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David Weisberger
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Stop the BS & Promote Real Transparency!

In this shared blog, David Weisberger says a recent WSJ article is wrong and that traders do need to purchase faster and more comprehensive market data to avoid being fined for violating "Best Execution" obligations.

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January 1, 2005

Volumes Grow as Firms Open: The Black Box

By Peter Chapman

Much computational power goes into the development of a strategy. But, previously, when it came time to execute, "you called it in to your broker," Maschler says, "and he worked it." Now, the PhD who devised the overarching trading strategy can also develop an execution strategy to micromanage the order. That maximizes his return, notes Maschler.

Trillium, which was known as Heartland Securities before being acquired by Schonfeld in 2003, is promoting a home made messaging protocol to attract the black box trader. Known as HUBB, for Heartland Unmanned Black Box, the technology was built for speed, says Maschler.

Because it was purpose-built it contrasts with the industry standard FIX language. FIX must please a varied group of users and is weighed down with many often superfluous components, Trillium execs say.

"FIX is not designed to transmit mission critical market data and orders between the user and the end exchange," Maschler says. "It does not translate well to program trading that requires sub-millisecond performance."

Trillium's HUBB gateway processes four streams of data. It takes in market data and trade reports from execution points, passing them back to the trader's black box. And it accepts traders' orders and cancellations, passes them through risk and compliance checkpoints before sending them out to trading venues.

Most of Trillium's customers-which include both individuals and small investment partnerships-access its infrastructure from off-site. But they often locate their black boxes in Trillium's data center. That data center also happens to be next to INET's data center. The proximity reduces latency, Trillium execs maintain.

Trillium's relationship with INET is longstanding. Before it was called Heartland, the firm was known as Datek Online. The daytrading pioneer, run by Maschler's father and brother, created the Island ECN. Island would later merge with Instinet to create INET.

Trillium doesn't provide algorithmic trading strategies, but its competitor EchoTrade does. In 2003, EchoTrade, a unit of Pax Clearing, began promoting its Predator Pro automation software to its 500 members. Between 15 percent and 20 percent use the software - although not all the time - to trade more stocks than they can manually.

"It's for the experienced trader who already has a strategy that is working," says EchoTrade exec Rob Keller, "and who wants to take it to the next level."

The Trader

EchoTrade charges users either $199 or $249 per month for the software. Most users are trading single stocks though some trade baskets. Keller notes the trading program is only as good as the trader. "Automation isn't going to make a trader successful unless he already has a successful strategy or formula," Keller says. "All it is doing is what the trader would normally do, but it is taking the emotion out of it."