SunGard's BRASS trade order management system earned its stripes on the back of its OTC market-making ability. For more than a decade, it has been the leading platform for market-makers. About 70 percent of Nasdaq orders currently go through BRASS. But with the trading landscape changing and competition gearing up among sellside OMS's, BRASS has had to emphasize its strengths.
(Traders Magazine, July 2005) — Patrick Lynch, president of BRASS, a SunGard Trading Systems business unit, admits that BRASS has not been effective in telling its story. "BRASS has 200 clients and is the market-leading entity in sellside OMS's in the U.S.," he says. "With our Universal Market Access and Broker Direct U2 products, we're also the largest in the direct market access space as well."
Lynch recognizes that BRASS has competitors, but says the firm is well positioned. In the last year, BRASS has emphasized increasing its attention to compliance and compliance-related issues. In addition, BRASS has launched a number of user groups to provide input on various aspects of the ASP model, its testing services and other development initiatives.
In the DMA arena, BRASS's new-generation Broker Direct U2 (which uses Microsoft's .Net platform) and UMA products are being expanded to offer broker-sponsored algorithmic trading to sellside clients and their customers. To extend its reach, BRASS recently struck up an arrangement with Advanced Financial Applications' IMPACT Pro to integrate its sponsored DMA capabilities into AFA's suite of trading tools oriented toward small- and medium-size hedge fund clients. Last month BRASS also unveiled BRASS Buy-Side Direct, a broker-neutral DMA platform that brokers can extend to their buyside clients.
Lynch took over as president in April when James Leman left SunGard Trading Systems to become head of execution trading for HSBC Securities. Lynch, who was COO until then, previously served as CEO of Sector Inc., the telecom services division of SIAC, the Securities Industry Automation Corp.
Mark Clark, executive vice president, heads the BRASS DMA effort. Last year BRASS also hired Andrew Cinquina from Goldman Sachs as head of development. He oversees product integration, product expansion, and the development of new technologies, and will focus on global – not just U.S. domestic securities – markets. Lynch notes that BRASS is primed to win market share overseas because of its OMS and DMA strengths, despite a relatively flat market.
Overall, BRASS execs stress that they are focusing on initiatives to benefit brokers and other customers, address compliance obligations and increase efficiency. Traders Magazine Contributing writer Nina Mehta spoke with Lynch and Clark about how BRASS plans to do that.
Traders: Give us an overview of what you're currently working on at BRASS.
Lynch: We're building on our core products and developing new products and relationships to better serve our sellside clients – and expanding that to help them with their clients. The BRASS OMS is our bread and butter product. On top of that is our DMA suite of offerings – it's an area of fast, important growth for us. We also have an indications-of-interest aggregation service, an allocations product, and we're working on other products that can be bolted onto both the DMA and OMS. In addition, we're expanding our ability to test against our products in various market venues.
Traders: What's the biggest challenge you face as a technology provider?
Lynch: It's the rate of change. It's the regulations that are impacting the industry and the need by clients to be quick to market with new ideas.
Traders: What are you doing first?
Lynch: Our DMA products are being expanded at a rapid pace, with the broker-sponsored model helping our clients reach their customers and making it easier for those customers to trade with them.
Traders: How does that work? Do they get access through the broker's server?
Clark: We're providing the technology link that allows brokers to extend their market memberships and trading capabilities to their buyside clients. They can essentially offer their clients the same front-end trading capabilities they use on their own internal desk-whether for market-making, agency, or proprietary trading. The buyside clients have the market data, the automated trading tools, and the electronic access to the market and to the sponsoring broker. We also give our sellside clients a set of tools that allow them to safely monitor, manage and administer those capabilities.
"We cut our teeth on OTC."
Patrick Lynch
Traders: What exactly do the brokers monitor? Clark: Positions, orders outstanding, how much stock is being traded, and so on. In an unintermediated electronic trading environment where there's direct access, there's always a risk that a big order outside the credit limits of the buyside firm may get placed, or that an error will occur. Ultimately, the risk rests with the broker because it's the broker's market memberships and broker-dealer licenses that are being used for that market access. Traders: Is that a compliance issue? Clark: Yes, not to mention a business risk. Traders: In the U.S. you've faced more competition over the last couple of years. How has your client base shifted? Lynch: We've seen a washing back and forth. The top-tier clients include Wachovia, Deutsche Bank, UBS, Lehman and Bear Stearns. We have large service-bureau-type firms like Fidelity's National Financial Services and Pershing, which caters to correspondent banks. We also have quite a number of market-makers and agency brokerage firms as clients. Traders: BRASS has been known principally for its OTC market-making capability. Lynch: Yes, but it has now been extended out to all aspects of equity trading across desks. OTC markets were the tougher go – and that's where we cut our teeth. Clark: In both our DMA and OMS offerings we have standard listed block trading and now a market-making capability. With the changes coming in Regulation NMS and the combination of exchanges – ArcaEx and the NYSE, and Nasdaq and INET – the industry will probably see some of the traditional trading distinctions between the two markets go away. There will be more sectorization and a dramatic increase in electronic trading in NYSE-listed stocks. Traders: How many firms currently use BRASS for listed market-making? Clark: Fifteen right now. Traders: So where do you see the amount of electronic trading going in a Reg NMS environment? Clark: On the NYSE, we think volumes will go electronic to a dramatic extent in the next five years. The projections are that the message traffic generated by that electronic trading could go up 2-4 times. Lynch: Right now we're planning for a four-fold increase in message traffic over the next few years, although we'll be up that curve sooner. We see ourselves as a strategic vendor to our clients. We openly discuss our development plans, and what our pipeline looks like, and they give us insight into what they're developing and what types of volumes they're looking for their systems to handle. The top-tier and tier-two brokers rely heavily on us as an OMS and DMA provider and on our ASP model in general – they've outsourced that risk to us. And they want to make sure we can handle that.
