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May 26, 2005

The New Clients in Portfolio Trading

By Peter Chapman

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Vendors of portfolio trading systems are changing their business strategies in response to strong demand from the buyside. The three biggest FlexTrade Systems, Portware and InfoReach have all introduced either new products or distribution schemes. The vendors are waging a war for market share as the buyside increasingly looks to manage its basket trades in-house. "We are in an age now where the buyside trader is becoming more valuable," says Eric Goldberg, Portware's chief executive. "He needs the tools to control his own orders."

Portfolio trading systems are typically used to manage trades of baskets of securities rather than single stocks. They come with pre-defined trading strategies such as VWAP. They may allow the trader to select a strategy.

While there are many systems that offer "basket-trading," an authentic portfolio trading system is one that can "be used on a sellside program desk," according to one industry exec.

Portware, which claims some 100 customers - at least three-quarters of them on the buyside - has made two significant changes in its basic business model. Last year, it began distributing its Portware Professional trade management application on a service bureau, or ASP, basis. And, recently, it began offering a stripped down version of Portware Professional, informally dubbed "Portware Lite."

Portware has traditionally licensed its product to firms willing to self-host. The user pays Portware a fixed monthly fee and installs the system on its server. With the addition last year of the service bureau option, Portware will now host the system on its own server if a customer wants. The monthly fee remains unchanged.

The ASP initiative does two things for Portware. It enables the vendor to get its platform onto the desktops of money management firms that are leery about bringing foreign software in house. And it facilitates Portware's marketing arrangements with broker dealers.

"Some of the larger firms have a problem with putting new systems inside their infrastructures," explains Goldberg. "Getting inside someone's network is not easy."

'The buyside trader is becoming more valuable.'

Eric Goldberg, Portware