Does the industry need another FIX engine? A Columbia, Md.-based start-up is bucking the odds in a crowded industry by introducing a new system that may make it easier for brokerages to manage orders and indications of interest (IOIs). The firm, Raptor Trading, is targeting its FIX gateway at small and mid-tier shops and has already landed five customers.
"There are a lot of systems with similar functionality," says Mark Hinman, Raptor's president. "But there is not one that has all the functionality pulled together in one package. We are unique."
FIX engines are computer servers used to send and receive messages coded in the industry standard FIX communications protocol. The technology allows trading desks to transmit orders, indications of interest, advertisements and reports across communications networks in a common language. FIX stands for Financial Information Exchange.
Raptor's FIX gateway has been compared to Reuters' TRIAD, a nine-year old FIX engine that lets brokers simplify the management of their indications of interest. The comparison is not surprising since Hinman was one of a handful of developers who built TRIAD in the mid-90s.
At the time, Hinman worked for a tiny Maryland software house called EASE Technologies. EASE launched TRIAD in 1996 with Alex. Brown & Sons, the first customer. The first version of TRIAD was not a FIX engine, but a consolidator of indications carried by the AutEx and Bridge networks.
Shortly after the launch, EASE entered into an agreement with Bridge Technology for marketing and distribution. The product became known as Bridge TRIAD. About 60 brokerages still use TRIAD.
Bridge went bankrupt in late 2000. Reuters bought some of its assets including the rights to sell TRIAD. Then, in 2002, Reuters paid about $9 million for the unit of EASE that owned TRIAD. Hinman and others became employees of Reuters. That relationship lasted only a year before Reuters shut down the Maryland group.
Hinman was out of a job, but wasted no time jumping back into the game. With nine years of TRIAD under his belt, he figured he knew what the industry wanted and set out to build it.
By 2003, though, the industry had become awash in FIX engines. FIX Protocol, Ltd., an industry association, lists over 100 vendors on its Website. Analysts predict consolidation. Some players have moved upstream, adding order management systems and FIX gateways to their product lines. The top vendors are Cameron Systems, Financial Fusion, NYFIX/Javelin, Solution Forge and B2BITS.
Hinman was undaunted and quickly landed Weeden & Co., a respected trading house, as a customer. The relationship gave Raptor the clout it needed to test, with about 30 vendors responsible for moving buyside order flow to the sellside. Without Weeden, many OMS vendors and network providers may have declined to test with a relative unknown.
Since Weeden, Raptor has signed four more brokerages, although it declines to name them. The firm is also close to signing a "major" deal with an undisclosed vendor, according to Raptor sales exec Teddy Lardos.
Raptor's execs say they are not just chasing TRIAD. They are after the entire FIX market, both in the U.S. and abroad. Some of its early clients don't even use TRIAD, says Hinman.
Weeden does use Triad. "We are a very aggre-
ssive TRIAD user," says Michael Mook, a Weeden partner. "We use it to full capacity. But we are switching because Raptor is coming out with cutting edge technology."
TRIAD helps brokerages manage their orders, indications of interest and trade advertisements more efficiently. With indications and advertisements, a trading desk can consolidate the three main networks as well as its proprietary networks onto one screen. With orders, a desk can consolidate all incoming orders and then route them to the various market centers.
Raptor does all this and more, says Lardos, who also used to work for Reuters. The entirety of its functionality is not even found in the largest brokerage houses, he adds. "We may be one to one-and-a-half years ahead of even the big boys," Lardos declares. Below is a sampling of Raptor's features.
One Box
A money manager's relationship with its broker may entail its doing business with more than one trading desk. It may need to connect to a listed desk, an OTC desk, an international desk and a program desk, for example. That means it may be connecting to four different order management systems at the brokerage. That adds complexity and cost.
The Raptor gateway, according to Raptor, entails just one connection. The money manager need only concern itself with one hook-up to its broker. The broker need concern itself with paying for only one connection.
For the broker, the arrangement makes for better customer service and a lower connectivity bill. "If you have three order management systems and 100 clients," Hinman says, "that means you need 300 lines. Each client has to be connected to each of the OMSs." A line can cost $200 or $300 per month, Lardos adds.
Blocking
When an order comes into a sellside desk, the individual or group responsible for indications of interest may send out an IOI to favored clients. The IOI is a request to trade that states the name of the security, the size of the trade and a price. The desk tries to avoid sending the IOI to the money manager upon whose order the IOI is based. So, it needs to remove that money manager from the list of IOI recipients.
That's easier said than done, according to Raptor. The three main indications vendors – AutEx, Bridge and Bloomberg – use different protocols when assigning code names to money managers. For example, Merrill Lynch Investment Management may be MLIM at one and 12345 at another. The indications operator must either memorize all the codes or continually refer to a list whenever he must block a name on one of the services.
Raptor does that work for him, says Hinman. The operator only need make the change in Raptor. The system then makes the changes in AutEx, Bridge or Bloomberg. "Blocking has been a real headache for years," says Hinman. "So we have devised a very clean solution for managing blocking. No one else has it."
Ticker
Raptor offers a miniature IOI ticker that traders and sales traders can run on their desktops. The ticker keeps them up-to-date on the IOIs sent out by their firms. The trader can create a watch list of symbols he follows and run the ticker in a corner of his screen. By clicking a passing symbol he can find out to which money managers the IOI was sent. If there is a problem, he can then contact the IOI operator. The ticker can also run on a wallboard.
Instant Indications
An order routed to a trading desk's order management system can be turned into an indication automatically in Raptor. The system monitors the orders being received in the traders' blotters through a special connection. If the order is large enough, Raptor generates an IOI.
It flips the side, converting a buy order into a sell indication, affixes a price, calculates a mark-up and determines the size. If it is a very large order, the indication may only be for a certain percentage. That's to avoid impacting the price of the stock. The IOI may be shown to a trader for approval before heading out.
"It's a niche thing right now," Hinman says, "but we'll be seeing more systems out there in the coming years that do this." Lardos adds that some of the larger shops are generating instant indications as a way of boasting to the buyside of their technology prowess.
