Goldman Sachs, bowing to pressure from clients, will offer customers access to algorithms from other brokers over REDIPlus, its front-end trading platform. The move comes as buyside traders demand more "open" systems that enable them to access multiple liquidity pools and destinations.
"This is very much a client-driven initiative," says Greg Tusar, head of electronic trading at Goldman Sachs Execution & Clearing (GSEC), which operates REDIPlus. "There was strong demand from clients to have a single system on their desk from which they could manage and route orders to a variety of different brokers."
Goldman will first add JP Morgan's and Merrill Lynch's algorithms to REDIPlus.
By the end of November, Goldman expects to add access to algorithms from Bear Stearns, Deutsche Bank and Cheuvreux, a large French broker.
About 2,000 institutions, representing 5,500 traders, currently use Goldman's platform, according to a Tower Group report. Goldman's move is part of its plan to establish REDIPlus as an "execution management system," according to Tusar.
An execution management system is a trading platform that allows traders to manage their orders and directly access a wide range of markets and liquidity pools, often across a number of asset classes and regions. Many EMSs route to multiple brokers.
Tusar adds that REDIPlus has provided "broker-neutral routing" for over a year, and that its new algo offering is a natural evolution of that expansion. REDIPlus currently routes 20 million to 40 million customer shares per day to about 40 brokers. On average GSEC executes over 400 million shares every day.
Clients using REDIPlus version 6.1 can access third-party algorithms as they become available, as long as those clients have arrangements in place with the brokers offering the algorithms. Each broker is likely to have five to 10 algorithms available through REDIPlus, Tusar says.
Other large broker-dealers supplying DMA platforms are also bending to their clients' needs. Morgan Stanley told Traders Magazine in January that it planned to give customers using Passport, its front-end trading platform, access to algos from other brokers by mid-year. However, that has not yet occurred.
Lehman Brothers may be the most forward-looking broker-dealer in this regard. It bought Townsend Analytics last year and now offers Townsend's independent, multi-broker, multi-asset-class RealTick platform to customers.
At the end of 2005 RealTick offered algorithms from three brokers. The trading platform now offers algorithms from 10 brokers, including those from Lehman and Credit Suisse, and is expanding that list.
Not all of the largest algorithmic providers will be on REDIPlus. Credit Suisse's Advanced Execution Services unit makes its algorithms available through more than 40 multi-broker execution platforms and order management systems, says Manny Santayana, head of AES sales.
Goldman's REDIPlus and Morgan Stanley's Passport platform are not on that list because "they're currently single-broker platforms," Santayana says.
