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September 1, 2012

Portware Integrates Pipeline Assets

By James Armstrong

Portware has its job cut out for itself as it tries to win back customers of the algorithmic optimization technology originally developed by Pipeline Trading Systems-a firm that disgraced itself by allowing an affiliate to do prop trading in its dark pool.

Now that Portware has completed its acquisition of the technology, the firm hopes to introduce a new business model that will earn the trust of customers who fled en masse during Pipeline's dark pool scandal.

The company has combined Pipeline's AlphaPro product and algorithm switching engine into a new product rebranded as Alpha Vision. It is available on Portware's Enterprise execution management system and on its cloud-based offering Portware Pro. Alpha Vision is also available as a stand-alone product if customers don't want to use the firm's other services.

Pipeline developed Alpha Pro to do a quantitative analysis of order flow and recommend the trading strategy most likely to enhance performance. The algo switching engine then uses that analysis to switch between numerous trading algorithms.

Alfred Eskandar

Alfred Eskandar, chief executive officer of Portware, said when the company bought the systems, they had already lost almost all of their users. He expressed confidence, however, that with a different business model, Portware would be able to bring back customers to what has often been described as a valuable technology offering.

"We're transferring the business from a single broker-dealer model to a service-bureau business model," Eskandar said. "The product at its peak was being used by over 150 large buyside accounts, and what we're doing right now is onboarding all of the former users, one by one."

Pipeline collapsed last year after the Securities and Exchange Commission hit the firm with a $1 million fine for not disclosing its dark pool liquidity actually came from an affiliate. It tried to recover, changing its name to Aritas and hiring former Liquidnet exec Jay Biancamano as chairman, but even products unrelated to the firm floundered in the wake of the scandal.

Portware paid an undisclosed amount for the company's algo technology. Biancamano and 20 other staffers who built and maintained that technology also came with the deal. Eskandar said the hires were important, both because Portware didn't want to distract existing staff from their current jobs, and because the technology is so complicated.

"This is not a simple product," Eskandar said. "This is a very complex, high-end product that needs brilliant people building and supporting it."

Eskandar emphasized that Portware is an independent EMS provider and, by definition, broker-neutral. He said the buyside wants products that enhance relationships with brokers.

One industry veteran in the algorithmic sales world said the technology's move to Portware will be good for the end user, because it removes the potential competing interests when a product is offered by a broker.

The veteran added that the acquisition would likely help Portware, too, as its software expertise is a good fit for the technology, he said.

"It's actually better for the product, because it's software going to a software company, rather than a broker, which is not a software company, building a piece of software," the veteran said.

Though anyone can use Alpha Vision, even without Portware's flagship EMS product, Eskandar said integrating the new acquisition into the company's current products has been an added draw.

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