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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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July 15, 2007

Reg NMS Boosts Broker's Sellside Business

By Nina Mehta

EdgeTrade, a small, New York-based direct-market-access broker geared to the buyside, is angling for sellside clients. The firm expects Regulation NMS and the growth of dark liquidity to make that job easier, as brokers realize they need smart order routing to get better executions.

Many mid-tier and small brokers "aren't adequately prepared for Regulation NMS," said Kyle Zasky, EdgeTrade's president and co-founder.

EdgeTrade has about 200 clients. Eighty percent are buyside firms, but the 20 percent that are broker-dealers now represent 40 percent of the firm's executed volume. Eighteen months ago, EdgeTrade had no sellside clients.

The Securities and Exchange Commission's Reg NMS went into effect for broker-dealers earlier this month. Initially, many brokers may rely on exchanges to route to the best-priced market for them, Zasky said. But that won't last. Their buyside clients will complain about missed opportunities, he said, and the brokers will have to spruce up their execution abilities with direct access and smart order routing.

The regulation, which requires brokers to avoid trading through protected quotes in public markets, means brokers must be able to reach all protected quotes. But simply accessing protected quotes is a far cry from achieving best execution.

EdgeTrade has direct or sponsored access to all 10 exchanges and the alternative display facility participants. "Smart order routing is right in our wheelhouse," Zasky said. CEO Joe Wald credits the firm's smart routing with doubling the firm's average daily executed volume over the last year.