The Talk of the Town at Annual Tech Fest
The official theme of this year's SIA Technology Management Conference & Exhibit was compliance, but for traders the buzz at the booths was over electronic trading.
The annual event, held in June at the Hilton New York, was packed with vendors and brokers promoting slice-and-dice trading software as well as ultra-fast data feed technology.
About 7,500 attendees – the same as last year – braved the near 100-degree New York City heat outside to chat with the pitchmen and women waiting inside. The pitch? Traders need fast, sophisticated software to cope in the age of penny ticks.
Blocks must be broken up and fed into programs, algorithms and smart routers. And speed, of course, is of the essence.
"With our technology," says Norm Friedman, vice president of Aegis Software, a new entrant in the program trading space, "a trader can send out orders within one millisecond of getting the tick."
Quote Change
That tick is an execution or quote change that triggers a trader's strategy. Many traders use computers to monitor the market for buy or sell signals.
In addition to its portfolio trading front-end, Aegis also sells a hook' that allows traders to take in and process their data directly from the market centers. The inflow can be faster than via the traditional market data vendors, Aegis asserts.
The vendor, celebrating its tenth anniversary, began life building protocol engines for FIX and the New York Stock Exchange's CMS, among others. Aegis then moved into testing, allowing brokers to test their trading strategies in simulated exchange environments.
The New York-based Aegis now has "under 10" clients for its AthenaTrader program trading system, including InTrade, a stat arb shop. Aegis joins the ranks of a small group of vendors and specialty brokers offering off-the-shelf program trading platforms. Competitors include FlexTrade, Portware and Spear, Leeds & Kellogg's REDIPlus division.
Not all players promoting program trading management systems sell ready-built software. Iris Financial, based in London, custom builds systems for the world's largest banks. The 15-year-old firm surfaced at the SIA show with the Sun Microsystems contingent to promote a new off-the-shelf fixed income program trading system.
Faster Delivery
But in equities, its technology is assembled from various modules to meet the specifications of Tier One banks in the U.S., the U.K. and Japan. The component approach was adopted five years ago when the consultant decided to make its assembly operation more efficient. "It's still tailored," says marketing exec Rebecca Bond, "but it's cheaper and delivery is faster."
Bond won't divulge the name of Iris' clients. But they are certainly huge. During last year's S&P 500 rebalancing one N.Y.-based user traded 300 million shares through the Iris system. On that day, the New York processed a record 2.6 billion shares. Iris supplied a support team' to help the broker cope with the volume.
The firm, with about 70 employees, provides trading technology to both fixed income and equity players. It recently received an $11 million investment from a venture firm. It will use the money to expand.
Portware, an off-the-shelf player, also staffed a booth. Portware has been actively entering into alliances with other vendors and brokers to provide its users with additional analytical functionality.
At the show, Portware announced an arrangement with electronic brokerage UNX. Under the arrangement, Portware customers gain access to UNX algorithms through Portware's system. UNX is now one of about ten destinations' available through Portware's system. Others include the algorithms built by such bulge bracket firms as CSFB and Morgan Stanley.
Market Access
With the deal, Portware users gain access to UNX's MetaECNT tactics engine, FLEXStreamT depth-of-book market data and consolidated market access.
Portware's UNX arrangement follows on the heels of a similar deal it cut with the Los Gatos, Calif.-based VhaYu technologies. VhaYu, also at the show, offers technology that stores and analyzes real-time data. A marketer to daytraders during the Nasdaq boom, the company has since repositioned itself to focus on institutional players such as hedge funds and broker dealers.
Nomura Securities, which recently established a program/algorithm desk, uses Portware in combination with VhaYu. John Comerford, Nomura's head of quant trading, formerly with Schwab Capital Markets, now sits on VhaYu's advisory board.
"VhaYu's ability to handle rapidly rising and massive volumes of real-time and historical ticks and simultaneously analyze the data at an impressive speed made the solution an attractive platform for our real-time data users," Comerford said earlier this year.
