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Anne Plested
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Bottlenecks Ahead

Anne Plested, head of Fidessa's EU Regulation Change programme, has written a short blog arguing that although we should be thankful that ESMA have taken a pragmatic approach to moving things along, more bottlenecks could appear in the future.

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March 23, 2005

Small Is Beautiful In Equities and Options

By Peter Chapman

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  • Small Is Beautiful In Equities and Options

An independent direct market access (DMA) provider is achieving success, gaining ground in an industry becoming dominated by much larger players. In only 24 months, southern California's FutureTrade has landed 200 buyside clients as well as a coveted deal with one of the largest prime brokers. The firm's revenues have grown at double-digit rates every quarter. Most of its customers are hedge funds, a market in which FutureTrade has big expectations.

"There are 7,000 hedge funds out there," says FutureTrade's senior marketing exec Jim Kwiatkowski. "The potential is unlimited."

FutureTrade execs attribute their success to their approach to sales and support. They deliver DMA as a brokerage service, they note, rather than encumbering their customers with a complex technology. And the support they offer their clients is "highly configurable," they say, or suited to their needs.

Prime Brokers

Buyside traders use the FutureTrade platform to access both equities and options markets. As with most DMA technology, the system supplies traders with market data and the ability to take or offer liquidity without broker intervention. FutureTrade also has limited functionality to manage orders and the capability to integrate with the systems of prime brokers.

In equities, FutureTrade's reach extends to both Nasdaq and listed securities. Between 40 percent and 50 percent of the volume is in listed shares, most of it bound for New York Stock Exchange specialists via DOT.

While FutureTrade is ostensibly a technology vendor, it conducts all of its business through a brokerage subsidiary. Its customers access the FutureTrade platform over leased lines or the Internet, paying a per-share commission to the NASD-registered FutureTrade Securities. The average rate is about a penny per share. FutureTrade does not license its software.

Assets under management at FutureTrade's hedge fund customers start at about $200 million and climb into the billions, according to FutureTrade. Their trading is of the single stock variety but not lists. FutureTrade says list-trading capabilities are in development and are expected to be available by the end of this quarter.

Much of that development takes place in Russia's St. Petersburg and Estonia's Tallin. About 40 of FutureTrade's 50 developers are based in the two cities. The firm's total staff is now about 110.

FutureTrade's rapid growth has attracted experienced trading technology pros from various well-known organizations. The hiring spurt began in 2001 when Murray Finebaum was signed as president. Finebaum has spent 36 years in the industry, starting with lawyer stints at the Securities and Exchange Commission, the American Stock Exchange and Cantor Fitzgerald.

Finebaum became president of Instinet in the late 1980s and then ran a succession of electronic trading organizations including Globex (derivatives) and Trading Edge (fixed income). Finebaum has built an eight-man management team which includes such trading technology veterans as Lee Siegfried, formerly with Instinet; Kwiatkowski, of Bridge Trading and Reuters; Charles Susi, recently with SunGard Trading Systems; and Jim Haile, formerly CEO of options trading vendor Augend Technologies. FutureTrade bought Augend last year.

Finebaum himself was recruited by FutureTrade board members and institutional pros Ben Simon, a former hedge fund manager and sales exec with Montgomery Securities; Bobby Kahan, co-founder and head trader at Montgomery Securities; and Philip Stapleton, chief executive of Conifer Securities, a broker specializing in hedge funds.