics published by the brokerage Investment Technology Group (ITG) are also revealing. For the past four years, between 40 percent and 50 percent of ITG's share volume has been direct access. Although ITG has traditionally serviced the niche quantitative sector, that group's trading methods are becoming more mainstream.

Wall Street's institutional brokers are scrambling to offer customers the tools to self-trade. Most of the major firms are extending proprietary systems to the buyside, or reselling vendor offerings.

To a large extent, they are cannibalizing the order flow of their listed and Nasdaq desks, which has resulted in mass layoffs of traders. Goldman Sachs and Credit Suisse First Boston, for instance, have laid off scores of traders in the past year.

As a rule, DMA trades bring in smaller commissions - between one and two cents per share versus five cents for full-service executions.

BNY's Pack is adamant there will always be a role for human traders. "Do we ever think the broker-assisted platform will go away?" he asks. "Absolutely not. That's an important platform. The DMA platform and our broker-assisted platform can operate side by side."

Pack's comments reflect BNY Securities' goal to be a one-stop shop. The firm has a hand in just about every commission-driven execution format including blocks, baskets, clearing and international trades.