Jim Leman used to concern himself with only one broker's trading technology.
Now he has about 200 brokers to worry about. That's how many customers are using the BRASS order management system, a product of SunGard Trading Systems (STS) where Leman is now president. He joined SunGard in April, following his dismissal from Citigroup Global Markets.
After spending 22 years at Citigroup, developing all sorts of systems for electronic trading, Leman was shown the door in January. His responsibilities were transferred to another executive in a reorganization officially aimed at making the bulge-bracket firm more competitive in the electronic executions game.
At STS, Leman becomes one of four divisional presidents reporting to group chief executive Ron Lang. Leman is responsible for equities; the others sell into the derivatives, fixed income and foreign exchange markets. Leman replaced Tom King, a BRASS veteran. King is said to be "exploring opportunities" with STS sister company SunGard Brokerage Services.
The reorganization that brought Leman on board began last fall. That's when STS's direct market access system, Broker Direct U2, was officially separated from BRASS. Cindy Foster became product manager for BRASS. Mark Clark became manager for Broker Direct U2.
Leman is, of course, legendary in the equity trading technology sphere as one of the founders of FIX. The communications protocol was developed in the mid-90s by Citigroup precursor Salomon Brothers and Fidelity Investment Management to permit the sending of trade messages electronically.
At STS/BRASS, Leman presides over a 260-person organization whose heyday may be long past. BRASS was one of the first order management systems to be adopted by Nasdaq market makers nearly 15 years ago. Its developer subsequently landed most of the 200 or so Nasdaq dealers of any consequence as customers.
Now, though, newer systems are pushing BRASS aside. Just last month STS lost 11-year customer J.P. Morgan Securities to OMS upstart Lava Trading. SunGard is slowly, but surely losing most of its larger customers, leaving it with smaller firms with fewer users.
Technology editor Peter Chapman sat down with Leman to discuss his plans for SunGard.
Traders: What is your mandate at SunGard?
Leman: SunGard wanted someone who has a lot of market experience and who understands program trading, electronic trading as well as connectivity. They wanted someone who has connections to the buyside and the sellside. They told me I would be able to make an impact not on one firm, but on many firms. SunGard also wanted someone to represent the interests of the sellside a little more clearly from the perspective of someone who was a user of those kinds of services. And it wanted someone to pull other things together, such as different parts of the SunGard organization and other vendors, express a vision and lead these guys into a more aggressive posture with more products.
Traders: What does the future hold?
Leman: We need to add program trading for brokers. We need to add it so that it can also be deployed to their customers. We are talking to brokers about how their algorithmic trading strategies could be portrayed through our front-end. We are also talking with brokers about how we can help them form their own algorithmic trading strategies. We're going to see how we can work more closely with other SunGard products such as MicroHedge. We're going to see how we can work with its option capabilities. We will be making additional initiatives with parts of BRASS, such as "auto take-out," a parameter driven smart trading box. We are making listed market making enhancements to BRASS. That's in anticipation of market making type firms making markets in listed securities. This is beginning to happen more and more. We want to help them reach hedge funds with certain kinds of products we can help define. And we want to try to enter into key relationships with vendors. We are not going to necessarily build everything ourselves.
Traders: You are losing ground among the top firms. Do you intend to focus exclusively on smaller shops?
Leman: No. My mandate is not to abandon any segment.
Traders: How will you deal with growing competition?
Leman: We intend to meet that competition. We will evolve our approach to servicing customers. We will focus on a program of working with our larger customers so they understand we are intent on solving their problems and coming out with newer thinking. These are things that would motivate them to retain us. We are not going to give up on any particular segment.
Traders: You are losing J.P. Morgan?
Leman: They remain a very valued customer. Our contract with them runs to the end of this year. We're going to service the heck out of them through the end of this year. We told them we are putting in a more dedicated team to pay attention to their needs. We are going to ensure that we include them in some of the more groundbreaking things we are thinking of doing, to see if they want to participate.
Traders: So, you are not writing them off?
Leman: No. Migrating from one OMS to another is no small undertaking, especially for a very large firm. Plus, people always have to have their contingencies. So, we are going to try and close the gap with what they feel are things they would like us to do better and are, perhaps, the reason they chose a Lava as a solution. Since November, we've been going after a number of the things J.P. Morgan is interested in: Whether it is tuning up the system to handle higher levels of volume; a refocus of management talent; reaching out to customers more; adding some of the things we are doing or improving customer service. It's a maturity process. We are going to try and prove to them that they should reconsider by the end of the year.
Traders: What specifically are you doing?
Leman: We're showing them more proof of our ability to handle the relationship in a manner more to their liking. A vision of where things are going down the road. We're adding other products. Soliciting more input. Being more transparent about release schedules. Being more transparent about plans for the future. Acting more in a partnership capacity than perhaps was done in the past. That's what I think is of interest to them. And it is what we are trying to do across the board with all of our major accounts.
Traders: Do you need to segment customers? Meaning charge differently for different levels of service?
Leman: In many instances we have several customers that are resident on one version of the software that runs on one set of machines. Because of their relative transaction sizes they don't need a dedicated machine. Other shops have dedicated machines. We're going to try and provide service to the firms that want it. And we are going to make sure we understand what delivering those incremental services means to us in terms of revenues. People have certain demands, but if they are major and unusual they are going to pay for those services in that way.
