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May 9, 2008

ITG's Bob Gasser Discusses ...

By Peter Chapman

Bob Gasser, chief executive of agency brokerage Investment Technology Group, spoke with Traders Magazine about some of the issues ITG was grappling with. Here are three.

On banning broker algorithms from POSIT: 

We saw a couple of patterns emerging amongst the brokers in the system. First, they parse every order down to very small size, and that is really not POSIT. POSIT is about block liquidity. Second, the time in which they would rest inside the system was infinitesimally small. And, third, the trade sizes were very small. Now, one of the things that was attractive to us when we were considering their access to POSIT was reciprocal access to their pools. But what we found was that we would go into those pools with big block orders, rest for a period of time and then get hit with 100 share executions. We'd get hit 100, 100, 100, nothing. And we also found that we could reach those guys in LeveL, BIDS, Millennium and all the other places. So, the value of that reciprocal access was de minimis. I wasn't happy with POSIT and the way it was being negatively affected in terms of average daily volumes. It was that notion of being dis-intermediated-of not controlling access to POSIT and then having liquidity siphoned away from us. The customers thought they were getting to POSIT. But the broker was actually going to their internal pool first and then into POSIT. So their access to POSIT was different from ... They weren't giving the customer equal access to POSIT because the customer had no control over where they go. So the broker gets it first and then whatever is left over ... They were diluting the value of the pool. In other words, they were siphoning liquidity away from POSIT.

#Caption#

On continuous versus periodic crossing:

Continuous is the future. We're already there. POSIT Now crosses every 13 seconds. But we are taking that down. It needs to be more continuous, like most other multilateral pools. The biggest [piece of POSIT] is the continuous, but we do see BLOCKalert growing to where it is probably equal to continuous. Match is still a very popular option for people who have sector constraints or people who manage transitions or people who want to take a snapshot at a moment in time.

On the integration of ITG's order management and execution management platforms into Triton X:

It's a heavy lift. The XIP Macgregor code base is legacy code base. It was not built for the current market environment: list-based, algorithms, real-time notices of execution, the 3:45 market-data storm. Everyone is dealing with a crushing load of message traffic. This all led to the prominence of the execution management system. The distinction between the OMS and EMS is artificial. We are going to converge it; it will be one platform. It will have compliance, trade operations, portfolio management, blotter and routing. All in one package. We are well under way in our migration strategy. Version 1.0 is out there. Over time you will see more and more Macgregor functionality disappear as Triton assumes responsibility. Our biggest Macgregor customers are the ones feeling the pain. Those are the ones we want to alleviate as fast as possible. I think in 2009 you will start to see Version 2.0.

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