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July 5, 2006

IOIs Go High Tech

By Editorial Staff

Credit Suisse is betting its new indication of interest product (IOI) will drive growth on its block desk. The big brokerage rebuilt its IOI platform to make it automated and to stem leakage, according to Tom Rice, who heads sales trading at the firm. The product features "smart analytics" that allows it to send out targeted IOIs. The product was released about five months ago, and the firm's aggregate hit ratio on IOIs has risen to roughly 25 percent of all messages sent. With some clients, that number has reached as high as 60 percent, he said. (A hit ratio is the percentage of trades completed vis-a-vis the number of IOIs sent.) "Every one of our IOIs is linked to a natural order," Rice said. The system spits out an exception report the next day if an IOI is not linked to an order, which is the firm's way of policing the system. "Compliance on our end has been near perfect, and the buyside is beginning to believe in the integrity of the product," Rice added. The service has about 500 users with more coming, he said. The sales trader whose client receives the IOI is the only person on the desk who sees that indication, which helps to stem leakage.

Credit Suisse has segmented its client base into three groups. The first group is comprised of its best clients, and they get a time and size advantage over the other two groups. Each client in that first group sees an unfiltered IOI that shows the actual size of the order. The second group to receive the IOI is based on trading history and holdings in a particular stock, which is all done automatically using what Rice described as smart analytics. This second group's IOI is capped at 250,000 shares. The third tier consists of the rest of Credit Suisse's clients who receive indications. They see an IOI that shows smaller size and goes last.