VhaYu's platform lets Nomura pre-process its quantitative analytical trading models more efficiently, according to VhaYu. That lets Nomura develop "new trading strategies in hours instead of weeks," Comerford says.
VhaYu was not the only vendor at the SIA show promising fast market data. Wombat Consulting, a small firm based in Incline Village, Nevada, near Lake Tahoe, has 14 customers using its feed handler. Market makers, hedge funds, mutual funds and brokerages use the technology to take in direct feeds from market centers. "Program traders want their data faster," says Ron Verstappen, Wombat's president and chief executive.
The firm argues that its technology has become crucial in the age of decimalization and computer-driven trading. The changes of recent years have led to a surge in the number of messages coming out of the equity and options marts. In 1997, the industry saw no more than 1,000 messages per second. Earlier this year, that figure was 31,000! Wombat is predicting the number could jump even higher, reaching 120,000 by November 2005.
Surprisingly, Wombat is not the only vendor of feed handlers based in Incline Village, Nevada. Flume Data, which made an appearance at last year's show, also calls Lake Tahoe home. It's a small world.
Single Stocks
In the single stock game, algorithms were the talk of the day. Most of the top vendors of buyside order management systems are embedding broker buttons' on their consoles. All manned booths.
Macgregor, Charles River Development, Linedata Services, Eze Castle, and LatentZero have all either entered into alliances with brokers or are in discussions with them.
The buttons typically allow buyside traders to call up an order entry window for a broker's specific algorithm. After entering the trade details into the order form, the trader then sends the order to the broker's algorithm desk. The algorithms take large block trades, break them into smaller pieces and feed them into the market. Human intervention is minimal.
Charles River has signed deals with four brokers in the past few months: Morgan Stanley, Credit Suisse First Boston, Banc of America Securities and J.P. Morgan.
Schroder Investment Management's program desk is a customer of both Charles River and Morgan Stanley. "The ability to directly access Morgan Stanley's algorithmic trading strategies from our Charles River trade blotter is a positive development for us," says Paul Taylor, Schroder's head of program trading. "It will certainly save our traders time and effort, and help streamline the overall trade execution process." Schroder manages $2 billion in U.S. equity assets out of its New York office.
Macgregor, the largest buyside OMS vendor, claims to have been the first to enter into alliances with brokers. Macgregor counts CSFB, Morgan Stanley and Goldman Sachs as destinations on its system. "Three or four more are in the hopper," notes Steve Levy, Macgregor's president and chief executive.
Striking Deals
Like Portware, Macgregor is also striking deals with vendors bearing algorithms. An arrangement with Lava Trading gives Macgregor customers complete access to all Lava's services. That includes ECN aggregation as well as direct access trading.
The offering is part of Macgregor's OMS package. While it is free, money managers must sign a contract with Lava. Lava, in turn, is paid by Macgregor.
The deal contrasts sharply with others entered into by Lava. An alliance with Portware, for example, offers access chiefly to Lava's smart order routing engine.
Buyside traders must be sponsored by a broker to use Lava. Those tapping into the Macgregor set-up have the choice of three currently: CSFB, Citigroup, and Pulse Trading. Levy notes all of Macgregor's connectivity deals with vendors and broker dealers are facilitated by MFN, its proprietary network.
For those buyside traders wary of algorithms – and there are many – but still needing to reduce market impact, the block trading systems keep on coming. Instinet launched its new intra-day crossing (IDX) system during the SIA show (one day late due to glitches) in competition with ITG's POSIT.
IDX complements Instinet's 15-year old after-hours cross with three matches at 9:50, 11:50 and 2:50. The times are different from those of POSIT, but some traders still fear Instinet is fragmenting the market. One Instinet exec says although the two brokers' customer bases do overlap to some extent, they are different enough to warrant another cross.