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ICOs, Tiny IPOs, & OTC Securities, Oh My...

In this shared blog from ViableMkts, the author examines the newest craze - ICOS, OTC Markets latest moves to bolster its business and help the marketplace and tiny IPOs.

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November 1, 2004

Bridging the Great Divide

By Peter Chapman

Also in this article

  • Bridging the Great Divide

For Mike Cashel, it's all about the Grand Canyon. The new chief executive of Harborside+ maintains the awe-inspiring national park is an apt symbol for the gulf that separates the technological elite from the less savvy. On one plateau stands a group of people dedicated to the idea of throwing orders into machines. Across the divide is another, much larger group. They're excited by technology, but uncertain about how to get to the other side.

Cashel sees Harborside+ as a bridge between the two plateaus: a firm that combines the traditional human intervention of a block desk with the secrecy and efficiency of an alternative trading system.

Traders uncomfortable with blind and inflexible ATSs, but equally upset with chatty block desks, can find a happy medium with Harborside+, according to Cashel. At Harborside+, traders can avoid the information leakage of traditional Wall Street. And they don't have to contend with the information shortage and lack of give-and-take of the ATS.

Harborside+ is part machine, part block desk. Customers program their order management systems to automatically route indications of interest (25,000 shares or more) to the Harborside+ system. If their IOI matches another IOI, they're notified by one of four sales traders, who then conducts a negotiation.

The system is not an ATS. Nor is the firm even a broker dealer, although it operates one called Harborside Securities. Founded in 2002 by broker dealer Jefferies Group and vendor Thomson Financial, it is now owned mostly by a clutch of venture capitalists. Subsequent financings have pared the stakes of Jefferies and Thomson down to less than one percent each.

Harborside+ has about 260 customers - 115 broker dealers and 145 money managers. Of the broker dealers, five are among the 10 largest.

Those customers submit 1,500 IOIs per day on average. Between 25 percent and 30 percent match up, but only one percent to three percent result in trades. Shares per day, single counted, average in the low single digit millions. The record high has been 11 million shares. Most names are small and mid-caps.

Cashel spent ten years in sales trading and research sales at Morgan Stanley. He also had a brief stint at ABN AMRO until the Dutch bank shuttered its U.S. equities operation. With his background, Cashel can compare and contrast Harborside+ with the block desk. Technology editor Peter Chapman sat down with Cashel to discuss men and machines.

Traders: What does the buyside trader have to fear from the traditional block desk?

Cashel: As soon as you tell that broker you are a buyer of half million shares of a stock that only trades 150,000 per day...Can you help me find the other side of the trade?' As soon as you do that, you've lost control of your order. Even if you tell him not to advertise. Don't put me out on AutEx. Be quiet about this.' All the guy does is put you out on AutEx and block you from getting the indication. So the buyside trader can't see that he is out on AutEx. He is notifying his 100 favorite institutions that he is a large buyer of IBM. So that creates a lot of market slippage. That information leak is now out at 100 buyside firms.

Traders: And Harborside+ is passive.