Traders: O.K.
Leman: There are other firms that want more specific customization or that need other kinds of enhancements. In many instances, those enhancements also benefit the rest of the population because we roll them into new versions. Some larger guys demand more responses and demand more functionality. They want them quicker than others. We need to try and attend to that. How our balance goes in terms of professional services or whether we charge differently…That is under examination.
Traders: You are doing something in the area of quality control?
Leman: We are also intent on improving our own processes. So we are going to be automating a quality assurance environment and using tools to do QA. It will mean we can do prompt and thorough regression testing of software as it is developed. That will hopefully speed up deployments and make them cleaner.
Traders: Last November, you split BRASS away from Broker Direct U2. There is now a product manager for BRASS and one for Broker Direct U2. Why?
Leman: It is a recognition of the growing importance of DMA [direct market access] and related activities. [Broker Direct U2 manager] Mark Clark's expertise lies in the DMA space. Broker Direct U2 will also have a broker sponsorship model where we offer it to brokers so they can put it on customers' desks. We will also be working on the program trading component here. Beyond that, we will be looking at where algorithms can carry us. And where some relationships with key vendors can carry us.
Traders: Broker Direct U2 is the next generation UMA?
Leman: Broker Direct U2 will replace UMA over time. And Broker Direct U2 won't just be available to market makers. It will have a FIX connection.
Traders: Are firms using Broker Direct U2?
Leman: It is in production at between 15 and 20 brokers, processing a half-million trades per week. We are actively deploying it to a number of other brokers. The schedule stretches from now until the end of the year. We expect that rollout schedule to become more crowded because of recent events.
Traders: Meaning the spate of acquisitions of DMA vendors by brokers and the perception they've lost their independence. You view this as a positive?
Leman: We see it as an opportunity.
Traders: Most of the Broker Direct U2 users were UMA users?
Leman: We've had bake-offs with Lava and others. The split is about 60/40. Sixty percent UMA and 40 percent competitive.
Traders: You are marketing to non-BRASS users as well?
Leman: Yes. They can take in FIX drop copies that go into their OMSs if they are not a BRASS user.
Traders: Is anyone doing that?
Leman: We are piloting that with one or two firms.
Traders: You are making changes to the architecture of BRASS and Broker Direct U2?
Leman: Right now, they run on separate platforms. Broker Direct U2 is on Windows. BRASS is on Unix on the backend. At the end of this year, we will be rolling out our Windows OMS application. Traders will have much of the same functionality as they do now, but in a Windows environment.
Traders: The front-end will be Windows?
Leman: Yes.
Traders: Unix is still the back-end?
Leman: Yes. There are re-architecting discussions going on about how that will evolve as well.
Traders: Do you intend to merge Broker Direct U2 and BRASS?
Leman: I'm putting together a committee that will analyze how the back-ends of Broker Direct U2 and BRASS will relate to each other. Because we are also going to have other things. Such as program trading. I want to do listed options within the systems. MicroHedge is a very effective product. It is on a lot of desks. I think they have over 2,200 customers that use the product on the CBOE and other options exchanges. We need to introduce that to the buyside. We need to talk about how we can link what MicroHedge can do to how BRASS operates. MicroHedge has DOT-like connectivity to those options exchanges. We want to make all of that work more effectively.
Traders: You will integrate MicroHedge with BRASS?
Leman: MicroHedge's primary power is pre-trade analytics. But it also has the capability to send orders down into the marketplace. We need to see how we can further blend those two together so that options execution capability can be deployed. We are beginning to hear from customers who want options trading capability next to equity trading capability. They want it deployed to institutional customers. As well as on their own desks. So, when you talk about the backend, it must be done with a down-the-road view of what else could possibly be part of it. It should be able to handle classic as well as new products.
Traders: Will you build a program trading system?
Leman: I don't know if we are going to build. We may enter into a key relationship with someone to help us put ourselves on the map. I had a significant initial role in the design and building of the Citigroup program trading system. We need within BRASS to offer a program trading solution. We need to align with someone who can work with us as a partner. It's quite expensive to build from scratch.
Traders: What is the specific goal?
Leman: We are going to work with somebody to put a system at the disposal of a broker. And offer it so we can white label it. Or, we can white label a multi-broker approach that firms can deploy to their institutional customers. Building it is not necessarily the only way to get in the game.
Traders: How about crossing?
Leman: Crossing is going to be examined more and more by brokers. We need to look at how we can help them manage their order flow more effectively, control their costs and provide their customers with better executions. A lot of the crossing issues relate to the characterization of order flow. For instance, how can brokers synergize.
Traders: Both broker and customer benefit?
Leman: Where there is a spread between the bid and offer and it is worth doing price improvement, both parties get a benefit from it. If there is money to be saved by crossing, brokers will pursue it. They will pursue it in a way that takes in all of the order flow streams: retail, institutional, DMA, proprietary. Even algorithmic trading. Anything that moves and trades is going to be evaluated. Exactly what it will look like and how many people can adopt it I don't know. And even the ability to let two different firms find a way to reach one another electronically prior to going to ECNs, might be something that needs to be explored.
Traders: Are you building any engines now?
Leman: I've only been here 90 days!
Traders: Fair enough. Thanks, Jim.