"We're making a number of algorithmic destinations available."
Mark Clark
Traders: What have you done to your technology infrastructure to ensure you can manage the increase in message traffic? Clark: We've looked at our market data engines and at our bandwidth utilization and availability. All this must be scalable – that's why we've engaged several extranets, so we can increase bandwidth in 24 hours as opposed to six weeks. We are looking at how we integrate our own market data systems, and we're looking at common-services architecture models so we can be more resourceful internally and not have latency issues as we move data around. Traders: How will life change for users of BRASS and U2 under the new trade-through rule? Clark: The primary changes are in two areas: order placement and compliance. On the order placement side, the routing logic has to be modified, although we already have most of the connectivity. Clients also have to be able to deal with the VWAP and block trading exceptions. On the compliance side, we must make sure that orders going out are in compliance with the rule and also that our customers have the ability after the fact to compare where they placed those orders with what was going on in the market at that time. Traders: Are you building your own algorithms into BRASS and U2 or integrating broker algorithms? Clark: We're doing both. Through BRASS and U2 we're making a number of algorithmic destinations available. We currently have five, including Credit Suisse First Boston and Banc of America Securities. We also have a suite of algorithms in the DMA application that are more commonplace – VWAP and various smart orders that give clients basic time-slicing and other capabilities. Traders: Do you plan to provide some sort of post-trade analytics so DMA users will know when one algorithm is likely to perform better than another? Clark: There's a lot of interest in that but there are no clear standards and benchmarks. We've started conversations with some outside providers to create a partnership there, but we have no offering now. Traders: When will you integrate a third-party program trading suite into BRASS/ U2? Clark: We've just announced that we'll be integrating Portware Professional's advanced program trading application into our offerings. There's a real value to our clients in having an integrated turnkey program trading solution on a service-bureau basis. Traders: Have the recent acquisitions of DMA systems by brokers altered your marketing of U2? Clark: We're the only leading DMA provider that's broker-neutral. Our clients whose competitors have a broker-provided DMA system have real neutrality concerns. Not only are they giving money to that competitor, but they're providing knowledge and order flow through those systems. Traders: There's never a shortage of paranoia or fear on Wall Street. Lynch: Yes, but if your product isn't good enough or better, and if it isn't additive to the bottom line, brokers won't make the change. The significant wins we've experienced prove that we solve for both. Traders: How many in the past six months? Lynch: DMA for us started as a product about 15 months ago, so we've had 53 wins in 15 months. Some of them are the largest names on the Street. A year from now we'll probably double the number of clients to 105. We're doing product integration with the UMA product now and then expanding beyond that. Traders: U2 will replace UMA, right? Also, is BRASS planning to offer access to futures, options or currency trading? Lynch: Yes, to the first question. U2 will be the sole platform for DMA. Over time we will see that integrated more tightly into the overall OMS even though it will still be a modular offering. Regarding other products, we're listening to our brokers whose clients are institutions and hedge funds. Those market segments are asking for listed options. And if single-stock futures take off, that will probably be an aspect of our offerings. We're marching down both those paths. Traders: What point would you like to make that we haven't talked about today? Lynch: There's been a real shift in how we perceive ourselves and how clients perceive us. The marketplace is recognizing that BRASS has rejuvenated itself along many lines and has made investments and increased the level of customer service, and that we are engaging our clients more proactively on market strategy in order to position ourselves better. We get input from our 200 clients on the ASP model and we can see what their priorities are. We are making certain that our development programs are in lockstep with that. Traders: How would you quantify that rejuvenation in terms of spending? Lynch: We've increased our capital expenditures and our OMS and DMA client services. We've put an even greater emphasis on QA [quality assurance] and testing – our clients are demanding that we pay more attention to that. We've been investing across the board, and it's paying off. We have gained market share vs. our competition in a fairly static marketplace.
