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July 27, 2005

Piper Strategy Fuses' Dark Pools

By Peter Chapman

(Traders Magazine, July 2005) -- Piper Jaffray has a plan to tie together the industry's crossing networks.

The Midwestern brokerage has constructed a system that allows its buyside clients to trade in the open market through algorithms, and, simultaneously, within various public crossing systems. The product, called Fusion', is being beta tested at two large buyside shops, according to Piper.

"Fusion makes it easier for the buyside to find liquidity in small-cap and mid-cap names," said David Mortimer, head of product development in Piper's algorithmic and program trading group. "That's where the focus on trading costs has been."

Piper is launching the technology in response to buyside complaints of too many crossing networks, Mortimer explains. In recent years, the number of players offering these anonymous alternatives to the traditional block desk has grown significantly.

Today, there are about a half-dozen public crossing networks seeking money managers' block trades. NYFIX, ITG, Instinet and Pipeline Trading are among the suppliers.

Mortimer won't disclose the identities of the crossing systems in the new program or the money managers taking part in the beta test. He notes though that the technology does not connect with the internal crossing systems being deployed at the major bulge bracket shops.

With Piper's trading scheme, there is a risk that a single order could receive more than one execution.

Mortimer says Piper will assume that risk and indemnify the customer against such a mishap.