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Brijesh Malkan
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Solving the Last Mile Problem in Investment Research

One executive takes a forward look at how will the research value proposition change over the short to medium term, and what are the products and strategies managers will turn to?

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June 6, 2006

The New Crowd

By Michael Scotti

The institutional equity trading marketplace is going dark. Or at least it appears that way. While algorithms have made inroads to grab a share of what used to be called the manual working order,' crossing networks are now taking aim at the traditional block business. These crossing systems are sometimes called Dark Pools.'

Will these crossing networks succeed in supplanting trades traditionally done by sales traders? No one knows for sure, but why take a chance? Consequently, brokerages-including the brokerage arm of mutual fund giant Fidelity Investments-are jumping into this space. The head of one algorithmic trading desk explained that brokerages are pumping most of their development money these days into crossing networks. That's the big push.

It's not just brokerages, either. Nasdaq is planning one. The New York can't be far behind, though it hasn't announced anything to date. And just as Traders Magazine went to press, the International Stock Exchange, the successful electronic options mart, announced it is also joining this crowded field. You can read in greater detail about crossing networks in this month's cover story written by Nina Mehta.

One issue that traders face is the possibility that they could begin the trading day earlier. This is a hot-button issue for traders throughout the U.S. In this month's Washington Watch, you can learn more about why West Coast traders are opposed to the New York Stock Exchange opening up earlier. A survey conducted by Traders Magazine shows that more than two-thirds of the traders polled are opposed to an earlier opening. That would be a landslide if this were an election.

The SFSTA says that it believes that NYSE Chairman John Thain is looking to expand hours to bring more business to its trading floor. That feeling certainly isn't universal. I spoke to an independent floor broker about this topic, and his biggest concern is that he'll put in the extra time but won't trade any additional shares. "The last thing I want to do is spend more time standing around doing nothing," said this broker.

Things could become tougher for the floor. This month's story on the Nasdaq/NASD's trade reporting facility (TRF) outlines how the NYSE opposes this TRF version of internalization. NYSE proponents have argued that, if permitted to do so, Nasdaq would be acting against the public interest because every exchange would want its own TRF. Internalization and the TRF are issues that won't away. Traders Magazine, in the coming months, will be one vital source for the debate over these controversies.

Michael Scotti

Editorial Director